‘To stop oil theft, new regulators will face pushback’

In this interview, Gbolahan Olojede, an economist and financial analyst, told OLAWUNMI OJO, News Editor, how oil theft is not only dwindling income but also affecting the stability of the Naira and the nation’s debt sustainability negatively.

He noted that ending oil theft goes beyond pipeline surveillance, stressing the need for use of modern flow meters, among other issues.

There have been conflicting data on the quantum of oil lost to theft and damage done to the economy. How badly is oil theft hurting Nigeria?
I will look at it from three different perspectives. First is income. We are an oil-producing country. We sell crude and make money. There are rents, royalties, fees, and all sorts of income that we make by virtue of oil production. Apart from that, there is now the petroleum profit tax, which is paid to the government. There is the income tax of oil companies; these operators also consume VAT-related services and goods. So, all forms of taxes are involved that are payable to the government by virtue of the oil and gas industry operations.

The second pedestal is debt. Now, if our oil is being stolen and we are not making enough income, it means that we find ourselves in a position of deficit financing. We do not have enough revenue to meet the expenditures we have budgeted. So, we start to borrow. When you go borrowing, those deficit financings continue to pile up, your debt sustainability begins to deteriorate and at a point, your cost of borrowing also starts to go up because investors begin to see you as a risky person.

The third pedestal is Forex. Although oil and gas are a small percentage of our GDP, it constitutes about 90 per cent of our foreign exchange earnings. If you don’t make money from crude oil, we are not going to earn foreign exchange. That will affect the stability of our currency. Then you are unable to provide enough Forex for users within your own economy. Manufacturers will be challenged.

Recently, we saw what happened with the aviation industry. People who have been operating here needed to repatriate money, they couldn’t repatriate money and it became an issue. So, from an income perspective, debt sustainability perspective and from a Forex situation, it’s a total mess if we are losing money to oil theft.

Are you confident that the passage of the Petroleum Industry Act (PIA) 2021 or the subsequent emergence of new regulators will solve the oil theft crisis?
Conceptually, yes. If you think about it, what we had before now was this behemoth of an organisation, NNPC. That organisation is an operator on one side and a regulator on the other, and it regulates across the entire chain: upstream, downstream and midstream. When you create that level of monopoly, it’s as if you are empowering an organisation in such a way that it even compromises its own corporate governance and ability to govern the structures properly.

Now, what PIA has done is take that NNPC, and isolate a business part of it, which is what you call the NNPC Limited. Eventually, it might become NNPC Plc. by the time it issues its shares to the public to become co-owners of the business. So, you have taken the whole NNPC, which was a government enterprise that is incapable of commercial viability and created an entity that will desire to make money.

In fact, by the time it undergoes its IPO and shareholders are brought on board, NNPC will have no option but to restructure its corporate governance. So, there will be more accountability and transparency in its activities. By being listed on the stock exchange, there are minimum standards below which you cannot go. So, the commercialisation side of things will help in the situation of oil theft. You don’t want thieves stealing because you are going to account to shareholders at the end of the day.  

If the NNPC, with government and security agencies’ backing, couldn’t stop oil thieves, what makes you think the new regulators would be able to do anything?
We had commercial banks owned by the government. With the government’s backing and everything, they failed. But the private banks came, bought those commercial banks, and till today they are thriving. We had a Nigerian-owned airline and we had telecoms. Government-owned businesses belong to nobody. So, no performance management and nobody is held responsible. The MD will not be able to come to the board meeting because they will remove him at that board meeting, unlike what we have right now where it’s more like an appointment. It’s more or less a political appointment. There was a point when the President just decided to bring somebody that he likes and just said ‘you become the GMD of the NNPC.’ Under a private organisation, that will not happen and it is important for the sanctity of that organisation.

Naturally, in internal control, it is believed that when you separate duties, you strengthen internal control. So, the PIA has helped us to create certain elements of separation of duties. The operator has now been separated to run his operations. You now have three different regulators for the critical focus on the three streams that are known in oil and gas: Upstream, midstream and downstream. The separation of duties should naturally lead to an improved internal control system. This will help to deal with or reduce the incidences of oil theft.

Is it appropriate for a government that does not know the amount of crude oil pumped in the country to award pipeline protection contracts to private companies when we have security agencies?
There are several legs to it. One of them begs to know if there is a possibility that this is redefining the issue of state police.

What you have told Tompolo in essence is to say ‘some years ago, you guys were non-state actors. Who is giving you this kind of contract? Bring the contract?’ Then, some years down the line, you are saying ‘the pipeline sabotage had continued; okay come back, take this thing.’

Is it recognition of the fact that crimes are local and that stopping those criminalities also has to be local? Is it a case for the state police? That is a way to look at it. Will the pipeline surveillance contract stop oil theft?

This thing that they have awarded is bigger than those things being done through the pipelines. Those ones that are being done by breaking into the pipelines, this contractor, (Tompolo), will significantly reduce it. But is that all? That is not all.

Those that involve documentary issues at the offices, at the terminal, issues that have to do with collusion, agencies that are expected to checkmate one another, that one will not solve it. So, what Tompolo’s contract will do is solve a piece of a problem but we will still have crude oil theft in spite of Tompolo.

