Mr Diesel’s Troubles   

Published on August 30, 2010 by TheNEWS   ·   5 Comments

Diesel magnate, Femi Otedola, is embroiled in allegations of underhand dealings against the African Petroleum PLC which he chairs. He also has multibillion naira debts to contend with.

Over the phone last week, thousands of kilometres between Lagos and London, one could virtually feel with the fingers the subdued change in Olufemi Otedola’s voice. A month ago, after TheNEWS reported the escalation of the crisis at African Petroleum, AP, PLC which consumed its Managing Director/Chief Operating Officer, Tunde Falasinnu (forced resignation); Finance Director, Clement Aviomoh (suspended) and Company Secretary, Elizabeth Idigbe (suspended), Otedola, who is the AP chairman, had called in to say he would wish to explain certain developments on the AP palaver which the magazine did not capture in its report. He was in London, he said, and would be back that weekend to fulfil that promise.

Every week since then, this magazine has been in touch with the billionaire energy dealer to enquire when he would be arriving home to clarify old and emerging details on some controversial transactions and ceaseless boardroom politics that have torn the AP top hierarchy apart. Every week, he promised to be back by the weekend. And every week, his voice sounded a confident roar. His enemies, as he called them, would be rocked to their bone marrow by the earth-shaking disclosures he would be dropping, he bellowed.

Until last week. On Sunday 22 August when this magazine called Otedola again to know when he would be coming back to grant us the long-awaited interview, the confidence in his voice was as dead as a dodo. He does not intend to come back home now, he declared. His life, he said, is not safe as some elements he would not mention are out to kill him. The AP chairman alleged that two attempts had been made on his life already, the latest, he said, being the incident in which he was trapped in the lift at the AP headquarters in Lagos on his way up to the boardroom for a meeting. Trapped with him were Osa Osunde, the AP vice-chairman; Layi Bolodeoku, Grace Ekpeyong, Segun Senbanjo, Josiah Wasa and Stanley Lawson. Otedola insisted the 25 July trap was not an accident but was, rather actually a premeditated plot to snuff his life out. If he was to be believed, some people manipulated the lift to malfunction fatally to its occupants at that particular moment. He said the police, investigating, have quizzed technicians in charge of the lift and were expected to brief the media on the issue mid last week.

That eventful 25 July 2010 can well be described as day of the long knives at AP. Before that morning, tension had built up within the board, which had polarised into two broad camps. One camp, with Aviomoh as the vocal arrowhead, was poised for a showdown with Otedola over allegations that the chairman, who then had executive powers, had been compelling AP, from 2009, to source its petroleum products needs from his own companies, viz Zenon Petroleum & Gas Company Limited, Fineshade Energy Limited and Platinum Fleet Limited

at very unfriendly prices. Otedola, after surviving the lift trap scare, stormed up to the boardroom and sent Falasinnu, Aviomoh and Idigbe out of the meeting, after accusing them of plotting to kill him. Around 6 p.m., when they were called in, Otedola ordered Falasinnu to tender his letter of resignation while Aviomoh and Idigbe were handed their letters of suspension.

Aviomoh, not playing lamb, is taking the war to Otedola. He has been hollering in the past few weeks that Otedola is persecuting him because he kicked against what he considered the chairman’s mismanagement of AP’s funds. He has sent a petition to the director-general, Securities and Exchange Commission; president, Nigerian Stock Exchange; Inspector-General of Police and all AP directors to that effect. In the petition, the suspended Finance Director who joined the oil company in 2007, disclosed that the chairman’s three companies have been selling products to AP at abnormal prices, sometimes at prices higher than the retail pump price at the gas station. According to Aviomoh, “the Executive Chairman ensured that his companies supplied products to the African Petroleum Plc without contract or agreed prices. The companies thereafter sent whatever prices at their whim and caprices to African Petroleum plc.” The transactions were so unfavourable to AP that by September 2009, its accounts were in the red to the tune of N9.7bn. Moreover, the three companies were owing AP the sum of N12bn and accrued interest of N3bn, bringing the total to N15bn.

