US embassy cable - 04LAGOS767

SCANDAL BREWING OVER NIGERIAN FUEL IMPORTS
Identifier: 04LAGOS767
Wikileaks: View 04LAGOS767 at Wikileaks.org
Origin: Consulate Lagos
Created: 2004-04-08 08:33:00
Classification: CONFIDENTIAL//NOFORN
Tags: EPET EINV EFIN PGOV NI
Redacted: This cable was not redacted by Wikileaks.
This record is a partial extract of the original cable. The full text of the original cable is not available.

C O N F I D E N T I A L SECTION 01 OF 02 LAGOS 000767

SIPDIS

NOFORN

E.O. 12958: DECL: 04/07/2014
TAGS: EPET, EINV, EFIN, PGOV, NI
SUBJECT: SCANDAL BREWING OVER NIGERIAN FUEL IMPORTS


Classified By: J. GREGOIRE FOR REASONS 1.5 (B), (D), AND (E).

1. (C) SUMMARY. A scandal is brewing in Nigeria over prices
paid by the government for imported fuel. International fuel
traders have been falsifying the dates of bills of lading to
reflect particularly high market prices, overcharging the
Nigerian National Petroleum Corporation (NNPC) by $300
million or more. END SUMMARY.

2. (C N/F) On April 2, Chris Finlayson, Chairman and Managing
Director of Shell Petroleum Development Corporation of
Nigeria (SPDC), told Consul General and Econoff that a
scandal is brewing within the NNPC over payments made to
international fuel marketers. Finlayson said some marketers
have been changing the dates when fuel shipments bound for
Nigeria were loaded in order to take advantage of
particularly high market prices. He said the total
overpayment by NNPC may be as high as $330 million.
Finlayson noted that Shell is not one of the marketers in
question, but is becoming a leading fuel supplier for NNPC.

3. (C N/F) On April 6, Femi Otedola, President and CEO of
Zenon Petroleum and Gas, the largest supplier of diesel fuel
in Nigeria, essentially corroborated Finlayson's report.
Otedola said over $300 million has been overpaid by NNPC for
fuel imports, and that many leading international traders are
involved. According to Otedola, NNPC contracts to pay its
suppliers the market price on the day a ship is loaded with
fuel. He said NNPC recently discovered, however, that bills
of lading were altered to reflect loading on days of high
market prices. Discrepancies were found when comparing dates
on the bills of lading with dates of landing in Lagos.

4. (C N/F) Pointing to examples, Otedola said that while a
tanker loading fuel at a refinery in Bahrain usually takes
four weeks to arrive in Lagos, comparisons between the bills
of lading and dates of arrival of some shipments reflected
only a four-day difference, and in other cases, if taken at
face value, indicated the journey took nine months. Otedola
said 73 shipments from refineries in the Persian Gulf,
England, and Venezuela listed delivery times of only one day.
NNPC is attempting to get compensation for the over-charge.
Otedola went on that most of the fuel traders supplying
Nigeria are implicated in over-charging NNPC, and showed a
list of 17 companies that supplied fuel in the first quarter
of 2004, several of which, he said, are significant players
in international markets, such as Trafigura and Vitol.
Otedola added that three companies clearly not involved in
the scandal are British Petroleum, ChevronTexaco and Shell.

5. (C N/F) Otedola recommended that NNPC stop contracting
with international fuel traders and negotiate purchases
directly from refineries worldwide. According to him, such a
move would have two positive effects. Otedola calculates
that NNPC would save some four billion dollars a year in
expenditures on imported fuel. (Note: Prior to deregulation
in October 2003, NNPC, then the sole importer of fuel, lost
two billion dollars per year because it sold stock to
retailers below purchase price. After October 2003, NNPC
initially stopped subsidizing fuel sales, letting marketers
import fuel to be sold at market prices. However, sources
agree that NNPC is back in the business of subsidizing
gasoline sales while it maintains a facade of deregulation by
encouraging private marketers to import fuel that NNPC
purchases at market price. NNPC then sells the fuel to
marketers and retailers at a reduced price to ensure that
those companies maintain a profit margin while holding
consumer prices to informal caps set by the Department of
Petroleum Resources. End Note.)

