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NIGERIAN CRUDE OIL AND GAS.
Illegal Oil Bunkering in Nigeria: The Full Story
Under the Nigerian constitution, all minerals, oil and gas in Nigeria belong
to the federal government. Oil extraction outside the framework of an
agreement with the federal government is illegal, as is the possession of
crude oil by anyone not licensed to do so; specific crimes have also been
created relating to damage to oil installations (including for the purpose
of siphoning off crude oil or petroleum products). Yet theft of crude oil,
known as illegal oil bunkering, accounts for perhaps 10 percent of Nigeria’s
daily production and is a highly organized operation. Governor Ibori has
stated that as much as 300,000 bpd (or 15 percent of production) are lost
because of bunkering activities. The major oil companies operating in
Nigeria have stated that this is likely an overestimate; for the whole Niger
Delta, illegal oil bunkering probably reaches a maximum 150,000 or 200,000
bpd. But these figures also fluctuate significantly, responding to periodic
efforts to police the riverside areas more effectively. There are other
claims that the theft of oil is greatly underreported, reaching more than
250 million barrels for the year 2002 (that is, more than 650,000 bpd). The
illegally bunkered oil is sold to refineries in Nigeria, in nearby West
African states (including Côte d’Ivoire and Cameroon), or further afield.
Illegal bunkering leads to the loss of billions of dollars in public funds.
Those funds could be used to fund initiatives to reduce violence or to
protect and fulfill human rights; including ensuring proper training for the
security forces, not to mention the establishment of schools, hospitals and
other essential services in the neglected riverside areas. There is also an
urgent need to improve the transparency and effectiveness of government
budget management spending, in order to reduce the diversion of funds into
private hands. Reducing illegal bunkering will not in itself necessarily
improve government spending practices, but the diversion of revenues before
they reach government coffers means that there is not even the possibility
that these resources will be used for the public benefit.
The fight for control of illegal bunkering opportunities has also
significantly escalated the violence in Delta State and worsened the human
rights abuses suffered by its people. Oil has become literally the fuel for
the violence—despite the fact that in theory it should be easy to stop its
theft (it is hard to hide a tanker and easy to trace its owner). Some
clashes in the creeks appear to have no political component whatsoever, but
are simply a straight fight for opportunities to steal oil; in other cases,
motives are mixed.
Illegal oil bunkering is effectively Nigeria’s most profitable private
business. The stolen crude can currently be sold at around U.S.$15 to $20
per barrel on the spot market, assuming some level of discount for its
illegitimate origin. Since there are virtually no capital costs—the
infrastructure belongs to the Nigerian government and the oil companies—the
cleared profit is therefore around U.S.$2-3 million daily (750 million to a
billion dollars annually), assuming a figure of 150,000 bpd stolen oil. The
Nigerian government is far more severely affected by this theft than the oil
companies, since the government share of revenue from each barrel of oil is
much higher than that of the private shareholders in the joint ventures that
produce most of Nigeria’s oil. The loss to the Nigerian government from
illegal oil bunkering amounts to figures in the order of U.S.$750 million to
$1.5 billion annually at oil prices between nineteen to thirty dollars a
barrel, assuming bunkering at around 150,000 bpd (close to 55 million
barrels a year); or $3.5 to $6.2 billion annually, if the figures are as
high as 250 million barrels stolen each year. Governor Ibori has stated the
amount lost is around $3.5 billion a year.
Illegal oil bunkering—long prevalent in the delta—has become a sophisticated
operation that no longer requires the cooperation of oil company staff to
operate equipment at wellheads or allow access—though there are still
reports that they are involved. The bunkerer taps directly into pipelines
away from oil company facilities, and connect from the pipes to barges that
are hidden in small creeks with mangrove forest cover. Frequently, both in
the riverside areas and on dry land, the police and military are involved in
the process or are paid off to take no action against those tapping into
pipelines. Violent conflict that clears the creeks of other traffic makes
bunkering easier to carry out; though violence that significantly closes
down production also reduces bunkering, since it is much easier to steal oil
from the larger pipelines after the gas has been separated from it, for
which the oil company facilities must be operational.
In November 2001, the Nigerian federal government set up a Special Security
Committee on Oil Producing Areas, “to address the prevailing situation in
the oil producing areas which have, in recent past, witnessed unprecedented
vandalization of oil pipelines, disruptions, kidnappings, extortion and a
general state of insecurity.” Reporting to President Obasanjo in February
2002 (in a report that has not been published), the committee noted that a
“major threat to the oil industry … arises from the activities of a ‘cartel
or mafia’, composed of highly placed and powerful individuals within the
society, who run a network of agents to steal crude oil and finished
produced from pipelines in the Niger Delta region.” The committee indicated
that many of the militant youth groups responsible for halting or diverting
oil production and preventing free traffic on the waterways “could be
enjoying the patronage of some retired or serving military and security
personnel.”
