Berne Declaration, a Swiss-based NGO, publishes alleged corrupt deals in Nigeria’s oil supposedly involving NNPC and Swiss oil traders
By TAJUDEEN SULEIMAN
Corruption in Nigeria’s oil sector is no longer a shocking phenomenon in view of revelations by several audits done on the industry. But last week the Berne Declaration, BD, a Swiss-based non-governmental organisation, NGO, released a report that opened another can of worms that appears to lend credence to the depth of corruption in Nigeria’s petroleum industry. Titled, Swiss Traders’ Opaque Deals in Nigeria, it blew the lid on the foreign backup for Nigeria’s oil subsidy scam. And expectedly, the report excited Nigerians, resulting in calls for heads to roll at the agencies managing the nation’s oil.
The House of Representatives, which conducted a probe of the Petroleum Subsidy Fund, PSF, last year, was shocked to learn about the report of Swiss traders’ deals with Nigerian National Petroleum Corporation, NNPC, and some Nigerian oil marketers. Last Tuesday, it asked its committees on petroleum (upstream and downstream) and justice to investigate the alleged scam between NNPC, Swiss traders and Nigerian oil marketers.
The 19-page report chronicles how Swiss companies, allegedly colluding with NNPC and local oil marketers, to defraud the country of millions of dollars through dubious exports of crude and imports of petroleum products in to the country. BD said Nigeria was the only major oil producing country that sells 100 per cent of its crude oil to private traders instead of marketing it by itself and getting benefit from added value.
Figures compiled by BD in 2011 showed that Swiss oil traders dominated the country’s oil export transaction, buying up no less than 36 percent of the 223 million barrels put up for sale by the NNPC. Besides this direct trading with Swiss operators, several Nigerian companies also have Swiss subsidiaries to which they sell crude allocations. In total, BD said the proportion of Nigerian crude exported through Swiss traders could be as high as 56.22 per cent ($14.004 billion) of the total crude production.
But the problem for Nigeria is not just the dominance of the Swiss in the country’s oil export and imports. The problem is in how NNPC allegedly collude with the affected traders to defraud the country of billions of dollars, which end up in private pockets.
A prominent case highlighted by the report was the partnership with Trafigura and Vitol, said to have been established in Bermuda, where companies dealing in foreign trade enjoy tax haven. NNPC allegedly sells its crude to these partners at prices far lower than the market rate, the balance of which goes into private pockets. A report on the industry had said less than 40 per cent of the holders of crude oil export allocation in the country actually has the capacity and finance to sell directly to refiners abroad. Most of the companies are the so-called “briefcase” or “letter box companies”, which sell their allocation to the main traders for a margin.
The report revealed that the Swiss traders do not acquire the crude they sell through any competitive or transparent bidding process, which could have guaranteed returns for the country. Rather, every year the NNPC grants the allocation of exports under obscure conditions and on “the basis of criteria that are unknown outside the restricted circle of the decision makers.” That is why, according to BD, the NNPC has remained opaque and has not been able to give any comprehensive accounts of its activities since 2005.
The four refineries in the country are barely functional and cannot use up the 445,000 barrels allocated to them daily. The balance is sold to Swiss traders at heavily discounted rates to provide some margin for unscrupulous NNPC officials and some other politically exposed persons.
The scam is not only in oil export, but also in imports. Fraudulent government officials collude with Swiss traders to defraud the country of PSF. The report reveals the facets of the fraud perpetrated by importers of petroleum products. Local marketers are appointed by the authorities to import petroleum products acquired from international traders, mainly Swiss.
The fraud plan consists of reception of subsidy on a cargo while physically importing only a part of it; the balance is thus exported on the international market or sold locally on the black market, and the operators make illegal profit. “Sometimes the subsidies have been received while not a single drop of petrol has been imported,” said part of the report.
Another technique used comprised falsification of maritime documents, in particular the date, to choose a day when the price is higher in order to obtain a subsidy that is higher than the price actually paid. The balance goes back to the pocket of the ‘importer’. The report said the American embassy in Abuja had recorded this fraud as early as 2004, and found that Nigerian importers and Swiss traders were participating in such frauds.
One of such documents had shown that 73 cargo ships had taken one day to reach Nigeria from the Persian Gulf, Venezuela or the United Kingdom. Between 2009 and 2011, several importers simply invented transactions, supplied the whole set of forged documents in order to receive a subsidy paid out for an imaginary import.
