Faced by insufficient refining capacity and an impending domestic shortage of refined petroleum products, the refined products arm of Nigeria’s NOC NNPC, the Pipelines and Products Marketing Company Ltd (PPMC) entered into a formal, ‘Refined Products Exchange Agreement’ or ‘swap’ with a number of oil companies and commodities trading houses in 2010. Under this agreement, and in exchange for crude oil from NNPC, Trafigura typically supplied PPMC with two shipments of PMS (Unleaded Gasoline) and DPK (Dual Purpose Kerosene) per month. The agreement ultimately extended until 2015.

Swap agreements are common in the oil trading business and, as described within the Nigerian EITI (NEITI) 2013 report, constitute “a value for value arrangement where the operators deliver corresponding net product value, i.e. inclusive of demurrage cost, to the net value derived from the crude oil loaded, i.e. exclusive of associated costs – demurrage. Thus, the arrangement encompasses all costs (crude oil, products and associated costs), thereby relieving NNPC of the burden of cash payment.”

As predetermined under Trafigura’s agreement with PPMC, any imbalance between crude oil exported and refined products imported was to be addressed on a rolling basis over the duration of the swap agreement. As recognised by NEITI’s 2012 report: “an over-delivery means PPMC owes the party the value in crude oil, while an under-delivery means the other party owes PPMC the value in refined products; thus, either party is under an obligation to settle the over-/under-delivery in subsequent transactions. Accordingly, any difference between the value of crude oil and that of refined products delivered are not construed as a net gain or loss, instead the balance is taken as either over-delivery or under-delivery.”