Crude Oil Performance BondA Crude Oil Performance Bond is one way a buyer can get some kind of guarantee that the seller will perform and deliver the product. The AluminumNow Group has seen these instruments used in a number of ways. 
Some buyers request a PB as a qualifier of the seller.  Some buyers want to warrant continuous delivery. Refineries have a need to have consistent feed stock supply and this is one way to get compensation if that continuity ceases. But Performance Bonds are possibly the number one reason deals don’t even get to the contract stage (outside of unqualified buyers or sellers). This is because they are hard to negotiate. The AluminumNow group never offers a PB starting out in negotiations, because the NNPC will never issue one. So it is the obligation of each seller to make that choice depending on who the buyer is, what banking instrument they are willing to take. The only time we offer it is when a buyer demands it. So the seller is not going to start out by offering to block funds of $X millions in their bank. Tying up the Seller’s money is not going to help them deliver the product. You should know that the requirement from the buyer requesting a PB is always an active banking instrument. So the buyer can not come in with an MT799 and expect a PB. It is always a active instrument like a MT799, MT760, MT103.23 (blocked in the seller’s account) . This is because the PB is really an SBLC from the seller for 2% of the buyers banking instrument in favour of the buyer. 
 Which then requires a different procedure – which may require a different 
seller. The other issue with a PB is the procedural verbiage is very specific, because banks aren’t allowed to solicit and there is always a battle about who goes first with their instrument. In most cases the buyer has to go first with their banking instrument or a promise of one. Sometimes with certain banks a promise is not good enough. So switching the conversation from delivery to a guarantee is like reminding the buyer that the oil is not going to be delivered unless the seller puts up a PB. Which could be counter producive. It is not standard for the AluminumNow Group to start out offering a distraction unless the buyer insists that a distraction must be in place. Now when we do have to provide a performance bond it introduces other issues into the contracting negotiations. There is always a problem with performance bonds because they are an active banking instrument (an SBLC). A Seller’s bank will never commit to a PB unless there is an active instrument placed by the Buyers bank. This is partially because the PB is stated as 2% of the buyers banking instrument. But it is also because the bank does not want to loose its clients money. And the buyer does not want to commit to the expense of the MT799 or MT760 unless there is a commitment that there will be a PB placed. 
 So this procedure has the principal’s banks talking to each other and then agreeing to present at the same time. This is the only way the AluminumNow Group has found to get this done – it is not always agreeable to the parties and their banks. SAMPLE NOMINATIONS, SHIPMENT & BANKING PROCEDURES 1) SELLER 
SENDS PRE SIGNED SPA TO BUYER
 2) BUYER SIGNS AND SEALS THE CONTRACT 
AGREEMENT WITH FULL BANKING COORDINATES OF BOTH PARTIES AND THEIR AGENTS AND 
RETURN WITH ATB FORMAT/ETA FORMAT, INSPECTOR DETAILS AND CLIENT INFORMATION 
SHEET(CIS) /PASSPORT COPY/CERTIFICATE OF COMPANY REGISTRATION (INCORPORATION) 
ISSUER OF THE BLOCK  FUND -MT799/SBLC 3) THE SIGNED CONTRACT AGREEMENT IS LODGED 
WITH BANKS OF THE RESPECTIVE PARTIES 4) UPON RECEIPT OF THE SIGNED SPA, 
BONNY TERMINAL SEND OFFICIAL LETTER ON THEIR LETTER HEAD PAPER VIA THE OFFICIAL 
