THE INSIDER: How bandits steal Nigeria’s oil despite billion-dollar ‘protection’ contracts

Measures adopted by the administration of former President Goodluck Jonathan to combat large-scale theft of Nigeria’s crude oil failed mainly because of a wide range of sabotage within his government, industry insiders have told TheCable.

Various estimates, including those by government officials, suggest that Nigeria loses over $1 billion monthly to the elements involved in the theft of crude oil at different points in the production and transportation network.

But despite widely publicised official measures to curb the menace in the last five years, things only appeared to get worse.

In the Niger Delta, as many as 5,280 oil wells are linked by 7,000 kilometres of pipelines and are vulnerable to attacks by the organised gangs.

Some of the measures adopted by Jonathan were marine transportation — to move the crude oil directly from terminals to local refinery by water — and pipeline protection contracts.

However, industry insiders told TheCable that the closest measure to a solution to the inland theft was the bypass of pipelines and movement of oil through the use of marine vessels.

But government also awarded contracts for pipeline protection to private companies, in addition to billions of dollars being regularly spent to repair vandalised pipelines.

Marine transportation

In 2010, the Nigerian National Petroleum Corporation (NNPC) engaged the services of PPP Fluid Mechanics (PPPFM) and its sister company, Ocean Marine Solutions Ltd (OMS), to move crude oil from production terminals to local refineries by means of marine transportation.

The strategy was to bypass the pipelines, which had become very vulnerable to attacks by militants since 2006 when they started an armed campaign for “resource control” — to have a greater say in the management of hydrocarbon resources in the Niger Delta.

Organised groups — including the militants — had perfected the skill of drilling into the pipelines used to transport crude, gas and condensate, tapping into barges for local refining and stealing the oil to sell to waiting vessels in the international waters.

At the time the marine transportation contracts were awarded in 2010, the government weighed the costs — but monetary and environmental — and concluded that it was the best option available.

The attacks on pipelines not only led to theft of crude, the damaged facility also leads to oil spills, inflicting damage on the environment and destroying the livelihoods of farmers and fishers.

In December 2010, Jonathan’s administration engaged PPPFM and OMS for the transportation of oil by marine vessels from the Escravos terminal to Warri refinery after a bidding exercise that included 13 other companies.

PPPFM was engaged for transportation while OMS provided the boats manned by the navy to provide security for the vessels.

Before then, the refineries at Warri and Kaduna had been shut for two years owing to a lack of supply of crude oil feed stock because of pipeline vandalism.

As at then, the NNPC said it was spending an average of $121 million yearly to maintain and repair the Escravos to Warri pipeline, which was losing 40 percent loss of oil pumped through it.

International oil companies (IOCs) were initially thought to be the only victims, but it soon turned out that Nigeria was losing billions of naira in revenue as a result of the leaks and theft.

Financial terms

Although Jonathan was said to have been persuaded about the environmental and financial benefits of the marine transportation option, the NNPC reportedly further provided a comparative analysis on the award of similar transportation contracts in other countries and concluded that Nigeria was getting a fair deal.

PPPFM was being paid $3.87 per barrel to transport the crude, while OMS was also paid $1.5 per barrel for a separate dedicated surveillance contract for the provision of six security boats.

The NNPC later asked PPPFM and OMS to expand its operations to cover the Port Harcourt refinery, which has a capacity for 210,000 barrels per day and was losing an estimated 70 percent of crude supply to vandalism.

The expanded agreement, at $5.68 per barrel, included offshore sea protection, offshore compulsory terminal pilotage, and dedicated security surveillance, according to a official figures.

In the US and Canada, where crude oil is moved by rail and pipelines, it costs an average of $7 per barrel by pipeline and $21 by rail, according to data by US-based market information firm, Platts.

The agreement with PPPFM and OMS, NNPC said, saved Nigeria about $3.2 billion between 2011 and 2015 when a total of 65 million barrels of crude oil were delivered to the refineries.

