Leadership (Abuja)

Nigeria: Reps Probe - Nigeria Loses U.S.$8 Billion Yearly to Crude Oil Swap

Nigeria loses a staggering $8 billion yearly to the Crude Oil-Product Exchange, otherwise known as crude oil swap arrangement.

This was revealed at a joint House of Representatives Public Hearing into alleged shady transactions between the Nigerian National Petroleum Corporation (NNPC) and two top oil companies in Switzerland, Vitol and Trafigura.

In the crude swap deal, oil trading companies are allowed to lift crude oil in exchange of petroleum products such as petrol, diesel and kerosene.

The joint House Committees on Petroleum Resources Uptream, Downstream and Justice conducting, the probe observed that in most cases, some of the companies involved lift crude oil without commensurate product being supplied.

According to documents obtained by LEADERSHIP from the committee, the NNPC allocated 445,000 barrels of crude oil per day to the following companies: Vitol Ltd, Trafigura, Mercuria, Glencore, Taleveras Nigeria Ltd, Sahara Energy Ltd, Etenal Oil and Gas Ltd, Aiteo Nigeria Limited, Ontario Oil and Gas and Rahmaniya Oil and Gas.

The joint committee remarked that Nigeria loses $8 billion yearly in under-delivered products from the crude oil swap arrangement.

Again, based on a report submitted by the Nigeria Extractive Industries Transparency Initiative (NEITI) and obtained by LEADERSHIP, four of the oil trading firms "under-delivered" products in 2011.

They are: Trafigura (173,786,600 litres); Trafigura (654,440.7 litres); Taliveras (152,308,878 litres); Aiteo Nigeria Limited (193,046,590 litres) and Ontario Oil and Gas (180,278,732 litres).

The total under-delivered products according to NEITI amounted to 500,075,239.3 litres in 2011.

The crude swap deal based on the report from NEITI is a drainpipe as Nigeria has lost huge revenue. It was also alleged that some of the oil trading companies owed the NNPC products worth over $800 million.

It was further alleged that Duke Oil Company (a 100 per cent subsidiary company of NNPC) was brought in as a middle player to protect some of the local companies being used in the deal.

However, the NNPC in a presentation at the Public Hearing stated that the crude oil-refined products exchange agreement with Duke Oil Company started in February 1, 2011. PPMC allocates 90,000 barrels of crude oil to Duke Oil Company in exchange for the delivery of refined products equivalent to value of the Crude Oil.

According to NNPC Duke Oil Company operates and manages the swap arrangement my loading three cargoes through its nominated operators Messrs Aiteo Energy Resources Ltd, Ontario Oil and Gas Ltd and Taleveras Group. Each company handles 30,000 barrels per day crude oil contract which represents one cargo of about 950,000 barrels per month and delivers an equivalent value of refined petroleum products in cargo sizes of 27,000MT tto 38,000MT, or as maybe agreed by both parties on behalf of Duke oil.

The NNPC stated that at the time of the contract to Duke Oil in 2011, the company did not have sufficient capacity to operate the contract. It therefore subcontracted the 90,000bpd to the nominated operators Messrs Aiteo Energy Resources Ltd, Ontario Oil and Gas Ltd and Taleveras Group to operate the contract at the rate of 30,000 barrels per day per company.

Berne Declaration:‎ $6.8 Billion Oil Scam

Meanwhile, the NNPC yesterday opened up on its alleged shady transactions with the Swiss oil firms, insisting that the loss of $6.8 billion (as alleged in a 2013 report) in its transactions with the Swiss oil firms was not a "remote possibility".

A November 2013 report titled "Swiss Traders' Opaque Deals in Nigeria", published by Berne Declaration, a Switzerland-based non-governmental advocacy group alleged among others that Nigeria loses yearly "billions of dollars" as large volumes of oil are exported below the market price, and the subsidy scheme for imports of refined crude oil products is systematically defrauded.

The report accused Swiss firms, Vitol and Trafigura, of colluding with NNPC to siphone subsidy payments to the tune of $6.8 billion in two years, an allegation a joint House of Representatives Committee yesterday opened an investigative Public Hearing to verify.

Speaking at the House hearing, NNPC Group Managing Director, Andrew Yakubu at debunked the claim by the Bernes Declaration that the NNPC in collaboration with Swiss Oil Trading Companies disposed the country's crude oil at prices lower than market value.

"We submit that our pricing strategy is aligned to international best practice in the industry. Our prices are based on a reference to the bench mark crude Brent whose prices are published by Platts for the international trading community," Yakubu told the joint House Committe probing the NNPC transaction.

The NNPC GMD said the corporation's pricing strategy apply to all buyers of Nigerian crude based on the terms prescribed in the General Sales Agreement entered by all parties.

"we see no remote possibility of the loss of USD6.8 billion from sales below market value to the companies described by the petitioners as "Swiss Trading Companies".

On the alleged sale of 36 per cent of total country's crude oil to Vitol and Trafigura, the NNPC GMD rejected allegations that the NNPC unduly favoured the Swiss firms.

He said by the corporation's records Vitol and Trafigura account for 30.7 million barrels out of the total of 341.07 million barrels disposed by the Corporation in 2013 lifting.

"The lifting of Trafigura and Vitol in 2013 therefore represents 9% of the total lifting as against 36% reported by the "Bernes Declaration". Additionally Nigerian traders collectively account for 98.2 million barrels during the same period. The other international traders including the "Swiss Trading Companies" account for 61.2 million barrels while off-shore and the Nigerian refineries took 36.2 and 38.3 million barrels respectively."

He said the selection of buyers of Nigerian crude are done on transparent and competitive basis that seeks to establish financial and technical capabilities, promotion of Nigerian Content and general quality safety assurance.

On the allegation by Bernes Declaration that 100 per cent of Nigerian crude are disposed through Private Trading Companies rather than the Corporation selling directly to the market with attendant loss of trading margins, the NNPC GMD said the country's marketing strategy of the disposal of Nigerian crude is sale on Free-on-Board (FOB) basis.

He said the model allows the transfer of delivery risk to off-takers at the loading port and is standard practice by most National Oil Companies (NOCs).

On the sale of un-utilised Crude Oil at knock down prices to Swiss Companies through the Crude Oil-Product Exchange ("Swap Arrangement"), the NNPC GMD stated that the claims by the Bernes Declaration are "baseless and without material substance".

He requested the House Committe to set aside the allegation "in its entirety".

"The Swap Arrangement referred to by the Bernes Declaration is a known practice in the industry where equivalent value of product is exchanged for crude oil offtake. This is a typical procurement strategy for supply constraint but resource dependant nations to hedge for supply security challenges. It is to be noted that the NNPC delivers the international market value of the crude to the Federation on the basis of the General Sales Agreement and Conditions. There is therefore no value loss to the Federation".

The Public Hearing continues today.

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