Nigeria to save $13.8 million daily from scrapping of oil swap deal

MOVES by the President Muhammadu Buhari administration to terminate the controversial offshore dispensation and oil swap agreements may save the country an average of 230,000 barrels a day. At a market price of an average of $60 per barrel, the country would be saving about $13.8 million of crude oil daily.

Nigerian National Petroleum Corporation (NNPC) data show that the corporation allocated just over 79 million barrels (or roughly 218,000 barrels a day) to swaps in 2011 alone. This accounted for nearly half of the Domestic Crude Allocation (DCA) and around a tenth of the country’s average daily production.

The 2011 data also indicated that the volume of oil involved in swaps was worth approximately $9 billion.

New York-based Natural Resource Governance Institute estimated that between 2010 and 2014, Nigeria channelled over 352 million barrels of oil worth a total of $35 billion into the swaps.

Also, the Nigeria Extractive Industries Transparency Initiative (NEITI) disclosed recently in an audit report that more than $500 million was lost by the Federal Government through fraudulent activities in the management of crude oil swaps over the years.

The audit report further showed that crude oil worth $6.4 billion was swapped in 2012, while the value of refined products was $6.3 billion, bringing total revenue loss to the Federation Account from 2009 to $500 million.

According to the audit report, Nigeria lost over 23 million barrels of crude valued at over $2.6 billion in 2012 alone.

Scrapping of the swap deal is also expected to help the nation’s refineries, which have been idle until the present Turn Around Maintenance (TAM) to get enough crude for refining for domestic consumption.

Duke Oil Services Limited, a company registered under the laws of England, is said to be acting for and on behalf of the Pipelines and Products Marketing Company Limited (PPMC), having its head office at Capitol House, London. The firm engaged in arranging the supply of Nigeria’s crude oil in exchange for crude oil lifting with Televeras Petroleum Trading, a company incorporated under the Laws of British West Indies having its head office in Anguilla.

The agreement between the two companies took effect from the February 1, 2011 and expected Televaras to exchange crude oil to be supplied by Duke.

Other companies that PPMC and NNPC have such swap agreement with are Societe Ivoirienne De Raffinage, Sahara Energy Resources Limited and Aiteo Energy Resources Limited.

NNPC is said to have turned to swaps in 2010, in part to avoid domestic fuel shortages. By that time, its refineries were working at only around 20 per cent of capacity and PPMC had incurred over $3 billion in debts to fuel importers under the open account system that it could not pay.

According to the New York-based agency, the second type of swap is an offshore processing agreement (OPA). Under this type of deal, the contract holder—either a refiner or trading company—is supposed to lift a certain amount of crude, refine it abroad, and deliver the resulting products back to NNPC.

The contracts lay out the expected product yields (i.e. the respective amounts of diesel, kerosene, gasoline) that the refinery will produce.

The refining company also can pay cash to NNPC for any product that Nigeria does not need. In 2008, as fuel shortages worsened, NNPC issued a tender for an OPA and signed one with BP affiliate Nigermed late in 2009.

The following year, PPMC signed another OPA with the Ivoirien state-owned refining company Société Ivoirienne de Raffinage (SIR).

The contract holders for both types of deals did not change between 2010 and 2014, with the exception of Nigermed, whose OPA ended in 2010. In late 2014, PPMC did not renew its RPEA with commodities trader Trafigura. Duke’s contract was reduced to 30,000 barrels a day, and Duke farmed out this contract to Aiteo.

Separately, NNPC awarded two new, two-year, 90,000 barrels a day OPAs to Sahara and Aiteo.

NNPC sells roughly 445,000 barrels per day of DCA on an intercompany basis to the PPMC, its main downstream subsidiary.

The country’s four NNPC-owned refineries are supposed to process 445,000 barrels per day if they run at full capacity. PPMC is meant to pay NNPC for this crude, and then send the funds to the Federation Account.

Around 200,000 barrels per day are allocated to these complex transactions between PPMC and traders on oil-for-refined product swap deals.

NNPC divides its share of the available oil into cargoes and allocates these to the companies that hold the term contracts, which then sell them on to other buyers.

The Guardian gathered that the original swaps came in during the country’s military era.

Between 1994 and 1997, the late Gen. Sani Abacha’s internationally isolated regime put 96.2 million barrels—or around 66,000 barrels per day—into RPEAs with a handful of traders. The Buhari and Babangida military governments earmarked an average of 103,000 barrels per day to European refiners for processing between 1983 and 1987.

Speaking on the way forward recently, Civil Society Legislative Advocacy Centre (CISLAC), called for the regulation of the DCA to be strictly limited to the refining capacity of the refinery and treating the rest as crude for export .

The statement signed by the Executive Director of CISLAC, Auwai Ibrahim Musa, also stressed the need to direct the stoppage of all existing offshore processing agreements and institute a competitive and open process and employ the more universally practised format of refined product exchange agreements.