02/01/2021
*Crude Oil Transaction in Perspective for 2021*
As the year 2020 just grinded to a halt, I want to use this opportunity to congratulate you all for making it to the year 2021, for your tenacity, determination to succeed and advance the course of this trade both locally and internationally in the new year.
However, I have discovered that most of us are prone to making the same mistakes repeatedly, it’s for this reason I have decided to do this write-up as a guide to us in the new year 2021, because there is a popular adage that says it’s an act of lunacy for someone to continue to do the same thing the same way and expect a different result.
I have made out this time to address most of the probing questions that proponents in the industry had to contend with most times in the bid of trying to close a transaction. What I have done was to address these challenges in a question and answer format and anticipate that this attempt will help to put most of our nagging questions begging for answers to rest eventually.
The questions and answers are as follows;
*Question 1: What is BLCO?*
Answer: BLCO simply means bonny light crude oil.
*Question 2: What is BLCO trade/transaction*
Answer: BLCO trade/transaction is the act of trading or performing transaction with bonny light crude oil.
*Question 3: Who is a BLCO facilitator?*
Answer: A facilitator is simply an individual/person who indulges himself in the act of selling and buying of bonny light crude oil as a middleman.
*Question 4: Is BLCO transaction possible?*
Answer: BLCO transaction is possible because wherever there is a product of value there will always be a ready, willing and able buyer.
*Question 5: What is a BLCO procedure?*
Answer: BLCO procedure is the laid down rule with which the seller is willing to sell the product and the buyer has agreed to buy.
*Question 6: What are the types of procedures available?*
Answer: There about four types of different procedures available, (a) TTO, (b) TTT, (c) CIF and (d) FOB.
*Question 7: What is the meaning of the abbreviated procedures?*
Answer: TTO: Tanker Take-over
TTT: Tanker-to-Tanker
CIF: Cost, Insurance and Freight
FOB: Free/Freight on Board
*Question 8: Where are these procedure normally carried out?
Answer: TTO and TTT are normally carried out within Nigeria waters and West African Coast area, while the CIF is to the buyer port of discharge or destination. However, in the case of the TTT and FOB transaction the buyer must have his vessel available for the transaction to be consummated.
*Question 9: What are the most important factor/points that would make a TTO/TTT procedure to work within Nigeria waters?*
Answer: (1) Block fund/Bank Guarantee to obtain MATB/MNOR
(2) Board supercargo and inspector to confirm product.
(3) Make the final payment through swift of MT103 and take over the vessel or long side for pumping in the case of TTT.
*Question 10: What are the most important factors that would make a TTO/TTT procedure to work within Ghana/Togo waters?*
Answer: (1) Block fund/Bank Guarantee to obtain MATB/MNOR
(2) Board supercargo and inspector to confirm product in Nigeria waters.
(3) Place instrument of at least $1 million for logistics to move the vessel to Ghana/Togo waters. On arrival in Ghana/Togo and making announcement, the logistics instrument turns cash.
(4) Make the final payment through swift of MT103 and take over the vessel or long side for pumping in the case of TTT.
*Question 11: What is the most important factor that would make a CIF/FOB procedure for CHINA/EUROPE/AMERICAN transaction to work?*
Answer: (1) Buyer ready to issue Operative SBLC/MT760.
(2) Seller ready to respond with 2% performance bond after receipt of the SBLC/MT760.
(3) Buyer makes the final payment through swift with MT103.
*Question 12: How do sellers mandates and facilitators contribute to transactional failure?*
Answer: Seller’s mandates and facilitators constitute nuisance to transactions when they claim to be entitled to the commission on the buyer’s side. It’s a very wrong move to anticipate by anybody.
*Question 13: Why do sellers of bonny light crude oil always insist on Operative SBLC/MT760 for the transaction to work?*
Answer: This is simply because most of the sellers rely on banks and fiduciary financiers to be able to pay NNPC for the cargo to be allowed to sail out of the loading terminal. However, it’s financiers is motivated because SBLC/MT760 is the only instrument strong enough to allow them release their funds.
