THE ATTACHED DOCUMENT GIVES BACKGROUND INFORMATION
TO THE JAMAICA/NIGERIA OIL TRADING CONTRACT,
AS WELL AS RESPONSES TO QUESTIONS FROM
JAMAICAN ORGANIZATIONS AND MEDIA.
NIGERIAN OIL TRADING CONTRACT
1978-1993 and 2000-2006
SECTION I – BACKGROUND
A BILATERAL AGREEMENT
In October 1978, Prime Minister Michael Manley, on an official visit to the Federal
Republic of Nigeria held bi-lateral talks with President Olusegun Obasanjo, the Head of
State of the Republic of Nigeria. Emerging out of these talks was an agreement between
the two governments for the supply to Jamaica of 15,000 barrels a day of Nigerian crude
oil, a volume of 5,475,000 barrels annually, at Government of Nigeria prices. Jamaica
would trade this product on the open market and earn the margins from the sale of the
PURPOSE OF THE AGREEMENT
The Agreement between the Heads of the two nations was a demonstration of the co-
operation and friendly relations that existed between the two countries.
Although a commercial arrangement was intended for the purchase of the crude oil, the
initial agreement allowed a longer-term (90 day) credit facility.
It was also the understanding that earnings from the trade would be used for development
projects and for Jamaica’s energy security. Jamaica was only one of a number of
countries receiving this benefit from Nigeria.
In December 1978, a Contract was signed between the Government of Jamaica and the
Nigerian National Petroleum Corporation (NNPC), which established the initial terms
and conditions of the Trading Agreement, which included:
Contract: An Evergreen Contract for the purchase of crude
oil, renewable annually.
Crude Oil Types: Nigerian Crude, not specified
Participating Entities: NNPC and PCJ
The Petroleum Corporation of Jamaica (PCJ) was
set up in 1979 to be the official contractor for
Jamaica, to work directly with NNPC for
management of all aspects of the Trading
arrangements for Jamaica.
Payment Terms: Government of Nigeria selling prices, with a 90-day
Cancellation: By advance notice of 90 days, in writing from either
Other Key Contract Factors: The Oil for Trading would be based on availability
of crude oil from Nigeria.
• Although it was a Government- to-
Government arrangement, the Contract was
to be managed on a strict commercial basis,
by the appointed contractors. Product
purchases would be made at prevailing
Government of Nigeria rates.
• NNPC reserved the right to adjust the
volume of uplifts based on production and
PCJ would receive supplies, only when
crude oil was available
• PCJ was expected to lift crude oil as
CRUDE OIL CARGO UPLIFTS
In May 1979, PCJ made its first uplift of Nigerian crude, and from May 1979 to 1984, the
PCJ cargoes of crude were shipped directly to the Shell Refinery in Curacao N.A. for
refining. The Contract operated smoothly with reasonably consistent delivery.
In 1984 the refining arrangement for the PCJ/NNPC crude with the Shell Refinery in
Curacao was terminated. In order to continue the contractual arrangement with NNPC,
the PCJ had to appoint oil traders and Oil Liaison Agents to uplift the crude product and
manage the sales on its behalf.
As of 1984, Oil Traders and Oil Liaisons were appointed to manage the business on
the open market.
THE NEED FOR OIL TRADERS
The services of an international oil trader were required for the following reasons:
• Nigerian Crude (other than a shipment to Petrojam Limited to determine
suitability for refining in Jamaica) was never used in Jamaica
• The logistics of lifting, shipping, delivering and selling crude was beyond the
capability of PCJ at that time.
• Nigeria required that any Trader of Nigerian crude products had to post a bond of
US$1.0 million (an amount that PCJ could not afford).
• As a prerequisite for entering into the arrangement for the purchase of Nigerian
Crude oil, the PCJ was required to make investments in the Nigerian economy.
(The PCJ could find no affordable opportunity.)
As of 1984, the PCJ sought assistance from Oil Liaisons agents in renegotiating and
securing the contract. Their duties included, but were not limited to:
• Continuous communications with NNPC on behalf of PCJ to ensure continuity of
trading activities, in accordance with the contract
• Advice on trading details including the use of tankers
• Advice on preferred crude to be lifted, in order to maximize PCJ’s profits.
Oil Traders and Oil Liaison agents offer guaranteed margins for their Contract
ADJUSTMENTS TO THE CONTRACT
Over the life of the contract there were several adjustments.
In 1989, during an official visit of the Vice President of the Federal Republic of Nigeria,
Admiral Agustus Aaikhomu, to Jamaica, Prime Minister Michael Manley requested an
increase in the quantity of crude oil allocated to Jamaica under the Trading Contract.
Because of OPEC constraints for oil output, the increase was not immediately granted.
Following meetings between Energy Minister Hugh Small and Vice President Aaikhomu
in Nigeria in November 1989 and in New York in September 1990, the quota was
increased to 20,000 barrels a day, for an annual uplift of 7,300,000 barrels.