The estimate of savings was based on the assumption of possible losses of 40-80 percent of crude pumped through the pipelines.

There is yet no independent confirmation of the actual savings or if indeed all the 65 million were delivered to the refineries during the period as claimed by the NNPC.

But industry sources told TheCable that government officials were more interested in the crude swap arrangement with foreign refineries rather than refining locally.

“At the end of the day, the crude transported by PPPFM was below what was agreed upon because the officials would rather send the crude abroad for refining because of personal gains. It was not in their interest for the local refineries to work,” he said.

Twist in the Tale

However, what has continued to confound industry experts is the fact that despite awarding “pipeline protection” contracts to ex-militants, the pipelines were still being vandalised.

The deals became all the more controversial because Nigerian security agencies are, by law, the ones empowered to protect national assets.

The beneficiaries of the contracts included  Government “Tompolo” Ekpumopolo, whose contract was reportedly worth N3.6 billion yearly; Asari Dokubo, N1.44 billion; Ateke Toms, N560 million and Ebikabowei “Boyloaf” Victor Ben, N560 million.

These ex-militants benefited from the contracts worth in excess of N5 billion annually, yet oil theft went unhindered in what may now be a case of double reward at the expense of national treasury.

The cost of the significantly contracts went up when the two factions of Oodua Peoples Congress (OPC) in the south-west also got deals to protect the pipelines in their geo-political zone, despite the presence of police and civil defence corps.

This is also in addition to claims by the NNPC that it spent over $1 billion from the “missing” $20 billion to repair pipelines damaged by oil thieves — in spite of an ongoing agreement with ex-militants.

In trying to justify the contracts to militants, Jonathan’s special assistant on public affairs, Doyin Okupe, said Nigeria had benefited “immensely” from the exercise.

“Since this exercise began, the crude oil production has jumped from 1.8mbpd to 2.6mbpd. That is an increment of over $700m income per day to the government. So, when you compare what was paid to get this benefit, it pales into insignificance,” he said.

However, he seemed to have confused attacks on oil wells — which affected Nigeria’s production — with the protection of pipelines, which only transport what was already produced.

Production could jump to 2.6mbpd but could still end up stolen when being transported via pipelines to the export terminals and local refineries.

Effectively, the NNPC was spending billions on bypassing pipelines to get crude to the refineries by marine vessels; billions on protection of the same pipelines by engaging ex-militants; and billions on repairing the vandalised pipelines despite ex-militants being heavily paid to protect them.

President Muhammadu Buhari has since cancelled the pipeline protection contracts, while the marine transportation contract also fell victim as the NNPC said the financial terms were not “favourable”.

Rogue state?

Industry watchers may be worried about the unhindered oil theft in Nigeria, but the consensus is that it would not be possible without official connivance.

In a 2013 Chatham House paper titled “Nigeria’s Criminal Crude: International Options to Combat the Export of Stolen Oil”, Christina Katsouris and Aaron Sayne suggested that there was a network of official conspiracy in the theft of the country’s oil, which should explain why it has been unstoppable.

They wrote: “Nigerian crude oil is being stolen on an industrial scale. Some of what is stolen is exported. Proceeds are laundered through world financial centres and used to buy assets in and outside Nigeria.

“In Nigeria, politicians, military officers, militants, oil industry personnel, oil traders and communities profit, as do organized criminal groups. The trade also supports other transnational organized crime in the Gulf of Guinea.

“Lines between legal and illegal supplies of Nigerian oil can be blurry. The government’s system for selling its own oil attracts many shadowy middlemen, creating a confusing, high-risk marketplace. Nigeria’s oil industry is also one of the world’s least transparent in terms of hydrocarbon flows, sales and associated revenues. Industry watchers and policy-makers often think they know more about oil theft than they actually do.

“The specifics of who steals oil are elusive, even in Nigeria. A typical large-scale theft network has facilitators, operations and security people, local and foreign transport, buyers and sellers, and a range of opportunists. Top Nigerian officials cut their teeth in the oil theft business during military rule.”