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NNPC abandons OPAs for direct crude oil sales

By on November 5, 2015

About 18 days after opening the technical bids submitted by 101 companies for consideration in its crude oil Offshore Processing Agreement (OPA), the Nigerian National Petroleum Corporation (NNPC) on Tuesday disclosed that it had abandoned the OPA arrangement and opted for Direct Sale-Direct Purchase (DSDP) of crude oil and products with identified refineries.

NNPC in a statement from its Group General Manager Public Affairs, Ohi Alegbe, in Abuja explained that the decision was part of a major effort to enshrine transparency and eliminate the activities of middlemen in its participation in the crude oil exchange for product matrix.

It also noted that the replacement of the OPA option in preference for what it described as the more efficient DSDP alternative was because the DSDP would allow the direct sale of crude oil by it, as well as direct purchase of petroleum products from credible international refineries.

The corporation had on October 15, 2015 opened the technical bids that were submitted by 101 firms which sought to be engaged by it in the OPA.

It however said in the statement that it opted for the DSDP after its evaluation of the pre-qualified bidders revealed that most of the 44 companies it earlier shortlisted for the next stage of the tender process only had affiliations to refineries abroad.

It said that it was thus not comfortable with such situation because it introduces toll on the entire value chain, adding that if allowed to subsist, the development would in turn constitute a significant value loss to the federation by way of accruals.

“In this regard, only bona-fide owners of refineries identified in the ongoing OPA tender evaluation process will be further engaged. The identified refineries will be subjected to due diligence and analysis by NNPC appointed consultants to confirm suitability in line with international best practice,” the statement quoted the corporation to have said.

NNPC further said that its call for commercial bids issued to the 44 shortlisted bidders which are made up of 34 international firms and 10 indigenous companies had subsequently been withdrawn.

Meanwhile, the out-going Executive Secretary of Nigeria Extractive Industries Transparency Initiative (NEITI), Mrs. Zainab Ahmed, has in a related development asked the federal government to consider cutting the volume of domestic crude oil allocated to the NNPC in the current Domestic Crude Allocation (DCA) framework to the refining capacity of the refineries.

NNPC from the DCA framework, currently receives about 445,000 barrels per day (bpd) for domestic refining, but with its four refineries in Kaduna, Port Harcourt and Warri currently not operating at optimal levels, parts of the crude oil allocated to the corporation are sent out on offshore processing deals.

The corporation in its September 2015 operational and financial report however disclosed that out of the four refineries, only the Port Harcourt refinery was in operation and producing at about 4.15 per cent of its capacity even though it had embarked on a Turn Around Maintenance (TAM) on them.

Ahmed, who has been shortlisted for a ministerial post by President Muhammadu Buhari, said during her valedictory session with reporters in Abuja that reducing the volume of DCA to NNPC would inevitably encourage NNPC’s refineries to improve on their capacity and also eliminate wastages in the system.

“First we need to address the issue of domestic crude allocation to the NNPC. The domestic crude is supposed to be used by local refineries but our refineries over time have been operating quite below their capacity.

“There might have been a little improvement but still far from their installed capacity, still below 30 per cent and the national oil company ends up going into swap processing agreement sending our crude oil out of the country so that we can have refined products,” Ahmed said.

She further stated: “My advice, which NEITI has been recommending is that we should reduce domestic crude allocation to NNPC. We have said overtime that that will serve as incentive for refineries to actually improve their capacity because of the crude allocated. About 20 to 30 per cent are refined and about 35 per cent are exported on NNPC accounts.

“So, we have to reduce allocation to NNPC refining capacity plus a small margin, it would encourage more capacity development for the refineries.”

Ahmed, whose five-year tenure at the helm of the NEITI would have been due by November 10, considering that her appointment was on November 10, 2010, explained that: “In the past the revenue from the sale of this domestic crude oil has served as a major means of financing operations. If we reduce that, it means NNPC will have to look at some other ways to finance its operations and it will make them more efficient.”

She further explained that while NEITI’s audit reports on activities in the country’s oil, gas and solid minerals sectors for the year 2013 was ready for submission to the Extractive Industries Transparency Initiative (EITI) and published to the public as part of Nigeria’s commitment to the global movement, the absence of a board has however stalled its approval and subsequent submission.

Ahmed noted that the country had up till December 31, 2015 to make the submission to the EITI, adding however that the country risks suspension from the global body if she fails to meet up with the deadline.

She handed over the affairs of NEITI to Dr. Ogbonnaya Orji, in acting capacity, and expressed optimism that the federal government would speedily reconstitute the board of NEITI to avoid Nigeria’s suspension from the EITI.

 

[ThisDay]