NNPC Signs Revised Oil Swaps

NNPC Tower, Abuja

*NNPC says three new contracts set up after cancellation
* Sources say BP/Nigermed venture also involved in a deal
* Interim contracts to run from October until December-sources
* Cancelled deals to run through September-sources (Recasts lead with NNPC comment, updates in paragraphs 7-9 and 14)

ABUJA, Sept 9 (Reuters) – Nigeria’s state-owned oil company said on Wednesday that it has set up new crude swap contracts to replace those cancelled last month that were vital for bringing in about half of the country’s domestic gasoline demand, confirming an earlier Reuters report.
The Nigerian National Petroleum Corp (NNPC) cancelled the 2015 deals with Nigerian companies Sahara Group, Aiteo Group and NNPC’s trading arm Duke Oil because they were “skewed in favour of the companies”, it said at the time.
Though there is a change to the new contract winners, it’s unclear whether these will be more transparent.
But cash-strapped NNPC has no choice but to continue with some form of swap arrangement. The only other form of gasoline input comes from a fraud-ridden import subsidy scheme and revamping its refining system, neglected for years, has already met crude supply obstacles.
Africa’s biggest oil producer has been hit hard by the sustained slump in global crude prices since last year as oil sales account for the bulk of government revenues.
The cancelled deals will run through September before being replaced by the interim offshore processing agreements (OPAs) between NNPC subsidiary the Products and Pipelines Marketing Co (PPMC) and four joint venture companies, industry sources and a state oil company source said.
NNPC said in an emailed statement that it has secured three OPAs as a “stop-gap…designed to run for three months”.
One of the agreements is with NNPC’s trading subsidiary Duke Oil and the other two with NNPC joint-venture companies, the statement said. One joint venture called Calson is with Swiss trader Vitol while the other called Napoil is with commodities trader Trafigura.
Sources told Reuters that non-incorporated joint venture between oil major BP and Nigermed Ltd was involved in a such a deal and that Duke Oil’s agreement would be done through Sahara Group.
NNPC set up the first swaps in 2010 when it could no longer pay cash for gasoline imports. Facing cash flow problems and refineries that were barely running, NNPC decided to use half of the oil destined for its refining system for the swaps scheme.
The contracts came in two forms: an OPA, whereby a trader takes Nigerian crude to a foreign refinery and returns with the resulting products, and a direct crude-for-product swap.
Calson is new to this scheme while BP and Nigermed previously held an OPA for one year in 2010. Trafigura had a direct contract between 2010 and 2014 while Duke and Sahara have been involved up until now.
The interim OPAs will run from October until December when fresh contracts take over in 2016. PPMC issued a tender on Aug. 31 for new OPAs that closes on Oct. 14, according to a public tender document.
NNPC confirmed that the OPAs would lapse with the start of the fresh contracts without specifying dates.
NNPC at first invited Oando, Sahara, Calson, MRS , Duke Oil, BP/Nigermed and Total to bid for the 2016 contracts before opening up the process to the public. One of the industry sources added that NNPC was seeking to give the new contracts to those with retail stations to speed up delivery and cut out some middle men.
OPAQUE
The 2010-2015 swaps, particularly the OPAs, were widely criticised for their opacity and are now being investigated by the authorities for short-changing the government.
NNPC’s five trading companies including Napoil, Calson and Duke Oil were described as “financial black boxes” by a 2012 presidential task force.
The Natural Resource Governance Institute (NRGI), a U.S.-based watchdog, said the joint ventures’ earnings, kept in offshore accounts, have not been declared by NNPC. The firm has also not explained how they are accountable or share profits.
NRGI said last month that scrapping the 445,000 bpd domestic crude allocation and removing “unqualified intermediaries” would be key to help clean up how NNPC sells its about 1 million bpd share the country’s crude output.
President Muhammadu Buhari is bent on stamping out graft in NNPC and oil theft in the oil-producing delta region, which he pegs at about 250,000 bpd. Nigeria produces just over 2 million bpd.
Tens of billions of dollars in potential oil and gas revenues has been lost or unaccounted for through mismanagement and theft, according to international watchdogs and the Nigerian Extractive Industries Transparency Initiative.