TERMINAL EMAIL TO BUYER CONFIRMING TERMINAL AWARENESS ON THE TRANSACTION AND 
ALSO PROVIDING THE SELLER NOMINATED BANKING DETAIL TO RECEIVE THE MT799 BLOCK 
FUND ALONG WITH THE APPROVED MT799 AND PERFORMANCE BOND VERBIAGE 5) BUYER BANK IMMEDIATELY SWIFT PRE ADVICE 
TO SELLER BANK CONFIRMING THEIR READINESS TO ISSUE MT799 BLOCK FUND, ON RECEIPT 
AND CONFIRMATION OF THE BUYER’S SWIFT PRE ADVICE MT799 VALID FOR ONE YEAR AND 
ONE MONTH 6) SELLER BANK RESPOND TO BUYER BANK WITH 
PRE ADVICE CONFIRMING THEIR READINESS TO ISSUE 2% BOND ON RECEIPT AND 
CONFIRMATION OF THE BUYER MT799 OR MT760 VALID FOR ONE YEAR AND ONE MONTH 7) BUYER BANK SWIFTS MT799 BLOCK FUND VALID 
FOR ONE YEAR AND ONE MONTH ON THE SELLER APPROVED VERBIAGE TO THE SELLER BANK. 8) SELLER BANK SWIFT 2% PERFORMANCE BOND TO 
BUYER BANK 9) BUYER SENDS NOR/ETA FORMAT, ATB FORMAT 
AND INSPECTOR DETAILS TO SELLER 
 11) THE LOADED VESSEL ISSUES MARINE ETA/NOR 
TO BUYER AND SAILS TO BUYER’S INSPECTION PORT; CAPTAIN ISSUE MARINE AUTHORITY TO 
BOARD (ATB) TO BUYER’S INSPECTORS WHEN VESSEL ARRIVES BUYER INSPECTION PORT 12) BUYER’S AGENTS AND INSPECTOR’S BOARD 
THE LOADED VESSEL AT BUYER’S EXPENSE AND COST TO CONDUCT QUANTITY AND QUALITY (Q 
& Q) 13) WITHIN 72 HOURS OF SUCCESSFUL 
INSPECTION, BUYER’S INSPECTORS SEND INSPECTION REPORT TO BUYER AND SELLER 
14) WITHIN 72 HOURS OF THE RECEIPT OF THE REPORT, BUYER’S BANK SWIFTS TOTAL 
CARGO MT103TO SELLER BANK 15) ALL ORIGINAL CARGO AND TITLE DOCUMENTS 
ARE TRANSFERRED TO BUYER’S NAME 16) VESSEL TRANSSHIPS INTO BUYER’S STORAGE 
OR FARM TANK 17) PAYMENT FOR THE FULL PRODUCT IS 
RELEASED OR MADE TO SELLER’S NOMINATED BANK AND ALL COMMISSIONS ARE 
SIMULTANEOUSLY PAID SAMPLE DOCUMENTS 
 ANNEX A {SELLERS BANK ACCEPTED SBLC VERBIAGE} Sample MT760 - ISSUE OF A 
STANDBY LETTER OF CREDIT
 CREDIT NUMBER : DATE OF ISSUE :  DATE AND PLACE OF EXPIRY :  ISSUING BANK :  APPLICANT : XXXXX  BENEFICIARY : XXXXX  BANK OF BENEFICIARY : CURRENCY CODE : USD  CREDIT AMOUNT : XXXXX  PLACE FOR PRESENTATION : 
AT OUR COUNTERS  FORM OF PRESENTATION : 
PAPER / BY COURIER SERVICE  LANGUAGE OF ANY  REQUIRED DOCUMENTS : 
ENGLISH  PARTY LIABLE FOR THE 
PAYMENT OF ANY CHARGES : BENEFICIARY  UNDERLYING RELATIONSHIP : 
XXXXX  WE HEREBY IRREVOCABLY AND 
UNCONDITIONALLY WITHOUT PROTEST OR NOTIFICATION, WITH OUR FULL RESPONSIBILITY, 
UNDERTAKE TO PAY AGAINST THIS STANDBY LETTER OF CREDIT NUMBER SBOSBLC/XXXXX TO 
THE ORDER OF XXXXX, THE BEARER OR HOLDER THEREOF AT EXPIRY DATE OF THE DD OF MM, 
YYYY, THE SUM OF USD XXXXX (XXXXX US DOLLARS ONLY) IN LAWFUL CURRENCY OF UNITED 
STATES OF AMERICA UPON SURRENDER AND PRESENTATION OF  ORIGINAL HARD COPY OF 
THIS STANDBY LETTER OF CREDIT AT OUR COUNTERS AS PER OUR FILE.  SUCH PAYMENT SHALL BE MADE WITHOUT SET OFF AND SHALL BE FREE AND CLEAR OF ANY DEDUCTIONS OR CHARGES, FEES, OR WITHHOLDINGS OF ANY NATURE PRESENTLY OR IN THE FUTURE IMPOSED, LEVIED, COLLECTED, WITHHELD OR ASSESSED THEREIN OR THEREOF. PAYMENT IS AVAILABLE UPON 
THE BENEFICIARY'S FIRST WRITTEN DEMAND IN THE FORM OF PRESENTATION INDICATED 
ABOVE ONLY TO BE SENT TO US NOT EARLIER THAN 15 (FIFTEEN) DAYS BEFORE EXPIRY 
DATE.  THIS STANDBY LETTER OF 
CREDIT IS TRANSFERABLE AND ASSIGNABLE WITHOUT PRESENTATION TO US AND WITHOUT 
PAYMENT OF ANY TRANSFER FEE OR CHARGES.  THIS STANDBY LETTER OF 
CREDIT IS SUBJECT TO THE ICC UNIFORM CUSTOMS AND PRACTICE FOR DOCUMENTARY 
CREDITS, INTERNATIONAL CHAMBER OF COMMERCE, PARIS, UCP 600 UNDER ICC PUBLICATION 
NO. 600 AND SHALL BE INTERPRETED IN ACCORDANCE WITH THE LAWS OF ENGLAND. ANY 
DISPUTE ARISING OUT OF OR IN CONNECTION WITH THIS STANDBY LETTER OF CREDIT SHALL 
BE SUBJECT TO THE EXCLUSIVE JURISDICTION OF THE COMMERCIAL COURT OF ENGLAND.  THIS IS AN OPERATIVE 
INSTRUMENT AND NO CONFIRMATION SHALL FOLLOW. 
