A report as a follow up to the oil sector probes specifically the Petroleum Revenue Special Taskforce. It x-rays the NNPC’s opaque oil swap deals and the Domestic Crude Sale agreements and conditions, which has cost the country billions of dollars in revenue.

Topic: How systemic loopholes in the opaque domestic crude oil sales cost Nigeria billions in revenue.

Written by: David Ajikobi

Voiced by: Victor Ororhorho and Tolu Adeleru-Balogun

Studio production by: Adetola Adeogun

SFX Honk! Honk! [Fuel station conversation]

“Oga! Oya move forward, na your turn.” Said Adekunle Abass, a 27 year-old fuel attendant at one the NNPC mega stations in Lagos. [Noisy, traffic ambience]

His customer is obviously still not used to buying fuel at N97 per litre as he rants about the many troubles of Nigeria including the exorbitant pump price of petrol despite the country’s status as a major oil producer. “How can we be buying fuel for this much? The subsidy na fraud, NNPC na fraud, why we no dey see all the money sef? Shebi Sanusi talk say $20bn oil money don waka!”

Adekunle couldn’t but nod in agreement.

[Pause followed by solemn music 2secs]

On a cursory look, everyone would agree that Nigeria has become increasingly dependent on income from crude oil for more than 35 years. The Nigeria Bureau of Statistics says the country in the last 31 years, has earned 51.50 trillion naira from oil. Between 2000 and 2011 alone, the green and white nation earned 48.40 trillion from oil. In April, the country rebased its GDP, which now stands at $509.9 billion dollars, making it the biggest economy in Africa. However, the new calculations also reveal a stark reality that the amount of revenue lost and stolen is even worse than imagined.

[Ambience: Crowd voices: Haaaaa!] [Musical insert: Fela Army Arrangement 1:30-2:30sec]

Though the country still largely depends on oil, a myriad of systemic loopholes, shady arrangements, crude oil theft, and questionable deals in both streams of the oil sector are responsible for the coyntry’s oil revenue loss. This is adding to the numerous reasons why Nigerians lack potable water, good roads and other basic infrastructure.

For example, Nigeria being one of a small group of major oil producers, allocates its crude directly to trading houses, offering middlemen an opportunity to make margins through reselling the crude. These middlemen, those margins have cost the country more than $10billion in less than 5 years. A portion of Nigerian oil is also sold via swap deals whereby crude oil is given in exchange for imported fuel and other products. Even this has been mired in controversy.

In 2012, the Nuhu Ribadu-led Petroleum Revenue Special Task Force revealed that Nigeria is losing billions of dollars every year through the use of “briefcase traders” in exporting crude oil and importation of refined petroleum products. The taskforce in its findings said contrary to the global trend for national oil companies to develop and own their independent crude oil marketing and trading subsidiaries, Nigeria is the only major crude oil producer in the world still relying on private commodity traders for all its oil and gas exports.

Between 2002 and 2011, investigations reveal that almost 400 of the private commodities trading firms used by the Crude Oil Marketing Department, COMD, of the NNPC to export crude oil and import refined petroleum products did not have formal contracts.


The Ribadu report added that most of the companies are being used as financial black boxes by some political elements to carry out questionable deals, at the expense of 170 million Nigerians. The report also pointed out that this arrangement is fraught with bureaucratic bottlenecks and has resulted in huge losses in revenue to the government. With an average of 25 consignments of crude oil lifted from Nigeria every month, the report said the country loses between $100, 000 and $400, 000 per standard cargo of about 950 thousand barrels capacity in revenue margins paid by NNPC to briefcase traders. An average of between 20 cents to 40 cents loss per barrel is incurred where the middleman transfers its export cargo to a real trader, a transaction that adds no value to the country’s economy.

Government-to-government crude oil sales were also faulted in the report. With Nigeria often granting other countries, mostly its Sub-Saharan neighbours allocations at concessionary rates. DNEWS1070

There is also a Swiss connection to this. A Switzerland based NGO, Berne Declaration last year published a damning report implicating the NNPC and some Swiss oil trading firms of defrauding Nigeria of about $6.8 billion dollars in revenue in just 3 years. The report details how NNPC in collaboration with major Swiss oil trading companies, is draining Nigeria of billions of dollars through the sale of crude oil below the market value. A senior researcher at the Swiss based NGO, Marc Gueniat spoke Berne’s Declaration’s report and its damning findings. DNEWS1064

