2 February 2016

Nigeria: Govt Ends Crude Oil Swap Deals

Photo: The Guardian
Crude oil.

The Nigerian government has jettisoned its policy of exchanging crude oil with refined petroleum products, from foreign suppliers, the Minister of State for Petroleum Resources, Ibe Kachikwu, has said.

The controversial crude-for-products arrangement, popularly called crude swap, catered for a part of the country's domestic need for petroleum.

Mr. Kachikwu, who is also the Group Managing Director of the Nigerian National Petroleum Corporation, NNPC, said in its place the government was adopting Direct-Sale-Direct-Purchase (DSDP) arrangement billed to take off from March 2016.

The Minister announced the new arrangement while appearing before the House of Representatives Ad-Hoc Committee set up to investigate NNPC's offshore processing and crude swap arrangements for the period between 2010 to date.

The new DSDP arrangement, he said, was adopted to entrench transparency into the crude oil-for-product transaction by the corporation in line with global best practices.

Under the old order, crude oil was exchanged for petroleum products through third party traders at a pre-determined yield pattern.

The minister stated that the DSDP option would save the government over $1 billion, as all cost elements of middlemen would be eliminated, giving the NNPC the latitude to control crude oil sale and purchase transactions with its partners.

"On assumption as the GMD of NNPC, I met the Offshore Processing Arrangement (OPA). There is always room for improvement. My team and I came up with the DSDP initiative with the aim of throwing open the bidding process. This initiative has brought transparency into the crude-for-product exchange matrix in tandem with global best practices," Mr. Kachikwu said.

"The DSDP initiative whittles down the influence of the Minister in the selection of bid winners as it allows all the bidders to be assessed transparently based on their global and national track record of performance before the best companies with the requisite capacities are selected," he added.

Mr. Kachikwu said the introduction of the DSDP was necessary to reduce the gaps inherent in the OPA and the losses incurred by the NNPC in the past.

The new arrangement, he explained, would help the NNPC to grow indigenous capacity in the international crude oil business and generate employment opportunities for indigenous companies selected.

The DSDP initiative would also give other government agencies, such as the Bureau of Public Procurement (BPP) and Nigeria Extractive Industry and Transparency Initiative (NEITI), the opportunity to be a part of the bidding process in order to engender adherence to due process.

On the alleged non-transparent nature of previous crude oil-for-products exchange arrangements, the Minister assured that the reconciliation process was on-going, adding that going forward the Ministry would deploy technology to track cargoes and trans-shipment at the reception depots in order to forestall any incidence of round tripping.

On the price modulation policy introduced by the Federal Government, the Minister said this would eliminate the burden of subsidy on imported petroleum products.

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