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FG Invites New Contractors For Oil Swap Deals

President Muhammadu Buhari has cancelled the controversial crude swap arrangement with some trading and marketing companies in the country and invited bids for a new set of contractors for a new deal

…Duke Oil, Aiteo, Sahara out

…Oando, Calson, MRS, BP/Nigermed, Total in

In what appears to be an elimination of contractors associated with the past PDP led administration, President Muhammadu Buhari has cancelled the controversial crude swap arrangement with some trading and marketing companies in the country and invited bids for a new set of contractors for a new deal.

In a statement yesterday, Nigerian National Petroleum Corporation (NNPC) declared that it has also begun a new process for engagement of new contractors for crude oil lifting for 2015 through 2016. Spokesman for NNPC, Mr. Ohi Alegbe, stated in a release later that the contract cancelation was part of new measures aimed at cost reduction and strengthening of operational efficiency across the corporation’s value chain.

He said the existing crude swap contracts no longer deliver on cost savings “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.” He added that “the Corporation has cancelled the current contract due to exorbitant cost and inappropriate process of engagement.”

In a statement, NNPC announced the termination of the Offshore Processing Agreements (OPA) entered with three companies, namely- Duke Oil Company Inc., Aiteo Energy Resources Limited and Sahara Energy Resources (Nig) Ltd. In justifying the cancellation of the Offshore Processing Arrangement it entered with the traders, NNPC stated that the last SWAP arrangement lapsed in December, 2014 and was never renewed.

In the interim, NIDAS Marine Limited has been mandated to run crude oil lifting contracts recovered from the cancelled deals pending the appointment of new contractors that would take over from those that worked with past administration of the Federal Government.

Under the agreement NNPC allocates 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.

“However 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,’’ the corporation said.

The corporation stated that the structure of the agreements does not guarantee unimpeded supply of petroleum products , saying the delivery terms were not optimal.

To address these lapses, NNPC declared that it has commenced the process of establishing alternative OPA 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,’’ the NNPC stated.

The NNPC also declared that it has 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.

“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,’’ the Corporation stated.

The Corporation noted that the process which would commence with the advertisement of the Crude Oil Term contract in both National and International print media for a period of one month has been carefully structured to weed out “briefcase companies’’ and rent seekers. 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.

The UNION reports that the crude swap deals were designed to supply the government subsidized petroleum products including petrol and kerosene at low cost following the low capacity availability at the nation’s domestic refineries and consequent reliance of the domestic fuel market on massive importation.

Thus, some 445,000 barrels per day of crude oil which equals the total capacity of NNPC’s refineries form the basis for the swap contract but the volume of bartered oil is supposed to drop in proportion to capacity recovery at the three domestic refineries located in Port Harcourt, Warri and Kaduna.

Under the crude swap arrangement, trading companies cleared by the corporation for crude oil lifting contracts are engaged in a deal to pay for certain volumes of their crude offtake with specified volumes of refined petroleum products of proportionate value. The swap entails offshore refining of crude oil allocated to refineries owned by NNPC and importation of refined products, allowing the refiners and trading companies reasonable margins.

The offshore refining model was evolved as cheaper alternative to buying products at market determined prices, especially during the high oil prices in the past decade. It eliminated the economic disadvantages associated with massive foreign exchange depletion associated with high volume fuel importation, trade imbalances and low quality fuel.

However, the arrangement was caught in a spate of allegations of sharp business practices and public outcry against alleged financial losses that run against the economic objectives of the model.

The ruling All Progressives Congress (APC) had played hard on the allegation to win votes that brought it into power, making review of the arrangement highly expected. Presidential spokesman, Mr. Femi Adesina, had told offshore media that President Buhari was not happy with the deals with the existing contractors, adding that the president approved cancellation of the contracts.


-Sopuruchi Onwuka


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