Berne Declaration called it the biggest oil scam in Africa. Well, one would understand why they called it so, with Nigeria being the biggest oil producer in Africa. Top of the plate in these juicy deals are the partnership between the NNPC and three Geneva-based commodity trading firms, Vitol, Trafigura, and Glencore registered in Bermuda but with registered trading arms in Nigeria. Mr. Gueniat told our reporter how the opacity of these deals is detrimental to Nigeria. DNEWS1065


NNPC by law is required to supply petroleum products to the Federation as supplier of last resort. In order to meet this obligation, 445,000 barrels of crude oil is assigned to the NNPC daily for domestic refining. However because the country’s four major refineries are nowhere near optimal operations, NNPC disposes unrefined portion of the consignment through direct export to traders through their letterbox subsidiaries in Switzerland at knockdown prices or exchanged for refined petroleum products in swap contracts and arrangements.


In effect, billions of naira that should have accrued to the government in taxes is wired to Bermuda where the joint venture is established in the first place.


[Music Insert: African China ”Rule Us Well”]


This doesn’t seem to be abating. About a month ago, NNPC awarded most of its long-term oil contracts worth an estimated $40 billion or 340 million barrels oil a year to mainly local companies in line with Nigeria’s local content act, meaning global traders now need to partner with them to access crude from Africa’s top producer. On the surface, this is laudable, but on a deeper look, this is just a tactful way of giving the oil lifting rights to the foreign firms as experts say many of the local firms lack the capability to lift the crude directly.

So inadvertently, the controversial foreign traders buy the contract off the local firm at a premium. The London-based think-tank Chatham House said by doing this, local traders could score up to 40 cents per barrel, amounting to around $5 million a year on 12 cargoes, just by “flipping” the contract to the bigger trading company. Dauda Garuba, the Nigerian coordinator of Revenue Watch Institute, an international non-governmental organisation that promotes transparency and accountability in managing oil, said the contract flippings are against international best practices. DNEWS1054

However, a local oil trader who did not want to be identified defended the oil contract flipping, adding that perhaps the biggest problem is that local trading firms lack the capacity to compete in the first place. A policy analyst and fellow of the Institute of Petroleum, UK, Galtima Liman seems to agree but was quick to add that the biggest loophole of all is the fact that Nigeria does not refine a significant part of its own oil. DNEWS1046


[MUSIC insert: Fela, International Thief Thief chorus]


Two of the biggest foreign firms, Trafugura and Vitol fingered in the Berne Declaration report are not new to controversy. Trafigura was embroiled in a dispute with the US government over oil allegedly smuggled out of Iraq under the controversial UN oil-for-food deal. In Thailand, the company was found guilty of conniving with custom officials to import oil tax-free and to stock oil products different from those of local specifications and in Cote d’Ivoire the firm was accused of dumping of toxic petroleum waste which led to the death of scores of people. Vitol broke United Nations sanctions during the Yugoslav civil war by paying a war criminal, Arkan – also known as ‘the butcher of Vukovar’ in the 90s as a go between to sell Vitol oil to the Serbian regime of Slobodan Milosovic while in 2007, America fined it £17.5 million for paying kickbacks to members of Saddam Hussein’s regime in return for oil shipments under the UN Aid for Oil programme. The companies however have repeatedly denied these allegations.


So why do we deal with these companies in the first place? [INSERT: Omawunmi If You Ask Me Chorus]


NNPC has also denied that there is any lack of transparency in the process. The minister of petroleum resources, Diezani Alison-Madueke said at the time that there were no informal contracts and everything was done transparently. However, Mr. Gueniat of Berne Declaration says these opaque sales methods offer no guarantee the oil is sold at a fair value adding that NNPC gave Trafigura, Vitol and other commodity trading companies over 36 per cent of the market share, selling to them at a ‘discount.’ DNEWS1066. A view shared by Mr. Galtima who used to work in the corporation. DNEWS1047

While NNPC during an investigative hearing by the House Of Representatives claims it awarded just 9% of the crude lifting allocations to these Swiss trading firms in 2011, investigations reveal that more than 56 per cent of oil put up for sale by the NNPC in 2011 valued at $14.004 billion were sold to Swiss companies or Nigerian trading companies with joint ventures with the NNPC and those with obscure subsidiaries in Switzerland.

