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Buhari Cancels Oil Swap Deal

President Muhammadu Buhari has terminated the controversial offshore dispensation and oil swap agreements launched by the government of Goodluck Jonathan. The deal initiated in January 2015 was due to last till December 2016.  The new management of the Nigerian National Petroleum Corporation (NNPC) sought President Buhari’s support for the cancellation in a bid to provide transparency and due process.

In a memo to the president on August 12, the NNPC required approval to stop all such ongoing contracts after a presidential directive. “This memo purports to seek Mr President’s approval to terminate all current Offshore Processing and SWAP contracts and commence a fresh re-tendering process to ensure transparency, due process and optimized contract terms in favour of the NNPC,” noted the letter signed by Ibe Kachikwu, the group managing director of the corporation.

The president answered with the approval to the request in a memo dated August 13 and signed by Nebolisa Emodi, the permanent secretary of the state house.

The NNPC currently switches off a part of its chosen 445,000 barrels of crude per day to some oil companies and in return gets refined products.

Oil exchange originates from the fact that Nigeria’s four refineries work mostly below 50% installed capacity and since 2003, the NNPC has continued to allocate them 445,000 barrels of crude oil per day, which links to 100% capacity.

The oil exchanges have come under criticism after claims that they have lacked transparency and the administration has been short-changed in the agreements.

In its audit between 2009 and 2012, the Nigerian Extractive Transparency Initiative (NEITI) disclosed that crude oil swap deals are not cost-effective, particularly when paralleled to product prices and proceeds paid to the NNPC.
The audit uncovered under-delivery of products by companies awarded such exchange contracts to the tune of $866.189 million, and that this comprises the Refined Products Exchange Arrangement of $500.075 million and the Offshore Processing Arrangement of $366.114 million.

Civil society groups had frequently called for an end to the oil swap deals while also advising the Nigerian government to allocate to local refineries crude product based on operating capacity and the difference should be sold directly as crude.

Meanwhile, the House of Representatives has failed to make progress on a motion moved in June by Michael Enyong (Akwa Ibom) seeking an “urgent need for a forensic investigation of the contracts known as Refined Product Exchange Agreement or Swap Contract.”

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