NNPC Terminates Crude Oil Swap Contracts

Almost six weeks after President Muhammadu Buhari ordered an investigation into Offshore Processing Agreements (OPA) entered into by the Nigerian National Petroleum Corporation (NNPC), the Federal Government, on Thursday announced the termination of the deal entered into in January, 2015 with three companies, Duke Oil Company Incorporation, Aiteo Energy Resources Limited and Sahara Energy Resources (Nig) Limited.

It is estimated in some quarters that the nation loses as much as $8 billion annually through what is otherwise referred to as crude oil-for-refined products exchange arrangement or crude oil swaps deals.

Natural Resource Governance Institutes (NRGI), a non-profit organisation, had on August 4, called for total reform of the nation’s petroleum sector, while urging government to urgently end the 445,000 barrels per day crude allocation to the NNPC for local refineries, which only utilise 100,000bpd.

The rest is traded off in swap deals and crude exports. The poorly maintained refineries, it said, were unable to process the bulk of the oil and over the years the allocation has devolved into a nexus of waste and revenue loss, the group added.

 To show that the decision to end the current swap arrangement, a statement in Abuja on Thursday, by the NNPC spokesman, Ohi Alegbe, said: “After detailed appraisal of the operation and its terms of agreement, the NNPC is convinced that the current OPA is skewed in favour of the companies such that the value of product delivered is significantly lower than the equivalent crude oil allocated for the programme”.

More so, he observed that the structure of the agreement does not guarantee unimpeded supply of petroleum products, as delivery terms were not optimal.

To address the lapses, the NNPC said that it has started the process of establishing alternative OPAs based on optimum yield pattern with tender processing fees.

“After due appraisal of performance trajectory, we have invited Messrs Oando, Sahara Energy, Calson, MRS, Duke Oil, BP/Nigermed and Total Trading to bid for the new Offshore Processing Agreement while we have engaged AITEO, Sahara Energy and Duke Oil to exit the current OPA.

On the status of the crude for product exchange agreement (SWAP) reportedly entered into by the NNPC and some oil traders, the corporation informed that the last SWAP arrangement lapsed in December 2014 and was never renewed.

Alegbe noted that NNPC obtained the permission of President Muhammadu Buhari to kick-start the tendering process for the 2015/2016 Crude Oil Term Contract for the evacuation of Nigeria’s crude oil equity from the various crude and condensate production arrangements.

The corporation noted that the process billed to commence with advertisement of the Crude Oil Term contract in both national and international print media for one month, has been carefully structured to weed out “briefcase companies” and rent seekers.

The NNPC also announced the cancellation of contracts for the supply of crude oil to Warri and Port Harcourt refineries, stressing that “after proper evaluation and in line with the terms of contract for the delivery of crude oil to the nation’s refineries in Warri, Port Harcourt and Kaduna, the corporation has cancelled the current contract due to exorbitant cost and inappropriate process of engagement”.

As a stopgap measure, NIDAS Marine Limited, a subsidiary of the NNPC, has been engaged to provide crude delivery service on negotiated industry standard rate pending the establishment of substantive contract.

“We have also commenced a rigorous and transparent process of securing capable and competitive contractors for the delivery of crude oil by marine vessels to Port Harcourt and Warri/Kaduna Refineries pending the restoration of the Crude Pipeline infrastructure, Alegbe added.    

The NNPC explained that it resorted to the delivery of crude oil to the refineries by marine vessels following incessant attacks on the Bonny-Port Harcourt refinery pipeline and the Escravos crude pipelines by vandals and oil thieves resulting in the complete unavailability of the pipelines in 2013.

Alegbe also recalled that under the cancelled agreement, the corporation allocated a total of 210, 000 barrels of crude oil per day for refining at offshore locations in exchange for petroleum products at pre-agreed yield pattern.

The Nigeria Extractive Industries Transparency Initiative (NEITI) had in June lamented that the audit of the oil and gas sector for 2012 revealed that the country lost about $100 million in swap deal involving crude from domestic allocation exchanging for refined petroleum products.

The audit report stated that in 2012 crude oil swapped was $6.4 billion while the value of refined products was $6.3 billion.

NEITI’s Director of Communication, Ogbonnaya Orji, who disclosed this, noted that by “this singular transaction, the nation lost about $100 million. The years 2009-2011 made a similar revelation of a revenue loss of over $500 million. Besides, the value of the refined products not delivered at all under this arrangement stood at N78.8 billion.

“The revenue loss to the nation on crude swap especially at the depot on fuel alone during the same period stood at N11.7 billion or $74.3 million depending on the exchange rate used”.

However, NNPC claimed that new measures aimed at cost reduction and strengthening of operational efficiency across its value chain. 

A national daily, recently quoted Economic and Financial Crimes Commission (EFCC) and Department of State Services (DSS) sources as saying that the investigation of OPAs between Pipelines and Product Marketing Company (PPMC), a subsidiary of the NNPC and Sahara Group, Aiteo and Duke Oil, the trading subsidiary of NNPC, was to find out how the value of the crude and products were computed and determined. “It appears that the value of the crude was more than the value of the refined imported,” the source was quoted as saying.

Besides the oil swap deals, the security agencies also reportedly examined the expired contracts, which the NNPC had with Swiss trader, Trafigura, Taleveras, Ontario Oil and Gas. The source disclosed that some top officials of the PPMC including the head were among those invited to shade light on the deals.

While the Sahara Group received 90,000 barrels daily for processing through an agreement with the Societe Ivorienne de Raffinage (SIR), Aiteo and Duke Oil got 90,000 and 30,000 barrels of oil per day respectively in the contract.

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