VITOL ROLLOVER AND PAY FINE

Vitol is the largest global independent trader of crude oil and refined petroleum products.

They also have a long-established joint venture (JV) called Calson with NNPC based in the offshore tax haven of Bermuda. The close relationship with NNPC has seen them beneficiaries of supply contracts, including the infamous Direct Sale Direct Purchase (DSDP) contracts controversially awarded by NNPC to meet its inability to operate the nation’s refineries.  They are also perennial recipients of NNPC’s equity crude contracts.

The JV has been the subject of National Assembly investigations, not least because it has been set up in a way that allows it to avoid paying Nigerian taxes. For years it also profited from the allocation of domestic crude which was supposed to be refined by the local refineries. It was in the uniquely profitable position where it both sold and bought Nigerian crude from and to itself, in effect setting its own profit margin to the detriment of the public purse. The JV is 40% owned by Vitol and because of the domicile it is incorporated, it is shielded from any financial reporting requirements of any kind.

More recently (2020) Vitol signed a $1.5 bn pre-export finance deal with NNPC. The deal code-named “Project Eagle” was backed by Standard Chartered Bank, African Export Import Bank (Afrexim), and the  United Bank for Africa.  Under this deal Vitol and Matrix a Nigerian trader will each get 15,000 bpd of crude in repayment under the deal over five years.

Whilst The deal provides NNPC with much-needed cash after its finances were eviscerated by the oil price crash last April, the inner workings of the deal are opaque. There has been very little detail available to scrutinise. At the time the deal was struck Vitol declined to comment as did  Standard Chartered and  Afrexim, essentially shrouding the deal in secrecy.

 Pre-export finance deals of this sort are frequently used and in and of themselves  are unremarkable. However such deals are complex, typically require the use of complex derivatives, and can be very lucrative for the trader. Given the state of the oil market, there should be little incentive for such a deal. The market is massively over-supplied so unless a Buyer is hugely incentivised such a transaction would ordinarily make no sense.

What makes this deal more questionable is that it was done at a time when Vitol had confessed to bribing government officials in Brazil, Mexico, and Ecuador state oil companies. This in a criminal settlement brought by the US Department of Justice in December 2020 . 

Vitol agreed to pay over $160m to authorities in the US and Brazil as it admitted bribery in the three countries and was also accused of attempting to manipulate oil price benchmarks.  Vitol settled the civil charges brought by the US Commodity Futures Trading Commission alleging that it attempted to manipulate two S&P Global Platts physical oil benchmarks in 2014 and 2015.

To be clear there is  no evidence to suggest that the $1.5bn pre-export trade deal was secured through  impropriety, I am simply drawing attention to the anecdotal facts which in my opinion  emphasise the need for further scrutiny.  Vitol has a track record of bribing oil executives of national oil companies in order to secure lucrative deals. If only for good orders sake and certainly in line with NNPC’s so-called new found transparency, this deal should be further investigated and the commercial terms scrutinised.

In a confusing and incoherent statement, NNPC  attempted to clarify how the loan will be used.  A large portion of the money is supposedly to pay back taxes owed by its subsidiary NPDC. The remainder will apparently go towards operational expenses and capital expenditure. It has also been suggested that the money from the pre-payment could find its way to funding the rehabilitation of Port Harcourt refinery. Setting aside the issue of why the taxes were not paid in the first place, I cannot think of how NNPC could act more ruinously with their business than incurring an interest-bearing loan to pay those taxes. One can only imagine the cost of such a loan, though it is unlikely to be inexpensive.

When Nigeria raises money by issuing a Eurobond, it is transparent and the rates are a matter of public information. There is good reason that external borrowing by the Government must be approved by the National Assembly. The Constitution is very clear on this matter. The fact is the sort of pre-export finance deals done by NNPC mortgage Nigeria’s future revenues, increase the country’s fx burden, and circumvent proper scrutiny. They also provide the opportunity for graft and malfeasance by NNPC and must stop.