President Muhammadu Buhari has cancelled offshore processing and oil swap deals put into operation in January this year by the immediate past administration of Dr. Goodluck Jonathan. The agreement was earlier billed to last till December 2016.
President Buhari’s approval is sequel to a request of the new management of Nigerian National Petroleum Corporation (NNPC) to ensure transparency and due process.
In a memo to the President on August 12, the NNPC sought approval to terminate all such current contracts following a presidential directive. “This memo purports to seek Mr President’s approval to terminate all current Offshore Processing and SWAP contracts and commence a fresh re-tendering process to ensure transparency, due process and optimized contract terms in favour of the NNPC,” stated the letter signed by Ibe Kachikwu, the Group Managing Director of NNPC.
Responding, the president approved the request in a memo dated August 13 and signed by the Permanent Secretary of the State House, Nebolisa Emodi. The NNPC currently swaps a part of its allotted 445,000 barrels of crude per day to some oil companies and in return receives refined products.
Oil swap derives from the fact that Nigeria’s four refineries operate mostly below 50% installed capacity and since 2003, the NNPC has continued to allocate them 445,000 barrels of crude oil per day, which corresponds to 100% capacity. The oil swaps have come under criticism following allegations that they have been opaque and the government has been short-changed in the deals.
In its audit between 2009 and 2012, the Nigerian Extractive Transparency Initiative (NEITI) revealed that crude oil swap arrangements are not cost- effective, especially when compared to product prices and proceeds paid to the NNPC. The audit exposed under-delivery of products by companies awarded such swap contracts to the tune of $866.189 million, and that this comprises Refined Products Exchange Arrangement of $500.075 million and Offshore Processing Arrangement of $366.114 million.
Civil society groups had repeatedly called for an end to the oil swap deals while also urging the Nigerian government to allocate to local refineries crude product based on operating capacity and the difference should be sold directly as crude. The Africa Network for Environment and Economic Justice (ANEEJ) had in an advocacy position paper sent to the House of Representatives Committee on Petroleum (Downstream) called on the National Assembly to do all in its powers to end oil swaps in Nigeria.
The House has, however, failed to progress on a motion moved in June by Michael Enyong (Akwa Ibom) seeking an “urgent need for a forensic investigation of the contracts known as Refined Product Exchange Agreement or Swap Contract.” The lawmaker had alleged that Nigeria has lost considerable revenue due to leakages in the accounting system and mismanagement of the economy.
“There is the need to ensure transparency and accountability by the NNPC in the management of revenue accruing to the nation from crude oil, particularly in the prevailing circumstances where major buyers of Nigeria’s crude oil such as the United States has discovered alternative sources,” he said.
With the presidential approval, the NNPC is expected to formally trigger the exit clauses in the current OPA contracts in order to close them and commence a fresh re-tendering process aimed at getting more favourable deals for the government.