6. (C N/F) Otedola added that by cutting out the
international traders, NNPC would also enhance the
environment in which Nigeria's refineries could be restored
and operated. Otedola said he believes international fuel
trade "mafias" are behind the failure to bring Nigeria's
refineries back on-line and to capacity. Otedola is
convinced these traders arrange for the vandalization of
crude oil feeder pipelines, which keep the refineries at Port
Harcourt, Warri and Kaduna closed or under-capacity. He said
the international traders generally receive at least one
million dollars per shipload of fuel to Nigeria and have
grown accustomed to the easy money Nigeria offers as long its
refineries remain down.

7. (C N/F) As an example, Otedola described an arrangement
the National Electric Power Authority (NEPA) had with Sahara
Energy for the provision of diesel to an emergency power
generation plant in Abuja. He said that while a pipeline was
under construction to deliver fuel to the main power plant,
NEPA paid some five billion dollars to Sahara over four years
for diesel to the back-up plant. It was later discovered
that NEPA had received only about one billion dollars worth
of fuel, according to Otedola. Otedola said that he, too,
was contracted to deliver diesel fuel to the plant on
occasion; however, he petitioned the president to investigate
the matter after becoming suspicious of NEPA's ongoing
contract with Sahara and the fact that the pipeline for the
power plant was never finished. He said his intervention led
to an investigation that ultimately resulted in the
cancellation of NEPA's contract with Sahara.

8. (C N/F) COMMENT: The allegation that international
traders bilked NNPC of hundreds of millions of dollars is yet
another example of the poor management of Nigeria's energy
sector, and highlights the complex links between crude sales,
fuel importation, refinery maintenance, and energy production
here. Otedola is probably right in suggesting that
long-standing sweetheart deals between the NNPC and a variety
of fuel traders is keeping the system inefficient. That may
also explain why the GON just can't seem to get its
refineries running even after spending a billion dollars or
more on maintenance contracts over the last four years.
Otedola said he initially bid to purchase the Port Harcourt
refinery offered for privatization, but he recently told
President Obasanjo he will not invest in the refinery so long
as NNPC purchases fuel from traders instead of negotiating
directly with refineries in other countries and leasing ships
itself to deliver fuel to Nigeria. It is not clear if
Otedola's assumption that the international traders' stake in
Nigeria's current fuel market is the main driver behind the
country's refinery woes. But it is clear that the
fundamentals of infrastructure security, interim supply
stability, and transactional transparency must still be
addressed if the GON is to be taken seriously about its
efforts to deregulate and largely privatize Nigeria's
downstream petroleum sector. END COMMENT.
HINSON-JONES

So the question I ask is why can't NNPC cut out the international traders and buy the refined products directly from the suppliers, hence doing away with the middlemen and all the corruption that dealing with them entails?

Olisa74:

So the question I ask is why can't NNPC cut out the international traders and buy the refined products directly from the suppliers, hence doing away with the middlemen and all the corruption that dealing with them entails?

NNPC too, is being scrapped as part of the deregulation.

Here's a link for anyone that wants an original copy: http://wikileaks.org/cable/2004/04/04LAGOS767.html
Or http://www.look4leaks.net/showCable.php?id=04LAGOS767&title=SCANDAL+BREWING+OVER+NIGERIAN+FUEL+IMPORTS&lang=en

@Beaf, but the question remains. Why hasn't the government acted sooner in curbing the problem. According to the cable, alarm bells have been blowing for almost a decade.

^
That question should not arise. The current govt is led by a totally different person than those that led other govts in the past decade.
This govt is doing something about it and very strangely, people are protesting the steps.

