Nigeria replaces crude oil swap for direct sale-direct purchase

Tuesday, February 2, 2016 8:29 pm

The Minister of State For Petroleum Resources and Group Managing Director of the NNPC, Dr. Ibe Kachikwu and the Managing Director of the Pipelines and Products Marketing Company, Mrs. Esther Nnamdi-Ogbue explaining the Direct Sale-Direct Purchase Crude Oil arrangement to the House of Representatives Ad-Hoc Committee

Nigeria’s Minister of State for Petroleum Resources and Group Managing Director of the Nigerian National Petroleum Corporation, Dr. Ibe Kachikwu, said that the crude-for-products exchange arrangement popularly referred to as crude swap will be replaced by a Direct-Sale–Direct-Purchase (DSDP) arrangement which would take off next month.

Dr. Kachikwu made this disclosure when he appeared before the House of Representatives Ad-Hoc Committee set up to investigate the Corporation’s offshore processing and crude swap arrangement for the period between 2010 to date at the National Assembly Complex, Abuja.

He noted that the DSDP was adopted to replace the Crude Oil Swap initiative and the Offshore Processing Arrangement so as to introduce and entrench transparency into the crude oil for product transaction by the Corporation in line with global best practices.

Under the old order, crude oil was exchanged for petroleum products through third party traders at a pre-determined yield pattern.

The Minister stated that the DSDP option eliminates all the cost elements of middlemen and gives the NNPC the latitude to take control of sale and purchase of the crude oil transaction with its partners adding that the initiative would save one billion dollars for the Federal Government.

“When I assumed duty as the GMD of NNPC, I met the Offshore Processing Arrangement (OPA) and like you know there is always room for improvement. I and my team came up with the DSDP initiative with the aim of throwing open the bidding process. This initiative has brought transparency into the crude-for-product exchange matrix and it is in tandem with global best practices,” Dr. Kachikwu informed.

According to him, the DSDP initiative whittles down the influence of the Minister in the selection of bid winners as it allows all the bidders to be assessed transparently based on their global and national track record of performance before the best companies with the requisite capacities are selected.

Throwing more light on the need for the introduction of the DSDP, Dr. Kachikwu noted that the policy is aimed at reducing the gaps inherent in the OPA and the losses incurred by the NNPC in the past.

He stated that the new arrangement would help the Corporation to grow indigenous capacity in the international crude oil business and generate employment opportunities for indigenous companies that are selected.

The Minister informed that the DSDP initiative gives other government agencies such as the Bureau of Public Procurement (BPP) and Nigeria Extractive Industry and Transparency Initiative (NEITI) the opportunity to be a part of the bidding process in order to engender adherence to due process.

Speaking on some of the reported misgivings by some Federal agencies over the alleged non-transparent nature of past crude-for-products exchange arrangements, the Minister assured that the reconciliation process was ongoing and that going forward the Ministry would deploy technology to track cargoes and transshipment at the reception depots in order to forestall any incidence of round tripping.

Dr. Kachikwu announced that the price modulation policy has rid the Federal Government of the burden of subsidy on imported petroleum products in January 2016.