NNPC’s $39.5m annual pipeline protection contract led to more oil theft – Report

A document obtained by Daily Times has revealed how a $39.5 million yearly pipelines protection deal signed between the Nigerian National Petroleum Corporation (NNPC), and leaders of defunct the Movement for Emancipation of Niger Delta (MEND) in 2011, led to more oil thefts in the region.

MEND sprang up amidst crises between International Oil Companies (IOCs) in Nigeria and people of Niger Delta over oil spills which have crippled the sources of living in the communities where oil exploration and productions take place. The group claimed to be fighting for the common good of their people in gaining control over their natural sources however, recent developments have proven otherwise.

According to the document by the Natural Resource Governance Institute (NRGI) due to the activities of oil thieves which had become rampant in the Niger Delta, Pipelines and Products Marketing Company, (PPMC) which is a subsidiary of the NNPC created in 1988 with responsibility of bringing about comparative ease with which petroleum products are sourced and distributed to all parts of the country, initially hired community members as guards. But when local guards started breaking into the pipelines themselves, PPMC brought in the military

Under the soldiers’ watch, sabotage “continued unabated,” then NNPC took a new step in 2011, signing pipeline protection contracts with ex-Niger Delta militant leaders worth at least $39.5 million a year.

“Government touted the deals as effective tools in the fight against oil theft, yet NNPC’s own data shows pipeline losses actually went up after the new contracts started,”, it said.

By mid-2012, the corporation was avoiding using its own pipelines, and supplying oil to the Warri refinery by ship through an opaque, costly arrangement. A similar arrangement for Port Harcourt followed quietly in 2014.

As a result, in 2011 over 2010, value of Port Harcourt refinery pipeline losses was over N27 billion, while that of Warri was over N70 billion.  In 2010, PPMC’s crude oil pipeline losses (barrels per day) was 4,854, rising to 17,718 in 2011.

In August 2014, Nigeria’s petroleum minister told a U.S. audience that NNPC was spending an average of $7.52 per barrel to transport domestic crude to the Port Harcourt and Warri refineries by ship.

The document showed that Warri arrangement cost at least $43.6 million over nineteen months, though the number was not sufficiently broken down to show whether it included all associated costs.

Then supposedly due to high theft from the refinery’s supply pipeline, NNPC began delivering crude oil to the Warri refinery by water in 2011. A similar arrangement for the Port Harcourt refinery commenced in 2014.

Under the Warri arrangement, PPMC contracted PPP Fluid Mechanics Ltd., a private Nigerian company, to manage deliveries to the refinery. The company chartered a “very large crude carrier” (VLCC) that could hold roughly 2 million barrels of crude. Once it arrived offshore of the Niger Delta, the VLCC would begin lifting domestic crude barrels from the Escravos oil terminal— usually about a million barrels at a time. It would then travel to a point close to the mouth of the Forcados River, where it would anchor. Soon thereafter, smaller shuttle vessels would arrive and take crude from the VLCC by ship-to-ship transfer. They would then transport the oil up the Forcados River to the Warri refinery jetty for discharge to the refinery. The Port Harcourt arrangement works in similar ways, but with different vessels and locations.

However, public information about the refinery transport deals is scarce, as there are about the deals’ structure and management.

For instance, as at that time, a cost of $7.52 per barrel, if accurate, is an expensive average fee, especially compared to PPMC’s charge to the government of only ₦0.30/liter (or roughly $0.03 per barrel) to move oil through the refinery supply pipelines.

“PPMC does not seem to have held a competitive, open tender to award the original transport deals.80 At no time has the government disclosed the terms of the contracts it has with the companies involved. It is not known, for example, what costs make up the purported $7.52 per barrel, nor if or how PPMC keeps watch over the flows of oil or cash involved in the deals. Government also has not disclosed how much oil the contractors lifted,” it said.

According to PwC and NEITI’s published figures for 2012, the figures differed by more than two million barrels—11,637,246 barrels versus 13,874,531, respectively. Some of the vessels involved sat anchored offshore— presumably at a significant cost to the nation—for long periods when NNPC was not sending crude to the refineries.

NNPC records also show that the corporation kept pumping crude through the Escravos-Warri refinery pipeline well after the ship transports started—even though they supposedly were set up because too much oil was being lost from the line.