*Question 14: What is the difference between a DLC and SBLC for CIF transaction?*
Answer: DLC means documentary letter of credit, as the name implies its documentary and the banks does not have any obligation to make the value remain the same after it has been sighted by the seller. However, the buyer might decide to discount the value of the DLC before the seller’s cargo arrives. SBLC on the other hand means standby letter of credit. This implies it’s a standby credit used for the sole reason it was issued and it’s usually not discounted because it was issued for a transaction that the issuing bank is aware of.
*Question 15: Why do sellers prefer American buyers to Chinese buyers?*
Answer: The American buyers have a better understanding of the industry than the Chinese, also language is not too much of a barrier compared with the Chinese buyers. However, the Americans understand that no cargo leaves the terminal without the full payment to NNPC, so they understand when sellers request for operative SBLC/MT760.
*Question 16: Why do Chinese buyers insist on issuing Bank guarantee or DLC in place of SBLC for their transactions?*
Answer: This is because in China there are about 2 steps before a buyers bank can issue a bank guarantee to the sellers,
(1) The buyer needs the bank approval based on the fund in the account to be 100% blocked in the account for a given number of days.
(2) The bank and buyer need to apply for the foreign exchange from Chinese currency to US dollar, which is another approval from foreign exchange.
*Question 17: Why American buyers always insist on having a completely open buyers side commission?*
Answer: This is because most of them are resellers and they depend on the commission on the buyer’s side for them to maximize their profit/return on investment.
*Question 18: What is the business relationship between NNPC and the Chinese government through their national oil company?*
Answer: NNPC has a special transactional relationship with the Chinese government in the area of bilateral trade agreement. Chinese government issues to NNPC DLC/IRDLC and NNPC supplies China with cargoes of crude oil, some of the cargoes are refined and sent back to NNPC while others are used in China. At the end of the year accounts are reconciled and what is the balance is paid by China to NNPC.
*Question 19: Who sells crude oil to private refineries in China?*
Answer: Chinese government sells to private refineries in China but recently many of these refineries are making efforts to secure other sources of supply from the monopoly of the Chinese government which they have endured over the years. However, it’s challenging for them because of the policies and regulations of the government.
*Question 20: Why is the seller’s side commission in a Nigerian transaction always said to be closed?*
Answer: It’s a known fact that NNPC does not pay commission, so sellers that have product for sale always want to lean on the existing protocol created by NNPC and since the sellers are made to pay in full before the cargo can sail out of the loading terminal. However, they claim they have to carry so many people along which includes but not limited to, the bank/financier staffs, NNPC staffs and security personnel.
*Question 21: How do you identify a non-performing buyer?*
Answer: Any buyer that request for proof of product and authority to sell in an OFF-OPEC transaction is not a performer and you should be careful. In an OFF-OPEC transaction such document can only be made available after the cargo is loaded and every serious buyer knows that for a fact.
*Question 22: Is it possible to close a crude oil transaction in Nigeria?*
Answer: Yes. It’s 1,001% possible to do so but it all depends on you. You can never succeed if you are dubious, manipulative, inpatient and lacked integrity. You must sacrifice time to learn and understand the rudiments of the trade before you can make something worthwhile out of it.
This effort was born out of my concern for facilitators yearning for knowledge on how to conclude on their first crude oil transactions and to proffer answers to the barrage of questions and phone calls am inundated with on a daily basis. As a consultant and professional mandate to interested buyers of crude oil from Nigeria, the questions and answers shown above are simply excerpts from the book I am trying to put together titled ‘’How to succeed in crude oil transaction in Nigeria’’ which I hope to publish later in the year. I hope this helps to address some of the questions prospective buyers are always quick to ask and most times are not convinced with the answers they get.
If you are a serious buyer of bonny light crude oil and you have been having challenges in closing any of your transactions. We have got you covered. Please feel free to reach out to us today through the details shown below,
Dcn. Ojiefoh Pius Anegbode
*Don-Passy Nig. Ltd*
Road 12, Plot 16 Block XC
Peace Estate
Lagos.
Tel: +2347037994621(Call/Whatsapp)
+2348170248859
+2348084114705
Email: [email protected]
