FG favours lo­cal firms in N6.2tr oil con­tracts

Daily Trust - - FRONT PAGE -

Nigeria has awarded most of its long-term oil con­tracts worth an es­ti­mated $40 bil­lion (N6.2tr) a year to lo­cal com­pa­nies, ac­cord­ing to a con­fi­den­tial list seen by Reuters, mean­ing global traders need to part­ner with them to ac­cess crude from Africa’s top pro­ducer.

Global com­mod­ity traders, re­fin­ers and Nige­rian deal­ers jockey at an an­nual ten­der for ac­cess to the OPEC mem­ber’s prized crude oil, which is easy to re­fine and pro­duces more high-value fu­els.

The con­tracts cover around 340 mil­lion bar­rels of oil, worth close to $40 bil­lion an­nu­ally based on cur­rent Brent prices, and run for a year, though they can be re­newed. They were al­lo­cated to just 28 com­pa­nies, ver­sus around 50 in 2012, the last time they were awarded.

In a break with tra­di­tion, no con­tracts were given di­rectly to global trad­ing houses Glen­core Xs­trata , Vitol , Trafigura or Gun­vor, with only Switzer­land’s Mer­cu­ria win­ning a con­tract, ac­cord­ing to a list that four in­dus­try sources ver­i­fied as ac­cu­rate.

The trad­ing com­pa­nies that missed out on di­rect oil con­tracts de­clined to com­ment.

The list, re­leased by the Nigeria Na­tional Petroleum Cor­po­ra­tion (NNPC), is pre­lim­i­nary and sub­ject to re­vi­sion. NNPC of­fi­cials did not im­me­di­ately re­spond to re­quests for com­ment.

“It’s in­cred­i­ble to have an OPEC mem­ber sell­ing its oil this way. There’s one in­ter­na­tional trad­ing house and barely any re­fin­ers on the list,” said a se­nior oil trad­ing source who for­merly bought Nige­rian crude oil.

In­stead, sev­eral Nige­rian oil com­pa­nies fea­tured on the an­nual list for the first time, such as oil trad­ing com­pany Hyde En­ergy, oil and gas firm Spring­field, and Barbe­dos Group, a con­glom­er­ate that also pro­vides lux­ury avi­a­tion ser­vices.

Long-es­tab­lished Nige­rian oil trad­ing firms Taleveras and Ai­teo were also named on the list, which was cir­cu­lated to win­ners last week.

Nigeria’s pol­icy has been to in­crease the role played by lo­cal firms, both in op­er­at­ing oil blocks and trad­ing, with the of­fi­cial aim of end­ing decades of con­trol over the busi­ness by for­eign ma­jors.

How­ever, sev­eral in­dus­try sources said the al­lo­ca­tions fa­vored pow­er­ful busi­ness­men close to Pres­i­dent Good­luck Jonathan’s ad­min­is­tra­tion ahead of what are likely to be closely fought­pres­i­den­tial elec­tions set for Fe­bru­ary next year.

Nigeria is one of a small group of ma­jor oil pro­duc­ers that al­lo­cates its crude di­rectly to trad­ing houses, of­fer­ing mid­dle­men an op­por­tu­nity to make mar­gins through re­selling the crude.

Al­though many large trad­ing houses were ab­sent from the list, they may have other ways of ac­cess­ing the oil.

As in Nigeria’s up­stream sec­tor, where Glen­core re­cently sub­mit­ted a bid as part of a con­sor­tium of lo­cal com­pa­nies for $3 bil­lion in en­ergy as­sets, part­ner­ships with do­mes­tic firms can help global traders get a share of the busi­ness.

Vitol may have in­di­rectly won a share of the Nige­rian ex­ports to mar­ket via a Ber­muda-based firm called Calson, in which it is a mi­nor­ity share­holder.

“It’s not that the Swiss traders are be­ing left out, it’s that they’re forc­ing them to share their pie with the indige­nous com­pa­nies,” said an in­dus­try source.

An­other way for traders to ac­cess oil is to buy the con­tract off a win­ning firm at a pre­mium.

A num­ber of other for­mer win­ners were also ab­sent from the 2014/2015 list, which will take ef­fect from June. China’s Unipec, the trad­ing arm of top Asian re­finer Sinopec Corp <600028.SS>, as well as Az­eri state oil com­pany Socar, were for­mer con­tract hold­ers and did not fea­ture on the new list.

West African gov­ern­ments such as Ghana, Sene­gal, Burk­ina Faso, Sierra Leone and Ivory Coast, which used to re­fine Nige­rian oil in do­mes­tic re­finer­ies, for­merly had con­tracts that were not re­newed, ac­cord­ing to the pro­vi­sional list.

Non-gov­ern­men­tal or­ga­ni­za­tions, such as Switzer­land’s The Berne Dec­la­ra­tion, have crit­i­cized Nigeria’s sales method, say­ing it is opaque and of­fers no guar­an­tee the oil is sold at fair value. The govern­ment has re­peat­edly de­nied there is any lack of trans­parency in the process.

Lon­don-based think­tank Chatham House es­ti­mated in a re­port on Nige­rian oil last year that lo­cal traders could score up to 40 cents a bar­rel, amount­ing to around $5 mil­lion a year on 12 car­goes, just by “flip­ping” the con­tract to a big­ger trad­ing com­pany.

A 2012 study com­mis­sioned by Nigeria’s Oil Min­is­ter Diezani AlisonMadueke and headed up by for­mer head of the an­ticor­rup­tion agency Nuhu Ribadu crit­i­cized the sales sys­tem whereby con­tracts were given to “brief­case traders with lit­tle or no commercial or fi­nan­cial ca­pac­ity”.

Diezani Ali­son-Madueke said at the time that there were no in­for­mal con­tracts and ev­ery­thing was done on of­fi­cial ten­der, not by any dis­cre­tionary awards.

A por­tion of Nige­rian oil is also sold via swap deals whereby crude oilis given in ex­change for im­ported fu­els.

Pro­duc­ers op­er­at­ing in the West African coun­try such as Ital­ian oil group Eni and oil ma­jor Royal Dutch Shell also sell some oil di­rectly or re­fine it them­selves.

Diezani Ali­son Madueke

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