Wednesday, April 16, 2014

How Nigeria loses billions in oil revenue to “briefcase traders” — Ribadu panel

Published:

Minister Of Petroleum Resources, Deziani Alison-Madueke

Many of the companies that lift Nigeria’s crude are not properly registered or qualified.

Nov 11 (PREMIUM TIMES) — Nigeria is losing billions of dollars every year through the use of “briefcase traders” in exporting crude oil and importation of refined petroleum products, the report by the Nuhu Ribadu-led Petroleum Revenue Special Task Force, PRST, has revealed.

Contrary to the global trend for national oil companies to develop and own their independent crude oil marketing and trading subsidiaries, Nigeria is the only major crude oil producer in the world still relying on private commodities traders for all its oil and gas exports.

Though the Nigerian National Petroleum Corporation, NNPC, established at least five subsidiaries, including Hyson (Nigeria) Limited, Calson Bermuda Limited, Duke Oil, Napoil Trading and Nigermed Petroleum Trading, as international trading companies  to engage in direct oil trading activities, none is currently functional.

Most of the companies, the report said, are being used as financial and operational black boxes to carry out questionable deals.

Rather than these subsidiaries, the report said, between 2002 and 2011, almost 400 of the private commodities trading firms used by the Crude Oil Marketing Department, COMD, of the NNPC to export crude oil and import refined petroleum products did not have formal contracts.

The list of customers that have been contracted to lift Nigeria’s oil over the 10 years include Addax, Arcadia, Calson, Duke Oil, Glencore, Indian Oil Company, Ivory Coast, Napoil, Petrodel, Sao Tome, Senegal, SINOPEC, Trafigura and Vitol.

Other traders considered lacking the expertise in the crude oil trading business that have lifted the country’s crude oil once during the period include Tema Oil Refining, Petrobras, Itochu, Crossoil, Energem Petroleum Corporation, Ovlas Trading, AMG Petro Energy, Safiya Global Investments Limited, INC Natural Resources, Tristar, Emo Oil, Republic of Liberia, J&S Petroleum, OFSI Limited, and Petroleum Corp of Jamaica.

The list also includes Ommart Limited, Dainom Nigeria Limited, AMG Petro Energy, Tacorr, Roger Princeton, Rheinoel Limited, Sterling Oil Resources, Makwande, Alpha Petro Worldwide, Abacus, Ommart, Ovlas, Sunoil Refinery, Ghana National Petroleum Corporation, Mercuria, SPOG Petrochemicals, Sinclair Commercial, Sullom Voe, Liberia, Petroleum, Tocomo Oil, Centro Energy, Republic of Benin, Emo Oil, Arcadia, Overt Energy, Rheinoel Limited, and Sarb Energy.

According to the Ribadu panel report, this arrangement, fraught with bureaucratic bottlenecks and potential for discretion, waste and erosion of value, has resulted in huge losses in revenue to the government.

“Nigeria is the world’s only major oil producer that sells 100 per cent of its crude oil production capacity to private commodities traders, rather than directly to refineries,” the report noted.

With an average of 25 consignments of crude oil lifted from Nigeria every month, the report said the country loses between $100 thousand and $400 thousand per standard cargo of about 950 thousand barrels capacity in revenue margins paid by NNPC to briefcase traders.

With NNPC, through its crude marketing department, exporting the government’s share of the country’s 1.3 million barrels daily average crude oil production, the loss translates to several billions of dollars every month.

A loss of an average of between $0.20 and $0.40 is often incurred per barrel where the middleman transfers its export cargo to a real trader, a transaction the report said adds no value to the country’s petroleum sector or economy.

The report also noted that the use of private traders is susceptible to manipulation of official selling prices, OSPs, as traders are allowed to retroactively choose the most lucrative pricing option for individual cargoes, while others are given subsidized prices below the prevailing market levels.

Similarly, the report also identified government-to-government sales as another area where the country always records huge losses, with the government often granting other countries, mostly the country’s Sub-Saharan African neighbours, allocations at concessionary rates.

To curb the losses, the panel recommended that all crude oil lifting contracts are regularized to comply with due process, by ensuring that only traders with valid and formal contracts are granted lifting permits through an open competitive selection process.

Where the country’s five trading companies cannot be utilized, the panel recommended  that only traders with renowned expertise and technical know-how must be granted permits to lift the country’s crude, adding that where there are breaches to the policy, the approving authority should be held accountable.

The report of the committee, submitted to President Goodluck Jonathan, was disputed by two of its members who had accepted other oil related appointments during the work of the committee.

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