Why crude oil losses persist despite huge surveillance contracts
• Give Surveillance Contracts To Host Communities— Niger Delta Stakeholders
• ’Surveillance Contracts By NNPC Too Opaque’
• NNPC Calls For Synergy, Urges Cooperation With Host Communities
Despite the Nigerian National Petroleum Corporation (NNPC) award of multi-million dollar pipeline surveillance contracts to private security companies, the loss of 22 million barrels of crude oil between January and June is a pointer that the problem is steadily growing worse.
Worried that crude oil theft has become prevalent for decades due to phenomenal lax security and alleged collusion between security operatives and oil thieves, stakeholders in the Niger Delta have recommended that pipeline surveillance contracts should be directly awarded to host communities rather than individual businessmen, including ex-militant commanders.
The Edo State Governor and chairman of the ad-hoc Committee of the National Economic Council on Crude Oil Theft, Prevention and Control, Mr. Godwin Obaseki, last Thursday disclosed that 22 million barrels of crude was stolen in the first half of 2019.Like most of NNPC operations, the award of surveillance contracts has also been an opaque affair. However, a well known award of surveillance contract to an indigenous firm, Ocean Marine Solutions for the protection of the strategic 87-kilometre Trans Forcados Pipeline (TFP) valued at about $18.4m, last year, sparked controversy.
It is estimated that there are subsisting N9.3b pipeline security contracts that the NNPC has with various companies.In justifying these awards, the NNPC claimed that in 2018, it lost over 60 days of production due to incessant breaches on the TFP. In terms of production numbers, the corporation said this translates to over 11 million barrels of crude oil, which on face value equates over $800m in lost revenue to NNPC, its Joint Venture (JV) partners, and the Nigerian Federation.
It would be recalled that 40 percent of Shell’s total security expenditure totaling about $383m was spent on protecting its staff and installations in the Niger Delta, from 2007 to 2009.
A group, Stakeholders Democracy Network (SDN) in its latest report, “Pipeline Surveillance contracts in Niger Delta, has described the concept of pipeline surveillance contracts in the Niger Delta as a misnomer.SDN noted that the contractors were rarely involved in any actual surveillance; instead the NNPC uses these contracts as disguised “payment for peace” to agitating groups, and as patronage to political allies.
“Factors such as a lack of local participation in the oil and gas industry necessitate the existence of this system of pipeline surveillance, so as to avoid pipeline vandalism and other criminal activities that may disrupt oil and gas production.”Former chairman of the Nigeria Extractive Industries Transparency Initiatives (NEITI), Ledum Mitee told The Guardian that crude oil theft, which has been on for decades is rooted in corruption, impunity and relies on keen knowledge of oil production and transportation.
“There are a lot of issues that account for this loss of crude. You have ageing pipelines; there is bunkering and disinterestedness in having meters at production points. In Nigeria, meters that measure the output are kept at the terminals. In other words, the production between the oil well and the export terminal is never accounted for. Therefore it is difficult to know how much is being produced. I am not shocked by such figures. One thing about this country is that once we are able to meet what we call our export quota, we do not take seriously, how much is being lost; how much is being wasted or stolen,” he said.
Mitee stressed that rather than award multi-million dollar surveillance contracts to ex-militants and individual businessmen, the NNPC should restrategise by involving host communities.
According to him, because of the benefits that would be derived, the communities would thwart any effort to sabotage pipelines in their domain. “Presently, host communities feel that their own oil is being stolen by those that are in Abuja and they see the bunkers as people stealing from the bigger thieves, who are stealing from them. So, they now just stay disinterested. The level of complicity between people who are supposed to protect the pipelines and the thieves is very high. Some members of the Joint Task Force are even making money from the oil theft. In addition to that, the benefit that people are deriving from that rogue economy makes it difficult for anybody to check what is going on,” he said.For the former President, Ijaw Youth Council (IYC), Eric Omare, if government is to give contracts to ex-militants, such contracts must be performance based.
According to him, available records show that it was only Mr. Government Ekpemupolo that was consistent in the execution of the contract.“It is not enough to give contract to militants who will end up enriching themselves. You must have a mechanism that makes majority of communities where these facilities are located to benefit from the existence of those facilities in those communities. If not, problems will keep recurring. The first security is security by the community not by a few people,” he added.
An international security expert who pleaded anonymity explained that vested interests in government have continued to frustrate the award of surveillance contracts to Israel’s Rafael Technologies to protect the almost 12,714km of oil and gas pipelines in the Niger Delta. “I know Rafael Technologies, which has interacted with past NSAs has this surveillance technology that can see all the pipes, even at night, and know where is ruptured. Approving the deal will therefore, expose some other things. If the Israeli firm starts surveillance, it will uncover a lot of things. That is why the firm is not going to be given the approval. There is serious collusion,” he alleged.
