The controversy concerning dirty petrol has exposed more rot in Nigeria’s opaque oil contracts as latest findings reveal middlemen involved in crude oil swap are exploring the system to short-change the Nigerian National Petroleum Corporation (NNPC) and ensure Nigerians remain hooked on cheap fuel.
Sources close to the business contract tell BusinessDay that the petrol cargoes shipped to Nigeria from Antwerp, Belgium were not under the contentious direct sales direct purchase (DSDP) arrangement but under a more opaque contract, seen for the first time in the history of Nigeria’s petroleum sector.
“Under the DSDP contract, NNPC sells its crude oil to selected middlemen for refined petroleum products. But the contract of dirty petrol saga showed NNPC sold its crude oil to middlemen who sell the product to an international buyer, making super profits thereafter proceeds to get cheap petrol from another refiner in Europe,” a source who has access to the details of the contract says.
According to the source, “This means the number of briefcase companies or middlemen involved in the value chain of Nigeria’s petroleum sector is increasing every day.”
This development contradicts the claim by the group managing director of NNPC, who said the four petrol cargoes with methanol-blended petrol came in under the DSDP arrangement.
“Investigation revealed the presence of methanol in four petrol cargoes imported through the DSDP suppliers including the consortium MRS, Emadeb Consortium, Oando Consortium, and Duke Oil,” Kyari said.
Luqman Agboola, head of energy and infrastructure at Sofidam Capital, disagrees with Kyari’s claim, saying, “Something shadier than the DSDP contracts we all complained about is happening in this business. The number of middlemen is increasing, which is increasing the cost of business and increasing NNPC’s expenses.”
He said, “This middleman is obsessed with making more margins than adding value.”
Ademola Henry, former team leader at the Facility for Oil Sector Transformation (FOSTER), expressed worry about the secrecy of the contracts, noting, “Why can’t NNPC deal directly with refiners.”
For over a decade, every year the NNPC requests for bids from interested companies to lift its share of allocated crude since it lacks the capacity to refine them. Rather than sell directly to refiners, the corporation prefers middlemen.
“Nigeria is the world’s only major oil producer that sells almost all of its crude to middlemen, rather than end-users (with the exception of highly unstable countries like Libya),” observed a report by the Natural Resource Governance Institute (NRGI), a transparency watchdog.
These trading companies buy the oil from the NNPC but do not refine it themselves. Instead, they sell it, through intermediaries, to other companies, who refine it, a development that is a distinctive feature of Nigeria’s oil industry.
Although the scheme looks brilliant on paper, however in reality, experts say the way NNPC organises the programme is overly complex and this, combined with a lack of transparency and oversight in the sector, has made the process conducive to fraud.
For instance, the 2021 DSDP winners announced for the crude oil lifting contracts had the names of ‘who is who’ in the oil and gas sector in the country as well as top players in the international oil and gas industry who are compelled to partner with the local players.
According to sources, each consortium would receive 20,000 barrels per day of crude oil in exchange for products, making the combined total 320,000 barrels per day of Nigeria’s output.
The 2021 winners have popular international trading companies such as major Swiss trading firms Trafigura, Vitol, and Mercuria, oil major Total as well as experienced Nigerian trading companies such as large Nigerian traders Sahara Energy, Oando, MRS Oil, and other so-called ‘briefcase companies.’
“Briefcase companies are small entities that routinely re-sells the cargoes it gets to another intermediary. For example, a larger, more experienced commodities trading firm, which then re-sells the cargo to a third party buyer,” a report by Netherland-based independent centre for research on multinational corporations (SOMO) and Nigeria-based Civil Society Legislative Advocacy Centre (CSLAC), said.
According to the report written by Saskia van Drunen, Ilona Hartlief, Chinedu Bassey, and Ken Henshaw, “these briefcase companies are often inexperienced companies with no track record of selling and refining crude oil, and appear to be more politically motivated than commercially driven.”
“They are often inexperienced and lacking financial and commercial capacity,” SOMO and CISLAC report explained.
Another report by the Natural Resource Governance Institute (NRGI), which analysed this phenomenon in Nigeria extensively was critical of how the NNPC organises its crude oil sales and has repeatedly advocated for reform over the years. It criticised the system of selling oil to intermediaries who can earn significant margins, but add little or no value to NNPC, especially when the buyers are unqualified, such as the so-called briefcase companies.
Read also: Explainer: Methanol is good in petrol, bad for engine when excess
“The prevalence of politically connected briefcase companies contributes to the perception that Nigeria’s petroleum sector is pervasively corrupt, frightening off some investors,” the NRGI said.
“Indeed, despite efforts to reform the sector, the Nigerian oil industry continues to be plagued by ineffectiveness and maladministration, with corruption a recurrent problem,” the SOMO and CISLAC report noted.
The report also raised red flags about the Nigerian operations of Vitol, one of the largest energy traders in the world, with annual revenues comparable to Apple.
Like other oil traders, Vitol has in the past been associated with several controversies, including allegations of corruption and fraud, a development the company has repeatedly denied.
“The company fails to communicate how it addresses specific risks and impacts in challenging business environments and sectors like the oil industry in Nigeria,” the SOMO and CISLAC report said.
It added, “Despite Vitol’s stakes in Nigeria, the company is not very visible in the country. Vitol’s offices in Lagos and Abuja are in the buildings of two partner companies, Hyson Nigeria Limited and Mansel Commercial Services (Vitol’s commercial tanker shipping arm).”
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