FG cancels NNPC’s deals with traders
The Federal Government yesterday ordered the cancellation of the Offshore Processing Agreement (OPA) and crude swap deals for refined oil products between the Nigerian National Petroleum Corporation (NNPC) and oil traders. The deals, initiated in January by former President Goodluck Jonathan, dedicated 210,000 barrels per day of crude to swap for products.
Traders involved in the transactions include Trafigura, Vitol, Aiteo Energy Resources, Mercuria, Glencore, Taleveras Group Nigeria Limited, Sahara Energy Limited, Etena Oil and Gas Limited, Ontario Oil and Gas and Rahmaniya Oil and Gas. President Muhammadu Buhari, who has publicly expressed his displeasure over this oil swap deals, voided the transactions via a statement issued yesterday in Abuja by his spokesman, Mr. Femi Adesina. “Mr. President has approved the cancellation of the oil swap contracts. Mr. President has publicly expressed his displeasure over this oil swap deal,” the statement said.
Crude-for-product swaps became controversial after several officials and organisations, including Nigeria Extractive Industries Transparency Initiative (NEITI) and a former Central Bank of Nigeria (CBN) Governor, Mallam Sanusi Lamido Sanusi, raised questions about their transparency. A document by NEITI showed that the cancellation might save Nigeria $8 billion annual loss, which it has been recording on the programme.
The crude-oil-swap deals were designed to supply petrol to Nigeria, which relies on imports for the bulk of its domestic consumption, due to the poor functioning of its four refineries that produce below capacity. The country allocated 210,000 barrels per day of crude to swap for products in 2015. NNPC spokesman, Mr. Ohi Alegbe, could not be reached for comment. A source at NNPC, however, said the president cancelled contracts for roughly half of the 445,000 barrels per day of crude earmarked for Nigeria’s refineries – the amount refiners use in the products swaps deals.
“The government may not have completely dumped the idea of swaps but the aim is to re-evaluate the whole contracts terminated to extract some favourable terms,” a report by Reuters quoted a source as saying. Of the 445,000 barrels of crude oil per day brought by NNPC to meet its domestic crude refining capacity, about 50 per cent is swapped with commodity traders in exchange for petroleum products, which are imported into the country. The other 50 per cent is supposedly refined by NNPC’s refineries.
However, the oil corporation has said contrary to claims by a Swiss-based non-governmental organisation (NGO), Berne Declaration, that 36 per cent of its crude oil is lifted by Vitol and Trafigura, both Swiss traders, account for nine per cent of lift contracts. The corporation also denied that the Federal Government lost $6.8 billion in oil revenue because of the oil swaps it has with Swiss-based companies listed in the NGO’s report, which prompted the probe instituted by the House of Representatives.
The government in June launched an investigation to determine whether the government had been short-changed in the scheme. The outcome of the investigation is yet to be announced. The announcement of the cancellation of the oil swap deals came just as NNPC Group Managing Director, Dr. Ibe Kachikwu, said the Petroleum Industry Bill (PIB) could not be passed in its present form with the present oil price, which is down to $40 per barrel. He said the PIB, which has been pending before the National Assembly in the last seven years, required extensive engagements with all stakeholders to iron out all grey areas.
“Because of the volume of extensive consultation and time required to make the bill a workable document, it is only natural to kick-start the reforms in the industry with the existing laws while waiting for the eventual passage of the proposed law,” Kachikwu said. Kachikwu, who chaired a special session on the proposed law at the ongoing 55th Annual General Conference of the Nigerian Bar Association (NBA) in Abuja titled: “Legal and Regulatory Framework of the Petroleum Industry in Nigeria: Review of existing Laws and the Petroleum Industry Bill (PIB),” described the bill as an essential legislation, which must be approached with all the seriousness and thoroughness it deserves.
“PIB is a serious affair, it is an essential piece of legislation but as we all know a lot of engagement is required to address all the issues because the oil and gas environment has changed. There are issues of cost, with oil going down to $40 per barrel, the PIB cannot be the same,’’ Kachikwu said.
According to him, because of the volume of extensive consultation and time required to make the bill a workable document, it is only natural to kick-start the reforms in the industry with the existing laws while waiting for the eventual passage of the proposed law.
“The reform of the petroleum industry is key and it is an area where we are going to put a lot of focus. Transparency is key. Restructuring is key. Sometimes people do not realise that the problem has not been NNPC; it is a problem of political will to go forward and implement the outcome of researches and reports that had been done but fortunately for us this time around, that is what the president has brought to the table.
He has strong political will to see this through,’’ he said. Commenting on what the Federal Government intends to do with the draft legislation, Kachikwu said the PIB had come to stay though it would take a bit of time to perfect the draft. “PIB is important, but we need to x-ray the issues.
We need at least one year to get it back on track. The reality is that we cannot afford to wait any longer for change in the petroleum sector because of the delay in the passage of PIB, things have got to start happening and that’s exactly what we are doing,’’ he added.
Also, a former President of the Trade Union Congress (TUC), Mr. Peter Esele, who was also President of the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN), said though PIB was vital to oil sector reform, the industry could make do with existing laws to activate essential reorganisation in the sector.
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