Nigeria’s state oil firm NNPC Ltd is winding down the highly controversial and fraud-prone crude swap contracts with traders in 2016 and will now pay cash for gasoline imports, its chief executive told Reuters, adding that private companies could begin importing petrol as soon as this month.
The move is part of new Nigerian President Bola Tinubu’s plans to deregulate and clean up the mess in the gasoline market . It will in addition reduce the burden on government finances.
Tinubu has already scrapped a costly fuel subsidy, effective from last Tuesday, a decision which tripled petrol prices, angering labour unions who have called for a strike starting on Wednesday if the decision is not reversed.
NNPC has been importing gasoline from consortiums of foreign and local trading firms and repaying them with crude oil via what are known as Direct Sale Direct Purchase (DSDP) contracts since 2016 because it does not have enough cash to pay for the purchases, data and trading sources said.
“In the last four months we practically terminated all DSDP contracts. And we now have an arm’s-length process where we can pay cash for the imports,” Kyari told Reuters in an interview late on Saturday.
This is the first time NNPC has said it is terminating crude swap contracts. By importing less gasoline as private companies import the bulk, NNPC will be able to pay for its purchases in cash, Kyari said.
Nigeria is Africa’s biggest crude producer but imports most of its refined products after running down its refineries.
A significant drop in oil production last year coupled with high global fuel prices due to the war in Ukraine pushed NNPC’s debt to traders higher. It owed the consortiums about $2 billion, a September 2022 NNPC report to the Federation Account Allocation Committee shows.
An industry source with direct knowledge of the matter said NNPC was still allocating crude for fuel swaps for July loading, though less than in previous months. In its report detailing March crude oil loadings, NNPC also allocated crude to the swap contracts held by the consortiums.
Kyari said NNPC’s monopoly on gasoline supplies was ending and private firms could start importing as early as this month.
Kyari said Nigeria’s total crude and condensate output was at 1.56 million barrels a day (bpd) as of Friday. Nigeria has struggled to meet its OPEC oil quota of 1.742 million bpd due to grand oil theft and illegal refining.
Read also: NNPC to end oil swap contracts, embrace cash payments for petrol imports
That has raised doubts on whether Nigeria can meet supplies for the 650,000 bpd newly commissioned Dangote Refinery. NNPC has a contract to supply 300,000 bpd to the refinery.
In May last year, NNPC had picked 16 consortia under a Direct Sale, Direct Purchase (DSDP) contract to receive crude, refine it and in turn import petroleum products into Nigeria to meet the demand for Premium Motor Spirit (PMS), jet fuel and diesel. To comply with local content standards, international partners were merged with Nigeria companies under the DSDP arrangement but the deal backfired with the importation of methanol-blended PMS by about five different consortia under the deal. Methanol (alcohol) although used by some countries in blending low-level fuel, was never part of the approved PMS specification for Nigeria.
PMS imported into the country is expected to be unleaded with specific gravity 60°/60F standing a limit of 0.757-0,77 max; distillation range (oC) was expected at a limit of 35-205; 10 per cent evaporated (OC) is capped at 70 max; 50 per cent evaporated was 125 max; 100 per cent evaporated (OC) was expected at 180 max; FBP evaporated (OC) was limited to 205 max while residue per cent volume was capped at two max.
Additionally, the odour was put at merchantable, colour put as orange like and total Sulphur was capped by the Standards Organisation of Nigeria in 2017 at 150PPM. Other properties included copper corrosion, ratio: T36°C of 68 max; existent gum (mg/100ml) of four max; oxidation stability (min.) was put at 360 minutes; knock rating (RON) at 90 minutes and RVP (Vapour pressure) (psi) at 90 max.
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