Dangote Lauds NUPRC for Publishing DCSO Guidelines, Insists IOCs  Frustrating Crude Supply

•Says trading arms offer cargoes at $2-$4 above commission’s official price

•Discloses only Sapetro selling oil directly to his refinery aside NNPC

Emmanuel Addeh in Abuja

The management of Dangote Industries Limited (DIL) yesterday lauded the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) for publishing the Domestic Crude Supply Obligation (DCSO) guidelines to enshrine transparency in the oil industry.

DIL also commended the industry regulator for other various interventions in the oil company’s crude supply requests from the International Oil Companies (IOCs).

Vice President, Oil & Gas, DIL, Mr. Devakumar Edwin said in a statement that if the DCSO guidelines are diligently implemented, they will ensure that the companies will deal directly with the companies producing the crude oil in Nigeria as stipulated by the Petroleum Industry Act (PIA).

Edwin insisted that IOCs operating in Nigeria had consistently frustrated the company’s requests for locally produced crude as feedstock for its refining process.

He highlighted that when cargoes are offered to the oil company by the trading arms, it is sometimes at $2-$4 (per barrel) premium above the official price set by NUPRC.

 “As an example, we paid $96.23 per barrel for a cargo of Bonga crude grade in April (excluding transport). The price consisted of $90.15 dated Brent price plus $5.08 NNPC premium (NSP) + $1 trader premium.

“In the same month, we were able to buy West Texas Intermediate (WTI) at a dated Brent price of $90.15 + $0.93 trader premium including transport.

“When NNPC subsequently lowered its premium based on market feedback that it was too high, some traders then started asking us for a premium of up to $4 million over and above the NSP for a cargo of Bonny Light.

“Data on platforms like Platts and Argus shows that the price offered to us is way higher than the market prices tracked by these platforms. We recently had to escalate this to NUPRC,” Edwin said,  urging the regulatory commission to take a second look at the issue of pricing.

Edwin’s response came against the background of a statement by the Chief Executive Officer of NUPRC, Mr Gbenga Komolafe, who in an interview on ARISE News TV said that ‘it is erroneous for one to say that the IOCs are refusing to make crude oil available to domestic refiners, as the PIA has a stipulation that calls for a willing buyer, willing seller relationship.’ 

Edwin noted: “The NUPRC has been very supportive to the Dangote Refinery as it has intervened several times to help us secure crude supply. However, the NUPRC chief executive was probably misquoted by some people hence his statement that IOCs did not refuse to sell to us. To set the records straight, we would like to recap the facts below.

“Aside from Nigerian National Petroleum Corporation Limited (NNPC), to date we have only purchased crude directly from only one other local producer (Sapetro). All other producers refer us to their international trading arms.

“These international trading arms are non-value adding middlemen who sit abroad and earn margin from crude being produced and consumed in Nigeria. They are not bound by Nigerian laws and do not pay tax in Nigeria on the unjustifiable margin they earn.

“The trading arm of one of the IOCs refused to sell to us directly and asked us to find a middleman who will buy from them and then sell to us at a margin. We dialogued with them for 9 months and in the end, we had to escalate to NUPRC who helped resolve the situation,” Edwin stated.

According to him, when Dangote entered the market to purchase its crude requirement for August, the international trading arms said that they had entered their Nigerian cargoes into a Pertamina (the Indonesia National Oil Company) tender, and that the refinery had to wait for the tender to conclude to see what was still available.

“This is not the first time. In many cases, particular crude grades we wish to buy are sold to Indian or other Asian refiners even before the cargoes are formally allocated in the curtailment meeting chaired by NUPRC.

“However, we would like to urge NUPRC to take a second look at the issue of pricing. NUPRC has severally asserted that transactions should be on willing seller/willing buyer basis.

“The challenge however is that market liquidity (many sellers/many buyers in the market at the same time) is a precondition for this. Where a refinery needs a particular crude grade loading at a particular time, then there is typically only one participant on either side of the market.

“It is to avoid the problem of price gouging in an illiquid market that the domestic gas supply obligation specifies volume obligation per producer and a formula for transparently determining pricing.

“The fact that the domestic crude supply obligation as defined in the PIA has gaps is no reason for wisdom not to prevail,” Edwin was quoted as having stated.

He noted that the $2-$4 was per barrel of oil, explaining that it was important to specify it so people understand the magnitude.

“Without specifying per barrel may mean it is just $2-$4 on the full value of the cargo, which is insignificant,” Edwin stated.