NNPC introduces fresh guidelines for crude oil swaps

Dr-Maikanti-Baru-GMD-NNPC-1
Dr-Maikanti-Baru-GMD-NNPC-1The Nigeria National Petroleum Corporation (NNPC), says oil companies henceforth bidding for oil-for-products deals, otherwise known as ‘crude oil swaps’ or Direct-Sales-Direct-Purchases (DSDP), would have to meet additional criteria to qualify for the lucrative contracts.
NNPC’s Group Managing Director, Dr. Maikanti Baru disclosed during a technical bid opening session for the 2017 crude oil swaps in Abuja last weekend that alongside stringent financial and legal requirements, the corporation would demand from successful bidders a guaranteed commitment to deliver products within the agreed Laydays Cancelling (LayCan) dates. LayCan dates, he explained, are periods during which a ship-owner must tender notice of readiness to the charterer that the ship has arrived at the port of loading and ready to load, for instance, petroleum products.
According to Mr. Baru, the NNPC decided to make this aspect of the crude swaps more stringent following its past experience with its contractors on the LayCan dates, which often upset its product distribution plans. He also explained that preferred bidders would be required to have product depots or retail outlets at the minimum as evidence of their physical presence in Nigeria, or engaged in oil exploration and production.
“Some of the experience we had in the past had to do with scheduling in the sense that when you ask for the product to be delivered, they would say that they would not meet the LayCan date, so we want to make sure that whoever emerges must be able to meet our LayCan dates because that would have created some dislocation in distribution,” he explained.
The NNPC boss further disclosed that a maximum of 800,000 barrels of crude oil would be committed to the scheme by the NNPC and that 128 firms, including MRS Oil and Gas, Aiteo, Sahara Energy, Coco Resources, and BBLS Tilo Energies, had submitted their technical bids for evaluation. His words: “The major drive here is to ensure that Nigerians are not left out. We will do this by ensuring that those that emerge – whether it is a consortium or single company – must have a physical presence in Nigeria.
“That means they must have depots or retail outlets as a minimum or they must be involved in exploration and production of crude oil, and so we will ensure that most of them are domiciled here in Nigeria,” said Baru.
According to Baru, the corporation had reaped numerous benefits from the revised swap programme introduced by his predecessor, Dr. Ibe Kachikwu. “The DSDP is a major component in our products supply chain and has since inception created relief in our products supply to the nation. It has also recorded significant cost savings of over half a million dollars through a major reduction in the amount we pay for demurrage and the products,” he said, adding that that through the scheme, the NNPC has equally maintained sufficiency of products availability of over 30 days, enabling it to meet its obligations as the supplier of last resort in the country.
Explaining the processes adopted for the 2017 scheme, the Group General Manager Crude Oil Marketing Department (COMD) of NNPC, Mr. Melee Kyari said that the technical evaluation would be followed by commercial negotiations and eventual engagement. He noted that these are essentially technical bids and not commercial.
“The purpose is to select those that are technically competent and that means you have processes, access to finance, capacity for logistics that can support this, and that you are in compliance with the local content law. Once we are able to establish this, we will issue out term sheets to all the selected compliant bidders and get their feedback to close the negotiations. And, so the commercial term sheet translates into the contract.”
By Olisemeka Obeche

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