On his part, Mr. Anyakwee Nsirimovu, who was a member of the default Technical Committee on Niger Delta, regretted that government failure to implement their recommendations was partly responsible for the oil theft.He added that the Department of State Services (DSS) had presented a list of persons involved in oil theft to the committee, but the government failed to act on it.
Shell alone with a network of approximately 4,000 kilometres of oil and gas pipelines and flow lines said crude oil theft it experienced on its pipeline network resulted in a loss of around 11,000 barrels of oil a day in 2018, which was more than the approximate 9,000 barrels a day in 2017.
A report of the Nigeria Natural Resource Charter (NNRC) stated that in 2016, about ₦3.8t was recorded as losses from crude oil theft, sabotage and pipeline vandalism.
The report also noted that oil companies are partly to blame for these losses as they sometimes under-declare production to avoid paying petroleum profit tax. It would be recalled that in 2016, the Federal Government sued Shell for $407m for under-declaring between 2013-2014. There were also 15 separate suits against 15 other oil companies for $12.7b.
The NNRC findings revealed that between 2003 and 2013, there was a total of 15, 685 pipeline breaks caused by vandalism. Usually, small ships anchor near pipelines, drill and siphon crude, which is then taken to larger oil tankers on the high sea. The stolen oil is normally sold in the international market.
With no solution to pipeline vandalism and stolen crude in sight, the implementation of the country’s annual budget, improving the nation’s revenue base, as well as executing other developmental plans may still remain elusive.Some stakeholders insist that the lack of synergy between oil host and impacted communities and the NNPC, as well as the lack of local ownership and buy-in by the communities may continue to frustrate any attempt to address the situation.
The NNPC’s Monthly Financial and Operations Report (MFOR) disclosed that oil and gas pipeline vandalism rose by 77 per cent in June this year with as much as 106 pipeline points breached as against the 60 points vandalised the preceding month. Apart from loses by International Oil Companies (IOCs) and indigenous firms, the development in 2017 led the NNPC to deduct N25b and another N130.4b from the nation’s oil revenue for crude and product losses, pipeline repairs and maintenance before crediting into the federation.
Managing Director of Aiteo Group, a firm, which operates one of Nigeria’s strategic pipeline; Nembe Creek Trunkline (NCTL), Victor Okoronkwo, recently told journalists that vandalism has cost the company losses of about $2b in the last four years. While the nation’s economy is just healing from recession, these sort of leakages, according to the Director, Centre for Petroleum, Energy Economics and Law (CPEEL), University of Ibadan, Prof. Adeola Adenikinju if not urgently addressed may create significant headwinds for the weakened economy.
“This is occurring at several levels. First, it impacts negatively on federally collected revenue. Our budget is based on projected oil price and oil production. Theft reduces the volume of oil exports and government revenues. This impacts the ability of government at all levels to perform their fiscal responsibilities, including the level of public investments,” Adenikinju, who is an energy economist, said.
While NNPC had planned to increase crude oil reserves by one billion barrels yearly, and bringing the reserves to 40 billion barrels by 2020, it earlier this year changed the projection to 2025. But with the rate of attacks, Adenikinju insisted that the projection could remain unrealistic.
The Chairman of Petroleum Technology Association of Nigeria (PETAN), Bank-Anthony Okoroafor, said there was need for an integrated approach involving the host communities and all the people that have direct impact on oil pipelines. “People around the area are the first and primary line of defence for the pipeline. Somebody will know that something will happen. We can put them on monthly rentals to protect the pipelines; a rent aligned with success-based incentives and transparent and accountable needs-based community development.
To sustainably address the menace, Okoroafor called for a change in the relationship between government, oil companies, and communities.Dr. Ndubuisi N. Nwokolo, Team Lead (Research and Policy), Nextier SPD said oil pipeline securitisation has not been fully embedded into the country’s security architecture.
While the constitution empowers the Nigeria Security and Civil Defence Corps (NSCDC) to protect critical infrastructure, which includes the pipelines, Nwokolo doubted their knowledge or understanding of pipelines issues. Speaking on efforts to curb pipeline vandalism, the Group General Manager, Group Public Affairs Division, Ndu Ughamadu, said the contractors hired to monitor the pipelines were functional, but admitted that addressing the situation requires collaboration from oil host communities.
“Some of these communities are collaborating with the alleged vandals in scooping oil,” he said, while calling for collaborative measures to stem the tide.The spokesperson added that should the contractors fail to perform optimally, a clause in the contract signed with them requires them to pay for loses incurred.