The investigation also reveals Philia SA’s links to the Congolese President’s son, Denis Christel Sassou Nguessoa, and a Nigerian investment banker, Ikenna Okoli.
The deal mirrors how Nigeria lost over $6.8 billion between 2009 and 2011 through an opaque deal involving the Nigerian National Petroleum Corporation, NNPC, Swiss oil traders and politically exposed fraudsters. The investigation also reveals that just like the NNPC, the Congolese government owned refining company, Coraf, withheld earning from oil sales that was due to the country’s treasures therefore denying the oil-dependent country of needed funds for developmental projects.
For instance, Coraf received 6 million barrels of crude worth over $600 million in 2011 and 2012 and made absolutely no return to the Congolese treasury.
Though the exact amount of money made by Philia by virtue of this contract is not known, it is believed to be so significant that Philia, the newbie and hitherto small player, immediately expanded its operations into other oil frontiers in Africa such as Senegal and Gabon.
Before breaking away into its own independent oil trading activities, Philia was part of a joint venture, known as Petronoir Limited. The venture was formed in notorious offshore tax haven, Bermuda, in March 2012.
According to BD, Petronoir was also engaged in the business of lifting fuel oil and naphtha from Coraf, where Denis Christel serves as the General Administrator. Denis Christel also known as Kiki or Junior is the anointed heir of his father, Denis Sassou Nguessoa, one of the longest serving dictators in Africa.
It is, however, not known if Petronoir’s contract with Coraf was as opaque and included neglect of due diligence and best industry practices like that of its offshoot, Philia.
Philia, which started its own independent lifting of fuel oil and naphtha away from the Petronior consortium in 2013, has 15 employees and one manager, Ikenna Okoli – a Nigerian banker and former Head of Investment at Faisal Private Bank, Geneva.
“Mr Okoli benefits from extensive experience in banking and highly refined competencies in the oil trading sector. He follows the operations behind each transaction,” a source mentioned.
Mr. Okoli manages Philia together with the company’s sole shareholder, Jean-Phillip Ndong, who seems to a front for Denis Christel. Mr. Ndong, a Gabonese, is a teacher turn oil and timber mogul. He owns luxury apartment in Monaco but prefers to live in hotels in Nice, Paris and Geneva, the investigation revealed.
BD revealed that Mr. Ndong, is definitely a Politically Exposed Person, PEP, who has direct business relation with one Yaya Moussa, who himself was instrumental in helping Denis Christel facilitate the launch of foundation, Perspectives d’avenir, in the United States.
Mr. Moussa is also the President of Benin-based, Banque Africaine Pour L’Industrie et Commerce (BAIC). The bank was formed in 2013 and Mr. Ndong was one of its original three directors. The board was later expanded to include Atlantic International SA, a Geneva based oil trading company, and Philia trading pte Limited, which is represented by Mr. Okoli.
A number of sources claimed that Mr. Ndong and Denis Christel have a close relationship. The duo occasionally spend time together in the South of France. The sources also claimed that some Philia personnel were engaged to provide personal services to Denis Christel such as recruiting staff for his foundation.
Mr. Ndong denied that he has any unusual relationship with Denis Christel. He said he “never recruited nor contacted anyone for Mr Denis Christel Sassou Nguesso’s alleged foundation.” He said he knows everyone that works in the country’s downstream sector and that it is normal for him to discuss with them.
The Dubious Contract; Questionable Clauses
Though a minor player, Philia entered the Congolese market with a bang. Coraf granted the firm a term contract renewable after one year to export fuel oil and naphtha. The total oil sold to Philia in its first year was equal to a quarter of all the oil Coraf received that year. In the period Coraf sold five cargoes to Philia, one of them even before the contract came into force. Philia made a turnover of $140 million for the sales.
Investigation shows that Philia made unusually high margins (between $9.5 and $20.5 per tonne) from its Congolese shipments. A trader in African petroleum mentioned that “the margins obtained in Congo are higher than one would expect.”
One of the reason’s Philia made unprecedented margins from its Congo shipments was its involvement in what is referred to as “flipping cargoes” in industry jargon. Flipping cargoes was the method used by briefcase companies owned by PEPs in selling crude bought from the NNPC, as revealed by a 2013 investigation.