Despite this high-level recognition of the seriousness of the problem, there
appears to be no proactive government strategy for investigating the
organized illegal oil bunkering rackets. There have been some seizures of
the vessels involved. More than nineteen vessels used in the illegal
bunkering business are reported to have been seized by the army and navy in
the year to July—though it is often not clear what happens to their cargoes
thereafter. Speaking to Human Rights Watch, Capt. Ogunjinmi said that the
navy had captured six boats since he had taken command of the Warri naval
base in April (excluding small barges), and handed over several dozen people
to the police for prosecution.68 In August, the navy announced that it had
arrested ten foreigners (among them Senegalese, Burkinabe, Togolese,
Ivorians and Beninois) and a number of Nigerians for involvement in oil
smuggling, and seized four ships; in late October, several more ships were
arrested, with a reported combined cargo of oil worth several hundred
million dollars. But there are few if any successful prosecutions for
involvement in the theft of oil, and it is not always clear what happens to
the cargoes of oil that are seized. Moreover, the oil companies say that
they frequently report suspicious ship movements to the authorities—with the
waterways all but closed to normal boat traffic, any vessel that does not
belong to an oil company is probably involved in bunkering—but no action is
taken.
Those running the rackets at the top are apparently untouchable. In May
2003, a new Economic and Financial Crimes Commission began work at federal
level to investigate various forms of fraud. Its head has freely admitted
that “you have government institutions responsible for taking charge of the
whole thing [crude oil theft]: the sale of the product, the security of the
area.” The commission has reportedly arrested two executives from small
Nigerian-owned oil companies for stealing oil; but has as yet laid no
charges. Its work is also apparently not linked to any parallel efforts by
the police. The Nigerian Police Force Commissioner responsible for federal
operations stated to Human Rights Watch only that any crime reported to the
police would be “thoroughly investigated,” but could not identify any
proactive measures being taken to tackle illegal oil bunkering. Police
Affairs Minister Broderick Bozimo, interviewed in the media, has also not
put forward any serious strategy for investigation and bringing to court
those responsible for bunkering at the highest levels, though he has
promised additional policing in the riverside areas. Delta State Deputy
Governor Elue stated to Human Rights Watch that the Nigerian government “is
beginning to identify the bunkerers among the people high up; intelligence
will fish them out.” Governor Ibori has blamed criminals with their own
armies, dealing with non-Nigerians. According to many statements to Human
Rights Watch, however, individuals very close to Governor Ibori are
themselves involved. Others mentioned are senior figures in the current and
former governments in Delta and other Niger Delta States, and in the federal
government in Abuja. Protestations by those same people that they are acting
against the culprits are met with skepticism by those who bear the brunt of
the violence the business generates.
In a measure apparently designed to address the demand side of the illegal
oil bunkering equation, the federal government has begun to take some action
to reduce the sale of oil to neighboring states. On August 10, Nigeria
closed its border with Benin, accusing the Benin authorities of turning a
blind eye to oil smuggling. The Nigerian federal government has also
embarked on a strategy of signing contracts with neighboring countries for
supply of petroleum products to ensure they source oil from lawful
suppliers. On August 19, Nigeria signed an agreement with the government of
Côte d’Ivoire for the supply of 30,000 bpd of crude oil; Ivorian Minister
for Mines and Energy Monnet Leon Emmanuel admitted that much of the crude
oil delivered to his country was stolen from Nigeria. In November 2003,
President Obasanjo announced that the Nigerian government would publish
budgets, records of revenue collection and other statistics in line with the
international “Publish What You Pay” campaign and the British government’s
Extractive Industries Transparency Initiative. Increased transparency should
make a contribution both to the proper management of official government
revenues and to the measurement of the extent of theft of crude oil.
In June 2003, Shell proposed the certification of oil exports based on the
chemical fingerprinting of crude oil to prevent stolen oil from being sold
on the open market. The oil companies operating in Nigeria have developed
the technology to trace oil to individual flow stations and even individual
wells, meaning that if a ship is stopped and it contains oil that does not
appear to have a legitimate source, a sample can be taken and the place it
was taken from identified. In theory, if there is no record of a sale from
that source to the owner or operator of the vessel concerned, then the
Nigerian government should be able to confiscate the oil if it intercepts a
vessel in Nigerian territorial waters; or it should be possible to require
those purchasing oil, such as refineries, to verify the provenance of the
crude they are buying. In principle, it should be possible in this way to
create a paper trail for crude oil similar to or better than that
established for rough diamonds by the Kimberley Process, which aims to halt
the trade in “conflict diamonds” from Africa’s war zones. Even if such a
system cannot halt the sale of stolen oil completely, it should at minimum
mean that stolen oil will have to be sold at a greater discount on the
international spot market, thus undercutting the profits of the illegal
bunkerers and the incentives to fight for control of supply.
