26 August 2015, Abuja – Following President Muhammadu Buhari’s approval to the Nigerian National Petroleum Corporation (NNPC) for the cancellation of the offshore process contracts and crude oil swaps, the state-run oil firm has started the process of setting out new terms for the selection of new traders for the oil swap programme.
Speaking on the cancellation, a top NNPC official said though the president had approved the Group Managing Director, Dr. Ibe Kachikwu’s request to cancel contracts, it had not been communicated to the traders.
He disclosed however that part of the criteria for the selection of new traders would require that they either own and operate refineries or have access to refining capacity while Nigerian companies would be required to show evidence of depots and retail services to make the shortlist.
The official clarified that the terms for the selection process was still a work in progress and would be expanded to ask traders to provide evidence of their financial capability by meeting a minimum capital base, among other requirements.
But the minimum capital base, he explained, has not been determined as NNPC was still working on the criteria that would ensure that “arm chair contractors” are eliminated.
“We intend to make the re-tendering process very transparent once we are done with the terms that traders will have to meet, and this will be advertised in the local and international media for the world to see,” he said.
The cancelled swaps were initiated in January by the Goodluck Jonathan administration and were to last till December 2016. The swaps are designed to supply primarily petrol and kerosene in exchange for crude, as Nigeria relies on imports for the bulk of its domestic consumption.
Nigeria is often chronically short of fuel, as its neglected refining sector operates well below capacity. In order to meet the refining shortfall, NNPC allocated 210,000 barrels per day of crude to swap for products in 2015 to Sahara Energy, Aiteo, Ontario Oil and Gas, and Trafigura.
Reuters quoted a source at NNPC as stating that the president cancelled contracts for roughly half of the 445,000 barrels per day of crude earmarked for Nigeria’s refineries — the amount traders use in the products swap deals.
“The government may not have completely dumped the idea of swaps but the aim is to re-evaluate the whole contracts terminated to extract some favourable terms,” the source told Reuters.
Crude-for-products swaps became controversial after several Nigerian officials raised questions about their transparency, including the Nigerian Extractive Industries Transparency Initiative (NEITI), an EITI affiliate.
The Department of State Security Services (DSS) in June launched an investigation to determine whether the government had been short-changed in the scheme. The outcome of the investigation is yet to be announced.