Last week’s replacement by the Nigerian National Petroleum Corporation (NNPC) of the controversial oil bartering programme, the Offshore Processing Arrangement (OPA), that utilised middlemen to pay for refined products from foreign partners in shady deals, with the Direct Sale-Direct Purchase (DSDP) option is seen by many Nigerians and other stakeholders as a welcome development in the nation’s oil industry.
The DSDP is an alternative which allows for the direct sale of crude oil by the NNPC, as well as direct purchase of petroleum products from credible international refineries. Under the former OPA arrangement, the NNPC undertakes to allocate a dedicated volume of crude oil for refining offshore locations in exchange for petroleum products at pre-agreed yield pattern.
The move which is part of President Muhammadu Buhari’s ongoing reform of Nigeria’s oil sector, was “designed to enshrine transparency and eliminate the activities of middlemen” in the swap scheme, NNPC said in a statement.
The NNPC said that the call for commercial bids issued to the 44 shortlisted bidders, comprising 34 international firms and 10 indigenous companies, had been withdrawn. The corporation had only recently opened bids tendered by these companies for the award of the OPA.
In a statement by its spokesman, Ohi Alegbe, the NNPC explained that it came to this position after the evaluation exercise of pre-qualified bidders revealed that most of the 44 companies earlier shortlisted for the next stage of the tender process only had affiliations to refineries abroad, a situation which it described as introducing toll on the value-chain.
The corporation stated that if allowed to subsist, the development would in turn constitute a significant value loss to the federation by way of accruals. It said the new step is designed to enshrine transparency and eliminate the activities of middlemen in the crude oil exchange for product matrix.
“In this regard, only bona fide owners of refineries identified in the ongoing OPA Tender Evaluation process will be further engaged. The identified refineries will be subjected to due diligence and analysis by NNPC-appointed consultants to confirm suitability in line with international best practice,” the corporation said.
The OPAs for petroleum supply was entered into by the NNPC and oil traders between 2011 and 2014 by Goodluck Jonathan government to help meet demand for diesel and gasoline because of a shortfall from under-performing refineries. But instead of meeting this objective, the Crude for Petroleum Products Exchange Agreements, better known as crude oil swaps, and OPAs, became a conduit pipe for siphoning the nation’s wealth by a few officials. The deals have also been identified as being responsible for the abysmally low output from NNPC’s refineries and the high importation of petroleum products into the country.
From 2010 to 2014, Nigeria is estimated to have funneled over 352 million barrels of oil, valued at a total of $35 billion, into oil swap agreements. In a memo to the Senate committee on finance last year, Lamido Sanusi, the former Central Bank of Nigeria governor, described the swap deals as “not properly structured, monitored and audited.” The memo indicated that there was also confusion as to whether the NNPC was receiving proportional value for swapped crude due to the lack of oversight around the deals.
Per the new direct sales-direct purchase process, the NNPC will sell crude and purchase refined products directly from credible global refineries. Middlemen will not be involved, thus potentially saving billions of dollars and reducing the involvement of middlemen. Nigeria has reportedly lost over $900 million to crude oil swap deals between 2009 and 2012. By some estimates, eliminating the swap deals will save Nigeria around 230,000 bpd. At current prices, that’s about $11 million per day saved.
Blueprint commends the Buhari administration’s pragmatic measures of ensuring accountability and transparency in the oil industry, which is Nigeria’s cash cow that has for years been riddled with corruption. We also endorse NNPC’s pledge to keep monitoring oil producing regions with drones to prevent oil theft as well as its introduction of internal podcasts to keep employees abreast of the company’s operations and industry trends.