The Nigeria Natural Resource Charter (NNRC) commissioned a report on Crude Oil Theft in Nigeria that provides an updated assessment of oil theft in Nigeria and the consequential revenue losses over the last few years. It reviews previous discussions on oil theft and some of the key recommendations that have been made to address the issue. The decision to delve deeper into crude oil theft; its causes and effects; was borne from the consistently poor findings of low returns from extractive activities reportedly enjoyed by host communities over 5 years of assessments conducted by the NNRC.
Recently, the NNRC engaged reporters from different beats to explore the effects of crude oil theft from a policy, business and financial perspective. The workshop which held in August, 2018 sought to improve reportage of crude oil theft in Nigeria sampled some of the key findings from the report to emphasize the benefits to the society for increased understanding of the phenomenon. Reports on crude oil theft following the engagement have been on the rise as a result. Subsequently, a validation session was held on the 27th of 2018 aimed at critically assessing the findings of the contained in Crude Oil Theft Report. The engagement which had in attendance relevant MDA’s and members of the NNRC Expert Advisory Panel interrogated the findings of the report to enable the NNRC and its researchers assess recommendations and make the adjustments where necessary. The NNRC highlighted in the Report the need for government and its relevant agencies to address the issue of crude oil theft in Nigeria which is sabotaging the economy of the country. The Report showed the country lost about N3.8 trillion within the last two years – 2016 and 2017 to the phenomenon.
Painting a graphic image of the quantum of loss through crude oil theft, the Report points out that the estimated financial value of what Nigeria lost through crude oil theft in the Niger Delta was higher than the current combined allocations of the country to health and education in the 2018 federal budget. Breaking it down, it stressed that the combined allocations for health and education amount to N189.4 billion, which translates to a mere 8.4 per cent of the estimated value of losses from oil theft two years ago.
The ‘NNRC’s Oil Theft in Nigeria’ report identified poverty, unemployment, poor governance, pervasive corruption and the neglect of the Niger Delta region as major reasons for the emergence and sustenance of oil theft over time. According to it, in 2016, both government and oil companies indicated that a combined total of up to N3.8 trillion was recorded as the amount lost from crude oil theft, sabotage and pipeline vandalism.
It further stated that this was principally as a result of the force majeure declared at the Forcados terminal, combined with wider pipeline infractions and theft. The government’s share of this loss, it explained was approximately 42 per cent or about N1.6 trillion. “The Nigerian government passed a record budget of N9.12 trillion with a revenue target of N7.2 trillion, most of which it aims to achieve from the petroleum sector. Therefore, at a time when the country has just exited recession and the economy remains fragile, with national debt on the rise, reducing oil theft should clearly be an urgent national priority,” said NNRC in its advice to the government.
The NNRC equally observed that although oil theft was as old as the sector in Nigeria, the level of stealing has reason with time. “However, as the stakes got higher over time and with global oil prices rising above $100 a barrel in the early 2000s, oil theft evolved into a cottage industry, creating consequential socio-economic problems. “Over the last decade, oil theft has risen to unprecedented levels, peaking between 2011 and 2014. The inability of the government and oil companies to curb this epidemic has made Nigeria the country most plagued by oil theft in the world,” it added.
Reports by Oil Price Reports at the peak of the crude oil theft in 2011 and 2014 suggest that Nigeria lost over $25 billion to crude oil theft. A former NNPC GMD estimated an annual loss of $12b to oil theft, while a report by oilprice.com ranks Nigeria as the leader in oil theft with an estimated amount of 400,000 barrels stolen daily during those peak years. More recent figures showed that Nigeria lost N3.8 trillion in 2016 to oil theft, i.e. over 50% of the country’s annual budget for same year of reference. These losses provide some indication of the cost to Nigeria of not taking more aggressive steps to stem the crude oil theft trend. At a time when the Nigerian government’s revenue profile is severely constrained and its borrowing levels are increasing to fund capital expenditure, these losses are hugely damaging to Nigeria’s public finances, and should be a key focus to reduce leakages and so improve revenue.
The impact of crude oil theft beyond revenues lost to the government is an act of economic threat against the Nigerian state; it undermines development strategies and springs social disorder. While several estimates have been made regarding the cost to the national economy in lost revenues arising from crude oil theft, the cost to the environment of the Niger Delta (in terms of losses arising from damage and the costs of restoration) remain unknown, with estimates where available running into trillions of naira.
Oil theft activities in the Niger Delta compound oil spillages from other sources and exacerbate the problem of environmental degradation and pollution of water-ways. Oil theft, illegal bunkering, and pipeline vandalism have resulted in significant loss of the nation‘s revenue, which could have accrued from the sale of the crude oil on the international market. Due to the loss of revenue to crude oil theft, Nigeria is struggling to sell enough crude oil to meet budgetary provisions and the government is failing to meet some of its obligations as a result, while the debt profile is rising rapidly. In addition, the rate of unemployment and youth restiveness in the region has made the youth see the oil theft business as an alternative and a very lucrative venture because there is no job that can fetch them such a huge sum of money in just one night.
A January 2017 report on oil theft and diversion by the Atlantic Council, a Washington D.C.-based organization titled, Downstream Oil Theft: Global Modalities, Trends, and Remedies, written by Dr. Ian M. Ralby, referenced Nigeria extensively. According to that Report, the case of Nigeria is unique in that “bunkering can be done using “hot” or “pressure” tapping while the pipeline is still in operation, or the thieves can engage in “cold bunkering,” where they blow up a pipeline and install a permanent underground tap leading to a storage facility while the line is out of operation”. The implication of this is that no one knows the difference once the pipeline is back in operation.
Experts suggest that there are effective measures that can be adopted to counter this menace. For example, tankers and inventories can be tracked better. Eliminating fuel price discrepancies between neighboring countries would be helpful, as would blacklist the filling stations that sell illicit fuel and diesel. The most promising means of combating fuel theft and diversion, however, is fuel “marking.” Fuel marking has been around in one form or another for some time, but in recent years, covert molecular fuel markers have been developed that are virtually impossible for thieves to detect. Such markers allow stolen or diverted fuel to be identified and recovered, and perhaps more importantly, used as admissible scientific evidence to prosecute fuel thieves and smugglers in courts of law. One of the most successful programs to date is Ghana’s Petroleum Product Marking Scheme (PPMS), instituted by the country’s National Petroleum Authority in 2013. The program allows inspectors to determine if the gasoline or diesel sold at filling is legal and offenders are subject to being fined or jailed.
The NNRC hopes that this Report would be of immense help to the government in identifying and addressing the issue of crude oil theft in Nigeria. Crude oil theft in Nigeria is systemic but can be alleviated by adopting measures that are deliberate and strategic.