A right decision on OPA
PRESIDENT Muhammadu Buhari’s directive that the crude for refined products deal between the Nigerian National Petroleum Corporation (NNPC) and selected trading companies, otherwise known as Offshore Processing Agreement (OPA) be discontinued pending a review to maximise its benefits to Nigeria is a right and sensible decision.
And, given the generally opaque manner in which these agreements are reached and implemented, this directive is also a patriotic move.
The crude-for-product swap is not just one of the terrible features of the corruption in Nigeria’s hydrocarbon industry but also one that makes Nigeria and its people look stupid. But most Nigerians are not to blame; indeed they are, in terms of the economic and social costs, victims of a parasitic and deeply unpatriotic ruling elite determined to conduct public business only for self-interest.
This explains that about half of the 445,000 barrels per day allocated to the NNPC four refineries, are, in an arrangement that defies both commonsense and business sense, given to private refineries in distant or nearby (Cote d’Ivoire) refineries in exchange for petroleum products.
All right-thinking people wonder just why, unlike every other oil-producing country under the sun, Nigeria that produces oil cannot, or chooses not to process and add value to the raw product in order to maximise its earnings.
This is disgraceful and every government under which this occurs should be ashamed. The OPA is a multi-billion dollar transaction that has been criticised, here and abroad, because of the lack of transparency.
Figures reported indicate that, in 2011 alone, it was worth $9 billion while $35 billion worth of domestic crude allocation (DCA) was swapped in transactions that those in the know, talk less of ordinary citizen will not credit with transparency.
For example, the Nigeria Extractive Industries Transparency Initiative (NEITI) is reported to say in an audit report that whereas $6.4 billion worth of DCA was traded in 2012, $6.3 billion worth of refined products was returned to Nigeria, meaning that half a billion dollars differential was not accounted for.
Let it be quickly stated that OPA deals pre-date the Goodluck Jonathan administration. Like many other transactions in the oil sector in the past few years, corrupt practices that include price manipulation, market fraud, and ‘suboptimal returns’ on the part of public officials and their private sector collaborators have, in proportion, gone beyond the unconscionable to the outrageous.
Consider, on the matter of the NNPC daily domestic crude intended for local refining, two observations from the 2012 Report of the Special Task Force on Petroleum Revenue (PRSTF) headed by Mallam Nuhu Ribadu. The task force noted that ‘…records received for 2002 to 2011 showed an inconsistent pattern in the implementation of the policy to allocate 445,000 bpd…to to NNPC, with variances found for the 10 years reviewed.’
Besides, the NNPC was suspected to have paid for its allocation less than the prevailing international prices with the result that ‘over a 10-year period (2002-2011) the State may have been short paid by an estimated sum of US$5 billion…’’ On the other hand, the Ribadu team said that ‘enquiries from NNPC revealed that, up until 2003, NNPC was granted fixed price regimes which explained the wide disparity in prices in the earlier years.’
By what logic, justification, or sense, any responsible government would, contrary to global best practices, encourage the inherent non-competitiveness as well as inefficiency of its agency boggles the mind. But that was the unprofitable way in which government officials, in their strange wisdom, chose to conduct public business.
The implementation of the OPA was noted to be dubious too. The report said that ‘the domestic crude utilisation showed that the percentage not refined in-country ranged from between 50 per cent to 88 per cent over the 10-year period.’
On the strength of the multifarious dealings that largely fail the probity test, the Ribadu-led task force made a number of ‘strategic management recommendations,’ recommendations that include the setting up of ‘a process, independent of NNPC, to review the use of oil trader and NNPC system of selling crude, [in order to ensure probity and achieve value for money]’, passing an ‘oil sector transparency law…’ and establishing an oil and gas sector financial crimes unit.”
Furthermore, it recommended that ‘domestic crude oil should be sold at international competitive prices’. Specifically concerning the OPA, NEITI, in its 2014 Annual Activity Report, observed that ‘the process is not cost efficient [and] NNPC is advised to discontinue these arrangements… [and limit itself to only the exportation of crude oil and importation of refined products but not engage in a mixture of both].’
The organisation further described the process as ‘fraught with transparency and accountability issues and should be stopped immediately.’
Certainly, the economic and social costs of oil sector corruption (the fuel subsidy fraud inclusive) are holding Nigeria down. So, deriving from painstakingly compiled reports by various agencies within and outside Nigeria, and which are available to government, there are sufficient grounds to review not only the OPA but all transactions with a view to protecting this country.
It has been calculated that at an average market price of $60 per barrel, the nation can save about $13.8 million a day from the implementation of the presidential directive.
Besides, an expansion of the refining capacities of the existing refineries and the building of additional ones to process what is withheld will save the country huge sums, enhance existing skills and create jobs in the sector and related sectors for Nigerians.