25 February 2013

Nigeria: Ending Crude Oil Theft


At a recent oil and gas conference, the managing director of Shell Petroleum Development Company stated that Nigeria's economy loses $6billion annually to crude oil theft. Consequently, President Goodluck Jonathan has been seeking the assistance of the western world to tackle what is clearly a failure of state security.

It has been reported that, from as far back as year 2000, Nigeria has been losing between 200,000 and 300,000 barrels of crude oil to theft each day. Reports also have it that, between 2003 and 2008 alone, N14trillion was lost to theft and disruptions by militants. This onslaught on Nigeria's economic lifeline has been going on under government's nose: from pipeline vandalism and illegal oil bunkering to fuel subsidy and other high-level fraud.

What does this portend for the Nigerian economy? According to Nigeria's petroleum minister, Mrs Diezani Alison-Madueke, in one year $5billion was spent on pipeline repairs; the loss of revenue was estimated to be at least $11billion in that year. To put it in better perspective, the federal government's 2012 budget was, for example, N4.69trillion or $30.11billion at the current official dollar exchange rate. This means a loss of a little more than a third of the 2012 budget.

The petroleum minister has just promised Nigerians that there will be "a very significant decrease" in crude oil theft within the next 12 to 18 months. Indeed, if NNPC estimates are to be believed, there has been a reduction of oil theft from between 180,000 and 200,000 barrels to between 50,000 and 80,000 barrels a day. However, at government's benchmark of $79 per barrel, that is still a whopping loss of between $3.95million and $6.32million per day, money that could be put to the socio-economic development of the country.

Crude oil theft in Nigeria has been likened to illicit drug business where there are drug cartels and couriers, smaller dealers and their sponsors, who are mainly untouchable and in high places. Unless this administration summons the political will to act decisively against the cartel, it will continue to be a resource-wasting, time-consuming battle. Government should therefore first step on toes by concluding the oil subsidy fraud cases still in court, convicting and jailing those that should be jailed and seizing their assets. Once government has established credibility by successfully prosecuting the "sponsors", it must be committed to the proposed crude oil fingerprint to detect countries that purchase our stolen crude oil. After all, without buyers there won't be sellers. This should go hand in hand with the physical battles and the dismantling of illegal refineries.

The efforts of the joint military task teams and the Nigeria Security and Civil Defence Corps (NSCDC) that have been losing personnel while fighting the small fry who vandalise pipelines and manage illegal refineries are quite commendable. With reduced oil theft, as the petroleum minister claimed, we expect to see a related increase in oil revenues.

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