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Crude lifting: Indigenous firms call for higher allocations

By Clara Nwachukwu

LAGOS — Nigerian companies participating in the nation’s crude oil sales have called on the Federal Government to increase allocations granted to them, as a way of boosting indigenous capacity.

The oil lifters, some of whom comprise oil marketing companies also asked that specific percentage of the crude oil be reserved strictly for the indigenous companies.

Championing the cause in a telephone interview with Vanguard, the Group Chief Executive, Oando Plc, Mr, Wale Tinubu, also said that government could go a step further to grant such local companies some tax incentives.

Tinubu said: “We are in absolute support of growing indigenous capacity in every facet of our oil and gas industry. This is because the local companies are paying their taxes, reinvesting their capital and creating enormous job opportunities for the larger community.”

He argued that with such encouragements Nigerian participation in the industry will rise significantly in line with government’s aspirations with the Nigerian Content Act.

“If we had not grown enough to extend our portfolio management to trading and marketing, we probably won’t be lifting oil today. If we had not gone into gas, we would not have participated in that sector either. And this can only come by way of encouragement by creating an enabling environment for companies to explore their potential.”

Inadequate capacity and licence hawking

However, the inclusion of Nigerian companies in crude exports has come under heavy criticisms on account of what has often been described as their inadequate capacity to handle such businesses.

Many of those approved for such contracts have been known to go hawking such licences to the highest bidder, thereby defeating the objectives for their inclusion.

A  Presidency source, who spoke with Vanguard on the telephone in confidence, simply described such companies as “racketeers.” According to him, “Those guys don’t really want the allocations; all they want is to get the papers and go abroad to hawk them.”

Indeed, it has been alleged that Nigeria is losing billions annually on account of such inefficiencies, a development that made critics to describe the allocations as more of “political patronage.”

But rushing in defence of his peers, Tinubu noted that such practices may not be avoided for now, given current capacity.

*Oil rig

“You cannot completely escape from paper hawking for now because due to inadequate capacities, some of these companies need to enter into joint venture, JV, agreements with some foreign companies for technical expertise. This will continue to happen until they are able to build capacity. As you know, capacity is built over time,” he argued.

With regard to Nigerian companies not having adequate vessels for such export businesses, the Oando boss noted that globally trading companies hired vessels from professionals for such operations, adding that it was not peculiar to Nigerian companies alone.

Other Nigerian companies also contacted refused to speak on the export programme. The Group Chief Executive, Sahara Group (one of the participating companies), Mr. Tonye Cole, who said he was in a meeting at the time of Vanguard  call, did not respond to his text message or pick his calls thereafter.

The Vice Chairman, AITEO, another local company, Mr. Tunde Akinpelu, said he was not comfortable to speak on the subject, especially as he had not met Vanguard’s writer before.

But some other Nigerian companies, which spoke in confidence urged government to reduce some of the other criteria for participation, particularly the value for the annual turnover and net worth of the company, which was pegged at $500 million and $100 million respectively as at the 2011 advertorial.

According to them, “Government should review the amount for indigenous players because the foreign companies have the financial muscles to achieve this, but some of us do not. We all know the cost of borrowing in this country, but the foreign companies get their facilitates at between five and seven per cent interest rates.”

Participation requirements

Some analysts blamed the stringent participation requirements for the low participation of Nigerian companies in the crude export programme.

The crude export programme is handled by the Crude Oil Marketing Department of the Nigerian National Petroleum Corporation, NNPC. The Department shortlists candidates for the programme and forwards the list to the Presidency through the Ministry of Petroleum Resources for approval.

Each round of lifting is usually advertised, with the NNPC calling for “Invitation for Crude Oil Term Contract Application.” The advertorial usually signed by the Group Managing Director, NNPC, also specifies the period, mostly January to December of a given year.

The advertorial also usually stipulates who may apply, other conditions for applying, the modalities and method of application, as captured below from the NNPC’s website:

Requirements for Marketing Crude Oil:

Those who wish to buy and sell Nigerian crude oil must demonstrate their commitment to the oil industry through allocation of adequate resources of capital, equipment and manpower to the general business of prospecting, exploration and production of crude oil.

Crude Oil Marketing

Those eligible to apply:

An upstream investor who has acquired an oil prospecting license and must have completed a minimum amount of work on the concession.

Who may apply for crude oil licence:

Local Refineries

International Refineries

Internationally recognized Oil & Gas traders

Who may purchase Nigerian Crude Oil

A bonafide end user who owns a refinery and sales outlet.

An established and globally recognised large volume trader proof of its global network, its operations and volumes of crude oil handled in the last three years.

Other Conditions

All applicants must have a minimum annual turnover of at least $100 million and net worth of not less than $40 million.

Successful applicants must show commitment to the development of the Nigerian economy by investing any number of opportunities that abound either in the oil industry or gas sector.

Successful companies will be required to post a $1 million performance bond through a first class Nigerian bank in addition to the regular crude oil contract provisions.

Reports indicate that Nigeria loses about N2 trillion annually to the exclusive use of foreign companies for lifting the nation’s crude which are sold free on board, FOB, rather than on cost, insurance and freight, CIF.

Against this background, the Federal Government deliberately decided to include Nigerian companies to promote local content. And the number of local participants continued to increase over the years.

Agency reports said the number of companies on the list grew from 45 in 2011 to about 65 last year, with many Nigerian companies making the list

About 28 companies were selected to lift Nigeria’s crude oil in 2008, including bilateral and government-to-government contracts. The figure fell to 24 in 2009, but rose again to 38 in 2010, and to 57 in 2011.

In the 2012 round, about 580 million barrels were sold, valued at nearly $60 billion based on current premiums of the country’s light, sweet crude to Brent futures.

The tender showed that about 45 per cent of the allocated oil was earmarked for companies either based in Nigeria or owned by Nigerian companies, including NNPC subsidiary, Duke Oil, which doubled the size of its contract from last year to 60,000 barrels per day, bpd.


Comments expressed here do not reflect the opinions of vanguard newspapers or any employee thereof.