NNPC’s Oil Lifting Guidelines Violate Local Content Law

10 Apr 2012

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Group Managing Director of NNPC, Mr. Austen Oniwon

By Ejiofor Alike

The guidelines on crude oil lifting recently issued by the Nigerian National Petroleum Corporation (NNPC) violate the Nigerian Content Act as they would effectively exclude local companies from the contracts, THISDAY can report.

The Federal Government may be forced to cancel the guidelines, with some indigenous companies threatening to challenge the corporation in court, Presidency sources told THISDAY Monday.

The Nigerian Content Law was signed by President Goodluck Jonathan on April 22, 2010.

NNPC is said to have changed the previous conditions for crude oil lifting contracts in favour of foreign contractors.

Some of the Chief Executive Officers (CEOs) of the local firms, who spoke to THISDAY on the issue, alleged that the Group Managing Director of NNPC, Mr. Austen Oniwon, is pitching his tent with foreign contractors by making the conditions too stringent for local companies.

Clauses 2 and 3 of the Nigerian Content Act provide that indigenous Nigerian companies should be given first consideration in the award of all contracts in the oil and gas sector.

Contracts are normally awarded to the lowest bidder but as part of the strategies to boost increased local participation in the industry, the Nigerian Content law also provides that indigenous contractors must be awarded certain contracts, even when their bid price is higher than that of foreign contractors by up to 10 per cent.

In line with the spirit and letters of the Nigerian Content Act, the guidelines issued for crude oil lifting contract in 2011 had even required participants to show evidence of compliance with the Act.

The previous guidelines also required evidence of yearly turnover of $500million; minimum net worth of $100million; and investment in the upstream sector to increase national oil reserves and production capacity.

Other requirements were: evidence of investment in the downstream projects, refining, petrochemicals, distribution and storage of petroleum products, gas utilisation projects; Independent Power Projects (IPP); and readiness to invest in railway.

But in what would ensure that indigenous companies with massive investment in Nigeria are disqualified in the 2012 tender, the NNPC excluded investments in the country as part of the criteria and also jacked up the yearly turnover and net worth to $600 million and $300 million, respectively.

Also, in what would further ensure that the scheme favours mostly foreign contractors with very deep pockets and easy access to international capital, the NNPC provided that each applicant would pay a $5 million deposit before buying the first oil cargo.

The case of local companies was further worsened by the demand of NNPC that the applicants should be bona fide end users of crude oil who own refineries and should also provide evidence of their facilities and the volume of crude oil refined over the last three years.

Vitol, Glencore and Amsterdam-based Trafigura are some of the foreign companies that are believed to have been favoured by the new guidelines.

The loss by indigenous companies as a result of the exclusion could not be ascertained in monetary terms due to the secrecy associated with the valuation of the contracts.

THISDAY had reported that trimming of the list of contractors was part of the strategies that was adopted by the NNPC to ensure that only "fit and proper" firms would benefit from the crude oil term contract.

While the indigenous companies have accused Oniwon of implementing the agenda of foreign companies, the spokesman of NNPC, Dr. Levi Ajuonuma told THISDAY Monday that the guidelines were meant to “separate the boys from the men”.

“The guidelines have come to stay and whoever is qualified to play by the guidelines should play by the guidelines. Crude oil lifting is not child’s play. Do you know the cost of a cargo of crude oil? Crude oil lifting requires a deep pocket and a lot of professionalism. I am sure there are some local companies that are involved but the guidelines separate the boys from the men,” he said, maintaining that the NNPC had not violated any law.

But one of the officials of a local firm accused the NNPC of deliberately excluding indigenous participation in crude oil lifting, to favour foreign companies for “selfish reasons.”

“How can Oniwon insist that the local companies must provide evidence of ownership of refineries and also volume of crude refined for the past three years, when the NNPC itself does not have functional refinery? Somebody has selfish interests somewhere,” he said.

THISDAY however gathered that before crude oil is lifted in other parts of the world, it must have a destination refinery but the trend in Nigeria is that the contractors lift crude oil and start looking for refineries.

Absence of destination refinery and the attendant secrecy associated with the valuation of the lifting contracts have denied the country a substantial part of the by-products of the crude oil that is traded for refined petroleum products.

Apart from the crude oil lifting contracts, NNPC also has an allocation of 445,000barrels of crude oil per day, which is traded for refined petroleum products.

THISDAY gathered that while a small volume of this crude is refined locally, the corporation has Offshore Processing Agreement with foreign refineries, specifically ones in Cote d’Ivoire because of “nearness and flexibility”.

It was also learnt that there is a Swap Arrangement between the Amsterdam-based Trafigura and Duke Oil, which is owned by the NNPC, under which Trafigura is allocated crude oil in return for equivalent quantity of Premium Motor Spirit (PMS).

THISDAY gathered that Duke Oil receives 90,000bpd out of the 445,000bpd, which it allocates to three foreign companies, including Ontario, in return for PMS equivalent.

This arrangement, it was learnt, started in February 2011.

Out of the 445,000bpd allocated to NNPC, it was learnt that 210,000bpd goes into the Offshore Processing Agreement and the Swap Arrangement, while 235,000bpd is refined locally.


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