There seems to be no hope in sight for Nigeria’s ailing refineries next year as the Nigerian National Petroleum Corporation (NNPC) has announced an invitation for Direct Sale, Direct Purchase (DSDP) contracts bidding for the year 2021, a crude-swap contract using middlemen.
The request for bids to lift Nigerian crude and condensates was published on Monday while interested companies are to submit their bid latest by 12:00 pm Nigerian time on December 22, 2020, according to the tender document released by NNPC.
This implies Nigeria will continue swapping crude for fuel for at least the next 12 months as the country relies almost entirely on imports to meet oil product demand because of significant and prolonged operational problems at its 445,000-barrels-per-day (bpd) refining capacity.
The above development is expected to put further strain on foreign currency reserves because, in order to obtain fuels, Nigeria is forced to swap crude oil that it would otherwise sell for dollars.
Many analysts have also questioned the fate of Nigeria’s refineries and the probity of the swap deals as many believe the swap deals are not properly structured, monitored and audited.
Read also: Nigeria’s obsession with owning refineries is counter-productive
There are concerns that countries tend to enter into oil-backed barter deals like swaps only in desperate times and in such difficult times, officials may struggle to negotiate hard terms with the traders and refiners on the other side of the table.
“We have made so much noise about Nigeria’s refineries,” said Henry Adigun, team lead at Facility for Oil Sector Transformation in Nigeria (FOSTER).
NNPC first began the swap contracts more than six years ago as a stopgap to curb petrol shortages as it tried to revamp the refineries.
Under the DSDP programme, NNPC provides oil on a free on board (FOB) basis to a supplier. The supplier, in turn, provides petroleum products to NNPC at a designated port in Nigeria. NNPC requires suppliers to provide products equivalent in value to the crude oil received.
The document released on Monday specifically stated that refiners, companies forming part of a government-to-government arrangement, global crude oil traders, and “indigenous Nigerian companies engaged in Nigerian oil and gas downstream activities” are eligible and can apply.
The 2020/2021 contract is expected to attract the ‘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.
NNPC explained that interested bidders must possess a detailed company’s profile with full details of the company’s resume demonstrating the company’s capabilities, and Nigerian companies must submit evidence of current relevant certification with the Department of Petroleum Resources (DPR).
The current Nigerian crude oil term contracts (2018-2020) involve the export of around 1 million barrels per day (mbpd) of crude and condensate, out of the 2.2 million b/d Nigeria has the capacity to produce.
The guidelines said the crude will continue to be sold on a FOB basis, “subject to the general terms and conditions as would be advised to successful companies subsequently via Term Sheet (TS)”.
It said interested bidders must possess some statutory, financial, technical, business integrity, compliance with Nigerian contents documents that are required for the 2020-2021 DSDP bid.
Concerning financial requirements, NNPC tender document stated that “audited accounts for the past three (3) years (2017, 2018 & 2019) which must bear the stamp or seal of a credible Audit Firm”.
“Demonstration of an average minimum turnover of US$ 500 million (or the Naira equivalent) and net worth of not less than US$ 250 million (or the Naira equivalent) for the Financial Years Ending: 2017, 2018 and 2019,” the document said.
The current 2020 crude term contracts are held by more than 60 recipients, making it the largest list Nigeria has ever allocated. Many are local Nigerian companies that are new to the world of international oil trading.
Nigeria is almost entirely reliant on imported fuel because of years of neglect at its own refineries. It has leaned heavily on the swap arrangements to get fuel, particularly petrol, as other would-be importers struggle to make money due to price caps.
In August, NNPC chief Mele Kyari told a virtual panel at the African Refiners & Distributors Association annual conference that while the swaps had saved the country roughly $1 billion a year, they could soon be scrapped.
“I don’t see an extension of that process in the near future as we progress and transit into more production locally,” he said.
Kyari said he expected NNPC’s refineries to be fully revamped and running again by 2023. NNPC has said it will partner with private companies to upgrade the refineries and then run them as part of a drive to process its own oil and cut reliance on imported fuels.