In addition, the types of crude made available under the contract were increased, and now
included Bonny Light, a crude that is in great demand worldwide and very easily traded,
as well as, Bonny Medium, Qualboc, Escravos, Brass Blend, Forcados and Pennington.
It should be noted that the Petrojam Refinery, because of its configuration is unable to
refine these types of crude products.
Developments to the Contract
Jamaica continued to fulfill its contractual obligations to NNPC.
There were, however, two breaks in the contract:
• January –April 1983: A period when PCJ was in negotiation with NNPC, in
regard to Letter of Credit guarantees.
• January-October 1985: A period when PCJ would have sustained severe losses in
trading, due to the pricing terms of the contract, had it lifted cargoes. This resulted
in a change in the pricing terms and cargo lifting commenced again.
In February 1987, the NNPC reduced the PCJ’s credit period to the standard 30 days and
from that date, the contract was operated on a fully commercial basis.
In May 1991, Minister of Mining and Energy Horace Clarke met his Nigerian counterpart
in Nigeria and proposed several Joint Venture activities to expand the relationship
between NNPC and PCJ. These included a transshipment terminal in Jamaica for
Nigerian Crude oil. However, these were not pursued by NNPC because of resource
In November 1992, Prime Minister P.J. Patterson made an official visit to Nigeria in
continuation of the expressions of mutual respect and friendship with Nigeria.
This led to the placement of resident High Commissioners in Jamaica and Nigeria.
PCJ continued to lift cargoes of crude oil from Nigeria until the end of 1992.
Cancellation of the Contract
In October 1993, two months after the Evergreen Contract, for that year was signed
between NNPC and PCJ in August 1993, notice was given by NNPC to PCJ of the
termination of the contract, effective December 1993. This was against the background
that all contracts held by NNPC with all countries, for crude oil sales and petroleum
imports and exports were to be cancelled, the result of a directive from the new Head of
State for Nigeria, Chief Ernest Shonekan.
The Nigerian Government invited companies, whose contracts were cancelled to
resubmit applications by November 1993. The PCJ duly submitted its application for
renewal of its Oil Trading contract.
Between December 1993 and October 1, 2000 all efforts by the Government of
Jamaica and the PCJ to re-establish the trading agreement between NNPC and PCJ
failed. As a result, no oil trading was carried out by PCJ for seven (7) years. The
cancellation of the contract was primarily as a result of a political decision.
RESTART OF THE TRADING CONTRACT
In May 1999, on the return of President Obasanjo, as Head of State for Nigeria efforts to
renew the contract began again. A visit by Prime Minister Patterson to Nigeria was
followed by a visit in December 1999, of the Minister of Mining and Energy, Hon.
At that time, Mr. Carl Masters, a Jamaican, who was an Oil Agent for Chevron noted the
difficulty that Jamaica was having in renegotiating its contract with NNPC. He offered
his services to the PCJ. This resulted in the resumption of the trading arrangement and the
renewal of the contract. Crude oil cargo uplifts commenced again on October 1, 2000.
Oil Liaison- 2000-2003
Mr. Masters, who is affiliated to Goodworks International was appointed Oil Liaison
Agent for PCJ and has continued in this role since then.
Oil Traders and Oil Liaisons used by PCJ
Traders: Vitol S.A. Inc.
Liaison: Froyle and Bentley Oil Associates Limited - Bermuda
Consolidated Petroleum Purchasing Company
WELBECK Petroleum Limited
Goodworks International LLC.
Earnings from the Trading in Nigerian Crude Oil
Twenty-nine (29) crude oil uplifts were made during the six (6) contract periods between
October 2000 and April 2006. A total volume of 34,354,660 barrels were lifted which
earned the PCJ US$2,443,381
Contract Periods No. of Liftings Volumes Net Income
Oct. 2000 – Sept. 2001 6 10,800,000 347,725
Oct. 2001 – Sept. 2002 1 2,760,000 172,917
Oct. 2002 – Sept. 2003 5 4,735,000 438, 503
Oct. 2003 – Sept. 2004 7 6,599,674 565,215
Oct. 2004 – Sept. 2005 8 7,511,715 748,547
Oct. 2005 – Apr. 2006 2 1,948,271 170,474
29 34,354,660 US$2,443,381
== ========= ===========
The current contract allows for the uplift of 30,000 barrels of crude per day or an annual
uplift of 10.95 million barrels.
PCJ has not lifted its full annual contracted amounts because of the unavailability of
crude oil for trading as a result of restrictions on output quotas by OPEC. However, a
comparison with other countries, which operate under similar NNPC contracts for the
contract year 2002 – 2003 is offered to measure the PCJ performance.
Countries Contract Volumes Performers
(Barrels Per Day
South Africa 115,000 25%
Kenya 30,000 0%
Ghana 30,000 50%
Senegal 30,000 0%
Ivory Coast 30,000 0%
Jamaica (PCJ) 30,000 40%
USE OF NET INCOME
Taxes are paid on the income and the Corporation’s budget is financed from the earnings
from this contract. All earnings between 1979 and March 31, 2005 are recorded as net
income, and are shown in the PCJ’s audited Annual Financial Statements, which are
tabled in Parliament.
