President Buhari recently injuctively authorized the abrogation of all offshore processing (OPA) and Crude oil swap deals for refined oil products. This affects more than 445,000 barrels/per day; this will be redirected to refining in local refineries. The Crude Oil Swap deals were initiated by precedent administrations. Nigerian ascendant entities have withal launched an investigation to determine whether the regime has been short-changed. The Nigerian regime may be losing ridiculous amounts through opaque contracts in which crude oil worth billions of dollars is given to traders in exchange for refined imports, mainly gasoline.

What is the Crude Oil Swap Accedence?

Historically, PPMC (a subsidiary of NNPC) had operated a system of quarterly tenders to procure refined petroleum products for the Nigerian domestic market. Whilst this enabled PPMC to meet local demand for a number of years, by 2008, PPMC was finding it increasingly arduous to pay suppliers of product on a timely substructure. This became a very earnest quandary, the scale of which can be visually perceived from the fact that the PPMC debt to suppliers is currently estimated at approximately USD 1.5 Billion. Increasingly, traders became indisposed to do business with PPMC on an open account substratum. Concurrently, banks became reluctant to finance further imports of product for PPMC. Still worse, PPMC was exposed to reiterated threats of litigation.
These difficulties engendered an exigent desideratum for PPMC to establish alternative ways to finance the import of refined petroleum products and it was this, which led to NNPC and/or PPMC entering into crude for product swap contracts and oil processing acquiescent with a number of different
Parties.

What is an offshore processing Agreement?

The OPA is a contract by which PPMC concurs to distribute crude oil in consideration for a party distributing refined products to PPMC in accordance with contractually defined processing yields applicable to the pertinent grade of crude oil. It should be noted that much of the OPA is constituted by standard terms that were included at the insistence of PPMC/NNPC and which reflect their subsisting practice.
As far as the contractual yields are concerned, these were defined following detailed commercial negotiations which took into account an immensely colossal number of factors including the value on the international market of the different grades of crude oil that could be made available by PPMC, the yields that could be achieved from refining those grades of crude oil at sundry refineries as well as the yield that is achievable by the party, the cost of the refining process and the cost of conveyance to and from the refinery.

The explanation above represents how these deals should work in Theory. Further evidence suggests that this was not the case.