Again, Dangote Refinery cries out, IOCs frustrating us with high crude price

 

Maureen Aguta

 

For the umpteenth time, Dangote Group, on Wednesday, cried out once again over the manipulations of the International Oil Companies (IOCs) in their continued bid to frustrate the operations in company to produce refined petroleum products in the country, a development many believe could solve the nagging problems being witnessed over the years.

Devakumar Edwin, Vice President, Oil & Gas, who spoke on the issue, spoke on the continued roadblocks being mounted by the foreign companies, including the refusal to sell crude directly and other measures that had necessitated buying the commodity at higher costs, even with the interventions of the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), the main regulator for the production and sale of the product.

Commending the agency for the several interventions, the company’s boss, maintained that despite the interventions in the oil company’s crude supply requests from IOCs, and for publishing the Domestic Crude Supply Obligation (DCSO) guidelines to enshrine transparency in the oil industry, the result in terms of smooth operations of the Dangote Group had remained minimal.

His words: “If the Domestic Crude Supply Obligation (DCSO) guidelines are diligently implemented, this will ensure that we deal directly with the companies producing the crude oil in Nigeria as stipulated by the PIA. The IOCs operating in Nigeria have consistently frustrated the company’s requests for locally produced crude as feedstock for its refining process.

“When cargoes are offered to the oil company by the trading arms, it is sometimes at a $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 + $5.08 NNPC premium (NSP) + $1 trader premium. In the same month, we were able to buy 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 and urged the regulatory commission to take a second look at the issue of pricing.”

In response to the contention by Gbenga Komolafe, Chief Executive Officer (CEO) of NUPRC, during an appearance on The Morning Show, a breakfast programme on ARISE News Television, on Monday, where he tried to contradict the claims against the IOC, particularly in their refusal to sell their crude, to the company, Edwin maintained that he, Komolafe, must have missed the point.

Stressing the provisions of the Petroleum Industry Act (PIA) on the issue of willing buyer-willing seller relationship, he noted: “The NUPRC has been very supportive to the Dangote Refinery as they have 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 (NNPCL), to date, we have only purchased crude directly from 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 would 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. When we entered the market to purchase our crude requirement for August, the international trading arms told us that they had entered their Nigerian cargoes into a Pertamina (the Indonesia National Oil Company) tender, and we had to wait for the tender to conclude to see what is 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 a 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.”