This could be his last days in office for the Minister of State for Petroleum Resources, Emmanuel Ibe Kachikwu, but if and when he is eventually sacked, one of the biggest regrets that would continue to haunt him will be his failure to wean Nigerian traders who are still hooked on swap deals; according to close confidents of the minister, who spoke to Huhuonline.com on condition of anonymity. Oil swaps are not only fraud-prone, they represent a national disgrace since the system exists only because Nigeria; a country producing 2.3 million barrels of crude per day relies almost entirely on imports for refined petroleum products.
In March 2016, Kachikwu announced with fanfare that the Nigerian government had jettisoned the policy of exchanging crude oil with refined petroleum products, from foreign and domestic suppliers. The controversial oil swap arrangement was replaced by a new Direct-Sale–Direct-Purchase (DSDP) arrangement to take effect immediately. Kachikwu told the House Ad-Hoc Committee set up to investigate the Nigerian National Petroleum Corporation (NNPC) offshore processing and crude swap arrangements, that the new DSDP arrangement would entrench transparency into the crude oil-for-product transaction by the NNPC in line with global best practices.
Kachikwu’s announcement came after a report by the watchdog; Nigerian Extractive Industries Transparency Initiative (NEITI) revealed that in 2015, Nigeria lost $723 million (N221.5 billion) through dubious and fraud-prone oil swap deals with domestic and foreign firms, which pre-dated the Buhari administration. Specifically, NEITI said the losses occurred through Offshore Processing Arrangements (OPA) that involved the allocation of crude oil to select oil firms and traders, under swap contract terms in exchange for those firms supplying refined petroleum products for local consumption. Practically, the government allocates 445,000 barrels of crude per day on favourable terms to the NNPC to refine what it can locally, and then deploys the rest in “swap” deals by allocating volumes to traders to refine them offshore for the NNPC.
The 445,000 bpd quantity corresponds to the combined installed capacity of the NNPC’s four moribund refineries in Port Harcourt, Warri and Kaduna. NEITI alleged that the loss was the shortfall on the value of crude supplied; it identified outstanding liabilities of $498 million in other operations from under-delivery of products, and another $90 million lost through the NNPC’s dubious practice of using lower or revised pricing at the point of payment, instead of the higher price at the point of purchase.
NNPC sources confided to Huhuonline.com that Kachikwu has been at odds with President Buhari over the reforms he wanted to initiate at the NNPC. In the power struggle, Buhari stripped Kachikwu of the post of NNPC Group Managing Director and replaced him with a close confidante. Kachikwu said he dropped the OPA for the Direct Sale-Direct Purchase arrangement to enthrone transparency and eliminate the activities of middlemen in the crude oil exchange matrix because OPA was part of an infuriating template that has gone on for too long. But Buhari overruled him and restored the status quo
To which end, oil marketers who wish to buy NNPC crude oil in exchange for equivalent petroleum products (swap deals) have until today, May 2, 2019, to submit their bids. Yet, the 2019-2020 bidding round comes as a personal failure for Kachikwu. The junior oil minister promised time and time again since his appointment in 2015 that the rehabilitation of the country’s refineries (Port Harcourt, Wari and Kaduna) would make Nigeria independent from oil imports by the end of President Buhari’s first term in 2019. The reality is that the rehabilitation work on the refineries is far from nearing completion.
NNPC sources also told Huhuonline.com that the lack of progress in rehabilitating the refineries was mainly due to the government’s failure to reach agreement with the Indian firms that wanted to invest up to $15 billion in Nigeria’s existing refinery units. The Nigerian oil marketers, with a vested interest to continue the oil swap regime reportedly sabotaged the negotiations and Kachikwu was unable to seal the deal, bowing to pressure from the Nigerian traders. Another possibility for ramping up petroleum product output is through the modular refineries in the Niger Delta. These are the same type of units operated by Waltersmith in Imo state but are a long way off being able to make up for the low output of the existing refineries.
During President Goodluck Jonathan’s tenure, 2010 to 2015, swap deals were dangled and used as political patronage; Nigerian traders close to the former minister of petroleum resources Diezani Alison-Madueke were able to make themselves a fortune. The most prominent of them being Aiteo boss, Benedict Peters. Buhari’s failure to reform the NNPC entrenches its ingrained corporate culture of impunity. Kachikwu has been quoted as telling close aides that the president is doing Nigerians a great disservice by allowing the NNPC to carry on business as usual.
Despite the fact that the 1999 Constitution is very clear and unambiguous about the office of the president being incompatible with any other public office, Buhari continues to use the subterfuge of “supervising minister” to run the oil ministry; and the rot in the oil sector has continued unabated. The more Nigerians clamor for change, the more things remain the same. In 2013, a Switzerland-based non-profit, Berne Declaration, raised the alarm that NNPC officials, in connivance with some Swiss oil traders, had defrauded Nigeria of about $6.8 billion through false subsidy claims between 2009 and 2011, using “letter box companies” – fictitious corporations that had only addresses but no offices. Nothing has been done to identify the companies and officials involved and bring them to justice or to verify the allegations and recover the sums lost.
The Berne Declaration said: “Every year, the Nigerian state coffers lose billions of dollars as large volumes of oil are exported for well below the market price, and the subsidy scheme for imports of refined crude oil products is systematically defrauded.” A series of reports, audits, including those from the Auditor-General of the Federation, the Central Bank of Nigeria, as well as parliamentary inquiries have exposed a level of financial rascality unseen anywhere else; yet, the response of successive Nigerian governments has ranged from tepid to hypocritical posturing and outright indifference. The NNPC, on its part, routinely denies the allegations.”
