Vitol are 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. Their intimate 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 nations 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 which allows it to avoid paying Nigerian taxes. For years it also profited from the allocation of domestic crude cargoes which were 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 fromany financial reporting requirements.
More recently (2020) Vitol signed a $1.5 bn pre-export finance deal with NNPC. The deal code named "Project Eagle" was also backed by Standard Chartered Bank, African Export Import Bank (Afrexim) and theUnited Bank for Africa. Under this deal Vitol and Matrix a Nigerian trader will each lift 15,000 bpd of crude in repayment over a five year period.
Whilst The deal provides NNPC with much-needed cash after its finances were hit by the oil price crash last April, the inner working 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 ib commodity trading and in and of themselves are unremarkable. However such deals are complex, typically require the use of confusing 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 much more questionable is that it has been done at a time that Vitol had confessed to bribing government officials in Brazil, Mexico and Ecuador state oil companies, in a criminal settlement brought by the US Department of Justice in 2020 .
Vitol agreed to pay out 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 warrant further scrutiny.Vitol have 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 properly scrutinised.
In a confusing and incoherent statement NNPC attempted to elucidate 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 we can be sure 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 a very good reason that any external borrowing by the Government must be approved by the National Assembly and the Constitution is very clear on this matter. These deals mortgage Nigeria's future revenues, bloat the national debt and circumvent proper scrutiny. They also provide the opportunity for graft and malfeasance by NNPC and must stop.