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How profiteering by NNPC’s DSDP contractors landed Nigeria in dirty fuel saga

By Kingsley Jeremiah (Abuja) and Chijioke Iremeka (Lagos)
12 February 2022   |   4:17 am
There are strong indications that excessive and unfair profit seeking practice by some contractors handling Nigeria National Petroleum Corporation (NNPC) Limited crude-for-fuel swap contracts may be the reason off-spec petroleum...

• Backlisting, Sacking Imminent As Saga Exposes Nigeria’s Regulatory Failures
• NMDRA Mum As NNPC Insists MRS, Others Imported Off-Spec Product

There are strong indications that excessive and unfair profit seeking practice by some contractors handling Nigeria National Petroleum Corporation (NNPC) Limited crude-for-fuel swap contracts may be the reason off-spec petroleum product made its way into Nigeria.

In May last year, NNPC had picked 16 consortia under a Direct Sale, Direct Purchase (DSDP) contract to receive crude, refine it and in turn import petroleum products into Nigeria to meet the demand for Premium Motor Spirit (PMS), jet fuel and diesel. To comply with local content standards, international partners were merged with Nigeria companies under the DSDP arrangement.

But last week, the deal backfired with the importation of methanol blended PMS by about five different consortia under the deal. Methanol (alcohol) although used by some countries in blending low-level fuel, was never part of the approved PMS specification for Nigeria.

PMS imported into the country is expected to be unleaded with specific gravity 60°/60F standing a limit of 0.757-0,77 max; distillation range (oC) was expected at a limit of 35-205; 10 per cent evaporated (OC) is capped at 70 max; 50 per cent evaporated was 125 max; 100 per cent evaporated (OC) was expected at 180 max; FBP evaporated (OC) was limited to 205 max while residue per cent volume was capped at two max.

Additionally, the odour was put at merchantable, colour put as orange like and total Sulphur was capped by the Standards Organisation of Nigeria in 2017 at 150PPM. Other properties included copper corrosion, ratio: T36°C of 68 max; existent gum (mg/100ml) of four max; oxidation stability (min.) was put at 360 minutes; knock rating (RON) at 90 minutes and RVP (Vapour pressure) (psi) at 90 max.

NNPC Limited had last Monday admitted that four PMS cargoes imported by four consortia of the DSDP were adulterated. The importers are MRS, who imported through vessel MT Bow Pioneer and loaded at Litasco Terminal; Antwerp-Belgium, Emadeb/Hyde/AY Maikifi/Brittania-U Consortium, which used vessel MT Tom Hilde and loaded from the same terminal; Oando loaded through MT Elka Apollon from the same terminal as well as NNPC’s subsidiary, Duke Oil, which used MT Nord Gainer and also loaded the vessel from the same terminal.

A loophole in the system was exploited to get these cargoes into the country. While most nations’ pre-shipment/pre-discharge standard test parametres include the oxygenate, methanol, the Nigerian regulatory authority has not adopted this standard. This was the loophole that was knowingly or unknowingly exploited and high level of the chemical was revealed in tanks at terminals and vehicles.

While stakeholders are calling for the backlisting of the companies, as well as sacking of government officials, who are alleged collaborators in the saga, a close source familiar with the development told The Guardian that most of the contractors sell the sweet crude they get from Nigeria and in turn source properly blended methanol product, which is of less quality and cheaper, and then make their ways in through weak regulatory authorities.

According sources, there were strong indications that the PMS came from a blending facility and not a refinery, as the trader mixed the PMS with alcohol to profiteer.

Reportedly, the chemical composition of PMS is similar to methanol. Mixing alcohol with hydrocarbon usually goes well, but high on octane level. In countries where allowed, the products are delivered completely blended. While that could be done in advanced countries, the technologies are not available in Nigeria.

“The product is 50 per cent cheaper than the PMS consumed in Nigeria so they blend it and send to Nigeria but this time, it appeared they have over blended it. The amount was too high,” a source told The Guardian.

