Contract documents signed by the Nigerian National Petroleum Corporation (NNPC) has shown how foreign companies, mostly Switzerland-based ones, dominate its middleman business chain as against the number of Nigerian companies.
Investigations also showed that most of these contracts are based on term contracts with unqualified intermediaries that capture margins for themselves and create reputational risks for legitimate market players while adding little or no value to deals.
NNPC also sells to governments that do not refine the crude they buy. These deals have featured a glut of unnecessary middlemen, and promoted corruption scandals in buyer countries.
Nigerian crude sales are especially confounding and complex in the area of buyer-seller relationships. “Nigeria is a minefield. It’s almost impossible to work out who’s selling for who. Much of the complexity is sanctioned by NNPC and seems designed to serve the narrow interests of well-connected politicians and power-brokers who derive benefits from the system in exchange for doing very little”, said one experienced analyst who tracks the market.
According to a document obtained from Natural Resource Governance Institute (NRGI), NNPC markets Nigeria’s crude to a wider range and number of buyers than most large Nigerian Oil Companies (NOCs).
Most years, Crude Oil Marketing Division, COMD, signs term contracts with group categorised under the following:
Large International oil traders: The largest buyers of NNPC crude in this class have been Vitol, Glencore, Trafigura, Arcadia, Mercuria, Addax and Gunvor – all Switzerland-based trading houses. Others are; Elan Oil, Springfield Ashburton, Delaney Petroleum, Sullum Voe, Sociedade Petrolifera Angolana, S.A. (SOMOIL, and PetroVietnam Oil Corp.
Next is the Experienced Nigerian trading companies: These companies have the technical and financial capabilities needed to market, finance, lift and transport oil to buyers around the world. Their market share has grown considerably. Sahara and Taleveras have been the largest players in this group since President Jonathan took office in 2010. There are 26 others.
Another is the Foreign refineries: Each year’s term contract winners include a few foreign refineries, though these do not always process the crude they receive. E.g, Fujairah Refinery, and PTT Public Company.
NNPC oil trading companies: COMD also sells oil on a term basis to NNPC’s trading-focused subsidiaries such as Calson and Duke Oil.
Government-to-government (g-to-g), or “bilateral” customers: Since the 1970s, NNPC has regularly sold oil to other countries, above all three of the BRICs, a few West African refiners, and other smaller countries, most of them African, which do not have refineries, e.g, Indian Oil Corp, Sinopec Oil Corp, and Malawi.
Lastly is the Briefcase companies: In the language of the Nigerian crude oil market, a “briefcase company” is a small entity that routinely re-sells the cargoes it get to another intermediary—for example, a larger, more experienced commodities trading firm, which then re-sells the cargo to a third party buyer.
As this list shows, nearly all NNPC term contract holders have one thing in common: they are intermediaries. They buy oil from NNPC and then sell it to other companies instead of refining it themselves. Nigeria is the only major world oil producer (i.e., producing more than one million barrels per day) not experiencing full-scale conflict that sells almost all of its crude to middlemen, rather than end-users.
The simplest transactions involve COMD selling a cargo to a trader with a term contract. The trader then re-sells to a buyer in the global market, for example, another trader, or a refining or oil storage company, keeping the margin between the price it agreed with NNPC and what it obtained from the buyer. Under this system, NNPC term contract holders earn significant margins while adding little or no value to NNPC, which could have sold directly to the later buyers.
A 2012 Nigerian government task force noted that many of NNPC’s term customers “did not demonstrate renowned expertise in the business of crude oil trading” and had “little or no commercial and financial capacity.” Two years earlier, KPMG warned that some of Nigeria’s oil “might be sold to non-credible off-takers.”
A corporate check on 21 of those signed between 1992and 2012, showed that owners of the companies had no track records of excellence and experience in the industry as at the time contracts are signed. Findings also showed that some of them have refused to file annual returns to NNPC since they were formed, while others stopped filing after few years- this further questions the real identities of those behind the contracts.
For instance, Azenith Energy Resources Limited, with RC NO: 200987, share capital of N500,000.00 at incorporation, had a share increase of N25,000,000.00 (Resolution dated 19/09/12, filed 02/10/12 and registered 04/10/12). Incorporated in 1992 but last filed annual returns in 2012. Directors of the company are: Akpata Osagie of 6 , Usuma Close, Maitama, Abuja, and Akpata Iyen 46B, Glover Road, Ikoyi-Lagos.
Another company is Delltoil Nigeria Limited with Registration number, 759678, was incorporated on 15th of July, 2008. The company’s directors include; Engr.Joseph Ezekiel Alagoa Joyous NNimi Barigha Amange. It also has shareholders. Registered office address is at Suite 16 Mangal Plaza, Wuse Zone 1, Abuja with share capital of 1,000,000 at incorporation. The company’s share was increased to 10,000,000 in 2010 however, the company is yet to file annual return up till date.
In June 2001, foreign traders lifted most of the oil- Vitol, Glencore, Arcadia, Trafigura, Addax, Itochu and Attock lifted a total of 1,013 thousand barrels per day. While Nigerian traders- Duke, Sahara, Taleveras, Oando, Pnatario, Aiteo lifted a total of 64 thousand barrels per day.
By 2011-2014, Nigerian traders had been given more access. In June 2011 and June 2014, foreign traders lifted 500,000 bpd and 423,000 bpd respectively, while Nigerian companies lifted 570,000 bpd and 442,000 bpd respectively.
It was however gathered that President Buhari has ordered that the current list of crude oil takers, swap deals and liquefied natural gas lifting lists approved by the past Group Managing Director, GMD, of the NNPC, Ibe Kachikwu, be investigated.
Industry sources revealed that the probe order came after oil and gas stakeholders complained of dissatisfaction and alleged “corruption and favouritism in the allocations involving some companies.
Our sources who spoke on condition of anonymity, said the new NNPC’s GMD, Dr. Maikanti Baru, will head the team involving entities likes CEPSA Refinery; IOC Refinery; ENOC and Sasa Refinery, referred to as the major beneficiaries of Nigeria crude.
We also gathered that the international companies on list of the 2015/2016 crude oil taker approved by Kachikwu with companies like Master Energy, Taleveras, Mercuria, Vitol and Trafigura, will fall under tight scrutiny.
Other deals which may be investigated are those with IOC Trading Affiliates listed as major players. They include: Exxon Trading, Total Trading, Eni Trading and Shell Trading, with the likes of Oando, Sahara Energy and MRS on the Nigerian Downstream side.
Master Energy, Forte Oil, A.A Rano Ltd; Northwest Petroleum, Eternal Oil, Taleveras, and Emo Oil/China Zhenhea respectively may also be investigated.
We also gathered that contracts given to some gas companies will also be investigated. Companies like Petrowest SA which had enjoyed allocation of Pentane Plus (owned by MRS Oil) F-Energy (Folawiyo Group) which was allocated OSO LPG; Runi Oil which got OSO LPG Domestic, West Africa LPG (owned by Sahara Group) which got Escarvos LPG-Mix, Mteropolitan (unknown owner) which was allocated Pentane Plus and Worldwide Energy (owned by Trafigura) which got OSO LPG and Zanedo Petroleum 9owned by Igho Sanomi) which got OSO PLG Domestic.
Others are Falcon Petroleum which got Pentane Plus; Sahara Group which got OSO LPG, Ayedia Energy Resources allocated Escarvos Mix and Tenoil (owned by Tony Elemelu) which got Escarvos Condensate.