Worse, the unholy business marriage that Otedola consummated between AP and his own three companies denied the major marketer the opportunity to maximise importation of its own petroleum products and make lucrative business out of them. The consequence, Aviomoh stated, “was the loss of opportunity of N32bn that would have accrued to African Petroleum plc.” Falasinnu, unable to understand why a major marketer like the AP would be doing badly, rejected Aviomoh’s presentation. He then brought to the Finance Department one Temilola Oluyemi as Financial Operations Manager. The former MD/COO also brought in from Akintola Williams Deloitte Olufemi Abegunde, who was the Engagement Partner attached to AP. The two persons, Oluyemi and Abegunde then worked together to produce a fresh account figure of N957mn profit. Aviomoh was alarmed. That was not all. To kill off the outstanding N15bn that Zenon, Platinum and Fineshade are owing AP, Abegunde, Aviomoh wrote in the petition, suggested the amount be warehoused in inventory as unreconciled items and that the board’s approval be sought to amortise it for five years. The Engagement Partner opined this route would lead the AP to profit. The Finance Director threw out Abegunde’s suggestion as balderdash.

Aviomoh said he warned the company’s management as last year was winding up that the accounts for the year ended 31 December 2009 would be a huge loss. That was obvious. One, Otedola was always making AP pay the Zenon Group in advance for the products the three companies in the Group were supplying, that is, when the products were not available and had not been supplied at all. The amount outstanding by 31 December for unsupplied products to AP was N10bn, with a calculated interest of N3.2bn. When up till May this year, the products had not been supplied nor was money refunded, Falasinnu and Aviomoh, on 7 May 2010, jointly despatched a letter to the Group Chief Operating Officer of Zenon Petroleum and Gas Company Limited, demanding repayment for the “advance payment of products”. The letter reminded the Zenon COO that “these advance payments have been outstanding for two years, thereby putting pressure on our working capital and interest payment to our bankers.” It, therefore, requested from the Zenon Group payment of  N12bn “being advance payment and the accrued interest.”

Two, AP was headed for a loss last year because it allegedly forfeited a Petroleum Products Price Regulatory Authority rebate on imported products amounting to N32bn. AP would have gained the huge sum if it had imported its petroleum products directly instead of buying from its Executive Chairman. Third, AP lost approximately N4bn to over-loaded invoices in the purchases from the Zenon Group. Aviomoh also stated that Otedola forced AP to be using the Zenon Group’s tank farms for the storage of its (AP’s) products. To this effect, whatever AP was buying from Zenon Petroleum & Gas Co. Ltd., Platinum and Fineshade were loaded into the tank farms of the three firms from where AP trucks then loaded. The Finance Director said this arrangement made it difficult to reconcile inventories. By 31 December 2009, the difference on premium motor spirit alone (that is, PMS not supplied) was 28,347,742 litres, worth N1.9bn.

Amid this worsening state of affairs, the Board of Directors of AP plc decided to inaugurate a Board Committee on Finance, Information Technology & Other Issues in December 2009 to identify and define the problems, establish their causes, proffer solutions to them and recommend solutions. The committee was headed by Stanley Lawson, with Nebolisa Arah and Chris Adeyemi as members. All are AP directors. In his memo to the committee, Aviomoh disclosed how SEC had pestered AP with queries on various petitions against its management for corporate governance abuses and “outright violation of Rules of Best Practices.” He told the committee that SEC was conducting a thorough investigation of AP plc, including investigation of contractors and suppliers as the body traces movement of funds from AP account to them. The committee, in its report to the board, agreed there was, indeed, gross abuse of corporate governance in the running of the company. “Rules, regulations, internal control procedures (even where they exist), legal provisions and guidelines were breached at will,” the report confirmed.

The situation degenerated as more and more disclosures came up daily on how AP was being managed, or mismanaged, and how good money was flying out through bad window. Numerous anomalies and Aviomoh’s insistent demands on the Zenon Group’s debts to AP, as well as the issue of the yet unsupplied products from the Zenon Group to AP hindered the preparation of the 2009 accounts. In April 2010, the management of Akintola Williams Deloitte, AWD, external auditors to AP, met with the management of the oil marketer in the boardroom to deliberate on burning issues. Present at the meeting were Adeniyi Obe, managing partner, AWD; Tunde Oremade, advisory partner and Femi Abegunde, the Engagement Partner. From AP were Falasinnu, Aviomoh and Idigbe.

