The Nigerian National Petroleum Corporation (NNPC) has proposed March 1 as the kick-off date for Direct-Sale–Direct-Purchase (DSDP) regime in the distribution of petroleum products. Oil sector operators, including the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN), Independent Petroleum Marketers’ Association of Nigeria (IPMAN) and state governments, have described the policy as panacea to leakages and artificial scarcity of products, reports JOHN OFIKHENUA.
OPERATORS in the oil and gas sector of the economy are yet to comprehend why the Nigerian National Petroleum Corporation (NNPC) dumped the Offshore Processing Agreement (OPA), barely a year after it received bids from willing investors.
The federal agency made a u-turn after receiving 101 expressions of interest. The decision followed news that the Federal Government will replace OPA with Direct Sale-Direct Purchase (DSDP) beginning from November 3.
Minister of State for Petroleum Dr. Ibe Kachikwu, who dropped the hint, also said that the Federal Government paid zero subsidies on fuel importation last month.
It was learnt that the corporation backed down on the procurement arrangement after discovering the portfolios of the businessmen jostling for the agreement, also known as oil swap.
In times past, oil swap was a lucrative deal through which the government exchanged crude oil for refined products.
But upon scrutiny, most of the bidders were found out to mere middlemen and not direct owners of refineries. The corporation said it engaged the reverse gear to enshrine transparency and ease out middlemen in the crude oil exchange for product matrix.
It has announced its plan to begin direct purchase of petroleum products from credible international refineries as from next month.
The government considered the primacy of accountability, transparency and efficiency over patronage and settlement, especially with the dwindling revenue from the sector and the perennial shortage of products in the country.
As far as the government is concerned, what matters most is profit and efficiency, irrespective of the service provider.
Like in every other business predicated on market fundamentals, the NNPC has considered the most viable and profitable way for selling its crude and achieving all- season sufficient supply of products.
In a clear departure from the business as usual practice, the corporation has said that participation in the new regime will be restricted to those already identified to be genuine refinery owners and not just middlemen.
Besides the direct purchase plan, the minister said the NNPC will partner with owners of refineries.
The Group General Manager, Group Public Affairs Division, Mr. Ohi Alegbe, said that the NNPC took the decision following discoveries at the pre-qualification evaluation of the bids.
The evaluation revealed that most of the 44 companies earlier shortlisted for the next stage of the process mere have affiliations to refineries abroad, a situation that may bring toll into the value chain.
He said that the outcome of the process would have constituted a significant loss to the federation in terms of accruals if the NNPC had allowed the bidding process to go on.
Alegbe said: “Therefore, the NNPC resolved that only bona fide owners of refineries identified in the ongoing OPA Tender Evaluation process will be further engaged. “The identified refineries will be subjected to due diligence and analysis by NNPC-appointed consultants to confirm suitability in line with international best practice.”
Ten of the 34 firms that pre-qualified for the commercial bids were indigenous firms and they have withdrawn from the process.
Giving further explanation on the proposed direct sale of crude oil and direct purchase of products days after the he announced the cancellation of the OPA, Kachikwu said the government had adopted OPA “but the aural in the the world was negative even though we save about two hundred and something million dollars in the three months of temporary system, we still hope we could do better.”
The minister noted that the DSDP was adopted to replace the Crude Oil Swap initiative and the OPA to introduce and entrench transparency in crude oil transaction by the corporation in line with global best practices.
He explained that under the old order, crude oil was exchanged for petroleum products through third party traders at a pre-determined yield pattern.
The minister stated that the DSDP option eliminates all the cost elements of middlemen and affords the NNPC the latitude to take control of sale and purchase of the crude oil with its partners, adding that the initiative would save $1 billion for the federal government.
His words: “When I assumed duty as the GMD of NNPC, I met the OPA and like you know, there is always room for improvement. I and my team came up with the DSDP initiative with the aim of throwing open the bidding process.
“This initiative has brought transparency into the crude-for-product exchange matrix and it is in tandem with global best practices.”
According to him, the DSDP initiative has whittled down the influence of the minister in the selection of bid winners as it allows all the bidders to be assessed based on their global and records of performance.
Throwing more light on the need for the introduction of the DSDP, Kachikwu noted that the policy is aimed at reducing the gaps inherent in the OPA and the losses incurred by the corporation in the past.
According to him, the new arrangement would help the corporation to grow indigenous capacity in the international crude oil business and generate employment opportunities for lucky local firms.
The minister informed that the DSDP initiative gives other government agencies such as the Bureau of Public Procurement (BPP) and the Nigeria Extractive Industry and Transparency Initiative (NEITI) the opportunity to participate in the bidding process to further engender adherence to due process.
The abolition of crude oil swap has eliminated some dubious indigenous companies from the ‘juicy’ petroleum product business, especially as government has tactically stopped subsidy on petrol.
There have been criticisms that the subsidy regime benefitted the privileged few to the detriment of the masses. But the direct sale and purchase of products has become a torn in the flesh of the proponents of the Nigerian Content.
According to the minister, government will in March replace the crude swap with DSDP arrangement.
But the interest of some oil sector operators is on the minister’s conviction that the nation will be $1 billion richer under the DSDP regime.
