A Review of the Nigerian Energy Industry

Reviving structured crude oil bunkering

27 October 2015, Abuja – ChinemeOkafor writes that the submission of technical and commercial bids by 91 firms seeking to provide coastal and bunkering vessel services for the Pipelines and Products Marketing Company, a subsidiary of the NNPC, is a welcome development,
Illegal-Oil-Bunkering-or-theftThe federal government last week moved a step further in its avowed commitment to revive legitimate crude oil bunkering trade in Nigeria’s territorial waters with the disclosure by the Nigerian National Petroleum Corporation (NNPC) that it had received 91 bids from firms seeking to provide coastal and bunkering vessel services to support the operations of its subsidiary, the Pipelines and Products Marketing Company (PPMC).

The government had in 2014 announced that it would lift its ban on bunkering, apparently not only to check large scale theft of the country’s crude and petroleum products but also to shore up its revenue from oil.

After legitimising bunkering in Nigeria with the reported issuance of licences to operators in 1979 by the Department of Petroleum Resources (DPR), the government later banned the trade due to concern that it encouraged crude oil theft.
Widespread theft of crude oil off the coast of West Africa was once described by the International Maritime Bureau (IMB) as totally a ‘Nigerian problem,’ in which about 400,000 barrels per day (bpd) of crude oil were reportedly stolen.

But the ban on bunkering ensured that the country lost out in the economic benefits that are attached to legal bunkering as sea-going vessels over the years relied on Nigeria’s neighbours such as Senegal, Cape Verde and Cote D’Ivoire to refuel whenever they have to berth in Nigeria.

Crude oil was reportedly stolen on large scale while the ban lasted, an indication that the policy was largely uneconomic.
Decision to lift ban

Announcing the approval of former President Goodluck Jonathan to lift the ban on bunkering last year, the immediate past Director of DPR, Mr. George Osahon had described bunkering as one of the many aspects of downstream petroleum businesses that entails fueling of ships on seas, inland waterways as well as within the ports.

Osahon explained that bunkering was a legitimate trade that should not be confused with illegal trade on stolen crude oil, adding then that fuels supplied in bunkering activities include Automotive Gas Oil (AGO) or diesel, Low Pour Fuel Oil (LPFO) and lately, Liquefied Natural Gas (LNG).

To underpin the economic potentials in the trade, Osahon also noted that the DPR could generate as much as N250 million annually from structured bunkering through licencing, renewal of same and registration of vessels.

“Bunkering as a legitimate business line should not be confused with illegal trade in stolen crude for which the same term has been freely used in the Nigerian lexicon.

“From structured supply of bunker fuels to various vessel types operating in the country; licensing of bunkers including licence renewals, registration of vessels for bunkering business annually by the DPR will generate about N250 million.
“The economic benefit is huge because this will be a stimulus for growth in other sectors of the economy, including inland ports and waterways,” he had said then in Lagos.

According to him, the country could increase its marine operations through such structured bunkering, to perhaps become a hub for bunkering operations in the sub-region.

Potential beneficiaries from this, he added would include fishing trawlers; LNG tankers, Very Large Crude Carriers (VLCC), Ultra Large Crude Carriers (ULCC), coastal tankers, bulk cement cargo carriers and bulk wheat cargo carriers.
General Cargo Carriers (GCC), container carriers, Floating Production Storage Offloading vessels (FPSO), rigs supply vessels, tug boats and marine support vessels, as well as other offshore oil facilities could also benefit from the country’s resumption of bunkering, according to the former DPR boss.
NNPC’s new initiative

With the government’s renewed commitment to structured bunkering, the NNPC on Thursday said that 91 companies had applied to it for engagement in coastal and bunkering vessel services to PPMC.

NNPC’s Group General Manager in charge of Public Affairs, OhiAlegbe who announced this, explained that out of this number which were identified at a public opening of the technical bids, majority were indigenous bunkering operators.

