A new report published by Berne Declaration, a Switzerland-based non-profit transparency organisation, has shed light on how Swiss traders cashed in on the weaknesses in Nigeria’s crude oil lifting contract system from 2011 to 2013.
Nigeria, Africa’s top oil producer, sells its oil through annual term contracts awarded by the Nigerian National Petroleum Corporation (NNPC) to a list of companies that are then eligible to buy crude throughout the year, a practice which industry analysts see as creating celebrated traders, elite capture mentality, capital flight, and resulting in loss of potential revenue to the country.
The report entitled ‘Big Spenders: Swiss Trading Companies, African Oil and the Risks of Opacity’ highlighted the weaknesses in the term contract system, such as misalignment between the volumes officially allocated to each company and the volumes these companies actually lift.
“In 2012, Vitol and Trafigura each received term contracts worth 30,000 barrels per day (bpd). Each of the companies also operates its own oil marketing joint venture with NNPC (both based in Bermuda: Calson for Vitol and Napoil for Trafigura), and these entities each received additional 30,000 bpd allocations that year,” the report said.
“However, rather than 60,000, market data suggests that Vitol bought closer to 145,000 bpd in 2012, and Trafigura 97,000 – far exceeding their allotted shares, and a discrepancy that illustrates the laxity of the system,” it said.
The report stated that Trafigura also benefitted from an opaque crude-for-products swap contract, adding, “In another example of confusion in the system, Arcadia does not appear on the list of approved term contract recipients in the 2011-2013 period, but it lifted 19 cargos during this period. Another buyer is Addax, the group founded by Jean-Claude Gandur, who built a significant share of his fortune in Nigeria under the military rule of Sani Abacha in the 1990s.”
Other Swiss companies, including Glencore, Mercuria, Gunvor and SOCAR Trading, also bought multiple cargos during the three-year period, according to the report, which focuses on the top 10 oil-exporting countries in sub-Saharan Africa.
“Swiss traders have benefitted enormously from this system over the years, thanks in part to their skilful political manoeuvring, and bought more than two-thirds of NNPC’s oil at various points in the 2000s. Access to this crude, as well as to the lucrative Nigerian products market, was integral to the growth trajectories of companies like Swiss trading houses, Vitol and Arcadia,” the report said.
“Nigeria’s award of the term contracts is a discretionary and politicised process, with companies gaining and losing allocations, depending on their relationship with the officials in charge and the influence of their local contacts or ‘sponsors’,” it said.
Swiss companies bought oil worth $37 billion over the three years, an amount equal to more than 18 percent of the national government’s revenues, the report said, adding, “Nigeria’s government sold over one-third of its oil to Swiss traders during the 2011-2013 period, which is an unusually high amount for producers of its size which typically prefer to sell to refineries and other end-users.”
In what is a break with tradition, in the latest list of yearly crude oil lifting term contracts for 2014/2015, no contracts were issued directly to global traders Glencore, Vitol, Trafigura or Gunvor, with only Mercuria awarded a deal. Up until recently, contracts were mostly given directly to global trading houses.
Industry sources say these firms will likely still trade Nigerian oil, either through buying from Nigerian firms or through partnerships.
The list, entitled ‘Recommended List of NNPC 2014-2015 Crude Oil Term Contracts’, shows 28 Nigerian firms among the winners, up from 21 in the last round. It comprises a total of 43 companies, up from 28 on the initial April list.
Chinese state refiner Sinopec and India’s state-owned refiner Indian Oil Corporation were in the expanded list released in June, re-issued after what trade sources said was intense lobbying by disappointed buyers, according to a Reuters report.
“Lack of transparency of the criteria used to determine eligibility makes the policy seem driven by personal interest at the expense of national interest,” Wumi Iledare, president, International Association for Energy Economics, said in a BusinessDay report of June 23, 2014.
“In the long run, such ad hoc policy creates nothing of value than the promotion of elitism and capital flight,” he said.
Dayo Ayoade, senior lecturer, Energy Law at the Faculty of Law, University of Lagos, in a report ‘Questions over Nigeria’s use of middlemen to market crude’, said, “Nigeria is the only major oil producing country that sells its crude oil through intermediaries, and Nigeria is the one that loses money by selling its crude oil through intermediaries.”
He added that the middlemen were offered an opportunity to make margins through reselling the crude.
Nigeria’s system for selling its own oil attracts many shadowy middlemen, creating a confusing, high-risk marketplace, Chatham House said in its report last year.
FEMI ASU
