Mr. Chairman, House Committee on Petroleum Resources (Downstream)
Members of the Committee
Other members of the House of Representatives
Ladies and gentlemen

The African Network for Environmental and Economic Justice (ANEEJ) appreciates the House Committee on Petroleum Resources (Downstream) for accepting to receive this team as part of its advocacy visit on a matter of national public interest concerning the oil swap deals in Nigeria. Not many people will disagree with the fact that Nigeria’s oil and gas sector is at a crossroads. This is reflected in the context of contemporary scale of under-performance and myriads of scandal dogging its governance. Several audits conducted on the sector since the country applied and secured acceptance to implement the global Extractive Industries Transparency Initiative (NEITI) in November 2003 indicate that it is fraught with myriads of legal, institutional, process, regulatory, capacity and transparency and accountability gaps, all of which beckon for urgent redress. The very recent among the scandals trailing the sector, as already noted, is the one concerning crude oil swaps in which Nigeria is losing enormous money to Swiss oil companies and their collaborators in the country.

While it may not be necessary to bore you with the details of this matter, especially as your committee is already investigating it, it suffices to appreciate that it is a matter that transparency and accountability watchers are interested in seeing Nigeria resolves. ANEEJ is particularly of the belief that it is unacceptable to gloss over the huge sum of money that Nigeria is losing through its crude oil swaps. A recent estimate of that was valued at $8billion per annum. This leakage, added to the daily loss to oil theft, puts Nigeria in the lead of countries currently hurt by resource curse.

Crude Oil Swap
Crude oil swap derives from the wrath created by the under-performance of Nigeria’s four refineries now put at 18%-20% installed capacity. Prior to its contemporary negative image, it was first adopted in the 1977 and 1986 as an arrangement between Nigeria and Venezuela to feed the Kaduna refinery with heavy crude in exchange of light crude. The difference between the practice then and the manifest fraud dogging today’s practice is that the former was initiated and implemented in a manner that met internationally acceptable standards in both value and pricing.

Contemporary crude oil swap involves the award of lifting license for a specific volume of the 445,000 barrels of crude oil allocated for domestic use in return for shortfalls in locally refined petroleum products. The practice of swapping a part of Nigeria’s 445,000 barrels of the (daily) domestic crude allocation in the face of failing refineries has become a dimension of oil theft. Through it, a few shrewd people enriched themselves at the expense of the greater majority of the citizens for whom Nigeria’s oil wealth should work.

The NEITI 2009–2011 oil and gas audit report revealed that crude oil swap arrangements are not cost effective, especially when compared to product prices and proceeds paid to the NNPC. Specifically, the report pointed out under-delivery of products by companies awarded such swap contracts to the tune of $866.189 million, adding that this comprises Refined Products Exchange Arrangement of $500.075 million and Offshore Processing Arrangement of $366.114 million. People have also demand accountability on the by-products of the swapped crude for petrol (PMS), diesel (AGO) and kerosene (DPK). Prominent among the companies directly accused of under-delivery of products under the swap contracts are Trafigura, Taliveras, Aiteo Nigeria Limited and Ontario Oil and Gas.

Besides NEITI audits, the Berne Declaration and the Natural Resource Governance Institute (formerly the Revenue Watch Institute) have made similar publications of under-hand trading of national oil companies (NOCs) – including the Nigerian National Petroleum Corporation (NNPC) – across Sub-Saharan Africa. In a most recent joint publication, NRGI and Berne Declaration fingered Swiss companies as serving the cesspits for public revenue leakage. Between 2011 and 2013, they were reported to have bought 18% worth of crude oil amounting $37 billion from the NNPC, with some of the deals allegedly sealed under questionable procedures. A cursory review of these deals reveal that Nigeria is losing from both Refined Products Exchange Arrangement (oil swap) and Offshore Processing Arrangement. This has much devastating implications for a country that is seriously in need for resources for infrastructural development.

Conclusion: Way Forward
Having critically analysed available information on the crude oil deals negotiated and executed between Nigeria and its partners, ANEEJ has come to the conclusion that crude oil swaps, especially as being currently practiced in Nigeria negates known measures of international best practices. In the midst of this disregard for international best practices, ANEEJ takes the forefront in the league of individuals and groups that demand far-reaching reforms that can transform the oil and gas sector in Nigeria and put it in a globally competitive shape.

As much as it is the responsibility of the executive arm of government to fix the numerous problems plaguing the sector, the Legislature is better placed to initiate and oversight that process, given the position of the latter as the pulse of any democracy. At the risk of bothering you with the obvious, the legislature is imbued with the constitutional responsibility of constituency representation, law-making and exercise of oversight. Indeed, there is no democracy in a society where the legislature ceases to exist or performs its functions. Aligning with the position argued above, the NASS is the pulse of Nigeria’s democracy. As applicable to all countries operating bi-camera legislature, the Nigerian House of Representatives which you belong symbolizes the nearest representation of the people at the central government. This is why the push for reform of the oil and gas sector in Nigeria must start with you.

Thus, as part of the way forward, ANEEJ pleads with the House through your committee to see to the abolition of the scam called crude oil swap. It should ensure that local refineries are allocated only the crude they can absolve, while the remainder of the 445,000 barrels daily allocation for domestic use is sold at internationally competitive price. In other words, Nigeria should sell the unutilized crude by its local refineries at international market price in the same manner it imports refined products that it eventually subsidize.

Secondly, the House of Representatives should commit to leading the Nigerian citizens to fight oil swap practice, by pushing for investigation and prosecution of Nigerians that are involved. This is necessary because the complicity of insiders within NNPC, oil companies and government, and the tendency to act contrary to laid down rules and procedures, have become the cracks surviving crude oil swap business.

Thirdly, it is of essence that some urgent actions are taken to bring back Nigeria’s moribund refineries. Such action should look beyond the very emotive issue of “subsidy remover”. We need to act in the direction of liberalization as against privatization. The story of the telecommunications that is often misconstrued as privatization (but which is not exactly correct) is a good example. A liberalization of the process, even if it means bypassing the domestic market to sell products abroad, will encourage investment and job creation for Nigerians.

Fourthly, Nigeria needs to emulate countries that are better able to manage their oil and gas sector by embracing reforms that will transform it. The beginning point for that should be seen from the opportunity provided by the Petroleum Industry Bill (PIB). The non-passage of the PIB since 1998 when it was first introduced in the NASS has denied Nigeria of its potential for transforming the downstream oil sector and the associated issues of crude oil swap. Nigerians want the PIB passed with dispatch, and it is the hope of ANEEJ that this will not be delayed any further.

Fifthly, natural resources occupy a pivotal place in the growth and development of countries rich in them. To the extent to which oil is the mainstay of Nigeria’s economy, it is expedient that NASS pushes for a law that mandates the Minister of Petroleum Resources (and perhaps his/her counterpart in the Ministry of Mines and Steel Development) to address it annually on development in the industry. This will enable it to assess firsthand information about policy, trading and investment in the industry as against the current practice of responding only to whistle blowing in the media.

Lastly, the National Assembly, through your honourable House, should activate a mechanism for dealing with the challenges of crude oil swap through global action. The Swiss Federal Government is reported as currently working on a forthcoming transparency which it intends to exempt commodities (trading) sector. This step, apart from being at odds with the EU Accounting and Transparency Directive and the US Dodd Frank Law, points to how the Swiss government entrenches itself as the haven for stolen money and shady businesses. The National Assembly needs to be in the forefront of the fight against such unjust practices that will shortchanged Nigeria from realising maximum benefits from its oil and gas wealth. Now is the time to strike the hot iron!

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