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Why all eyes will be on NNPC’s 2019 DSDP deal

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With uncertainty surrounding elections period over and 2018 extension contracts scheduled to end next month, all eyes will be on Nigerian National Petroleum Corporation (NNPC) who announced 132 firms had bided for the right to swap the nation’s crude oil.

The tender first issued in March, will see stakeholders keep an eagle eye on the one year contracts, dubbed Direct sale, Direct purchase (DSDP) which NNPC introduced to replace its controversial swap contracts is considered quite lucrative, hence the keen interest in those who win the contracts.

Each of the eventually successful companies will be allocated some of the 445,000 barrels per day of Nigeria’s crude oil originally meant for domestic refining. The crude oil is being allocated because Nigeria is unable to locally refine such volume.

Even though the DSDP contracts are considered more transparent than the swap contracts which it replaced, sources are still questioning the mode of selection of the winners as some complain that the winners were selected by senior government officials in the Presidency.

Luqman Agboola head of energy  at Sofidam capital Limited said a number of factors will be playing out this time, including a Nigeria content law, which gives an indigenous company an upper edge when competing with an international firm because its believe the local firm is incurring more cost in terms of cost of funding, capacity and infrastructure to grow.

“The government is beginning to get smart and has realized they will rather deal with Nigeria players who will keep its mouth shut after dealings rather than foreigners that will one day go and confess to giving or collecting something at Transparency international or Foreign courts,” Agboola told BusinessDay.

Also a report titled Securing Fair Value from Nigeria’s DSDP Contracts from Natural Resource Governance Institute (NRGI) admitted NNPC has jettisoned many of the worst features of the costly oil-for-product swaps of the Jonathan era in its first round of DSDP deals.

“Management put in place a more professional contract that is more balanced and less susceptible to abuse. The improved terms and management of the 2016 contracts are among the most concrete signs of improved oil sector governance under President Muhammadu Buhari,” NRGI said.

However, NRGI ask NNPC to consider additional, important reforms such as publish a summary of key terms for DSDP contracts, commit to publishing future commodity sales contracts, including all DSDP contracts and adopts the Argus Eurobob oxy benchmark for pricing gasoline delivered under the 2017 contracts.

“Develop stronger anti-corruption due diligence systems for vetting bidders as part of the selection process, commit to collecting and disclosing beneficial ownership data in future DSDP and other contract awards, publicly explain the process for allocating oil among new contract holders and publish per-cargo oil sales data on a regular basis in 2017, to show which contract holders are receiving oil,” said Aaron Sayne, a senior governance officer at the Natural Resource Governance Institute.

At the 2019 DSDP bid opening ceremony in Abuja, NNPC’s Managing Director, Maikanti Baru, noted that since the introduction of the scheme in 2016, 29.5 million metric tons (39.6 billion litres) of petroleum products had been supplied on the platform, representing over 90 per cent of the national requirement.

“The scheme prides itself with a competitive pricing framework (lower than the PPPRA benchmark), which over the years has ensured a significant reduction in product demurrage cost in the range of 84 per cent and cost saving of about $2.2 billion (N673.2 billion),” Baru said.

The DSDP scheme was introduced in 2016 to replace the erstwhile 2015 crude oil Offshore Processing arrangement (OPA) contracts after they were found to be mired in corruption.

Last year, NNPC awarded 50 companies with contracts to buy Nigerian crude, with more than half being firms indigenous to Nigeria, spurring speculations it’s meant to win political points in view of 2019 general elections.

Of the 50 companies, 32 were local companies, doubling the number of awards to Nigerian firms compared to 2017. NNPC awards the oil purchase contracts annually, but the deals last year were for one and the half years not one year, this is partly because 2019 is an election year.

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