Published April 22, 2014
DAKAR/LAGOS – Nigeria has awarded most of its long-term oil contracts worth an estimated $40 billion a year to local companies, according to a confidential list seen by Reuters, meaning global traders need to partner with them to access crude from Africa's top producer.
Global commodity traders, refiners and Nigerian dealers jockey at an annual tender for access to the OPEC member's prized crude oil, which is easy to refine and produces more high-value fuels.
The contracts cover around 340 million barrels of oil, worth close to $40 billion annually based on current Brent prices, and run for a year, though they can be renewed. They were allocated to just 28 companies, versus around 50 in 2012, the last time they were awarded.
In a break with tradition, no contracts were given directly to global trading houses Glencore Xstrata , Vitol , Trafigura or Gunvor, with only Switzerland's Mercuria winning a contract, according to a list that four industry sources verified as accurate.
The trading companies that missed out on direct oil contracts declined to comment.
The list, released by the Nigeria National Petroleum Corporation (NNPC), is preliminary and subject to revision. NNPC officials did not immediately respond to requests for comment.
"It's incredible to have an OPEC member selling its oil this way. There's one international trading house and barely any refiners on the list," said a senior oil trading source who formerly bought Nigerian crude oil.
Instead, several Nigerian oil companies featured on the annual list for the first time, such as oil trading company Hyde Energy, oil and gas firm Springfield, and Barbedos Group, a conglomerate that also provides luxury aviation services.
Long-established Nigerian oil trading firms Taleveras and Aiteo were also named on the list, which was circulated to winners last week.
Nigeria's policy has been to increase the role played by local firms, both in operating oil blocks and trading, with the official aim of ending decades of control over the business by foreign majors.
However, several industry sources said the allocations favored powerful businessmen close to President Goodluck Jonathan's administration ahead of what are likely to be closely fought presidential elections set for February next year.
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.
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 and oil major Royal Dutch Shell
(Writing by Emma Farge; Editing by Will Waterman)