The falling prices of crude oil in the international market has compelled the Federal Government to stop the funding of the Sovereign Wealth Fund (SWF). Managing Director of Nigeria Sovereign Investment Authority (NSIA), Mr. Uche Orji, said yesterday in Abuja after he led other management staff to a meeting with President Muhammadu Buhari that it made little economic sense to be saving when the price of oil had even fallen below the benchmark set for the 2015 budget.
The SWF took off three years ago with a $1 billion grant provided by the Federal Government. Orji told State House correspondents that with the current crude oil prices, it would be unrealistic for the government to make additional contribution to the fund.
He said: “Oil price is below benchmark and because we are supposed to be funded when the oil price is above benchmark, it will not make any sense for the government to make any contribution now when the oil price is still low.”
According to Orji, from the takeoff grant, the SWF management has been able to invest the funds in profityielding ventures. He said last year, the NSIA, operators of the fund, recorded a turnover of about N15.77 billion during its 2014 operating year. The fund records show in the 2013 business year also reported a turnover of N525 million. On their discussion with Buhari, he said: “We met with the president to brief him on the activities and the investments of the NSIA.
We also discussed the commitment of the NSIA to the Second Niger Bridge, health care, agriculture and power. We also sought his support where his intervention is required and it was a successful meeting with the president. “We have hired African Finance Cooperation as our lead financial adviser and engaged successfully with about five or six lenders so far and some of them have commitment.”
Speaking on the Second River Niger Bridge, Orji said through its wholly owned subsidiary, NSIA Motorways Investment Company (NMIC), the NSIA was collaborating with the Federal Ministry of Works and Julius Berger Investments (JBI) as joint sponsors on the financing, development and construction of the bridge.
He said: “The progress we have made so far is in preparation of the project, making sure that the environmental impact assessment is made, the bridge properly designed and funded through our financial structuring. It is the project preparatory state that we are going into and that has caused us $2.2 million.
“This is a big project; the project we are looking at is 11.9km, the current Niger Bridge is one lane going and one lane coming and what we are building is three lane coming and going, so it a big project. It is a four-year construction period and we are looking at 2020 for the completion of the project.”
Meanwhile, the Nigerian National Petroleum Corporation (NNPC) has set up four new crude swap contracts as replacements for those cancelled last month. The deals are to stop the impending shortage of petrol through crudefor- refined-products deals vital for bringing in about 20 million litres of fuel into the country. Two of the pacts are with NNPC joint-venture companies: One with Swiss trader Vitol called Calson and the other with commodities trader, Trafigura called Napoil, industry sources and a state oil firm source told Reuters.
The other two are with non-incorporated joint ventures between oil major BP and Nigermed Ltd and NNPC’s trading arm, Duke Oil Co with Sahara Group. Calson is new to this scheme while BP and Nigermed previously held an Offshore Processing Agreement (OPA) for one year in 2010. Trafigura had a direct contract between 2010 and 2014 while Duke and Sahara have been involved up until now.
The interim OPAs will run from October until December when fresh contracts take over in 2016. NNPC at first invited Oando, Sahara, Calson, MRS, Duke Oil, BP/Nigermed and Total to bid for the 2016 contracts before opening up the process to the public. The cancelled deals is expected to run through September before being replaced by the interim OPAs between a NNPC subsidiary, the Products and Pipelines Marketing Company (PPMC) and four joint venture companies, sources said.
One of the sources added that NNPC was seeking to give the new contracts to those with retail stations to speed up delivery and cut out some middlemen. The 2010-2015 swaps, particularly the OPAs, were widely criticised for their opacity and are now being investigated by the authorities for shortchanging the government. The NNPC Group Managing Director, Dr. Ibe Kachikwu, had in August cancelled the 2015 deals with Sahara Group, Aiteo Group and NNPC’s trading arm Duke Oil because they were, according to the NNPC statement, “skewed in favour of the companies.”
“Though there is a change to the new contract winners, it’s unclear whether these will be more transparent,” Reuters said in a report yesterday. But the NNPC has no choice but to continue with some form of swap arrangement. A spokesman for NNPC did not respond to requests for comment.
NNPC set up the first swaps in 2010 when it could no longer pay cash for gasoline imports. Facing cash flow problems and refineries that were barely running, NNPC decided to use half of the oil destined for its refining system for the swaps scheme.
The contracts came in two forms: an OPA, whereby a trader takes Nigerian crude to a foreign refinery and returns with the resulting products, and a direct crude-for-product swap. NNPC’s five trading companies including Napoil, Calson and Duke Oil were described as “financial black boxes” by a 2012 presidential task force.
