NNPC finally cancels its shady oil swap deals

*Abandons OPA for DBDS [Direct-Buy-Direct-Sell] mechanism*

The Nigerian National Petroleum Corporation (NNPC) has canceled a controversial oil bartering program and will start selling and buying oil and petrol directly to cut out middlemen and curb graft, the new managers of the Nigerian National Petroleum Corporation [NNPC] announced Tuesday night.

The major policy shift abandons the use of middlemen to pay for refined products from foreign partners in opaque deals and fits new President Muhammadu Buhari’s plan to halt endemic corruption in the industry. 

The Offshore Processing Arrangement for petroleum supply was set up to help meet demand for gasoline and diesel due to a shortfall from underperforming local refineries. But the swap deals gained notoriety in the last six years under president Goodluck Jonathan’s administration with former petroleum minister Diezani Allison-Madueke overseeing the process.

Between 2010 and 2014, Nigeria is estimated to have channeled over 352 million barrels of oil worth a total of $35 billion (pdf) into oil swap deals. The country reportedly lost more than $900 million to crude oil swap deals between 2009 and 2012 alone. 

Allison-Madueke was arrested in London last month on allegations of bribery and corruption.

The process has been widely criticized for being dubious and opaque with the state oil firm and its trade partners closely guarding the flow of information on oil swap deals.

In an NNPC statement made available to Elombah.com yesterday, the GMD, said only the bona fide owners of Refineries identified in the ongoing OPA tender evaluation process will be further engaged.

The shift is “a major steer designed to enshrine transparency and eliminate the activities of middlemen in the crude oil exchange,” said the statement from the corporation’s new management. 

“The identified refineries will be subjected to due diligence and analysis by NNPC’s appointed consultants in line with best practices. Consequently, the call for commercial bids issued to the 44 shortlisted bidders is hereby withdrawn.”

Lamido Sanusi, the former Central Bank of Nigeria governor, described the swap deals as “not properly structured, monitored and audited” in a memo to the Senate committee on finance last year. There was also a lack of clarity as to whether the NNPC was getting commensurate value for exchanged crude given the lack of oversight around the swaps.

The new direct sales-direct purchase process will now see the NNPC sell crude and buy refined products directly from credible international refineries without the involvement of middlemen thus severely reducing corruption and potentially saving billions of dollars. By some estimates, cutting out the swap deals will save Nigeria around 230,000 barrels a day—about $11 million daily with current oil prices.

The move is also expected to plug major leakages in the petroleum industry.

Ohi Alegbe, spokesman of NNPC has said scrapping the swap deals will “enshrine transparency and eliminate the activities of middlemen in the crude oil exchange for product matrix”.

A statement from spokesman Ohi Alegbe said the decision was made after a screening of previously used and prequalified petroleum product importers revealed almost all the 34 international and 10 local companies were middleman businesses.

President Buhari has said that major reforms in the oil industry will be one of his administration’s goals and as he looks to clean up an industry that is the country’s biggest revenue source.

Under Buhari’s watch, NNPC’s new boss Ibe Kachikwu seems determined to change the culture of the national oil company by championing transparency and accountability. As well canceling the controversial oil swap deals, NNPC has promised to police oil producing areas with drones to prevent oil theft and introduced internal podcasts to keep staff updated on NNPC’s operations and industry trends.

One of Buhari’s first acts as president was to fire all the old managers.

Corruption that thrived under Jonathan’s watch had favored officials being sold entire shipments of crude at favorable rates so they could pocket the profits. 

www.elombah.com

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