By flipping cargoes, Philia did not lift its shipment but instead sold it immediately to a third parties. In fact, the company resold its shipment at the point of purchase in Pointe-Noire, where Coraf refinery is located. Essentially what Philia did was to act as an intermediary with international market by buying product and reselling it at the point of purchase thereby denying the Congolese government earnings it would have made if it sold the product directly on the international market.
The harm caused by flipping cargoes is even more painful when one realises that Philia pays no tax whatsoever to the Congolese government for the transactions despite it being conducted on Congolese soil. Philia pays very insignificant taxes in Switzerland and Singapore, the countries where it is registered.
Though it is hard to calculate the exact amount Philia makes in profit from flipping cargoes, it believes from it analyses that it is substantial and would have represented a huge earning for Congo, a resource dependent country.
Philia also saved cost by not being involved in the physical operations connected to the transactions and its attendant financial obligations. For example, Philia made $400,000 in profit by reselling fuel oil and naphtha directly to third parties at Pointe-Noire in just three transactions in May, October and November 2013.
Besides the opportunity to directly resell the petroleum products to other oil traders, the contract between Coraf and Philia also has other questionable clauses that are overwhelmingly beneficial to Philia but stifling to Coraf and indirectly the Congolese people who lose millions of dollar the country would have used for developmental projects.
First, the contract was obtained without a public tender therefore illegally edging out other competitors. Also, unlike the industry standard that gives oil traders the grace of between 8-10 days after signing the bill of lading to pay for shipments, Philia was granted “no later than 60 days after the bill of lading date” to pay for its shipment in one instance.
Out of seven invoices obtained, Philia was given a payment period of 60 days after loading in one instance. It also got a grace of 30 days in four instances, and 15 days in two other instances. According to reports, these unusually long period given to Philia to pay up meant that it essentially bought the products without making any financial obligations.
“Two senior finance manager from large Geneva-based banks view it as ‘a form of credit’ granted Philia by Coraf, positioning the refinery therefore as the former’s de factor bank. In fact, Philia is able to finance the shipment (and quite possibly others too) for free, thanks to the cash flow that it benefits from during the period between the receipt of the sale to third parties and the repayment of the purchase to Coraf (between 20 and 50 days for these five transactions). In comparison, Coraf must wait much longer to receive its payments than the ‘standards’ generally upheld by the industry,” our source explained.
Philia did not respond to questions on the unusually long period it was given to pay for its shipments.
Further, Article 12 of the contract stipulated that the payment would be made in US dollars “or in euros using a conversion rate that is mutually agreed upon before the date of payment”. This opaque clause, we learnt leaves the exchange rate open to manipulation. In fact a source told revealed that Philia makes “undue commission” through the manipulation of the exchange rate sometimes up to 200,000 per transaction.
Philia said it has done nothing wrong but refused to explain further arguing that doing so would amount to revealing its commercial secret to competitors. Mr. Okoli also said that competitors and ex-employees who are envious because they did not win the contract are attacking the company.
More questionable benefits
Philia also benefitted from a method of payment called open credit. Open credit which usually benefitted the buyer, does not require the buyer to provide any financial guarantee. What this means is that if Philia
defaulted on the payment, since it did not provide any financial guarantee, Coraf would incur the maximum loss of the values of the shipment. And sometimes a shipment could be worth as much as $30 million.
“Open credit is [therefore] reserved for entities that have worked together for a long time”, one trader said.
“It is not normal that such a small company benefits from open credit. It is a model that can be justified between two private parties that trust one another, but no state owned company should ever risk public finances through such practices,” the Director of Trade Finance at a large Geneva Bank disclosed.
Open credit payment method also helps Philia to avoid paying bank fees that is associated with the issuance of a letter of credit.
In other to end corruption in the opaque oil trading industry and to plug the losses incurred by resource dependent countries such as Congo, BD advocated for more transparency in the system. It also called on the Government of Switzerland, the country with the highest number of oil traders to enact laws that would force companies to maintain due diligence in their dealings.