The auditors raised the issue of AP’s public offer in 2008. The offer has been a sore point in the accounts of the company as it had been found out that some of the shareholders did not back their offers with cash. Otedola told this magazine that Afribank, which owns 20 per cent of the shareholding in AP, did not back its stake with money. Arah and Aviomoh represent Afribank on the board. On the other hand, Otedola, the core investor with a 30 per cent stake personally and 10 per cent by proxy, was also accused of not backing his shareholding fully with cash. Otedola and Aviomoh have been bandying words over a N24.5bn unremitted share money. On 11 August 2010, the dailies published a petition written by Otedola on how the money has not been remitted for alloted shares. But Aviomoh replied in a letter he wrote the same day to SEC explaining how the N24.5bn share issue arose. The Finance Director said it was Otedola himself who, in 2008, promised to fund share purchase for all the AP directors. The value of the shares was N14.5bn of 58,000,000 units. Lola Segun-Idahor, said to be Otedola’s sister, and who is General Mnager, Treasury and Financial Planning, did a letter to that effect, which was approved by Falasinnu and authorised by Otedola.

At the April meeting, the lead issuing houses to the offer were invited in on how they would clean up the uncompleted process of allotments not paid for and fresh allotments made this year. The allotment process was actually completed this year and all parties agreed that full reconciliation of the Share Issues would be expressed in the 2010 accounts. But a director of AP who spoke with this magazine foresaw problems in sincere reconciliation in the accounts as he was not optimistic the shareholders would be able to back up their stake with cash. “With all the parties in the arrangement having probems of debts all round, it will be difficult for them to fill in the blank financials with real cash. SEC will have to watch out for bubble capital if the auditors reflect full reconciliation in the company’s 2010 accounts,” he said.

The AWD representatives also told the AP management they would not be able to complete auditing of the oil firm’s books if Zenon, Fineshade and Platinum do not deliver to AP the products for which prepayment had long been paid. They threatened they would have no option but to make provisions for the prepayment in the AP accounts if deliveries are not made. If they go ahead with their threat, the loss figure in AP’s books for 2010 would be between N15bn and N20bn.

It was also revealed at the meeting how three transporters – Nana Brothers Transport, Zaytun Transport and Kafura Enterprises – diverted products estimated at N1bn. The police, AP management and the auditors have, however, been working hard at retrieving the money. They have succeeded largely; the outstanding balance is only N113mn. Somerset Energy Services was also alleged to have diverted the domiciliation proceed of Equatorial Trust Bank valued at N656.75mn to another bank. The money has not been recovered.

Some stakeholders in AP are also angry with Otedola that AP has, since two years ago, paid the Zenon Group the sum of N1bn as rent for office space at the Zenon House on Ajose Adeogun Street. The issue was vehemently argued at an emergency meeting of the board at the AP House on 25 June 2010. Those at the meeting were Christopher Adeyemi, Osa Osunde, Falasinnu, Aviomoh, Ekpeyong, Senbanjo, Lawson, Bolodeoku and Arah. Otedola was absent, so was Idigbe. Representatives of the National Union of Petroleum and Natural Gas Workers, NUPENG, and the Petroleum and Natural Gas Senior Staff Association, PENGASSAN, barged into the meeting and uncompromisingly demanded an audience. The directors were forced to allow in Rev. S.O. Oginni, chairman of PENGASSAN AP branch, together with A. Ogonna and O. Rasaki.

Oginni, who spoke for the unions, was furious that the AP management paid N1bn to the Zenon Group to move to the Zenon House as a tenant when it could use half the money to renovate its own AP House at 54/56 Broad Street, Lagos. “For about two years we are yet to move to the said premises. The question is: what is wrong with AP House? Is it good for a landlord to move to become a tenant? Sales representatives do not have cars, clinics, ambulance, etc, yet we do not set our priorities right,” the unionist quipped. All the three union representatives rejected the move to Zenon House and demanded that the money paid to Zenon be retrieved and used to renovate the AP House.

They referred to the 2008 hybrid offer prospectus which listed the purposes for which the proceeds would be utilised. The purposes include construction of a 50,000 barrels per day refinery at the Lekki Free Trade Zone; construction of 60,000 metric tonnes fuel storage facility on Reclamation Road, Port Harcourt; construction of 120,000 metric tonnes fuel storage at Apapa, Lagos; expansion in fuel outlets and plants; diversification into exploration, etc. and renovation/remodelling of AP’s 300 outlets nationwide. Oginni wondered why monies that have come in on the offer have not been so utilised. He referred to how AP’s rivals like Total, Mobil, Oando and Conoil have been increasing the number of tanks in their outlets in preparation for deregulation while the AP management has been inactive. He mentioned how MRS, which recently acquired the downstream operations of ChevronTexaco, has been spending and working hard at not only renovating outlets nationwide but has also been replacing old pumps with new ones to enable it cope with the stiff challenges in the industry. The unionist declared: “We demand the removal of Zenon Petroleum as core investor from AP as it has not added any value to the company, but has instead siphoned the company’s money through phony relationships using companies like Fineshade Energy Services.”

