A Review of the Nigerian Energy Industry

Nigeria – Cold facts of crude oil theft

Oil-Theft-Niger-Delta15 October 2013, Lagos – There is a troubling, perceived pertinacious inaction by the government to curb the problem of oil theft that is bedeviling our nation’s economy. According to the London-based research group – Chatham House, “Oil is being stolen on an ‘industrial scale’ in Nigeria, the world’s 13th largest producer, and the country’s politicians and security officials are among those profiting…” The group went further, by stating that an estimated average of 100,000 barrels are stolen daily, and that by a hypothetical per-barrel price of $100 would mean an annual loss of $3.65 billion.

It’s as if very little was learned during those forlorn years of debilitating confines of the oil subsidy scam. It is common knowledge that billions were paid and are being paid for services not rendered, the effect of which is still strangulating the economy. Forget about the Petroleum Industry Bill (PIB) as a panacea to the industry shortcomings and its proposals to shore up the nation’s economy, or protect the environment, or do something real about human rights abuse in the oil producing region. The question is what has been or can be done to curb this crisis now.

Many have attributed the major cause of crude oil theft to pipeline vandalism. As to the root cause of our nation losing $3.65 billion annually to oil theft, this assertion begs the question. The problem of oil theft is more than pipeline vandalism. As reported by Chatham House and the Ribadu committee, the problem transcends pipeline vandalism.

We don’t hear a lot that is serious about the real cause of the problem or what stakeholders in the industry are doing to stem this endemic disease that is ravaging the nation’s economy. Crude oil theft involves a convoluted and complex web of relationships, spanning all levels of the society – involving diverse relationships. These relationships are alleged to include highly connected people in and outside government (members of the executive and legislative arms of government), oil companies including (Nigeria National Petroleum Corporation, NNPC) businessmen, retired and serving military officers, and militants among others.

Also, it has been alleged and corroborated by some that some of the figures out there – oil theft is unrealistic and exaggerated. Take for example Shell Nigeria recent rebuttal of claims that its parent company, Royal Dutch Shell, lost $700 million in second quarter 2013, due to crude theft is incorrect. The statement went on to indicate that the actual amount lost to operational difficulties in Nigeria was $250 million.

The popular narrative of crude oil theft as it affects the country today is not entirely true. Its focus is too narrow when it seeks to hold the Jonathan administration as the sole culprit. Such a narrow focus fails to account for the astonishing impact from previous administrations. Yes, the impact is getting worse because of stakeholders who are not just shortsighted but at times embarrassingly incompetent and corrupt. And, yes, we now have an administration that for the first time is doing something about this problem. Few people say it today, but Goodluck Jonathan is the first Nigerian president to really use the levers of the Presidency to try to correct the problems in the energy sector – from power sector reform, oil subsidy scam prosecution, and a national gas plan to the PIB. However, a lot needs to be done when it comes to fighting the problem of crude oil theft.

Suffice to state the solution to this problem requires both national and international efforts. It is noteworthy that the European Union, in this regard, is putting in motion a procedure that will require sellers of stolen crude to produce the certificate of the origin for their products.

I will urge the US and other countries to follow suit as was done during the diamond crisis in the Congo and Liberia, for example.

This president has led when it matters most – take for example, the oil subsidy scam prosecution. He should once again lead in this crisis by first releasing and implementing the Ribadu Committee’s report. Also, the National Assembly should use the current debate on the PIB to move forward with its proposal for a stiffer penalty for crude oil theft and pipeline vandalism.

Additionally, the PIB should establish a standard pursuant to the American Petroleum Institute (API) standards of relevance to pipeline integrity and management. This involves operator’s regular conduct and disclosure of Asset Integrity Reviews, and to have in place standards that require operators act to prevent sabotage and illegal activities. All operators should be required to take specific steps, in line with international best practices, to make their infrastructure and operations as safe as practicable from sabotage. Upstream operators should be mandated to install surveillance systems to prevent sabotage and illegal activity. Such systems should be in compliance with the rights of individuals and communities, including their right to privacy.

It’s time for serious people to step forward and help lead on this critically important issue. Time is short.
fayanruoh@ayanruohlaw.com, Vanguard

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