The stakeholders unanimously urged the government to guide against financial leakages from the proposed arrangement.
Independent Petroleum Marketers Association of Nigeria (IPMAN) Vice President Alhaji Abubakar Dakingari described the abolition of oil swap as a necessary evil that the government could use to stamp out corruption in the sector.
To him, SWAP deals bred corruption in the past and that the country has no reason to experiencing fuel scarcity. He insisted that direct product purchase, being a standard way of running the petrol business globally, would not in any cause fuel scarcity.
Dankingari expressed confidence in the commercial capability of indigenous fuel importers to compete favourably in the direct purchase of products.
He said: “if you allow the marketers to buy, definitely it will bring about availability of the products. That oil swap is another way of cheating, another way of corruption. Everybody knows that there is a standard way of doing it globally. If we are doing it that way there will be availability of products.
“If they are following the global standard way, automatically, there will be no fuel scarcity in the country. There is no reason we should be experiencing scarcity. It is a shameful thing.”
The national spokesman for the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN), Emmanuel Ojugbana, said oil workers have no objection to the stoppage of oil swap in as much as the DSDP will benefit the citizenry.
According to him, PEGASSAN’s primary concern is how to avoid negative impact of whatever regime of fuel supply being adopted by the NNPC.
Ojugbana said the oil workers will support NNPC provided the new system would not lead to financial leakages.
He said: “For us, the decision by government must have been due to what it has seen concerning the process. So, if government is coming to say they are stopping oil swap, it means it is for the good of the generality of Nigerians.
“So, we don’t actually have any issue with that. We don’t have any issue with whether they stop or they don’t stop. Our own is that whatever we are doing, let it be that, at the end of the day, it will not have any negative impact on Nigerians.
“If the direct purchase will promote transparency, we don’t have any problem with it. If it will block leakages for us now we don’t have any problem with it.”
A source within the NNPC, who believes that indigenous importers could be among the pre-qualified companies, however foresees problems “since they always hiden their identities at the Corporate Affairs Commission (CAC).”
The noted that since crude prices are now falling, local importers will be able to square up competitively, but that the rising exchange rate may be an encumbrance. Her words: “If you consider the cost of processing, cost of import, Customs charges, there may be little or no profit in the deal for them now that government has suspended payment of subsidy.”
On how the corporation could compromise the process, the source said: “If the government does not act fast as the sole importer of the product, it could under declare its products in exchange for the crude that was swapped. The leakage that government must mend is to ensure that there is complete delivery of products that is exchanged for crude.
The source said that between now and March when the new regime kick off, there could be manipulation in the oil swap.
The fear is predicated on a recent report credited to the NEITI that owners of oil blocks and assets in the oil and gas industry are difficult to identify because they conceal their identities at the CAC.
Kachikwu however allays fears over any under-hand deal in the purchase of products.
Speaking on some of the reported misgivings by some federal agencies over alleged non-transparent nature of past crude-for-products’ exchange arrangements, the minister inform that the reconciliation process has begun.
He assures that the ministry will deploy technology to track cargoes and trans-border shipment at the reception depots in order to forestall any incidence of round tripping.
The NNPC source said that when Dangote and other greenfield refineries begin production there might be no need for importation and this would create employment opportunities in the country.
According to some stakeholders, the directive will serve as a wake-up call to serious indigenous petrol marketers to establish their own refineries now that the government has blocked the financial leakages that thrived under the subsidy regime.
Despite the exponential benefits derivable from the proposed regime, not a few Nigerians see the development as inconsistency in government policy. They warn it could trigger fuel scarcity someday.
No room for doubt.
The corporation is now working out modalities to expand its affiliate petrol stations to curb incessant petrol scarcity.
The Federal Government, according to analysts, is planning to increase its regulation of the business so that it could not remain a tool in the hands of independent marketers whenever they are averse to any government decision.
In Nigeria, trade unions often embark on strike to create artificial scarcity whenever government refuses to allow uninterrupted disbursement of slush fund such as the petrol subsidy.
The NNPC has therefore concluded plans to raise the market share of its retail business to an appreciable level from the current 12 per cent by building a mega station in every senatorial district.
In a deft move designed to ensure efficient distribution and country-wide distribution of petroleum products, the NNPC has initiated nationwide consultation with stakeholders to drum up support for the planned expansion of its retail outlets.
Officials of the corporation, led by Group Executive Director, Commercial and Investment, Dr. Babatunde Victor Adeniran, recently took the campaign Kaduna State Mallam Nasir El-Rufai.
The team asked the state government provide lands for the new petrol stations in three locations in the state.
Adeniran said: “Our mission is to build three mega stations, one each in the three senatorial districts of the state. We need about five thousand square meters for each of the station. Each station will have six pumps including that of Liquefied Petroleum Gas which is cooking gas.”
The governor expressed gratitude to the NNPC management for deciding to launch the outlet expansion programme in his domain. “Any time NNPC comes visiting, it comes with good news,” El-Rufai said.
Giving express approval for lands to be made available NNPC for the mega stations, the governor said: “I want to assure you that we will give you all the support that you need.