Also, I watched a documentary about Dubai trapping and tracking its oil installations. What that tells me is that there is a technology for tracking these installations. Also, recently, I saw the same thing with NNPC showing oil installations with red flashes showing where the theft was taking place and where pipelines had issues.

I also listened to the NNPC Limited GCEO stating that there were some technical issues as regards oil theft, which they were handling and that they were also dealing with the other issues that had to do with human theft. What was instructive was the fact that a few years ago, the government said it had installed flow meters in all our platforms, so they should be able to determine the output of oil. 

Did this solve the theft?
It’s obvious that the flow meters that were installed are probably outdated. Now, the world over, you have what they call the LACT Flow Meter produced by an OEM (Original Equipment Manufacturer) in Milan. The LACT Flow Meters create communication between the (oil) platforms and the offices.

So, it becomes easy for records to be kept at both centres without human intervention. The flow meters provide real-time transmission of information obtained from the oil platform, unlike a situation where you have information obtained from the platform, and before it gets to the office, it can be doctored.

These are some of the challenges that the new regulators will have to correct; otherwise, it’s going to be business as usual. Mind you, we have already said there is going to be a pushback. People who are benefitting from this system will not allow the new regulators to work, so they have to put their foot down. The government will have to empower the regulator to be able to carry through these decisions. 

What do you mean by pushbacks in the new regulatory agencies?
It is shocking that until 2020, despite the clear provisions of the Revenue Mobilisation and Fiscal Commission Act vis-a-vis the Pension Act, there are no clear-cut statutory provisions for determining pensions for exiting staff in the DPR, now Upstream Commission, and any attempt to put measures that will ensure transparency in place was largely condemned by members of staff. 

We also learn that the staff want to determine the conditions of service for themselves in the new regulatory agencies. How is that possible? You want remuneration to comply with international best standards, but don’t want the promotion to be performance-driven. Instead, you insist on the usual Nigerian system of the passage of time. You just mark time on a position and three years later you are promoted, whether you know anything or not.

No system can grow or sustain any organisation that way in modern times. There must be transparent parameters for measuring the performance and the KPIs must be known to all to ensure a level playing field and avoid victimisation.

What do you make of the argument about the actual volume of oil stolen from the country?
I recently listened to the back-and-forth arguments between the Chief of Naval Staff, Vice Admiral Awwal Gambo and the GMD of the NNPC on the quantity of stolen crude in Nigeria. While the NNPC believes that it’s between 20,000 to 200,000 barrels per day, the Naval Chief believes the figure is unrealistic. Both of them, however, agreed that our crude is being stolen by the day. So, who is the thief, if the agencies saddled with the responsibility of watching the oil are trading blame, while the thief is walking freely within and without?

There are arguments that such volume cannot be stolen without insider participation. Why can’t we install modern LACT flow meters on our platforms to enable us keep account of every drop of crude sold in the country? Why are we still insisting on using manual dipping and output measurement systems to determine the sale of our crude oil? The Upstream Commission must do something about this very urgently.

As part of the measure to stop oil theft, can the government issue warning to countries where the thieves take to our oil?
It is not the best approach to this matter because it’s as if we are trying to hold other people responsible for our own lapses. What we need to do is straighten things on the home front, ensure that we are able to track what we produce and determine what we have exported. That solves the problem. I think we should get out of the market of trying to control others or trying to make others responsible.

There is molecular tracking of oil but is the recipient interested in whether you stole the oil or not? And the market is so huge that, to be honest, even big traders are involved in this thing we are talking about. There is a black market for oil and it is huge. So, if your oil ends up with them, do you think they are interested in whether it was stolen? 

Do you think oil thieves might have been responsible for some of the oil spills we have had?
They might have been responsible for some, but don’t forget that these oil thieves are of different categories. Those ones that break pipelines could be responsible for certain spillages because they don’t care about the environment; they just want to be able to steal crude.

That is why what they do at the international level these days is to ensure that part of your regulatory duties is to insist that these pipelines are installed with surveillance technology equipment and that was why the court in England gave judgment to a community in Niger Delta even though Shell’s defence was that the spillage was as a result of vandalisation by the community.

The court was of the view that there is modern surveillance equipment installed by the operators. And so, knowing fully well that the community would vandalise these pipelines, it behoves you now to install that surveillance equipment to forestall a situation where a few members of the community will now force hardship on the entire community as a result of your negligence, your failure to install that surveillance. That was the decision of the court in England but the Nigeria court would never think that way.

What is it that you think we are not doing right in the anti-oil theft moves by the government?
Number one is that we are not even getting an independent coordinated understanding of what the problem is. What do I mean? We are talking about oil theft and there are several players that are involved. The Navy will say one thing, NNPC will say another thing, and PENGASSAN will do another thing. So, what you are seeing are blame, counter blame and all the rest. We need to, first of all, be able to articulate the issues from an independent perspective. Articulate the issue, and then propound a solution.

We are also not using enough technology. Technology is used to drive oil and gas in the modern world and what that does is that it reduces human intervention because it is at the point of that human intervention that most of the compromises we see happen. Technology will bridge that. I’m not saying that technology doesn’t come with its own challenges, it does, but it has helped to reduce most of these pedestrian rudimentary problems that we are dealing with within the space of our oil.

Those are two issues I believe we are not doing well and the cap of it is that people on the topmost floor must have the right level of political will to deal with the matter.