By Innocent Edemhanria
Nigeria currently swap a part of her 445,000 barrels of the (daily) domestic crude oil allocation to refineries with some oil companies and in return receive refined products – under one of the most opaque process ever known in commercial and bilateral relations. Oil swap derives from the fact that Nigeria’s four refineries operate mostly below 50% installed capacity and since 2003, the NNPC has continued to allocate them 445,000 barrels of crude oil per day, which corresponds to 100 % capacity. This means that a balance of about 222,500 barrels a day has to be exported. Part of this balance is exchanged for refined petroleum products, within the framework of ‘SWAP contracts’ (exchange of crude oil for petroleum products). Over the years some of the companies that have benefited from this “deal” include Trafigura, Napoil, Ontario Oil and Gas, Taliveras and Aiteo Nigeria Limited. This “trade” has become another form of oil theft in the country and the in-coming administration of Gen. M. Buhari should take the necessary steps to end it.
But the question that readily comes to mind regarding this process is, what happens to the by-products of the swapped crude for petrol (PMS), diesel (AGO) and kerosene (DPK)? I believe the Ministry of Petroleum Resources is in a better position to answer this question and Nigerians should demand such answers instead of allowing the trade to proceed unquestioned.
The Nigerian Extractive Transparency Initiative (NEITI), oil and gas audit report covering 2009-2011, revealed that crude oil swap arrangements are not cost effective, especially when compared to product prices and proceeds paid to the NNPC. The report specifically pointed out the under-delivery of products by companies awarded such swap contracts to the tune of $866.189 million, adding that this comprises Refined Products Exchange Arrangement of $500.075 million and Offshore Processing Arrangement of $366.114 million.
A report titled “Swiss Traders’ Opaque Deals in Nigeria”, published by Berne Declaration, BD, a Switzerland-based non-governmental advocacy group in 2013, noted that some Swiss traders are allocated by the NNPC a major proportion of the crude oil that the four refineries in the country do not manage to process. The BD identified problematic aspects in the way in which Nigeria exports its crude oil through the intermediary of Swiss traders. The report specifically said that “Every year, the Nigerian State coffers lose billions of dollars as large volumes of oil are exported for well below the market price, and the subsidy scheme for imports of refined crude oil products is systematically defrauded.”
Although the NNPC has disowned the Berne Declaration report, civil society groups have continued to call for an end to oil swap deal while also urging the Nigerian government to allocate to Nigerian refineries crude product based on operating capacity and the difference should be sold directly as crude. Alternatively, the refineries should be made to operate at full capacity while new ones should be built over a period of time such that the country would no longer import petroleum products for domestic use.
The Africa Network for Environment and Economic Justice (ANEEJ) had in an advocacy position paper to the House of Representative Committee on Petroleum (Downstream) in October, 2015, over the on-going 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 Nigeria.
The paper called on the National Assembly to commit to leading Nigerian citizens to fight oil swap practice, by pushing for investigation and prosecution of Nigerians involved in this opaque dealing. This is necessary because the complicity of insiders within NNPC, oil companies and government, and the tendency to act contrary to laid down rules and procedure, has become the cracks surviving crude oil swap business.
Already, a recent report by Sahara Reporters entitled “Oil Swap Fraud: Aiteo, Alleged Front for GEJ & Diezani, In Buhari’s Cross-hairs” suggested that Aiteo is alleged to be a front for some corrupt activities of President Jonathan and the Petroleum Resources Minister, Diezani-Alison Madueke. The report reads in part “As Nigeria’s new President-elect Muhammadu Buhari and his party get ready to take over power, State Nigerian National Petroleum Corp. (NNPC) officials, oil traders and upstream players alike are bracing for a raft of investigations into deals approved by outgoing President Goodluck Jonathan’s regime
Whether this report is true or not, the fact remains, that crude oil swap contract especially as being currently practiced in Nigeria negates known measures of international best practices and should therefore be stopped. Already, Trafigura Beheer BV, one of the companies fingered in the BD Report in a bid to maintain her external reputation has bowed to pressure from CSOs to stop swap contract with the NNPC because the long-standing deal to exchange gasoline and other petroleum products for crude oil had drawn criticism from the Berne Declaration and other NGOs: it took place outside the bank system and the oversight of regulators who supervise bank lending for commodity trading transactions. The organization has equally embraced the EITI principles