Between July 2018 and June 2020, the Nigerian National Petroleum Corporation (NNPC), the country’s national oil company will sell 47.5 million barrels of crude oil worth over $3.7 billion at the current rate of $79 per barrel in crude term contracts to 50 oil trading companies.
But Nigeria will spend more than twice this amount importing refined products. With landing cost of petrol put at N171 per litre, the NNPC incurred N37 on each litre of fuel at a depot price of N133.80, leading to a daily subsidy of N2.046billion for 55million litres. Between February 2017 and February 2018 NNPC has spent over N746.79billion on subsidies.
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),” observes a 2015 report by the Natural Resource Governance Institute (NRGI), a transparency watch dog.
An analysis of the thirty-two companies reportedly awarded the current crude lifting contracts indicates that while expertise may be the stated yardstick, a ruling government short on concrete achievements could have settled for buying influence in exchange for every barrel of crude it is inviting bids for.
Unlike the previous contracts which were awarded on a yearly basis, the NNPC is doubling the contract duration as well the number of local companies involved. This current crude term contract will run from July 2018 to June 2020 and the number of companies grew from eighteen in 2017 to thirty-two this year.
In the past, the NNPC was very conservative about local companies it accepted bids from preferring to rely more on international companies, foreign refineries and governments while reserving spots for carefully selected local companies.
Analysts say these middle men contribute to value destruction in the country by moving refining business to Asia from where Nigeria spends scandalous amount buying refined products.
“Some of the newly companies might be anonymous often times the small companies have foreign partnership with some big companies, so when NNPC is appraising them they appraise the big companies rather than the small one,” says Luqman Agboola, head of energy and infrastructure at Sofidam Capital.
In 2016, the NNPC selected only eight local companies, raised it to eighteen in 2018 and pushed up the figure to 32 this year. These companies have consistently featured for the past three years Oando Plc, Sahara Group, A.A. Rano Nigeria Limited, Eterna Oil and MRS Oil and Gas according to BusinessDay analysis.
In 2018, a year to the general elections, the floodgates were thrown open. Barbedos Group owned by Kashim Shettima, Emadeb Energy Services led by Adebowale Olujimi, Gladius Group which has Tope Adegbite as lead trader and Hinstock Limited ran by Ifueko Ogunbor have secured contracts this year.
Others include Leighton Petroleum Limited by Bowale Jolaoso, Levene Energy Development ran by Asue Ighodalo, Masters Energy oil and gas Limited of which Uchechukwu Ogah presides, Matrix Energy owned Abdulkabir Adisa Aliu and Ultimate Gas Voyage by Awalu Ilu, among others.
“These companies don’t have refineries to process the crude to sell back to us, hence they in turn sell to other refiners and Nigeria buys back the added cost of refining,” says Chuks Nwani, an energy lawyer.
Nwani recommended a tolling arrangement, “Where you give a foreign company a payment guarantee, say for 20 years, that you are going to give them a product that they should process it and give it back to you. You pay them for just processing it and give them conditions that they must process in-country.”
The process is a tad similar to signing a power purchase agreement with an electricity generation company, explains Nwani.
“The cost of refining is not more than 40 percent of the total product, this saves you cost, keeps value in-country, create jobs and helps you take advantage of other derivatives besides crude oil,” Nwani said.
NNPC sells Nigerian Crude Oil grades on Free-On-Board (FOB) basis subject to the execution of a Sales and Purchase Agreement with selected buyers.