If the DSDP arrangements were properly followed, crude was expected to be taken to a refinery and refined according to Nigerian specification.

Findings yesterday showed that NNPC was in a fix on the right sanctions and penalties for the importers of the adulterated fuel, as insiders said the corporation would align with decisions taken by the NMDRA.

When The Guardian called the spokesperson of NMDRA, Apollo Kimchi, about 12:24pm yesterday for inquiries, he requested for a written enquiry. The message was delivered to his WhatApp number as requested at 12:56pm. But he told The Guardian during a follow up call at 4:35pm that he was off the office and would immediately forward the request to another member of his office for adequate response. No response was received from him at the time of filing this report about 7.30pm yesterday.

As Nigerians continue to suffer the consequence of the regulatory lax, stakeholders have called for transparency and accountability in the DSDP scheme, stressing that backlisting and sacking of government officials who played any role in the development remains a leeway.

Prof. of Energy and Environmental Law and Global Vice Chair, International Law Association, Damilola Olawuyi (SAN), noted that the menace of bringing to poor-quality fuel that cannot be sold in any other country to Nigeria was a social, economic and environmental monstrosity and an international embarrassment for a country of Nigeria’s stature.

Olawuyi insisted that the prevailing development showed the urgent need for more rigorous and stringent environmental provisions in the DSDP Agreements.

“First, the fuel quality specification provisions need to be strictly aligned with international best practices, such as the AFRI Clean Fuel Specifications promoted by the African Union and the United Nations Environment Programme amongst others in order to deter the importation of fuel with high sulphur or methanol content.

“Secondly, there is a need for transparency and consistency in the negotiation, approval and implementation of all DSDP Agreements. A situation whereby some agreements for preferred bidders allegedly allow for higher sulphur content, or where the DSDP agreement stipulates an environmental standards lower than government’s own published guidelines and regulations leaves room for ambiguities and confusion and must be avoided,” he stated.

According to him, NNPC must integrate financial assurance mechanisms, such as provisions of surety, bonds, insurance and environmental performance deposits into the DSDP agreements so as to ensure that in case of poor-quality fuel importation resulting in environmental harm to the public, such deposits could be used for necessary remediation and compensation to affected members of the public.

Olawuyi stated that lax regulation was a key factor in dumping dirty fuel in Nigeria, adding that strict monitoring and enforcement of extant regulation was lacking.

“For example, how many times have fuel imports been rejected by regulators for not meeting specified standards,” he queried. “Do the regulators frequently publish a list of regulatory infractions/non-compliance events and the resulting fines, penalties, including blacklisting of culpable importers, so as to deter other importers? On the part of government, is there adequate capacity and resources, in terms of modern equipment tools, resources and training needed by regulatory institutions to effectively spot and deter illegal imports and return them back to the source?”

Olawuyi insisted that there was an urgent need for the Federal Government to go a step further by establishing an independent, arms-length and expert-led compensation committee or commission that would review the fuel importation record, evaluate claims of members of the public, mandate culpable importers to pay into a compensation fund irrespective of how highly placed they may be, and then distribute such funds to members of the public with cogent and verifiable claims.

Energy Scholar at the University of Ibadan, Prof. Adeola Adenikinju, also noted that there was need to strengthen the surveillance and monitoring structures in place so that Nigeria could easily detect such violations of standards before they enter into the domestic supply chains.

A geologist and publisher of Africa Oil and Gas Report, Mr. Toyin Akinosho, also described the current situation as unfortunate, adding that, “there’s been a gap in regulatory enforcement, which has always been weak in the Nigerian case.”

Akinosho also insisted that the naming of the importers of the off-spec product by the NNPC does not absolve the company of blame.

His words: “NNPC’s blame game is unwarranted. The importers are contractors to NNPC and if I gave you a contract to purchase food for my household, I should have a means of checking it before my family consumes it.

