Risk Assessment Report - Downstream Sector Oil Marketing.

1. AFRICAN PETROLEUM PLC
SOUTH WEST REGION OPERATIONS
BUSINESS RISK MANAGEMENT REPORT
(PERIOD: 1ST
JANUARY – 10TH
DECEMBER, 2007)
RISK ASSESSMENT REPORT
Michael Mazogi

2. Confidential Risk Assessment Report
RISK ASSESSMENT REPORT
RANKING MODEL
The rating system adopted ranked our risk assessment criteria into high, medium and low depending on the magnitude of exposure and the
immediate impact on the company as an entity. In addition the following core assessment measures were deployed as basis for our evaluation,
they are; exposure, threats/risks, impact and impact class/category in order to clearly simplify and enriched the understanding of Regional
Management on the consequences of their actions and inactions.
Financial Risk Exposures
Key Risk Area Exposure(s) Threats/Risks Impact Impact
Class
Response(s) Specific
Recommendation(s)
Segregation of
Duties & Staffing
The position of
cashier is vacant
at AP Illorin. Sales
Rep doubles as
the Cashier and
Depot Rep.
Possible
Manipulations for
dishonorable
purposes
Segregation of
duties control is
Comprised, over
tasking of the Sales
Rep., poor records
e.t.c
High A cahier should be
provided wherever
the company has a
sales office.
GM (HR/CS/CS) should
arrange for a Cashier for
District Office Ilorin
within 3 weeks of
Publishing this report
and revert back to BRM
on the progress made.
December, 2007 Spot Check on South West Region2

3. Confidential Risk Assessment Report
Oversight
functions by
Regional
Management.
Regular
checks/monitorin
g of security
deposit of
Dealers. E.g.
Depletion of
Dealers’ Security
Deposits/ working
capital
Depletion of security
deposits beyond
acceptable limits
Low sales, loss of
market share and
increased credit
supplies.
High
The effort to change
this scenario has
attracted
tremendous
support from Apex
management.
Banks have been
introduced to the
licensees for
funding assistance.
At the region,
improved funding
by licencees has
been achieved. We
monitor this
through re-order
planning for the
outlet/improved
sales.
GMM/GMS should review
upward the Security
Deposit/Working capital
of all AP Own Outlets
Dealers within 6 weeks of
publishing this report and
revert back to BRM on
the progress made.
December, 2007 Spot Check on South West Region3

4. Confidential Risk Assessment Report
Security Deposit
Depleted to as low
as =N=800,000.00
below the price of
a single truck of
any product.
Dealers are financially
weak and can not lift
products as expected.
Low sales, loss of
market share and
increased credit
supplies.
High
As earlier stated,
security deposit
update is part of the
SW 2008 strat plan
GMM should review
upward the Security
Deposit/Working capital
of all AP Own Outlets
Dealers within 6 weeks of
publishing this report and
revert back to BRM on
the progress made.
Marketing & Credit Control Risk Exposures
Key Risk Area Exposure(s) Threats/Risks Impact Impact
Class
Response(s) Specific
Recommendation(s)
Product Pricing
policy
Virtually all our
dealers
complained of AP
high selling price
of AGO. Selling
above normal
industry average
price
Decline of sales and
loss of market share to
competitors.
Low sales, loss of
market share and
increased credit
supplies.
High
Apex Management
will address this in
line with market
dictates.
COO/GMO should
consider reducing the
level of third party buying
of AGO in favour of direct
importation.
December, 2007 Spot Check on South West Region4

5. Confidential Risk Assessment Report
Responsibility&
Supervisory
controls
concerns
RM was dealing
directly with
Dealers, thus, by-
passing Sales
Reps. E.g.
Dealers at Illorin
& Akure territorial
districts were
supplied
products mostly
without the
knowledge of the
Sales Reps.
Possible diversion of
products
Possible
manipulation
High
Sales activities at
all locations in the
region is within the
responsibility of the
RM.
The statement of
sales
deliveries/tranfers/r
eciepts report is
available for reps to
update records and
keep track of
transactions.
BRM will further
investigate this issue and
report back to
management for
appropriate actions.
Monitoring of
Credit limits by
Regional
Management
Unauthorized
credits were
extended to retail
cash customers
ranging from 2 to
110 days at
Ibadan.
Cash flow is trapped
and possible bad debts
Erosion of AP
working capital and
high provision for
bad debt.
High Perhaps, these were
coding errors.
Transactions on
retail cash accounts
are not carried out
on credit.
COO/GMM needs to
clearly define and enforce
strict compliance with
credit terms. Henceforth,
BRM will query
unauthorized credit. RM’s
should immediately
recover all authorized
credit granted up to 31st
December, 2007 and
revert back to BRM within
three (3) weeks of
publishing this report.
December, 2007 Spot Check on South West Region5

