Slippery crude oil swap

The recent payment of over $202 million to the Nigerian National Petroleum Corporation (NNPC) downstream entities by Aiteo Energy Resources Limited for fraudulent deals under the scrapped crude oil swap arrangement has reaffirmed the need to fully unravel all transactions surrounding the controversial barter plan during the last administration.

The amount includes Aiteo’s share of the $184 million total indebtedness by three companies on crude swap obligations and other downstream liabilities. Televaras Group of Companies has also pledged to make a tranche payment of $17.2 million while NNPC is still engaging Ontario Oil and Gas Limited for mutual settlement.

A further look into the swap arrangement has become necessary for the simple reason that Aiteo, in 2014, had denied any involvement in such deals after the Nigerian Extractive Industries Transparency Initiative (NEITI) in a report presented to the Joint House Committee on Petroleum Upstream and Downstream fingered the oil firm. Energy swaps are a natural product for the energy markets.

For example, producers are subject to fluctuating revenue based on the price of oil over which they exert little control. End-users are subject to the risk of rising energy prices for needs which are often price inelastic. The presence of natural buyers and sellers creates a foundation for an active swap market with a niche for financial intermediaries.

In September 2015, NNPC, however, decided to dump the plan in favour of a direct-saledirect- purchase arrangement due to perceived corruption. The benefits derived from a transparent swap arrangement are always appealing to any economy. Little wonder that a former aide to ex-President Goodluck Jonathan, Dr. Doyin Okupe, recently advised the Federal Government to once again tinker with the arrangement.

To him, the crude oil swap is a better sustainable alternative as it does not affect in any way derived revenues from crude oil sales. Inkling into the fraudulent arrangement was first observed in 2014, when the All Progres sives Congress (APC) wondered whether there was a connection between the crude oil swaps and the $2.85 billion winning bid Aiteo and Televaras Group of Companies submitted for Shell Nigeria’s prolific oil block – Oil Mining Lease (OML) 29.

As a matter of fact, the party had expressed surprise that the two firms, with a track record as oil marketers (not exploration and production firms) of less than five years’ experience, could have submitted such a huge bid for the barter programme. Precisely at the early stage of NEITI’s report, the management of Aiteo said no report had ever indicted it in its history and that its operations had always been found above board by any panel of the Federal Government or report.

It made certain its position by declaring that despite the intensity of the probe by the Hon. Farouk Lawan Committee on Subsidy and the Aig-Imokhuede Committee, Aiteo was never indicted by anyone of them. Making its opposition to the indictment stronger, Aiteo added that it strongly contested the values communicated by NEITI as being the value of the over/under deliveries of refined products to NNPC, and went ahead to report what the true and fair values should be as per past reconciliation exercises with NNPC.

The management’s position was that at no time did Aiteo accept an under-delivery of 193,046,590 litres of product. From all the positions it took then, Aiteo was close to describing NEITI’s report as inconsistent with facts when it declared that it demanded that the extractive sector watchdog issue a corrected report centred on the contract guiding the operations of the swap agreement and reflecting global best trade practices.

However, the decision, last month, by the oil firm to pay for under-deliveries has made it mandatory for those concerned to fully investigate all such fraudulent arrangements by oil firms and other multinationals that took advantage of the high wired corruption in the country in recent past.

Good enough, the firm’s change of heart is coming when the oil industry is not only undergoing reforms but also at a period the NNPC is ensuring transparency and adequate public information on whatever business it is getting involved in. We believe there is need for NNPC to push further in ensuring that two other firms, Televaras Group of Companies and Ontario Oil Gas Limited, are compelled to pay up whatever they must have been fraudulently acquired.

Considering the current state of the economy especially as regards scarcity of forex, the idea of reintroducing the swap arrangement is also a good one except that this time around it should be transacted transparently to benefit the parties involved as laid out in the books. We also believe that beyond just compelling such firms to pay what they owe, more stringent penalties should be imposed on them to serve as deterrent to others.

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