 ____________________________________________ Bank Officer (1) Bank Officer (2) SELLER’S APPROVED 2% 
PERFORMANCE BOND VERBIAGE FULL BANK RESPONSIBILITY 
AND AUTHORITY HEREBY IRREVOCABLY AND UNCONDITIONALLY WITHOUT PROTEST OR 
NOTIFICATION UNDERTAKE TO PAY AN AMOUNT NOT EXCEEDING USD1, 600,000.00 (ONE 
MILLION SIX HUNDRED THOUSAND UNITED STATES DOLLARS ONLY) BEING TWO PER CENT 
PERFORMANCE BOND ON THE BLOCKED FUNDS, GUARANTEEING EACH SINGLE SHIPMENT OF 
BONNY LIGHT CRUDE OIL OF USD80,000,000 (EIGHTY MILLION UNITED STATES DOLLARS 
ONLY) RECEIVED FROM ---------------------------- (BUYER NAME AND ADDRESS) AS PER 
MT799 BLOCKED FUNDS, HEREIN REFERRED TO AS 
“BUYER” 
WITH REFERENCE TO THE CONTRACT NO. NLO/115/3QT.15.FOR THE SALES AND PURCHASE OF 
NIGERIAN BONNY LIGHT PETROLEUM PRODUCTS. 
THE AMOUNT OF THE PERFORMANCE BOND FOR THE MAIDEN VOYAGE 
ONLY SHALL BE USD1, 600,000.00 (ONE MILLION SIX HUNDRED THOUSAND UNITED STATES 
DOLLARS ONLY) BEING TWO PER CENT PERFORMANCE BOND ON THE USD80, 000,000.00 
(EIGHTY MILLION UNITED STATES DOLLARS) BLOCKED FUNDS FOR THE MAIDEN VOYAGE AND 
WHICH PERFORMANCE BOND ONE (1) YEAR AND ONE (1) MONTH SHALL BE ISSUED WITHIN 10 
WORKING DAYS AFTER THE RECEIPT, VERIFICATION AND CONFIRMATION OF THE BUYER´S 
MT799 BF. WE ON BEHALF OF__________ 
(SELLER NAME AND ADDRESS) HEREIN REFERRED TO AS “SELLER” HEREBY GUARANTEE THE 
GOOD PERFORMANCE OF THE OBLIGATION ASSUMED TOWARD BUYER IN ACCORDANCE WITH THE 
ABOVE MENTIONED CONTRACT. IN CASE THE SELLER 
FAILS TO CARRY OUT AND FULFILL THEIR OBLIGATION TO SUPPLY THE QUANTITY OF THE 
NIGERIAN BONNY LIGHT PETROLEUM PRODUCTS ASSUMED UNDER THE SAID CONTRACT FOR THE 
MAIDEN VOYAGE ON OR BEFORE 60 DAYS AFTER SELLER’S RECEIPT AND
CONFIRMATION OF YOUR BANK’S BLOCKED FUNDS, AND FOR 
THE TERM CONTRACT ON OR BEFORE ONE YEAR AND ONE MONTH AFTER THE RECEIPT AND 
CONFIRMATION OF YOUR BANK’S BLOCKED FUNDS, WE IRREVOCABLY UNDERTAKE TO HOLD THE 
SAID AMOUNTS AT YOUR DISPOSAL, FREE OF INTEREST AND FEES, AND SUBJECT TO THE 
LIMIT OF AN AMOUNT NOT EXCEEDING USD1,600,000.00 (ONE MILLION SIX HUNDRED 
THOUSAND UNITED STATES DOLLARS 
ONLY) FOR THE MAIDEN VOYAGE AND FOR EACH SINGLE SHIPMENT OF 
BONNY LIGHT CRUDE 
OIL, AND TO THE LIMIT OF AN AMOUNT NOT EXCEEDING 
USD6,400,000.00 (SIX MILLION FOUR
HUNDRED THOUSAND UNITED STATES DOLLARS ONLY) FOR THE 
TERM CONTRACT, PAYABLE IN CASH TO YOUR NOMINATED BANK ACCOUNT WITHIN FIVE 
BANKING DAYS ON YOUR FIRST DEMAND BY YOUR BANK SWIFT STATING THAT THE SELLER HAS 
FAILED TO PERFORM THEIR OBLIGATIONS
PURSUANT TO THE CONTRACT NO. NLO/115/3QT.15 AND NOT 
WITHSTANDING ANY CONTESTATION BY THE SELLER. THIS PERFORMANCE 
BOND SHALL COME INTO FORCE FROM ITS ISSUANCE, AND SHALL BE VALID FOR ONE YEAR 
AND ONE MONTH FROM THE DATE OF OUR RECEIPT AND CONFIRMATION
OF YOUR BANK’S BLOCKED FUNDS. CLAIMS, IF ANY, HAVE 
TO BE RECEIVED BY US ON/OR 
BEFORE THE MATURITY DAY. THIS PERFORMANCE BOND IS 
SUBJECT TO THE ICC UCP 600 CURRENT VERSION. FOR AND ON BEHALF OF  AUTHORIZED SIGNATORY: AUTHORIZED SIGNATORY: Information provided by the AluminumNow Group and is for information only as the procedures are changing. |