“But it’s not only NNPC that is culpable for absence of quality control in this case. There is the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA), which by law is in charge of Health and Safety regulations on petroleum products. NMDPRA dropped the ball on this one.”

Akinosho said all the companies involved in the saga “should not only be sanctioned,” but “heads should roll,” adding however, that, “regulators should do their work earnestly.”

On his part, an environmentalist and the Director, Health of Mother Earth Foundation (HOMEF), Nnimmo Bassey, said it was very troubling that the regulatory authorities could allow petrol with high quantity of methanol to enter the country for any reason, saying that a 2021 research revealed the shameful fact that petroleum products from artisanal refineries were of higher quality than officially imported products.

He said: “The other concerns include the fact that petrol containing methanol is harmful to most older automobile engines that have plastics, elastomers and composite materials as these will gradually dissolve in the petrol.

“It also accelerates the deterioration of rings, gaskets and older parts of fuel systems that are not equipped for such fuels or were already going bad. Studies have shown release of higher levels of hazardous pollutants from this type of fuel, thus posing risks to motorists and the general public.

“Such risks include respiratory diseases such as asthma, cardiovascular diseases, cancers and premature deaths. Methanol in petrol can actually increase smog and soot compared to normal petrol. Soot is already a major problem in Rivers State and surrounding states.”

Bassey said such fuel could increase the formation of ground level ozone development, saying it leads to acidification of soils and surface waters, which impacts aquatic life forms, crops and other vegetation.

He continued: “Another key worry is that ethanol dissolves in water whereas the usual petrol floats on water. If there is spillage of such petrol, you cannot skim it off the water as it will simply dissolve into the water and threaten subsurface water. Cleaning such spills becomes more complicated.

“The mixing with water will obviously lead to water pollution and directly affect the biodiversity and also readily enter food chain. Countries like Brazil have used petrol with high levels of ethanol obviously with cars fitted for such fuels.

“Bioethanol can be made from cassava, maize, sugarcane and the like. This fuel type thus directly impacts food availability as crops get cultivated for machines rather than for humans. The massive requirement of these crops for methanol production also leads to increased deforestation, displacement of farmers and harm to family farming which is actually what is feeding the world.

“Moreover, most of the foam-based fire extinguishers commonly in use will not effectively fight fires ignited in petrol that has ethanol. Motorists need to buy much more expensive types made for hazards related to ethanol petrol.”

Another environmentalist and Chairman of Lagos State Urban Forest and Animal Shelter Initiative, Desmond Olumuyiwa Majekodunmi, stated that adding extra methanol to the mix has some negative impacts, adding, “the reality is burning petrol or diesel releases deadly poison into the atmosphere.”

“That’s why you can’t stay in an enclosed room with the fumes of a generator pouring into the room. It would kill you. So, it just emphasises the sad reality of the interesting trajectory that we have allowed ourselves to take in the production of energy for different purposes; generating electricity and locomotive energy.

“We are poisoning ourselves. It’s already impacting negatively on our health. This is why there is such a strong push now from sensible people and good leaders, to transit away from burning fossil fuel.

“And of course, what is more alarming is that, not only is it deadly to mammalian health, it is also causing this awful impact to the environment which could have very catastrophic consequences, which is why the Secretary General of the United Nations is preaching against, particularly on the pollution of the atmosphere with greenhouse gases. It is a suicidal activity because nature always fights back. Though the methanol produces less soot, it still has negative impacts.”

A stakeholder in the oil and gas sector, Dauda Garba decried the lax regulation in the sector, adding that those who are meant to conduct the necessary laboratory test(s) to certify imported products safe for use have more questions to answer.

“This is not the first time we are engaging the question of quality of imported products in Nigeria. It’s just that it has received more public attention this time around. Regulations exist on this issue, except that they are operated largely in breach, rather than in compliance,” he said.

