“How 10 % Of Nigeria’s Daily Crude Oil Production Gets Stolen!”- Ribadu Report

While Nigerians are aware that the country makes the bulk of its revenue from oil, it has been found out that a sizeable percentage of the crude oil being produced in the country on a daily basis eventually ends up being stolen thus making Nigeria lose as much as N 2 Trillion every day. The revelation was contained in the report of the Petroleum Revenue Special Task Force chaired by Malam Nuhu Ribadu. The report which was submitted to the Minister of Petroleum Resources also revealed that some of the legislations concerning the oil industry have become outdated while some of those trading in crude oil are not on the approved list of customers. The Ribadu-led Task Force stated that it received reports suggesting that “volumes stolen have risen dramatically in the past 12-18 months. The Royal Dutch Shell Company, Shell in its presentation to the Task Force stated that an estimated 150,000 barrels of crude oil are stolen per day (about 6% of Nigeria’s total annual production) causing a revenue loss of $13.5 million per day (at $100 per barrel) which amounts to $5billion per year of lost revenue.

On the other hand, high ranking Officials and Executives in the Federal Government tasked with the management of the nation’s strategic Oil and Gas assets have several times stated the existence of large-scale on-going theft of Nigeria’s crude oil. This represents government acknowledgment of the magnitude of the loss. Mr. Leke Oyewole, a Senior Special Adviser to President Goodluck Jonathan on Maritime Affairs, disclosed to the media in March, 2012 that Nigeria loses about 40 million metric tonnes of petroleum products amounting to about $20 billion (N3 trillion) to crude oil theft and illegal bunkering; while NNPC has publicly stated that it spent $1.2billion in the last ten years on pipeline repairs”.

Incidentally, the theft is not limited to crude petroleum alone. Findings of the Task Force revealed that “organized theft of products has also spread far beyond the Niger Delta. PPMC recorded sizable losses on its Mosinmi-Ibadan-Lokoja line in 2011. The Jos-Gombe-Maiduguri line also saw theft, and pipeline sabotage around Atlas Cove in Lagos is chronic”.
According to the report, “legislation governing the industry and agreements with third parties are outdated, do not reflect current economic or legal realities; or include ambiguous clauses. Also, there are some provisions within the legislation that could significantly improve government’s revenue that the government is yet to take advantage of. Examples include a provision to ensure that the share of the Government of the Federation in the additional revenue shall be adjusted under the Production Sharing Contracts if the price of crude oil at any time exceeds $20 per barrel; and the requirement for a periodic review of provisions in specified time frames.

It was also observed that some traders lifted crude oil although they were not listed on the approved master list of customers who had a valid contract and were selected through an annual bidding process. The Task Force research also found that quite a number of traders did not demonstrate renowned expertise in the business of crude oil trading. Furthermore, the Task Force found that the use of crude oil traders was contrary to the global trend wherein national oil companies develop their own trading arms, such as the various NNPC trading subsidiaries which currently have limited capacity. The Task Force identified various concerns in this area with Nigeria being the world’s only major oil producer that sells 100 percent of its crude to private commodities traders, rather than directly to refineries.”

The Task Force’s report also indicated that Nigeria loses revenue through the granting of pioneer oil exploration status to some companies. “The Task Force was informed that at least five companies: Allied Energy, Midwestern Oil & Gas, Brittania Oil Nigeria Limited, Suntrust Oil Company Nigeria Limited; and Niger Delta Petroleum Resources Limited have been granted pioneer status by the Nigerian Investment Promotion Commission (with others pending or undetected) for their exploration and production activities. The Task Force finds that the granting of pioneer status to oil operators for an activity that is well established for over 40 years inappropriate. The loss of revenue from the grant of pioneer status to oil operators is an avoidable loss and it is recommended that any such further consideration be stopped forthwith and the current ones set aside and or revoked”, the report stated.

The report also revealed that within ten years, Nigeria was shortchanged by about N 86.6 billion which should have accrued to it as payments from the sale of crude oil. It was noted in the report that “The Federal Government of Nigeria (FGN) allocates (on behalf of Nigeria) 445,000 barrels of crude oil to NNPC daily, out of the total crude oil production of the country for the purpose of domestic consumption, hence, the term Domestic Crude Oil. The allocation of 445,000 barrels represents the installed capacity of the four (4) local refineries situated at Port Harcourt, Warri and Kaduna. Liftings for domestic crude are made mainly from the Escravos and Forcados terminals, which produce mainly Bonny Light and Forcados type of crude oil.
The NNPC is required to pay the Federation for this allocation on the basis of quantities lifted in any particular month and at international market prices. A 3-month credit period is granted to NNPC to make the payment to the FGN.

In practice, payments for domestic crude oil are made subsequent to the conclusion of the monthly Federation Accounts Allocation Committee (FAAC) meetings.”

The Task Force chose a 10-year sample starting from 2001. The report also stated that “NNPC has acknowledged N450b worth of debt for unremitted domestic crude proceeds through end of 2009. It claims this sum represents a series of Presidential reprieves, but that it is now agreed a 32 installment repayment plan as a result of the FGNs inability to fully finance its share of JV costs”.

It was also contained in the report that as at December 31, 2011, the debt owed the NNPC by major marketers of petroleum in Nigeria stood at N 27 billion which included current debt, total overdue, disputed debt and total debt outstanding. See table:

Marketer	Current Debt  N millions	Total Overdue  N millions	Disputed Debt  N millions	Total Debt  Outstanding M millions
CONOIL  MOBIL	865.06  620.51	3,208.47  753.76	177.65  3.61	4,251.18  1,277.88
TOTAL  MRS	1,097.02  348.95	1,650.07  4,960.27	373.71  169.20	3,020.80  6,478.43
OANDO  FORTE OTHERS GRAND TOTAL	822.89  528.40 – 4,282. 83	3,452.62  3,303.86 –	332.74  200.64 –	4,608.25  4,032.89 3,746.13
		17,329.04	1,275.55	27,415.56

One other anomaly that was noted in the report is the considerable weakening of government returns in the petroleum industry, especially regarding oil blocs. A particular instance was given where a “acreage which in 2005 attracted signature bonuses of over $100mn, but saw bidders default, fetched less than $20mn whenre-offered in 2006 and 2007. One OPL netting government $76mn went for $6.5mn two years later. Compare this with Angola, which in the same period captured record-breaking bonuses through open, well-managed bid rounds.

To put things back in order, he Task Force made a number of recommendations including the passage of “an oil sector transparency law that requires all oil companies active in Nigeria to report all payments, costs and earnings for each license or transaction and to publish all contracts and licenses.”

It also recommended the implementation of “an aggressive debt collection process for outstanding signature bonus payments; revoke blocks from non-paying firms; sanction those agencies that failed to collect”.

To combat the theft of crude oil and petroleum, the Task Force recommended the arrest and prosecution of barons and financiers and of illegal bunkering rings.

It also urged the Presidency to “introduce an amendment to 2007 Fiscal Responsibility Act that would criminalize withholding payment of petroleum revenue after due date and assessment and a notice of demand.”

It was also stated in the report that “the oil blocks in litigation are currently inactive and of no benefit to the FGN in their current state. The FGN should expedite action with respect to the blocks in dispute in order to ensure that the
$321million outstanding is collected.

Also, the DPR should take further actions against the concessionaires that are yet to pay the amounts due ($167million) within the remit of the law. Proposed actions would be to charge interest on the amounts outstanding, revoke the company’s license etc”.