The Nigerian National Petroleum Corporation (NNPC) last week announced the cancellation of the current contract for delivery of crude oil to the nation’s refineries
in Port Harcourt, and Warri/Kaduna.
[Image: Dr Emmanuel Ibe Kachikwu, NNPC GMD]
It said the decision to cancel the oil delivery contracts to refineries was taken after a proper evaluation of the contract terms, adding that the cancellation was due to exorbitant cost and inappropriate process of engagement. It was also said that the new measures were aimed at cost reduction and to strengthen operational efficiency across its value chain. And as a stop-gap measure, NIDAS Marine Limited has been engaged to provide crude delivery service on negotiated industry standard rate pending the establishment of substantive contract.
According to the NNPC, it resorted to the delivery of crude oil to the refineries by marine vessels following incessant attacks on the Bonny-Port Harcourt refinery pipeline and the Escravos crude pipelines by oil thieves resulting in the complete unavailability of the pipelines since 2013.
Along the same line, the corporation also terminated the existing Offshore Processing Agreements (OPA) also called the SWAP arrangement with Duke Oil Company Inc., Aiteo Energy Resources Limited, and Sahara Energy Resources (Nig) Ltd., Under the previous agreement the NNPC allocated a total of 210,000 barrels of crude oil per day for refining at offshore locations in exchange for petroleum products at a pre-agreed yield pattern. The corporation claimed that the last SWAP arrangement between it and these oil traders lapsed in December 2014 and was never renewed.
As explained, “After detailed appraisal of the OPA and its terms of agreement, the NNPC is convinced that the current OPA is skewed in favour of the companies, such that the value of product delivered is significantly lower than the equivalent crude oil allocated for the programme. The current agreement was not in the interest of Nigeria and the national oil firm, a development that led to its cancellation.”
The corporation also alleged that the structure of the agreement does not guarantee unimpeded supply of petroleum products, as delivery terms were not optimal. And in order to address those lapses, the NNPC said it had commenced the process of establishing an alternative OPA based on an optimum yield pattern with tender processing fees.
“After due appraisal of performance trajectory, we have invited Messrs. Oando, Sahara Energy, Calson, MRS, Duke Oil, BP/Nigermed and Total Trading to bid for the new Offshore Processing Agreement while we have engaged AITEO, Sahara Energy and Duke Oil to exit the current OPA,” the corporation said.
Now, after all these ‘gra-gra’, there are serious questions that need to be answered by the corporation and its managers, if they expect Nigerians to take them serious on the purported cost-saving and transparency measures especially now that “change” has come.
First, the last crude oil for product SWAP Agreement expired in December 2014 and was never renewed, so were the contractors allowed to continue taking our crude oil and/or bringing refined products without a valid contractual agreement or NNPC found other ways of taking the allotted crude to offshore refineries and getting refined products back?
Is it that for over eight months, the NNPC was able to meet the nation’s domestic fuel needs without touching the 210, 000 barrels per day allocated for the purpose? Could it be that the NNPC through previous deliveries (before December 2014) had secured adequate products that carried us for eight months without going abroad to refine? If so, what happened to the 210, 000 barrels set aside every day for products swap? None of our refineries could be said to have worked between December 2014 and August 2015 to have processed the 210, 000 barrels the NNPC takes every day in exchange for products for our domestic consumption. So what happened to the crude?
Curiously, in the swap arrangement the previous contracts were cancelled because of blurred transactions and terms skewed to favour the contractors against our national interest. Good reasons! But how come, that of the three previous contractors- all allegedly enmeshed in the subsidy scam as originally revealed by the corporation and independent investigators, two of them were brought back and only one dropped? Is this not going raise issues of favouritism and credibility of the entire process by the new NNPC?
When it was revealed that Nigeria has been massively defrauded in the fuel subsidy scheme, we were told by the whistleblowers that all the contractors involved in the swap arrangement in connivance with some top officials of the NNPC and the Office of the Minister of Petroleum Resources were involved in the blurred transactions, so how come two of these same companies got a clean bill for the new arrangement and only one of them is being blacklisted by the current leadership of the NNPC and/or the federal government? Is the NNPC saying that Sahara Energy Resources and Duke Oil were exonerated? There is something not very clear here! Nigerians would have expected a clean break from every company that was hitherto involved in the subsidy scheme especially the crude-for-products swap conscription.
Meanwhile, NNPC must have expected Nigerians to applaud it when it said “We have also commenced a rigorous and transparent process of securing capable and competitive contractors for the delivery of crude oil by marine vessels to Port Harcourt, Warri, and Kaduna Refineries pending the restoration of the crude oil pipeline infrastructure.”
Without mincing words, the entire concept of using marine vessels to supply crude oil to the refineries is in itself an exercise in self-deceit or more aptly a “short-time runs”. Truth be told, opting to use marine vessels to supply crude oil feedstock to Port Harcourt and Warri Refineries is only dancing around the serious issue of security of oil and gas facilities that the NNPC and this government must confront.
This is to inform Nigerians that the issue of Ship-to-Ship transfer, which NNPC has employed to get crude oil to the refineries, is very unsustainable and a good platform for corruption because of its byzantine modules that involves different interests at different points.
MC Cosmic and MC Jewel, which are engaged to transfer crude to Warri refinery because of their carrying capacities of about one million metric tonnes, collect between $12 and $15m per operational day. These are heavy vessels that load crude and transfer to smaller vessels. The cost of the smaller vessels ranges from $6 – $7 million per day. Finally, the crude from the smaller vessels are transported to where the product can then be transferred to the refineries with its own separate operational cost. The same scenario is replayed to get the crude to the Port Harcourt refineries. If you add these amounts to the already huge cost, you will realise that the nation cannot sustain the refineries using this option. So in all honesty, these NNPC measures are outrightly unsustainable. And my worry is that when it fails, NNPC and its managers again would return to the battering ring of political smear campaigners. Mark my words!
From this arrangement, it also means Kaduna refinery will never work because it has no access to either the sea or any tangible waterway. How is the Kaduna Plant going to get its crude feedstock- by road using tankers or through the Escravos trunkline that is being compromised on daily basis? The number of leakages along the Warri-Kaduna pipeline as it stands now will never allow the transfer of crude feedstock to continue on that trunkline. In July 2015 when the Kaduna refinery was about to start production it was discovered that the crude pipeline had been breached in 78 points between Warri and Lokoja.
So it all narrows down to the issue of security of oil facilities and we cannot run away from it. And how we address that would be one of the litmus tests to actually confirm whether change has really come. God bless Nigeria!
(Ifeanyi Izeze lives in Abuja and can be reached on: firstname.lastname@example.org; 234-8033043009)