Group Chairman/CEO at International Energy Services Limited, Dr. Diran Fawibe, noted that there were gaps in the importation of fuel into the country, knowing that the issue of dirty fuel has been a long issue in the country. He added that although NMDRA has laboratories that test products coming into the country, it remains questionable how the current development was allowed.

Fawibe, a former management staff at NNPC, pointed to the possibility of sharp practices and compromise, stressing that there were usually statistics of quality and sample bounded products that are usually delivered to the inspection officers upon arrival in Nigeria and tests carried out before discharge or rejection of products.

“If this was carried out, the current problem would not be there. May be the regulatory authority now has to do multiple check because if we continue to have problem of toxic fuel, efforts must be made to stop it. No matter how highly placed the importers are, they must be sanctioned. The importers must be blacklisted. More so, we are not safe in the country until we refine locally,” Fawibe said.

Renowned environmentalist, Nnimno Bassey noted that the revelation that the quality checking metrics at importation ports did not include methanol shows a major deficiency in the overall architecture, stressing that there were several issues that had gone wrong with the fuel supply system in Nigeria.

“One of the critical problems is the fact that the largest producer of crude oil in Africa has been shamelessly engaging in importation of the products because we couldn’t put our refineries in working condition. The regulators in the petroleum sector, including those handling the refineries, are all in the same bucket. They all need surgical action to wake them from slumber,” he said.

He called for systemic change, stressing that the entire sector was riddled with poor regulatory oversight. According to him, the ultimate solution with regard to the importation of hazardous petrol would come by stopping the importation of the products, getting the refineries working and thereby halting the highly questionable fuel subsidy.

Executive Director of CISLAC and Transparency International, Auwal Ibrahim Musa, said the failure of government to inaugurate modular refineries, get the existing refineries to be fully functional and effectively discharge their regulatory functions to meet local demands for clean petroleum products would make Nigeria a dump site for dirty fuel.

According to him, there was a need to further establish how responsible institutions across the importation and distribution chain failed to conduct quality sampling, shipped in products without quality auditing, got port validation by Customs, DPR, NMA, SON without audit, stored the products in tank farms without product quality audit and discharged to marketers without providing product quality details.

Musa said the recent statement from the Presidency that suppliers of substandard fuel must be held accountable have become more or less a perfunctory response to all cases of systemic compromise in the country, adding the statement might not be backed by action.

“The NNPC Direct Sale Direct Purchase Agreement in the light of the current development has to be revisited as there is an overall need to fast track the inauguration of the several modular refineries under construction, recommit to the responsibility of effective regulatory processes and issue appropriate sanctions for the regulatory lapses that have exacerbated this and similar issues in the country.” Musa said.

Meanwhile, the Nigeria Union of Journalist (NUJ), yesterday, urged importers of the contaminated fuel to take full responsibility and seek restitution for this national mishap.

In a statement by its National President, Chris Isiguzo, NUJ canvassed the payment of compensation to all those affected by the off-spec product.

The statement read in part: “It is expected that as responsible corporate organisations, the importers of the contaminated fuel will take full responsibility and seek restitution for this national mishap.

“At the same time, the NUJ believes that with measures already undertaken by the management of the NNPC especially with a presidential inquest on the way, there should be limit to politising of such a sensitive economic matter.

“Rather, what ought to obtain now is for a demand that the probe panel as ordered by President Muhammadu Buhari is conclusive, while adequate compensation be paid to all verifiable claims of those whose vehicles may have been affected by the high methanol PMS.

“Also, the NUJ, after having appraised efforts by the Mele Kyari-led NNPC management, notes with satisfaction measures to shore up supply of recalled contaminated fuel to ensure that Nigerians do not suffer needlessly.

“We enjoin the NNPC, through the Midstream and Downstream Regulatory Authority, to monitor filling stations to ensure that those with products dispense them appropriately to curb artificial scarcity and undue pump adjustments.

“At a time such as this national emergency, it is our duty as citizens to support initiatives to stem such ugly situation.”