Vitol, which has a Joint venture agreement with Hyson Nigeria Limited, took 13.44 % and Trafigura was given 13.49 % of the totally crude exports in 2011 for a cumulative value of 6.7 billion dollars. This also happened in 2013. The Swiss firms lifted over 36 per cent of Nigeria’s crude in that year. Mr. Garuba of the oil transparency also listed other trading companies. DNEWS1055


The lawmakers seem to agree with other local oil industry experts who questioned why Nigeria is the only major oil producing nation that sells more than 90% of its crude to and through private traders, rather than market it herself through its trading subsidiaries. The lawmakers also observed that NNPC hardly accounts for other by-products of crude after petrol, diesel and kerosene had been extracted under the swap arrangements with foreign companies. The head of the London-based PM Consulting, which specializes in risk analysis in West Africa’s oil states, Anthony Goldman said there is no way Nigeria can get value for its oil and other resources if it disposes it this way. DNEWS1059

NNPC also insists that its pricing strategy is aligned with international best practices obtained in the oil industry. The Group Managing Director of the corporation, Andrew Yakubu, told the investigative hearing that the prices of oil sold domestically are according to international oil trading prices determined by the Platts platform. Analysts say this only exists on paper. DNEWS1056


[Music insert: Ortsefemi ‘Double Wahala For Dead Body’ chorus]


A report by the Nigeria Extractive Industries Transparency Initiative also detailed how four foreign oil traders under-delivered 500 million litres of products in 2011 under the crude for product swap. NEITI’s Board Chairman, Ledum Mitee, who presented the findings of the audit exercise, said the country recorded a loss of about N98.3 billion between 2009 and 2011 just because of the differential in the conversion rate adopted by the NNPC and the CBN. The report also found that through its pricing practices, NNPC is taking advantage of its position as both buyer and agent for the seller to make a profit at the expense of the country. DNEWS1069

In an international rating of how we keep track of our oil revenue, Nigeria was ranked 40th of 58 countries assessed on the 2013 Global Resource Governance Index. Mr. Garuba who was one of the researchers that computed the index by the Revenue Watch Institute said absence of transparency in Nigeria’s crude sale process and other deals allows portions of the government’s oil share to be passed on to associates of the ruling elite, who then sell on to commodity trading companies at a margin. DNEWS1058

The Nigeria Ship owners Association has also revealed that economy is losing by not involving local ship owners in these lifting contracts. The president of the indigenous ship owners, Isaac Jolapomo, challenged NNPC torelease the names of the shipping companies that were also granted crude oil lifting rights.DNEWS1071


In perspective, what is lost each year to these loopholes is about half of the country’s annual revenues, about nineteen times greater than the amount allotted to education, health and larger than the GDPs of all but three sub-Saharan African countries. All in a nation where 150 million people live on less than $2 per day. Nigeria’s oil revenue alone in 2011 alone was 60 percent higher than the entire international aid that came to Africa. [MUSIC INSERT: Sunny Okosun, Which way Nigeria]

The solutions may not be so farfetched.

Recommendations in the Ribadu report seem to sum up what the country needs to do get more value for its black gold. To curb the losses, the panel recommended that all crude oil lifting contracts are regularized to comply with due process, by ensuring that only traders with valid and formal contracts are granted lifting permits through an open competitive selection process. Meanwhile the Revenue Watch Initiative also preaches transparency in line with global practices. NNPC is also urged to publish the buyer; volume, crude grade, price and date for every cargo of oil sold and provide reports on their oil receipts and the transfers to the treasury. Experts in the oil sector including Mr. Goldman agree things need to be done more transparently. DNEWS1061 The proposed Petroleum Industry Bill also seems to be panacea. But according to Mr. Liman who has extensive knowledge of the industry is the bill may just never come on board due to vested interests. DNEWS1049

The government is also beginning to come to grasp with these loopholes as it has become increasingly clear that the country has sold itself short in many areas of the oil sector. One of the high points of the just concluded World Economic Forum held in Abuja was when the finance Minister Ngozi Okonjo-Iweala revealed that PricewaterhouseCoopers will carry out a forensic audit of the NNPC to trace what happened to billions of dollars of oil revenue alleged to be missing. All the respondents in this report agree that the audit will go a long way, if, only if it is done without bias. DNEWS1063+ DNEWS1053+DNEWS1062

Implementing some of the recommendations of the Ribadu report will also help plug these loopholes.

President Goodluck Jonathan during the last media chat also lends his voice to ending systemic oil revenue losses. DNEWS1068 “America will know.”

[MUSIC INSERT: PSquare If you chop my money chorus 3 secs]

The truth is that as Nigeria grapples with several challenges, the country needs every kobo it can get. So that people like Adekunle the fuel attendant, his customers, and millions of other Nigerians who have been told that their economy is the biggest in Africa can actually begin to feel it in their pockets or at least by the way of infrastructure, social services and better living conditions.

[Fade in: Honk! Honk! Traffic/market or rowdy ambience]