Indicating that the bid opening exercise was transparently conducted with representatives of the bidding companies in attendance, as well as officials of the Bureau of Public Procurement (BPP) and the Nigeria Extractive Industry Transparency Initiative (NEITI) as independent assessors, Ohi said the exerciser was an indication that Nigeria was now ready to legalise supply of oil products to vessels anchored offshore and within her waters.

The corporation’s Group Managing Director, Dr. IbeKachikwu had expressed his pleasure with the large turnout of Nigerian operators and vessel owners in the bid process.

“I am happy that there is much show of interest in this process. The process is going to be transparent from the beginning to the end and we want the best yield in terms of value addition and best services and obviously we are going to grow the Nigerian Content in this regard.
“I am hoping that you are going to be part of the journey that we are taking NNPC through,” Kachikwu had said while declaring open the exercise.

He also pledged to sustain the ongoing reform process in the NNPC, which according to him has seen the corporation commence the monthly publication of its financial and operational transactions for public scrutiny, as well as the recent public harvesting of bids tendered for the new Offshore Processing Agreements (OPA).
Priority requirements

With the earlier ban, illegal bunkering has since festered in the country with oil thieves tapping into pipelines to steal crude and refined products which was once said to have cost the country about $6 billion in potential oil revenue.

The country’s special military unit in the Niger Delta, the Joint Task Force (JTF) had at various times disclosed its clampdown on illegal operators. It once said in 2013 that a total of 46 vessels of various sizes; 81 barges; 1,117 cotonou boats, 82 tanker trucks and 1,873 surface tanks involved in illegal oil bunkering were seized and destroyed.
But having lifted the ban on bunkering, the government has also followed up with stringent measures to check large-scale abuse of operational permits.

By NNPC’s guidelines, the government seems to have placed some measures to cut illegal operators from the trade.
For instance, access to operation permits requires that operators meet up with certain requirements.

These requirements according to the NNPC include; evidence that operators are registered with the DPR; evidence of registration with Nigerian Maritime Administration and Safety Agency (NIMASA), and evidence of registration with the Nigerian Port Authority (NPA).
Also requested from operators are evidence of their compliance with the Industrial Training Fund (ITF) Amendment Act 2011, which they are expected to show through a compliance certificate from the ITF.

Compliance with the Nigerian Content law, with convincing demonstration of operators’ full utilisation of Nigerian labour and services with detailed description of role, work scope and man-hours in order to achieve minimum target as set out in the requirement of the NOGICD Act 2010, is also part of the requirement by the NNPC.

These conditions are also required to be verified by such agency like the Directorate of Marine Services to ascertain their validity, after which recommendations are made to the Naval Headquarters for approval of bunkering operations.

Additionally, NNPC also seeks to engage the services of reputable bunkering operators with essentially three ranges of Deadweight Tonnage (DWT): 5,000 to 8,000DWT; 10,000-20,000DWT and 25,000-50,000DWT; all of which refers to the carrying capacity of a vessel.
Explaining the scope of work for which operators will be engaged, the NNPC said that for the coastal vessels, preferred bids will have to provide specified services.

These services include: evacuation of petroleum products from NNPC coastal refineries to various discharge ports in Nigeria or outside Nigeria as may be designated by PPMC; delivery of petroleum products to water-fed depots with restricted draft jetties of 6.0 to 11metres as well as conduct ship-to-ship transfer of cargo from import tankers and discharge same at water depots among other functions
For bunkering, NNPC noted that the desired bunkering vessel services will entail: loading of Automative Gas Oil (AGO) and Low Pour Fuel Oil (LPFO) from water-fed refineries for bunkering purposes; and supply bunkers to NNPC -owned and chartered vessels as required on a monthly basis.
Other services include; keeping accurate accounts for AGO and LPFO loaded and supplied to NNPC vessels and forwarding records of the bunkering activities to the marine transport department of the PPMC on a monthly basis amongst other activities.

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