Oil Swap: Cracks In FG’s Direct Sale Of Refineries’ Crude

Cracks have emerged in the direct-sale purchase contracts for refineries crude between the Nigerian National Petroleum Corporation (NNPC) and the refiner-contractors, threatening the $1billion revenue targeted by government.

Investigation by New Telegraph showed that the arrangement, which government entered into in February, began to have issues in July with considerable improvement in refineries’ efficiency.

A financial intelligence report obtained by this newspaper showed that NNPC is “clearly” making moves for “more crude-forproduct swaps or receiving oil products in exchange for crude,” when “the refineries returned to their epilepsy.”

The report, which is already available to some refiners in Europe, is pumping up actions and expectations of the government’s return to the Offshore Processing Agreement (OPA), otherwise known as crude for product swap contracts.

Part of the intelligence report, which was published by Bloomberg, showed that the Europe refiners are targeting 400,000 barrels of oil daily on tips of the NNPC return to crude swap deal.

“Nigeria’s President Muhammadu Buhari, wants to reduce the country’s reliance on fuel imports. Clearly, more crude-for-product swaps or receiving oil products in exchange for crude, would help,” the report entitled: “Nigeria Has a Valley of Tears to Cross Before Benefits,” read.

With a sub-head: “Refining & Marketing, Europe Dashboard,” the report, based on research by Salih Yilmaz, Bloomberg Associate and Philipp Chladek, Bloomberg Senior Industry Analyst, the report noted: “Europe, with refining utilisation rates below 90 per cent for several years, may be a good partner for Nigeria, a net exporter of crude.

“This would facilitate Europe’s access to Nigerian crude and give the country a new export channel after losing market share to shale producers in North America.” Nigeria replaced crudefor- product swaps with direct-sale purchase arrangements early this year, but fuel shortages forced Nigeria back to crude-forproduct deals.

“Swaps should be an interim solution for Nigeria until local supply capacity increases,” the report stated. The Federal Government, it would be recalled, on February 2, declared end to crude-for-products exchange arrangement popularly referred to as crude swap, stating that this initiative would fetch the country $1 billion.

Minister of State for Petroleum Resources who then doubled as Group Managing Director of NNPC, Dr. Ibe Kachikwu, maintained that the crudefor- product exchange arrangement was replaced by a Direct- Sale-Direct- Purchase (DSDP) arrangement, which took off in February.

Kachikwu disclosed this when he appeared before the House of Representatives’ ad hoc Committee set up to investigate the corporation’s offshore processing and crude swap arrangement for the period from 2010 to date at the National Assembly Complex, Abuja.

A statement by NNPC quoted the minister as announcing that the price modulation policy had rid the Federal Government of the burden of subsidy on imported petroleum products in January 2016.

He noted that the DSDP was adopted to replace the crude oil swap initiative and the Offshore Processing Arrangement.

The DSDP option, according to government, eliminated all the cost elements of middlemen and gave the NNPC the latitude to take control of sale and purchase of the crude oil transaction with its partners. “When I assumed duty as the GMD of NNPC, I met the Offshore Processing Arrangement (OPA) and, like you know, there is always room for improvement.

My team and I came up with the DSDP initiative with the aim of throwing open the bidding process,” Kachikwu said. This initiative, he continued, has brought transparency into the crude-forproduct exchange matrix and it is in tandem with global best practices.

https://newtelegraphonline.com/oil-swap-cracks-fgs-direct-sale-refineries-crude/