Business
Nigeria favors local firms in $40 billion oil contract awards
Sharing The Pie
Nigeria is one of a small group of major oil producers that allocates its crude directly to trading houses, offering middlemen an opportunity to make margins through reselling the crude. Although many large trading houses were absent from the list, they may have other ways of accessing the oil.
As in Nigeria’s upstream sector, where Glencore recently submitted a bid as part of a consortium of local companies for $3 billion in energy assets, partnerships with domestic firms can help global traders get a share of the business. Vitol may have indirectly won a share of the Nigerian exports to market via a Bermuda-based firm called Calson, in which it is a minority shareholder.
“It’s not that the Swiss traders are being left out, it’s that they’re forcing them to share their pie with the indigenous companies,” said an industry source in Nigeria. Another way for traders to access oil is to buy the contract off a winning firm at a premium. A number of other former winners were also absent from the 2014/2015 list, which will take effect from June. China’s Unipec, the trading arm of top Asian refiner Sinopec Corp (600028.SS), as well as Azeri state oil company Socar, were former contract holders and did not feature on the new list.
West African governments such as Ghana, Senegal, Burkina Faso, Sierra Leone and Ivory Coast, which used to refine Nigerian oil in domestic refineries, formerly had contracts that were not renewed, according to the provisional list.
“Briefcase Traders”
Non-governmental organizations, such as Switzerland’s The Berne Declaration, have criticized Nigeria’s sales method, saying it is opaque and offers no guarantee the oil is sold at fair value. The government has repeatedly denied there is any lack of transparency in the process. London-based think-tank Chatham House estimated in a report on Nigerian oil last year that local traders could score up to 40 cents a barrel, amounting to around $5 million a year on 12 cargoes, just by “flipping” the contract to a bigger trading company.
A 2012 study commissioned by Nigeria’s Oil Minister Diezani Alison-Madueke and headed up by former head of the anti-corruption agency Nuhu Ribadu criticized the sales system whereby contracts were given to “briefcase traders with little or no commercial or financial capacity”. Diezani Alison-Madueke said at the time that there were no informal contracts and everything was done on official tender, not by any discretionary awards.
A portion of Nigerian oil is also sold via swap deals whereby crude oil is given in exchange for imported fuels. Producers operating in the West African country such as Italian oil group Eni (ENI.MI) and oil major Royal Dutch Shell (RDSa.L) also sell some oil directly or refine it themselves.
Copyright Reuters 2014
