Kachikwu accuses companies in crude-for-product deal of profiteering
Ibe Kachikwu, Nigeria’s minister of state for Petroleum Resources has said Nigeria would review the list of companies allowed to participate in the Direct Sale of Crude Oil and Direct Purchase of Products (DSDP) programme on suspicion of profiteering and lack of capacity as fuel queues resurfaced to mar the holidays.
The DSDP arrangement is a model introduced last year to replace the controversial crude swap arrangement and is carried out through direct sales of crude oil to refiners or consultants, who in turn supply the Nigerian National Petroleum Corporation with equivalent worth of products.
“There were lots of people who undertook in the DSDP programme and were supposed to deliver products but failed on their deadlines, some for private, personal profiteering reasons, some for just sheer capacity reasons, so again we need to look at that list and see who performed this year, who breached, and make sure that those who do not perform are not back into that list again as we go forward,” said Kachikwu in Lagos on Monday.
No fewer than 128 Indigenous and International Oil and Gas companies indicated interest to participate in NNPC’s DSDP programme when bids were announced in February this year.
The programme which was billed to kick off on April 1, could not commence until the next month, saw the NNPC sign agreements with ten companies to exchange around 300,000 barrels per day of crude for imported petrol and diesel in a deal worth about $6billion if oil prices remained in the $44/45 per barrel band.
The arrangement had international oil marketing companies paired with local partners who were successful in crude term contract organised by the NNPC. The corporation has not published the list of successful companies in the DSDP programme but Daily Trust newspaper cited a source in the NNPC who said the list includes Vitol-Varo Energy, Cepsa-Oando, Petrocam Trading-Rainoil Ltd., Trafigura-A.A. Rano Nigeria and Totsa-Total Nigeria.
Others are Socar Trading which signed its contract with Hyde Energy as local partner; Mocoh-Heyden Petroleum, Mercuria-Matrix Energy and MRS Oil/Gas-Litasco while Ivory Coast’s SIR refinery was paired with Sahara Energy Resource Ltd.
“The DSDP programme has ensured that the supply from the refineries is fully augmented to meet national supply and sustained over 30 days sufficiency of Premium Motor Spirit, PMS, otherwise known as petrol,” said Maikanti Baru on February 2.
However the current scarcity has cast doubts over the efficacy of the programme. While Federal Government puts the blame on the companies involved in the arrangements, oil marketers say pricing is the key issue.
“We understand that the NNPC meets this demand largely through its DSDP framework. However, due to price challenges on the DSDP platform, some participants in the scheme failed to meet their supply quota of refined petroleum products, especially PMS, to NNPC. This is the main reason for this scarcity,” said Olufemi Adewole, the executive secretary of the Depot and Petroleum Products Marketers Association (DAPPMA) in a recent statement.
Adewole further said that since Hurricane Katrina, the international price of PMS had not dropped below $600 per metric tonne, while the exchange rate used and the interest rate charged by banks are N306 to a dollar and 25 per cent respectively.
Earlier this year when the deal was reached, oil prices hovered around $45 per barrel but crude prices surged to more than 2½-year highs Tuesday on reports that a pipeline explosion in Libya has disrupted a big chunk of the country’s crude supply. International benchmark Brent crude rose $1.81, or 2.8 percent, to $67.06, after hitting an intraday peak of $67.10, its highest level since May 2015.
NNPC has it has ramped up import of petrol by over 50million litrs per day against the prior consumption levels of less than 35million litres per day, yet the long queues persist in filling stations.
Kachikwu said the long-term solution includes involving the major marketers in petroleum imports and fixing the refineries. “I’d like to see the major marketers able to bring in their own products and not NNPC bringing the products for them, so if there are some support mechanism, we would have to find a way, either through taxation relief, to try and address that issue so that everybody is in a capacity to do business those are some of the things I will be developing and I will try and see my principal in the coming days to address the problem.
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