Stakeholders seek abolition of oil swap deals

Stakeholders in the energy industry have endorsed the cancellation of crude oil swap contracts, as well as Offshore Processing Contracts (OPA), which the Nigerian National Petroleum Corporation (NNPC) entered with traders, under the previous administration of President Goodluck Jonathan.

The cancellation was however scripted to replace the former contractors as the corporation had invited seven firms to bid for the scheme.

But concerned stakeholders believed that there should be outright cancellation of any form of oil swap agreement in the country. The Africa Network for Environment and Economic Justice (ANEEJ) urged the Federal Government to abolish crude oil swaps without any further delay.

ANEEJ, in an advocacy position paper to the House of Representative Committee on Petroleum (Downstream) over the ongoing inquiry on massive corruption around oil swap deals involving some Swiss oil firms with roots in Nigeria, called on the National Assembly to do all in its powers to end oil swaps in the country.

Deputy Executive Director, of ANEEJ, Leo Atakpu, in the position paper handed over to the Clerk of the Committee, Mallam Ibrahim Sidi, noted that “after a critical analysis of available information on the crude oil deals negotiated and executed between Nigeria and its partners, we have come to the conclusion that crude oil swaps, especially as being currently practiced in Nigeria negates known measures of international best practices.

As a leeway, ANEEJ appealed with the House, through the committee, to see to the abolition of the scam called crude oil swap. It urged the committee to ensure that local refineries are allocated only the crude they can absolve, while the remainder of the 445,000 barrels daily allocation for domestic use is sold at internationally competitive price.”

ANEEJ said Nigeria should sell the unutilised crude by its local refineries at international market price in the same manner it imports refined products that it eventually subsidises.

The group also called on the House of Representatives to commit to leading Nigerian citizens to fight oil swap practice, by pushing for investigation and prosecution of Nigerians that are involved.

This, according to ANEEJ, is necessary because the complicity of insiders within NNPC, oil companies and government, and the tendency to act contrary to laid down rules and procedures have become the cracks surviving crude oil swap business.

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

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

CISLAC expected the NNPC to design a crude sales system that eliminates the use of multiple middlemen and companies that are unqualified to operate in the sector; direct the publication of annual reports and regular reports to relevant agencies.

In the Long run, the government should amend the NNPC Act and unbundle the corporation by separating its commercial and regulatory function to make it more efficient and accountable. “ We call on the newly appointed Group managing Director of the NNPC to initiate reforms that will achieve this ends.

We enjoin the government to be decisive on the subsidy regime which the NNPC has also abused at the expense of the nation. While the government proceeds to recover fraudulently claimed subsidy payments as discovered in several reports, it should be mindful that as long as the regime continues, it will constitute debt that would become a weight on our already over stretched treasury.

A quick resolution of the government’s policy direction in this regard is therefore necessary”, it added. On the way forward, Natural Resource Governance Institute in a report tilted: Inside NNPC Oil Sales: A Case for Reform in Nigeria, said that when deciding whether to enter into more g-to-g oil contracts, Nigeria’s new administration should weigh the contracts’ potential policy benefits against the governance risks they carry.

According to the agency, not all g-to-g deal types are created equal in this regard, as the performance of deals from the past decade shows.

Contracts with state-owned companies in Brazil, China and India have done little to ensure stable demand for NNPC crude, partly because the corporation has under-supplied them.

Yet the deals mostly function like other sales under regular COMD term contracts, and the incidence of extra middlemen is lower. G-to-g sales to refineries in Côte d’Ivoire, Ghana and Senegal are a middle category with respect to risk.

All three countries are obvious buyers of Nigerian crude, but their deals come with more middlemen, including traders that re-sell much of the oil on the spot market.

It stated: “NNPC’s g-to-g contracts with smaller, non-refining countries have the highest governance risks and the lowest policy benefits for Nigeria.

The most obvious purpose they serve is to share margins with intermediaries, some of whom reportedly include PEPs. They are examples of NNPC’s tendency to enter into opaque, needlessly complicated transactions when a simpler type of sale to an established and capable buyer would better serve the public interest”.

It recommended that the government should develop a comprehensive strategy for boosting demand for Nigerian crude, of which g-to-g sales to well-established NOCs could form part. “ Award NNPC term contracts through a transparent and competitive tender process that includes robust pre-qualification standards.

Perform robust due diligence on intermediaries in g-to-g deals. End sales to smaller non-refining countries unless NNPC can publicly explain the deals’ policy benefits”, it added.