With the AP board fragmented, a faction, TheNEWS gathered, plans to remove Otedola as chairman. Already, executive powers have been yanked off his chairmanship status. But removing him completely would be quite a task. The Epe-born son of Chief Michael Otedola, a former civilian governor of Lagos State, still commands a comfortable, though not controlling a total of 40 per cent stake, as the single largest shareholder. An alignment of forces is frantically going on among other shareholders to muster enough percentage to force him out. But Otedola laughed off the attempt. On phone with this magazine, he asked: “Have you ever seen where outsiders seize control of a property from its rightful owner. I own AP, everybody in Nigeria and abroad knows that and nobody can take it away from me.”

It is pouring troubles for Otedola, 47, who acquired government’s stake in AP in 2007 for $17bn. The successful bid was mainly engineered by former president Olusegun Obasanjo, who weaned Otedola from an average, unsung businessman to become a billionaire dealer in petroleum products. Not a few Nigerians believed Obasanjo and Otedola ran a lot of deals together when the farmer was president. To buttress that belief, Otedola’s fortune has been on the descent since Baba vacated Aso Rock in 2007. Another dealer in petroleum products and chairman of the Global Fleet Group, Jimoh Ibrahim, actually won the bid for AP with an offer of $18.5bn. After Ibrahim had tendered the 10 per cent statutory deposit sum to the Bureau of Public Enterprises for AP, Obasanjo pulled the rug off his feet by ordering the BPE to return his money and hand over AP to Otedola for a lower bid sum of $17bn.

When Otedola was acquiring AP three years ago, the oil company’s debt was only N1bn. By mid last year, it had risen to N50bn. Otedola’s total debt exposure to banks as at 17 July 2010 was estimated at about N182.4bn. In that month, his creditor banks had to hold long meetings with him to discuss how the huge debts would be restructured. It is not clear how he has been able to comply with the repayment conditions, but one of the AP directors guessed his resort to robbing Peter to pay Paul might not be unconnected with the desperation to source funds to offset his debts.

Otedola’s critics believe he was not prudent with the billions of naira and hard currencies that suddenly came his way during the Obasanjo administration. In the 1980s, he was managing director of his father’s printing company, Impact Press. In 1991, he incorporated Centreforce Limited where he was the MD/CEO. By 1999, fortune had brought him in contact with Obasanjo who pulled him up by his bootstraps. In that year, Otedola incorporated Zenon Petroleum & Gas, a petroleum products marketing and trading/distribution limited liability company. He has since held top positions that include chairman of Transcorp Hilton Hotel, Abuja; director, Transnational Corporation of Nigeria Limited; president, Nigerian Chamber of Shipping and member, Governing Council, Nigeria Investment Promotion Council. Otedola lavishly patronised the political leadership with donations, severally, of millions of naira. In 2003, he donated N150mn to aid Obasanjo’s election campaign. Two years later, he donated N200mn to the controversial Obasanjo Presidential Library Project. The same year, he gave N25mn to rehabilitate the national mosque in Abuja. In 2008, he donated N1bn and pledged N25mn on behalf of his father, Michael, at the fund-raising ceremony for the PDP national secretariat in Abuja. In the same year, he bought Nana, an 80-foot, £12 million luxury yacht to make a statement of his arrival in the billionaire club in Nigeria. And he was promptly hailed so by influential American magazine, Forbes, which last year listed him among the richest men in the world.

Times are, however, changing for the young oil sheik, with huge debts round his neck and decline in fortune of the AP. Up till early last year, the AP stock was one of the most highly priced, trading for as high as N293. By last Monday, it had plummeted to N26.99. Otedola sounded undeterred though, telling this magazine that the noise about debts, problems at AP and not-so-rosy moments at Zenon are the malicious imagination of his enemies. “Nothing is wrong anwhere. Things are are as solid as ever,” he charged.

—Tayo Odunlami

Tags:  African Petroleum PLC, Diesel magnate, Femi Otedola, Tunde Falasinnu