6. Confidential Risk Assessment Report
The Sales Rep at
Akure supplied
products on
credit to Dealer
developed &
Dealer assisted
outlets which
payment was
delayed by 130
days.
Cash flow is trapped
and possible bad debts
Erosion of AP
working capital and
high provision for
bad debt.
High
AGO supplies to
company owned
outlets were carried
out on on credit.
The product was
slow moving with
uncompetitive
pump price at the
time.
Dealer developed and
Dealer assisted outlets
do not have any security
deposit with the company
in case of defaults.
GM (HR/CS/CS) should
obtain reasons from the
Sales Rep and Depot Rep
why this was done and
revert to BRM within two
weeks of publishing this
report..
Operational Risk Exposures
Key Risk Area Exposure(s) Threats/Risks Impact Impact
Class
Response(s) Specific
Recommendation(s)
Stock –out
AP Hospital Rd
round about,
Illorin, S/S was
out of stock
(both white and
lubes) as at
time of our
visit. The
dealer was said
to have
traveled.
Loss of potential sale, loss
of good will and loss of
profit, payment to idle
labor
Loss of market
share, damage to
company’s
reputation,
increased cost of
business
High Corrective steps
to update working
capital have yielded
some results. In
2008, stock out
arising from non
placement of orders
by licensees will
attract suspension
and outright
RM/GMM should appoint
another Dealer within 12
weeks of publishing this
report or revert to BRM
within 7 days of
publishing this report
with suitable explanation
of such gross negligence.
December, 2007 Spot Check on South West Region6

7. Confidential Risk Assessment Report
termination if it
persists. HRA
licensee has called
to order.
Frequency of
Shortages by
Transporters
A 33000 liters
truck of PMS
belonging to
DOKHWA NG
Ltd with reg.
no. XG 704LSR
could not be
discharged at
Illorin District
Office because
of shortages
disputes
frequently
associated with
the transporter.
Possible diversion of
products for dishonorable
purposes, loss of products
Delays in products
delivery and sales.
Low
Incidence of
shortages by
drivers is a
hydraheaded
industry problem.
There is a process
that debits the
transporter for
short deliveries
through freight
claims. This amount
is then paid to the
customer in lieue of
the shortage.
Sanctions are
issued to erring
transporters while
those with integrity
are commended for
this
RM should apply the
same strategy you
introduced in the former
North East in the South
East by deducting such
shortages from the
transporter and paying
the dealer to resolve this
problem. Revert back to
BRM within 7 days of
publishing this report
with progress made.
Key Risk Area Exposure(s) Threats/Risks Impact Impact
Class
Response(s) Specific
Recommendation(s)
Industrial Cash
Customers
Accounts.
Outlets were
supplied
products
through
Industrial
customer
accounts which
do not pass
Possible diversion of
products for dishonorable
purposes, loss of products
Lower levels of
supervisory
controls were
disregarded &
undermined.
high
Perhaps, this is a
coding error. We do
not supply dealers
on Industrial cash
accounts.
GM (HR/CS/CS to obtain
reasons why this should
be done from the former
RM-SW, MM/BMS and
former Sales Rep Illorin
and revert to BRM within
7 days of publishing this
report.
December, 2007 Spot Check on South West Region7

8. Confidential Risk Assessment Report
through the
receiving
dealers’
accounts.
Key Risk Area Exposure(s) Threats/Risks Impact Impact
Class
Response(s) Specific
Recommendation(s)
December, 2007 Spot Check on South West Region8

