A Review of the Nigerian Energy Industry

Discretion, opacity, fraud, theft dog Nigeria’s oil trade

Diezani Alison MaduekeHector Igbikiowubo

13 December 2013, Sweetcrude, Houston – NIGERIA’s crude oil trade appears consistently dogged by official discretion, opacity, downright fraud and of course theft on a mind blowing scale, the Berne Declaration, Chatham House and the Report of the Petroleum Revenue Special Task Force has disclosed.

“Nigeria is the only major oil producing country that sells 100 per cent of its crude oil to private traders, rather than marketing it itself and benefitting from the resulting added value. A number of beneficiaries of export allocations are nothing but letter box companies whose sole merit is that they are linked to high ranking political officials,” the Berne Declaration report has disclosed.

The Crude Oil Marketing Division, COMD, of the Nigerian National Petroleum Corporation, NNPC, is charged with the responsibility of awarding a number of contracts each year to pre-qualified companies, however, SweetcrudeReports investigation reveals that the list of companies which emerge successful is vetted and approved by both the Minister of Petroleum Resources and Mr. President.

In its report submitted to Mr. President last year, the Petroleum Revenue Special Task Force described beneficiary companies of this yearly award as ‘briefcase traders with little or no commercial and financial capacity’.

Another Chatham House report noted that only 25 to 40% of the holders of export allocation for Nigerian crude oil actually have ‘the capacity or will to finance, ship and sell their own cargoes directly to refiners with all the market and price risk involved. Most of the remaining ones are briefcase companies – small entities which sell their allocations of crude to the main traders for a margin, most often at the higher end of $0.25-$0.40 per barrel in 2014’.

Government/NNPC reaction
An NNPC staff who pleaded anonymity but graciously spoke on award of allocation noted that most of the companies lifting Nigerian crude oil are acting as fronts for political office holders and power brokers.Efforts to get a reaction from both the Minister of Petroleum Resources, Diezani Alison-Madueke and spokesman to Mr. President, Dr. Reuben Abai proved abortive at the time of filing this report.
Even a text message sent repeatedly to both parties three weeks ago failed to elicit any response at the time of filing this report.

The only semblance of a response to this came in a statement released by Ms. Tumini Green, the erstwhile Acting General Manager, Public Affairs Division of the NNPC, claiming that it was common knowledge that the call for tender for oil lifting contract is published periodically ‘by almost all the newspapers in Nigeria’.

She said that in practise the Corporation sells Nigerian Government equity crude oil to lifters/traders engaged on Annual Term Contract basis, adding that at present, there are about 50 of such contracts.

Opaque awards system
The Berne Declaration noted that the yearly award of allocation to lift crude oil is done under obscure conditions and on the basis of criteria that are unknown outside the restricted circle of decision makers.“Traders are allowed to choose the most lucrative pricing option for individual cargoes retroactively and there is a question of whether favoured traders may receive subsidized prices well below market.

The lack of transparency in Nigerian crude sales encourages fraudulent activities,” the Report of the Petroleum Revenue Special Task Force further disclosed.In the last few years, the financial operations of the NNPC has become more deeply shrouded in secrecy, with the corporation withholding revenue receipt from sale of crude oil to state coffers.

The corporation performs numerous roles and is into all manner of partnerships that have been severally described as ‘operational and financial black boxes.

Oil theft
Nigeria’s Bonny Light, stolen and traded openly on the west Coast goes for as low as $68.84 per barrel, our investigations revealed in August.
SweetcrudeReports went undercover posing as a buyer and was offered 70,000 metric tons (about 522,900 barrels) of Bonny Light at $36 million (about N5.6 billion), or $68.84 per barrel.

The seller offered to deliver the cargo to us offshore Cotonou and was willing to accept either a bank guarantee or letter of credit as payment.

The seller whom SweetcrudeReports gathered was acting on behalf of a cartel, assured that they could deliver same volume on a monthly basis.

Although Dr. Ngozi Okonjo Iweala, the Minister of Finance and head of the economic management team had disclosed that the country loses over 400,000 barrels of crude oil per day to theft, our investigations that loses incurred by the state is actually in excess of 540,000 barrels per day.

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