To be able to perpetrate this fraud without the authorities detecting, Swiss traders collude with NNPC to beat official regulation. Most of the transactions took place abroad, contrary to stipulation that international traders had to supply the Nigerian importers in the territorial waters of Nigeria or in the country’s ports, particularly Port Harcourt or Apapa, in Lagos. In spite of this, 2011 saw no fewer than 857 transactions taking place offshore, primarily in Cotonou and in Lome, in the neighbouring Republic of Benin.
The offshore transactions allowed the Nigerian operators to be re-imbursed in dollars by the Central Bank of Nigeria, CBN, rather than in naira. Thus the exchange risk is transferred to CBN since they bought the products in dollars. But there are other dubious reasons for the offshore transactions.
The tankers chartered by the Swiss companies dropped anchor at Lome or at Cotonou. From there they divided up the cargo among smaller vessels through ship-to-ship transfers that can be chattered by several Nigerian importers. “In doing this, the oil companies created particularly complicated paper trail, which makes it nigh on impossible for the authorities to reconcile the Bill of Lading they receive with the actual oil delivered.”
Quoting a report of Bluseas Maritime Services Nigeria Limited, a company tracing tankers sailing in West African waters, BD said Swiss traders such as Glencore, Trafigura, Vitol, Mercuria and Gunvor all appear on the registers. Some opaque and less visible companies established in Switzerland such as Arcadia Energy and Nimex Petroleum, also feature in these trade registers.
Following the removal of subsidy on PMS on January 1, 2012, by the federal government, the House of Representatives had set up a committee to verify and determine the actual subsidy requirements. The federal government had said the subsidy had become unsustainable in view of dwindling income.
But public hearings and investigations conducted by the committee revealed shocking finds about government agencies in the oil industry. The committee said contrary to statutory requirements and other guidelines under the Petroleum Support Fund Scheme mandating agencies in the sector to keep reliable information data base, the agencies seemed to have conspired by not following the guidelines.
As a result of official connivance to defraud the nation, the committee found that government paid out monies far beyond money budgeted for subsidy. While government said it paid N1.3 trillion as subsidy, the committee established a subsidy payment of N2.578.087 trillion as at December 2011, amounting to more than 900 per cent over the appropriated sum of N245 billion. The CBN, the accountant-general of the federation, the NNPC and PPRC all gave different figures on subsidy spending.
The committee invited over 90 oil marketers locally and abroad, and later recommended the unbundling of the NNPC to make it more transparent. The committee also invited some of the companies mentioned in the BD report. But some of them refused to appear in person while others simply passed on their memoranda and failed to appear.
The BD said most of the companies indicted by the House report had been cleared by another panel set up by the Presidency. But the Economic and Financial Crimes Commission, EFCC, is prosecuting some of the companies indicted. Mercuria Energy, Ax Energy and Eternal Oil and Gas, are all under prosecution for falsifying documents on subsidy.
Ax Energy and Mercuria are facing a N1.1 billion-subsidy fraud for inventing deliveries and simply falsifying the whole set of documents to justify subsidy payment. Documents falsified include sets of bills of lading, letter of credit, quality certificate, import certificate and so on. Ax Energy belongs to Abdulahi Alao, son of Nigeria’s businessman, Azeez Arisekola-Alao.
Mercuria also delivered products to Eternal Oil and Gas owned by Mahmud Tukur, son of Bamanga Tukur, the national chairman of the ruling Peoples Democratic Party. Mahmud is facing charges of wrongly declaring the import of 33.288 million litres of petrol. Other firms that participated in the fraud, according to EFCC, include Anosyke Group of Companies and Dell Energy.
The House of Representatives is set to probe the scam again. The last probe suffered credibility crisis, because some of the committee members were alleged to have compromised. Nigerians are watching what will become of the probe into this report. Already the NNPC is faulting the report. It claimed that the report is inaccurate, saying it defies common sense and the evidence on ground. Tumini Green, acting head, group public affairs division of the corporation, said call for tender to lift the country’s crude is periodically published in Nigerian newpapers. The NNPC spokesperson explained that the corporation sells Nigerian government equity crude oil to traders engaged on annual term contract, stressing that there were about 50 of such contracts currently running.
On the allegation that Nigeria ’s crude is sold to some companies at special discounted rates, Green said Nigeria ’s oil is sold at published official selling price, OSP, which “is not only benchmarked against the internationally-recognised pricing institution – Plattss Daily publication, but also fixed after a critical analysis of market fundamentals and price determinants at global level.” The corporation argued that the OSP differentials are crude stream determined and cannot favour an individual or group of traders as insinuated by the Berne report. The report, in spite of attempts to cover up locally, gives the assurance that whatever the true situation will surely come to the open some day.