@Beaf
how does it seem very strange to you? The mistakes where created by the government. The mistakes enriched those in government and those close to the government. In correcting those mistakes why punish the common man for the ineptitude of government ( be it this one, or the previous ones). The common man suffered for the initial waste, and is being told to suffer again in order to seek a solution. Yes there is a problem. Yes it needs to be fixed. The truth is this current government is going about it in a very wrong way. Where in the world have you heard that prices double overnight? That is complete insanity. I live in the UK, and no government here will survive if they brought out a policy that led to 100% inflation. So what I would kindly like to know is why the reaction of Nigerians seems strange to you?

This is a very interesteing topic @ lalasticlala, ishilove, passingshot, seun

I believe this topic really needs to see front page because at this time in Nigerian history we really need such questions answered.

Where does Nigeria import fuel from?

How much does it cost?

And other relevant questions

hahn:
This is a very interesteing topic @ lalasticlala, ishilove, passingshot, seun
I believe this topic really needs to see front page because at this time in Nigerian history we really need such questions answered.

Where does Nigeria import fuel from?

How much does it cost?

And other relevant questions

I laugh in Swahili at those who consistently argue that there is subsidy.

I hope when they read this leak, they will come to their sense.

Subsidy only exists to put million of our dollars in pockets of wicked cabals and not to benefit the poor masses.

Olisa74:
So the question I ask is why can't NNPC cut out the international traders and buy the refined products directly from the suppliers, hence doing away with the middlemen and all the corruption that dealing with them entails?

Because the top GMDs, ministers and other government officials benefits from the practice of using marketers.

These cabals have eaten away at least two future generations of Nigerians.

Sad!

Who ate these cabals
Are they Nigerians or other nationality that our laws can be applied on them


Why is it a thing of joy for some faceless individual who a minute in composition iinflicting hardship on the rest populace

PassingShot:


I laugh in Swahili at those who consistently argue that there is subsidy.

I hope when they read this leak, they will come to their sense.

Subsidy only exists to put million of our dollars in pockets of wicked cabals and not to benefit the poor masses.

The "poor masses" really need to start asking the right questions or they will always end up with the short end of the stick. I'm certain that when the real figure of the exploitation of Nigeria's resources eventually come out it will be hard for some people to walk in broad daylight

Olisa74:

[b]5. (C N/F) Otedola recommended that NNPC stop contracting
with international fuel traders and negotiate purchases
directly from refineries worldwide. According to him, such a
move would have two positive effects. Otedola calculates
that NNPC would save some four billion dollars a year in
expenditures on imported fuel. (Note: Prior to deregulation
in October 2003, NNPC, then the sole importer of fuel, lost
two billion dollars per year because it sold stock to
retailers below purchase price. After October 2003, NNPC
initially stopped subsidizing fuel sales, letting marketers
import fuel to be sold at market prices. However, sources
agree that NNPC is back in the business of subsidizing
gasoline sales while it maintains a facade of deregulation by
encouraging private marketers to import fuel that NNPC
purchases at market price. NNPC then sells the fuel to
marketers and retailers at a reduced price to ensure that
those companies maintain a profit margin while holding
consumer prices to informal caps set by the Department of
Petroleum Resources. End Note.)

6. (C N/F) Otedola added that by cutting out the
international traders, NNPC would also enhance the
environment in which Nigeria's refineries could be restored
and operated. Otedola said he believes international fuel
trade "mafias" are behind the failure to bring Nigeria's
refineries back on-line and to capacity. Otedola is
convinced these traders arrange for the vandalization of
crude oil feeder pipelines, which keep the refineries at Port
Harcourt, Warri and Kaduna closed or under-capacity. He said
the international traders generally receive at least one
million dollars per shipload of fuel to Nigeria and have
grown accustomed to the easy money Nigeria offers as long its
refineries remain down. [/b]

Can't believe Otedola said this over 10years ago.

Ok