Reps Probe Messy Crude Oil Swap

On June 24, 2015, the House of Representatives passed a resolution calling for the probe of the infamous oil swap policy of the Federal Government. Based on this, Speaker Yakubu Dogara set up an ad hoc committee, chaired by Rep. Zakari Mohammed, to carry out the investigative hearing. Our Associate Editor, AKPOVIENEHA OJO reports on the messy details that were uncovered in the implementation of a policy that has gone awry

The idea of swapping crude oil for refined petroleum products began in the 1980s, as part of efforts by the federal government to end the difficulties experienced by the Nigerian National Petroleum Corporation (NNPC) to source funds to meet its obligations in Joint Venture Agreements. Under the crude oil swap arrangement, the federal government would exchange crude oil for refined imported products under a trade by batter arrangement. But, the implementation of this policy has been fraught with many imperfections that allegations were rife that the country had lost billions of dollars in revenue to unscrupulous persons engaged in the implementation of the oil swap scheme. Before the commencement of the oil swap regime, the NNPC imported petroleum products on the basis of open account through a tender process from reliable oil trading firms with a proven track record of performance and a strong capital base. Under this system, the NNPC used the funds realized from the sale of unrefined crude oil to settle the liabilities incurred by importers of refined products. In order to arrest the malpractices that have become noticeable in the administering of the oil swap agreement, Rep. Zakari speaking at the first day of the investigative hearing said the work of the ad hoc committee is to forensically investigate the allegations of malpractices by the NNPC in the award of crude oil swap contracts in an attempt to ensure that revenues from the nation’s extractive industry are transparently managed in accordance with global best practices. He said the committee will unravel the naughty issue of the qualifications required before a company can do business in Nigeria. According to him, is it proper for a company to do business in Nigeria and not have an office in the country, nor pay the relevant tax to the appropriate tax authority? The committee chairman added that if this allegation is confirmed, the committee will unravel the identity of persons who granted the tax waiver and what sanctions should be meted to the defaulting companies, individuals including their Nigerian collaborators. While quoting from revelations unearthed by the Nigerian Extractive Industries Transparency Initiative (NEITI) and Swiss oil traders, Rep. Zakari added that “Nigeria is the only major oil producing country that sells 100 per cent of its crude to private traders, rather than marketing it itself and benefiting from the resulting added value. A number of the allocations are nothing but letterbox companies whose sole merit is that they are linked to high-ranking political,officials or their entourage”. The task force established by government to probe the oil swap agreement, he added further revealed in its report that the “Crude Oil Marketing Division also awards a number of contracts each year to briefcase traders with little or no commercial or financial capacity. “Swiss traders do not acquire this crude oil based on public and transparent calls for tender, which would guarantee to the Nigerian population that it is oil is sold at the best price. On the contrary, each year, the NNPC grants the allocations of exports under obscure conditions and on the basis of criteria that are unknown outside the restricted circle of the decision makers”. Acting Executive Secretary of NEITI, Dr. Oji Ogbonnaya Orji, in his testimony before the ad hoc committee expressed concerns that the noble objectives of the oil swap regime may have been compromised and subjected to massive abuses. For instance, Orji said in 2012, the cost of crude oil that was swapped was $6.4billion while the value of refined products returned to the country in exchange for the swapped crude was $6.3billion, resulting in a loss of about $100million. He declared that the nation’s refineries had been operating far below capacity, processing only 21.5 per cent of domestic crude allocation in 2012 as against the 28 per cent in 2011 while the offshore crude oil swap arrangement was maintained at 48.2 per cent and the balance of 30.3 per cent of domestic crude allocation of 445, 000 bpd was exported. The NEITI chief executive informed the committee that with thenNNPC having accumulated a debt profile of $3billion owed to oil marketers that supplied petrol and kerosene to the country, the corporation in 2012 entered into crude oil-for-product swap through the Petroleum Product Marketing Company (PPMC) and Duke Oil Company Incorporated, a fully owned subsidiary of the NNPC with the following private firms; Taleveras, AITEO, Ontario, Trafigura and Societe Ivoirienne de Raffinage (SIR). Estimated losses incurred by Nigeria under the swap arrangement in terms of refined product exchange and offshore processing, based on NEITI’s findings he disclosed between 2011 and 2012, amounted to over $866.1million and $243million respectively, making a total of over $1.109billion for the period under review. If the disclosure by NEITI stunned the committee members, the testimony of the Executive Chairman of Federal Inland Revenue Service (FIRS), Babatunde Fowler bowled them over. Fowler said that only three of the private companies awarded contracts under the oil swap arrangement are known to the tax agency and have paid some percentage of their assessed tax. For Taleveras Nigeria Limited, the tax czar said the company tax assessment N1, 150, 031, 464. 77, the company has only paid N290, 087, 988. 42 leaving a balance of N859, 943, 476. 35; AITEO had a tax assessment of N518, 872, 574.91, out of which the firm paid N262, 799, 373. 09 leaving a balance of N256, 073, 201. 82 and Ontario had an assessment of N524, 578, 875. 95 out of which the company had paid N513, 324, 805. 35 and is owing the tax authority N11, 254. 070. 60 as outstanding liabilities. On Duke Oil Limited, Fowler said the NNPC subsidiary was registered in 1989 in Panama with a branch office in London, adding that “being a non-resident company and a subsidiary of the NNPC, it is the NNPC that has a responsibility to report on all incomes of the company to the FIRS. However, it has failed to comply in this regard. “In our records, the company has cumulatively paid N26, 546, 666. 75 since inception between August 2013 and August 2014. There are no further record of payments prior to 2013 and after August 2014”. In respect of Trafigura Nigeria Limited, which he also described as a non-resident company, and as such is not registered with the FIRS, Fowler explained that “it has never filed any returns with FIRS and is therefore in breach of the relevant provisions of our tax laws, particularly Section 55 (1) of the Companies Income Tax Act, which requires any company that carries on business in Nigeria to file returns on its income derived in Nigeria”.