NNPC and The Canceled OPA Arrangement
In October 2015, the Nigerian National Petroleum Corporation (NNPC) received a total of 101 bids from local and international oil trading firms who took part in its opening for Offshore Processing Arrangement (OPA) bid in Abuja.
NNPC announced that it is no longer interested in oil swapping just before 20 day period was attained. The national oil company made a drastic turn from its previous shortlist of 44 companies (34 international firms and 10 indigenous companies) out of the initial 101 for the next stage of the bidding process; it also had to withdraw the call for commercial bids it issued these 44 companies.
This piece isn’t necessarily to fault NNPC’s strange aversion of oil swapping arrangement or OPA it has methodologically used for years. It is not to praise the company for stopping either; it is to make things clearer. It is to discuss the merits and demerits of these arrangements – OPA and Direct Sale-Direct Purchase (DSDP) – and to examine the salutary ends of the newly adopted DSDP arrangement.
These are business arrangements that make purchasing or exchanging crude oil with petroleum products like gasoline, diesel, kerosene and more even possible.
With OPA in particular, all NNPC has to do to get petroleum products from international refineries is to allocate a specified amount of crude oil to oil traders or oil trading firms or in some cases, directly to foreign refineries, at a pre-agreed return or yield pattern.
This can be rightly called a modern day trade by barter. And all we have to do is give out raw hydrocarbons and get diesel, gasoline, petroleum or some other byproducts of crude oil in return.
This seemingly simple process is however, in Nigeria, very, very controversial. It isn’t only controversial, it is also complicated too.
The mistrust in the system makes oil swapping or OPA peculiar to us. Other oil producing countries swap as well. Russia, through the state-owned Gazprom offered gas supplies to Iran under a swap arrangement earlier this year and Mexico, through its state oil firm, Permex, gives up to 100,000 barrels of heavy Mexican crude in exchange for a similar amount of lighter U.S. oil.
Why then is it controversial and complicated in Nigeria?
A notable reason is a lack of transparency and proper monitoring. It has been reported consistently that unlike the most recent bidding process, bidding for OPAs is usually shrouded in darkness. According to stakeholders in the oil and gas setor, the stealing starts right from the bidding process. This has made it commonplace to see trading firms cry foul play at very early stages of the bidding process.
But in the last bidding however, for the first time, The Nigerian Extractive Industries Transparency Initiative (NEITI) was present to monitor the process and oil trading firms that took part in the process attested that it was transparent.
Reports have it that Nigeria loses unimaginable amounts of crude oil to oil traders under oil swap and OPA arrangements. NEITI for instance announced that Nigeria has lost $966 million due to oil swaps. It was also reported that most trading firms don’t supply an equivalent (in terms of petroleum products) of the crude allocated to them. This leads to wastage and loss on the part of the federal government.
That isn’t all. A New York-based Natural Resource Governance Institute estimated that between 2010 and 2014, Nigeria channeled over 352 million barrels of oil worth a total of $35 billion into oil swaps and that the accompanying loss is mind boggling.
With all these, one thing is clear: OPA aids wastage. It makes siphoning our commonwealth easy. At a time when our economy is apprehensive, wastage is the last thing a reasonable government will want to indulge in.
With the Direct Sale – Direct Purchase (DSDP) arrangement, we wouldn’t have to deal with colossal waste and other OPA-induced headaches. Or even if there will be wastage, it wouldn’t be on the former scale. We will sell directly to foreign refineries and also buy petroleum products directly from them.
The buying and selling process will now be more transparent and that will save us a whole lot of money. And because this new arrangement allows us to deal directly with refineries, the use of middlemen (oil trading firms) has been eliminated from our dealings.
The responsibility now falls on us to do the work of going after buyers our self (under OPA, the oil trading firms go after buyers), Its, needless to say, the newly adopted DSDP arrangement will save us a whole lot of money.
Joel Pereyi is an award-winning essayist and writer. He has a background in oil and gas with several published energy-related articles in local and international publications to his credit. He frequently writes on energy, the economy, Africa, and politics. He is also a syndicated essayist for a handful publications in Nigeria.
Edited by : Femi D Amele