The Nigerian National Petroleum Corporation, NNPC, has reportedly selected 16 consortia for its new crude-for-fuel swap contracts for one year starting in August.
The list includes major trading firms Trafigura, Vitol and Mercuria, oil major Total TOTP.PA as well as large Nigerian traders like Sahara Energy SAH.V, Oando OANDO.LG and MRS Oil, reports Reuters quoting credible Industry sources.
The contracts, known as direct sale, direct purchase (DSDP) are coveted since they are used to supply nearly all of Nigeria’s gasoline needs as well as cover some of its diesel and jet fuel consumption.
Oriental News Nigeria, reports that the NNPC turned to swaps in 2010, in part to avoid domestic fuel shortages.
By that time, its refineries were working at only around 20 percent of capacity and PPMC had incurred over $3 billion in debts to fuel importers under the open account system that it could not pay.
Some of the bills were 1,000 days overdue and by 2011, banks were unwilling to finance more open account imports. This left the corporation in need of a new mechanism for importing petrol and kerosene gasoline.
In response, NNPC entered into two different types of swap agreements. The first is a crude-oil-for-refined-product exchange agreement (RPEA). Under an RPEA, crude is allocated to a trader, and the trader is then responsible for importing specified products worth the same amount of money as the crude, minus certain agreed fees and expenses, the value of which the trader keeps.
By early 2011, government had signed four RPEAs with commodities traders.
The second type of swap is an offshore processing agreement (OPA). Under this type
of deal, the contract holder either a refiner or trading company is supposed to lift
a certain amount of crude, refine it abroad, and deliver the resulting products back to NNPC.
The contracts lay out the expected product yields (i.e., the respective amounts of diesel, kerosene, gasoline, etc.) that the refinery will produce. The refining company also can pay cash to NNPC for any products that Nigeria does not need. In 2008, as fuel shortages worsened, NNPC issued a tender for an OPA and signed one with BP affiliate Nigermed late in 2009. The following year, PPMC signed another OPA with the Ivorian state-owned re ning company Société Ivoirienne de Raf nage (SIR).