THE Nigerian National Petroleum Corporation (NNPC) adopted the Offshore Processing and Crude oil Swap Arrangements (OPA/SWAP) to ensure availability of petroleum products in the country.
The corporation noted in a statement yesterday, that the OPA/SWAP arrangements enjoy presidential approval and their operations are governed by contractual agreement.
NNPC explained that under the OPA, it delivers crude oil to a refinery for processing at a contractually agreed yield pattern and processing fee.
It added that in return, NNPC evacuates the refined products that are needed most, stressing that OPA provides NNPC the opportunity and flexibility to exchange products grades based on domestic need and immediate requirements.
“As a result, NNPC can request the refinery to make available for evacuation more of Premium Motor Spirit (PMS) and kerosene that are required most in exchange for Automotive Gas Oil (AGO) out of the products yield”.
NNPC added that all other products such as propane, butane, Vacuum Gas Oil (VGO) and fuel oil that are not necessarily needed for consumption in Nigeria are sold by the refinery on behalf of NNPC at the prevailing market price and proceeds remitted to NNPC.
According to the corporation, the process allows NNPC to request for pre-delivery of petroleum products in the event of tight supply situation in the market or due to the inability to lift crude oil as result of operational constraints at the crude oil terminals or in the event of force majeure declaration.
It added that such pre-deliveries helps NNPC bridge the gap in supply situation and forestall products scarcity in the country. “In return, an equivalent value of crude oil will be allocated at a later date for the products pre-delivered”, it added.
Giving details of the swap agreement, NNPC explained: “Under SWAP/crude exchange arrangement, NNPC allocates crude oil to reputable oil trading companies in exchange for the delivery of PMS, DPK or any other petroleum product as may be required by Pipelines Product and Marketing Company (PPMC).
“The contract is based on the international market value of the petroleum products against the prevailing international market value of the crude oil. This is value for value arrangement; crude oil lifted versus products supplied. The value for value philosophy enshrined in the SWAP contracts is validated and tested on a regular basis, when reconciliation meetings are held between NNPC and the trading companies.
“In the crude oil/products exchanges, PPMC can also request for pre-delivery of petroleum products where tightness in the supply is anticipated in order to forestall scarcity or as a result of any operational constraint that may hinder the loading of the crude oil at the terminals. The equivalent crude oil will be made available to the supplier at a later date to cover the products delivered”.
NNPC hinted that the entire activities under OPA/SWAP were recently subjected to scrutiny by the House of Representatives Committee on downstream with a verdict of clean bill of health returned.
Stating the benefits of the OPA/ SWAP arrangement, the corporation noted that the scheme has availed NNPC the opportunity to sustain the market, guarantee the security of supplies and keep the entire country wet with petroleum products even when other marketers were reluctant to perform due to the non-payment and or delayed payment of subsidy by the government.
It added that the process has also reduces the cost of NNPC’s importation by way of reduction and stabilising the premium paid under the open account regime.
“Also, the situation whereby traders will gang up and decide on the premium to be paid by NNPC for the deliveries has been eliminated.
“It provides flexibility for the pre-delivery of products as well as conversion of products not needed most for those that are mostly needed. Also, it protects the diversion of products to other markets where high premium is paid more especially during arbitrage situations.
“Prompt delivery of products even under difficult market conditions because of the high liquidity position as crude oil is lifted ahead of products delivery. The supplier can book the products cargoes far ahead of time and does not require sourcing of financing which in return reduce the cost of the products.
“No interest payment which became a burden to NNPC in the open account regime where interest is paid to suppliers in default of the contractual provisions. Therefore, it relieves NNPC the burden of overdue debt owed to the suppliers with its attendant negative consequences on the financial rating of Nigeria in the international financial market”, NNPC added.
It noted that crude oil is sold at the prevailing international market price secured with confirmed irrevocable letter of credit as obtained in any other crude oil transactions, saying that the security of the transaction is fully guaranteed.
NNPC said an average of 20 suppliers performed per quarter under the open account regime compared to only five suppliers under the swap arrangement which make products deliveries easily managed and closely monitored for efficient performance.