Report: How NNPC colludes with Swiss oil traders to defraud Nigeria
Nigeria's export of crude oil remains embroiled in corruption and oblique transactions in a way that has hobbled the country's economy, a a Switzerland-based non-profit transparency organization, Bern Declaration (BD) has indicated in a report.
The report gives graphic details of how state oil company, the Nigerian National Petroleum Corporation (NNPC) collude with foreigners to steal crude oil valued at billions of dollars.
The Swiss transparency organization had last year November 7 published a similar report in which it made shocking disclosure of the underhanded practices in Nigeria crude oil export transactions, which it estimated in its previous report as amounting to over $6.8 billion in financial leakages.
According to the report, the process by which the Nigerian National Petroleum Corporation, NNPC, selects trading companies it sells Nigerian crude oil is characterised by monumental corruption and intense uncertainty that a report has likened it to a “beauty pageant.”
The report, “Big Spenders: Swiss Trading Companies, African Oil and the Risks of Opacity,
In some instances, according to the report, the NNPC collude with foreign companies to facilitate the stealing of Nigerian crude with firms with allocation lifting oil from the country's shores.
The NNPC had dissed the last year's report by Bern Declaration which had generated much furore in the National Assembly and in civil society community.
Bern Declaration in the report x-rayed the processes involved in the sales of crude oil to Swiss commodity trading companies by SubSaharan African countries between 2011 and 2013.
It also pointed out that Swiss companies purchased over 500 million barrels of crude valued at $55 billion from 10 sub-Saharan African countries within the period under review, which by its estimation is about 12 percent of the governments' revenues, and are double what they received in foreign aid.”
The report further indicated that Swiss trading companies are the largest buyers of crude from Cameroon, Chad, Equatorial Guinea, Gabon and Nigeria, BD states that these purchases are subject to governance risks because “they take place in environments of weak institutions and widespread corruption”.
In Nigerian, for instance, BD puts the value of crude sold to Swiss trading companies at $37 billion which makes up more than 18 per cent of total government revenue in the period under review.
It observed that unlike most major crude producers around the world, which prefer to sell crude directly to refineries and end users, the Nigerian National Petroleum Corporation, NNPC, sold over a third of Nigeria's crude between 2011 and 2013 to Swiss companies alone.
The report said, “In 2011 and 2012, Swiss companies bought almost half of the identified export sales made by the Nigerian National Petroleum Corporation (NNPC), an estimated $27 billion worth of crude. While this figure dropped to a little less than one third in 2013, as Nigerian companies became bigger buyers, Swiss companies still bought government crude worth an estimated $10 billion.”
Also highlighted by the report is the fact that term contracts through which the NNPC selects companies that are eligible to buy crude are marooned in favouritism and corruption.
According to the Swiss transparency organization, the criteria for selection of the beneficiary companies are so opaque that it likened it to the process of selecting the winner of a beauty pageant.
The report states that many of the trading companies on the list are allowed to lift far more that the quantity they are officially allotted.
“In 2012, Vitol and Trafigura each received term contracts worth 30,000 barrels per day. Each of the companies also operates its own oil marketing joint venture with NNPC (both based in Bermuda: Calson for Vitol and Napoil forTrafigura), and these entities each received additional 30,000 barrel per day allocations that year.
“However, rather than 60,000, market data suggests that Vitol bought closer to 145,000 barrels per day in 2012, and Trafigura 97,000—far exceeding their allotted shares, and a discrepancy that illustrates the laxity of the system.”
In fact some companies, which do not appear on the award list, are allowed to lift crude. Particular mention was made of Swiss firm, Arcadia, which lifted 19 cargoes between 2011-2013 despite not being approved to lift crude.
“Nigeria's award of the term contracts is a discretionary and politicized process, with companies gaining and losing allocations depending on their relationship with the officials in charge and the influence of their local contacts or 'sponsors,” the BD report states.
The report also points out that the NNPC sells crude to politically exposed “briefcase traders” who in turn sell to Swiss trading companies at a margin “effectively privatizing a profit that could go to the states that sold the oil”.
The report also states that NNPC sells crude below the market value to Bermuda-based subsidiary, Calson. Vitol, a top Swiss trading company, owns 49 percent of Calson.
Last year, another report by BD says Nigeria lost billions of dollars through this deliberate undervaluing of its crude by the NNPC.
In order to solve this glaring compromised process, BD calls for better transparency in the system. It advises producing government to select “buyers through a method that reduces opportunities for favoritism, bribery and manipulation.”
BD suggested “attracting the best possible return for the oil in question, as losses of just
pennies per barrel can add up to significant revenue shortfalls; and insist on “collecting and transferring the revenues to the treasury through a rule-based process that reflects clear national priorities.”
In order to achieve this, BD suggested methods that Nigeria could adopt in the sale of its crude oil.
It believes the country should be transparent about:
The name, beneficial owner and country of incorporation of the buying company the volume, grade, and date of any sale, broken down by cargo where appropriate;
The price, and how it was determined
the revenue received for each cargo, and the destination of that revenue (e.g., used by NOC to
purchase fuel, transferred to national budget, transferred to a local
government)
A full explanation of the process for choosing the buyer (e.g., the
allocation of a term contract, an open tender)
The full text of the related contract (e.g., term contract, agreement
to swap crude for refined products).
The report also called on Switzerland to do more in the area of transparency as the centre of commodity trading in the world.
BD said, “Switzerland should accept its responsibility as the world's leading commodity trading hub and pass regulation that requires Swiss companies producing or trading in natural resources to disclose all payments made to governments and state-owned companies, including payments associated with trading activities.
“In a 25 June 2014 report, the Swiss federal government indicated a preference to exclude
trading-related payments from future regulation of this kind. If that position holds, the payments described in this report would remain secret.”
With agency/ internet media