NNPC’s new crude lifting contracts show subsidy isn’t going away
…Crude valued at $7.1billion offered in swaps
The Nigerian National Petroleum Corporation (NNPC) has issued award letters to oil companies for contracts to exchange crude oil for imported fuel for another one year, a clear indication that the state-run firm, with poor refining capacity is not putting an end to wasteful petrol subsidies.
Oil companies divided in 15 groups, with at least 34 companies in total, including BP/Aym Shafa 2: Vitol/Varo 3: Trafigura/AA Rano 4: MRS 5: Oando/Cepsa 6: Bono/Akleen/Amazon/Eterna received award letters according to a Reuters report.
Others are Eyrie/Masters/Cassiva/Asean Group, Mercuria/Barbedos/Petrogas/Rainoil. UTM/Levene/Matrix/Petra Atlantic TOTSA, Duke Oil, Sahara, Gunvor/Maikifi, Litasco /Brittania-U and Mocoh/Mocoh Nigeria.
The successful companies will sell Nigerian crude to refineries in Asia and Europe and NNPC will also award contracts to import refined products. To keep retail price at N145 per litre, NNPC will continue to absorb a subsidy of between N80 and N100 per litre depending on the cost of oil.
But Nigeria’s crude lifting terms have been shrouded in accusations of corruption because the coveted contracts give investors access to lucrative cargoes with little official monitoring and arbitrage opportunities.
“These export and import transactions yield high levels of fungible returns, and the lack of transparency surrounding them creates considerable opportunities for corruption,” says Alexandra Gillies, an advisor at the Natural Resource Governance Institute, a not-for-profit group, a published study.
Last year, the United States authorities demanded that the US arm of Glencore Plc who often wins NNPC crude lifting contracts to hand over documents relating to its business in Nigeria on suspicion that it bribed Nigerian officials.
According to the terms of the deal in which negotiations began last year, the NNPC is exchanging over 300,000 barrels per (bpd) of crude oil for imported petrol and other products. Over the course of one year, Nigeria will exchange over 109.5 million barrels of crude valued at $7.1 billion at the current price Brent price of $65 per barrel.
Since crude oil sold at an average price of $65 per barrel last year, it means the NNPC offered crude oil worth over $7.1billion in swaps while the National Bureau of Statistics (NBS) said in its first quarter 2019 report that Nigeria imported petrol and other products valued at N3.8 trillion or $12.4 billion on subsidy in 2018.
Beyond the obvious loss in revenue, Nigeria is losing billions it could earn from hundreds of products it could had it added value to refining its crude.
This swap deal belies the claim of Ibe Kachikwu, former minister of state for Petroleum Resources that Nigeria would end fuel importation by 2019. Speaking in an interview on BBC World Service programme, HardTalk, on May 22, Kachikwu vowed he would deliver on the refineries or leave office.
“I have delivered on everything since I came to office. First, I took NNPC and moved them into a profit making organization first time in history and reshaped the organization. I removed cash call deficit of over $6bn, negotiated it. Everything that I have promised since coming into office, I have delivered. I will deliver on the refineries and I am committed to that and I will also deliver a future for oil that makes sense for Nigeria,” he said.
Only oil does not still make sense for Nigeria, when it spends more subsidising petrol than it does on infrastructure, health and education combined. Nigeria’s refineries still process about 5 percent of national output and in January 2019, reported an operating loss of N8.36 billion.
The former minister was being apparently been clever by half as Muhammadu Buhari tenure ends in 2019, he was going to leave anyway, unless re-appointed.
NNPC’s new boss Mele Kyari, whom analysts say was appointed not to muddle the waters has clearly indicated an intention to maintain the status quo.
“We will deliver on the rehabilitation of the four refineries within the life of this administration and support the private sector to build refineries. We will transform Nigeria into a net exporter of petroleum products by 2023”, Kyari said in an address after his official inauguration.
But the NNPC clearly needs a new speech writer as this trite speech was first said by Kachukwu upon his appointment, then repeated by former GMD Maikanti Baru and now the Kyari, the difference being how farther down the road they kick the date of ending petroleum imports into Nigeria.
SOURCE: businessday.ng