9. Confidential Risk Assessment Report
Regional/Branch
System
Operational
Efficiency
Regional
Management
does not have
control over
products
allocated.
Unlike the
current
arrangements
in other
regions.
Unnecessary bottlenecks
in processing, Delayed
processing time for sales
orders, high operational
cost, payment for idle
labor.
Regional
autonomy is
compromised,
overdependence
on Material unit,
Loss of revenue,
loss of key
customers, loss of
completive edge
high
Creation of a virtual
lubricant store with
specific stock
allocation to Lagos
district will be a
step in the right
direction. Daily
lubricant stock
position for Lagos
is also a great
requirement.
There is no idle
labor.
COO/GMO/GMM to
immediately consider the
introduction of virtual
warehousing for the
region. The proposed
virtual warehousing
arrangements would
entail shared
responsibilities on the
custody & control
products between
operations & sales.
Processing/
Transaction
timelines are
long. E.g. The
complete
transaction
cycle for both
lubricants and
white products
take too much
time.
Loss of market share and
high operational cost
Loss revenue, loss
key customers,
loss of competitive
edge
high
A 5 tonne dedicated
dry cargo truck for
Lagos district will
be helpful. This will
be used to deliver
low volume orders.
This will improve
our delivery time.
Also, we attempt to
give adequate lead
time for order
servicing.
BRM would review the
transaction cycle and
would recommend
changes with three (3) of
publishing this report to
the COO & the Board
Audit Committee for
consideration and
approval.
December, 2007 Spot Check on South West Region9

10. Confidential Risk Assessment Report
Comparatively,
Service
Delivery &
Customer
Satisfaction
was decimal
E.g.
Unnecessary
delays arising
from outdated
work process.
Loss of market share and
high operational cost
Loss revenue, loss
key customers,
loss of completive
edge
high
EDF&IT, HITM needs to
give a definite
timeframe of the
Deployment of the
Oracle applications in
all locations.
Regulatory Compliance & Industry Standards
Key Risk Area Exposure(s) Threats/Risks Impact Impact
Class
Response(s) Specific
Recommendation(s)
December, 2007 Spot Check on South West Region10

11. Confidential Risk Assessment Report
NNPC, DPR, &
PEF
Most of the AP
outlets visited
had no copy of
DPR license
pasted on the
wall.
Appropriate Sanctions by
DPR
Penalties, loss of
reputation and
corporate image
high
Online payments
and ordering in
due course will
eliminate the
need for
customers to
physically come
to the office to
pay and raise
orders.
Meanwhile,
efforts are in
place to review
our work
processes
Henceforth, photocopies
of DPR official receipts
must be pasted in all AP
own outlets by the
Dealers. RM should issue
a written circular and
revert back to BRM
immediately.
Industry Safety
Standards
Servicing dates
for all fire
extinguishers
within Illorin
Districts
outlets is
behind
schedule.
Fire extinguishers not
working in event of fire
disasters.
Loss of life and
property to
possible fire
disasters
High
This is being
addressed. Ilorin
and Ibadan have
been handled.
GM (HR/CS/CS) should
request the MHSE to give
appropriate why such
gross negligence to
regulatory standards
should occur.
December, 2007 Spot Check on South West Region11

12. Confidential Risk Assessment Report
Corporate Image
& Business
Continuity
AP Ajase Ipo,
S/S burnt down
since 2004
needs to be
reconstructed
urgently.
AP District Office, Illorin is
located within the Service
Station
Loss of market
share, damage to
corporate image
High
We expect this to
be addressed
amongst the 2008
redevelopment
projects.
(capex/revex)
GM AP Properties initiate
the process of getting
management approval
reconstruction and revert
to BRM within 4 weeks on
the progress made.
Technical
Infrastructures &
Maintenance
Virtually all
outlets visited
complained
about poor
conditions of
their pumps.
Operational losses, poor
service Unnecessary
wastages,
increased cost of
maintenance.
Medium We expect to
replace these
pumps very soon.
We are reliably
informed that the
company is
expecting 250
pumps.
GMO/EM should maintain
a mini spares stores
some Districts for highly
essentially spares for
easy access within 3
weeks of publishing this
report and revert to BRM
with progress made.
At AP Hospital
Rd Roundabout
1 & 2, Illorin, all
five forecourts
(entrances) are
bad.
Poor patronage and
possible accident
Loss of market
share, damage to
corporate image
Medium A cost
assessment for
the repairs has
been carried out.
Approvals for the
repairs will be
sought for along
with other
requirements in
the region.
GM AP Properties initiate
the process of getting
management approval
reconstruction and revert
to BRM within 4 weeks on
the progress made.
December, 2007 Spot Check on South West Region12

13. Confidential Risk Assessment Report
Pump spares
were not
getting to
Ibadan, Illorin
and Akure as
required.
Operational losses, poor
service Unnecessary
wastages,
increased cost of
maintenance.
Medium This is a function
of availability.
Ibadan district
was not
deliberately left
out.
GMO/EM should maintain
a mini spares stores
some Districts for highly
essentially spares for
easy access within 3
weeks of publishing this
report and revert to BRM
with progress made.
December, 2007 Spot Check on South West Region13