Nigeria orders suspension of all recent crude oil contracts

President Olusegun Obasanjo has ordered the immediate suspension of all crude oil contracts awarded recently by the Nigerian National Petroleum Corporation (NNPC) to international trading companies. Obasanjo also directed the suspension of contracts issued by the Pipelines and Products Marketing Company (PPMC) for the importation of 138 cargoes of petroleum products. However, oil lifting contract agreements Nigeria has with some African countries are not affected by the president's directive.
Presidency sources said that Obasanjo's directive issued via a letter to NNPC's Group Managing Director, followed complaints from many traders against the process leading to the award of oil lifting and export contracts.
"I have received complaints concerning recent crude oil allocation and oil exports and import and I am not satisfied," said Obasanjo. "You will therefore set aside all the contracts until independent investigation is concluded on the matter," the president said.

The lifting of Nigeria's crude oil, amounting to some 800,000 bpd, is cornered by about 10 multinational trading companies including Swiss-based Glencore International, Vitol, Trafigural and Arcadia. The presidency sources said the suspension order was with the exception of government to government contracts, for the supply of Nigerian crude to countries like Ghana, Cote d'Ivoire, South Africa and Cameroon for instance. Indigenous oil traders including Sahara Energy are prominent here.
Investigations further revealed that the imported fuel cargoes Obasanjo ordered to be suspended, carried a total volume of 5.3 bn litres of fuel and were awarded mid this year to meet shortfall in domestic supply next quarter of this year and the first quarter of 2004. The cargoes, according to sources, were made up of 4 bn litres of premium motor spirit (PMS) and 1.3 bn litres of diesel.

However, following a review of the contracts by the new management of the PPMC, which came on board after a major shake up in the NNPC early this month, and coupled with petitions from traders to the presidency protesting the awards, the PPMC got the President's order to suspend the contracts, sources revealed.
"The president approved the suspension, first based on the ground that the volume ordered was too much and secondly, that the contracts appeared to have gone to a few traders," said a source.

The contracts said to be worth billions of dollars were awarded to traditional trading companies including Glencore International, Vitol and Sahara Energy. There was no indication as at press time as to when the contracts will be re-awarded. The decision to stall action on the contract has, however, fuelled fears that the nation may be plunged into another round of acute fuel scarcity from next quarter.
However, Obasanjo in suspending the oil contracts, "directed NNPC to do everything to ensure that oil production as well as fuel supply in the country were not disrupted." An official who defended the suspension, said: "It is the practice wheneverparties to the tendering process protest, while fresh tenders are called."

Nigeria, Africa's biggest crude oil producer and the sixth largest in OPEC, relies on imports to meet over 50 % of domestic demand for products put at 30 mm litres per day. This followed the sharp drop in supply from the domestic refineries with a combined output capacity of 445,000 bpd. Of the four refineries, only the two in Port Harcourt with combined output of 210,000 bpd, are currently working.
The remaining two in Warri and Kaduna had been shut down since last May after the vandalisation of the Escravos oil pipeline cut crude supplies to the plants.

The PPMC, the NNPC arm in-charge of products supply (both from domestic sources and imports), had opted to place orders for fuel importation for two quarters consequently, following the last crippling fuel scarcity experienced nationwide between February and March 2003.
The scarcity was a direct result of the inability of NNPC contract-holders to ship in the fuel following the sudden sharp increase in international market price of products due to the US-led invasion of Iraq as well as strikes in the South American country, Venezuela.