As of April 1, 2005, the PCJ was instructed by the Ministry of Finance and Planning
to pay the net income (less a management fee) from the NNPC oil facility into the
PROJECTS FUNDED BY THE OIL FACILITY
• The purchase of the Petrojam Refinery
• The construction of an energy efficient building at 36 Trafalgar Road, Kingston
• The Oil exploration Programme
• The Research on Peat as fuel
• Research on OTEC
• Acquisition and development of the Font Hill property
• Contributions to CAST (now UTECH) Solar Energy Programme
• Paying the cost of the receptions held for the President of Nigeria
• Contributing to the Office of the Jamaican High Commission to Nigeria
• LNG Pre-feasibility study
• Contribution to Government
• Retrofit Government Hospitals (two fully completed) and Infirmaries with Solar
Water Heaters and Energy Saving Devices
• Official Visits to renegotiate the Nigerian Oil Contracts
• Schools’ Energy Conservation Awareness Programme
• Accelerated Energy Conservation Programme
• The acquisition of energy efficient bulbs for resale to consumers at approximately
one-half of the market price
• Pay profit tax on net income
SECTION II – RESPONSE TO FREQUENTLY ASKED QUESTIONS
THE ROLE OF PCJ UNDER THE CONTRACT
The Petroleum Corporation of Jamaica (PCJ) was incorporated in 1979 after the oil
pricing shocks of the 1970’s to manage Jamaica’s Energy Sector, which included the
management of the Jamaica/NNPC Contract FOR Oil Trading.
In June 2000, when the Nigerian Oil Facility was about to be reestablished, the PCJ
invited International Traders already doing business in Nigeria to make offers to trade
Jamaica’s quota of Nigerian Oil. The international oil trader would manage the uplift and
sales of the product assigned to Jamaica. Four international traders responded and, based
on its offer, Trafigura Beheer was awarded the contract by the Petroleum Corporation of
Jamaica for “Term Sale of Nigerian Crude Oil”. Other traders included Vitol S.A. Inc.,
Masefield and Chevron.
Term Sale of Nigerian Crude Oil ( Attached)
It was agreed that the Term Sale Agreement would be renewed annually in December and
the PCJ signatory to the contract would be the Secretary to the Board of the Petroleum
Corporation of Jamaica. Trafigura Beheer has performed satisfactorily under this
The Term Sale of Nigerian Crude Oil Contract is known as an “Earning Contract”.
Revenues on an Earning Contract are earned by way of payment on an invoice issued by
the seller (PCJ) to the buyer/trader, (Trafigura Beheer). Upon written confirmation of the
cargo nomination from the Nigerian National Petroleum Corporation (NNPC), an
invoice, equal to the volume of the quantity of crude oil (in barrels) supplied, multiplied
by the premium is issued by PCJ to Trafigura Beheer.
The agreed premium of this contract is US 12.5 cents net per US barrel, based on the
actual Bill of Lading quantity. Payment is made within seven (7) days.
TRAFIGURA: THE TRADER
The original terms of the Nigerian Government contract required payment by way of
letter of credit from the Petroleum Corporation of Jamaica when crude is uplifted. The
PCJ was also expected to make and investment in the Nigerian economy and to post a
bond for US$1.0 million to cover all risks and expenses relating to the lifting and sale of
Jamaica’s quota. Because the PCJ did not have the capacity to execute these conditions
the Nigerian Government waived the investment requirement and the Trader, Trafigura
assumed responsibility for the risks and expenses.
Trader opened a Letter of Credit in a recognized bank (BNP Paribas Paris) on behalf of
PCJ. Trafigura Beheer with the experience and expertise necessary for international crude
oil trading assumed responsibility for the bond and for all the costs and risk associated
with the uplift and sale of the product. The Corporation also opted for guaranteed
margins in the sale of the product.
PROFIT SHARING VS. GUARANTEED MARGINS
Earnings from trading in this commodity are based on the volumes lifted, the economic
trading environment, prices and conditions in the market. With terms of repayment at 90
days, the PCJ earned significantly more from trading. Shorter payment terms earn
significantly less. Earnings based on profit sharing are calculated on the trade price on the
futures market, less the cost of lifting, shipping and sales
Since 2000, the contract for Term Sale of Nigerian Crude Oil has been based on
guaranteed margins, which obtain whether prices increase or decline. Further, for such a
small volume, earnings are more easily calculated when based on volume of barrels
uplifted. International audits are not normally necessary on earnings contracts.
The NNPC renewed the Evergreen Contract with PCJ on September 20, 2006. The
contract with the Trader for Term Sale of Nigerian Crude Oil for the period 2006 to 2007,
between PCJ and Trafigura Beheer has not yet been signed. The PCJ will be continuing
the Oil Trading arrangement under the current contract while the Board of the
Corporation reviews the current situation.