Nigeria Loses $1bn to Illegal Bunkering Annually as Oil Companies Patronise Illicit Market

By Ejiofor Alike   
Nigeria loses an estimated $1 billion yearly in the West African bunkering market valued at over $3 billion as some oil companies operating in the country patronise cheaper petroleum products sourced from illegal bunkering activities to fuel marine vessels and Floating Production Storage Offloading vessels (FPSOs), THISDAY’s investigation has revealed.
In the global petroleum and marine industries, oil bunkering is a legitimate business that involves the process of supplying vessels with fossil fuel products such as diesel, Heavy Fuel Oil (HFO) and Low Pour Fuel Oil (LPFO), which are also used by oil firms largely as bunkers for their vessels and to power their drilling rigs for exploration and production.
Investigation showed that most leading international and indigenous oil and gas companies, through their procurement process, have continued to patronise illegally refined products and products obtained from vandalised pipelines, thus aiding and abetting crude oil theft and robbing the country of revenue from genuine bunkering operators.
It was gathered that the loss of revenue by the country from illegal bunkering is worsened by the fact that foreign vessels that come to Nigeria choose to refuel offshore Cotonou and Ghana for security reasons.
But in a swift reaction to the menace of illegal bunkering in the country, a spokesman for the Department of Petroleum Resources (DPR), Mr. Paul Osu, told THISDAY that the agency was determined to ensure that Nigeria becomes an attractive bunkering hub, stressing that “a viable bunker trade operation in the country is capable of spawning quite a few other activities that revolve around vessel bunkering with correspondent multiplier effect.”
He acknowledged the menace of illegal bunkering, but added that the agency was “engaging all stakeholders towards strengthening regulations that will kick-start a robust bunker trade system in the country’s territorial waters as an anti-thesis to spots of illegal activities being reported”.
 It was further gathered that as the market shrinks for local licensed bunkers trading companies, they still have to battle with illegal bunkering operators, who have now penetrated the mainstream consumer base by offering very low prices, against the principle of superior product quality and evidence of genuine sourcing.  
Some of the bunkering operators told this paper that oil companies’ procurement system is designed in such a way that price is basically the sole criterion considered in awarding contracts for the supply of petroleum products.
According to these operators, ‘briefcase’ companies that source products from illegitimate sources are awarded contracts because they are the lowest bidders.  One of the operators told THISDAY that the trend is to quote as low as possible to win the contract, “despite the facts of the trade, and thereafter resort to illegally refined products, stolen products and products obtained from vandalised pipelines to service the contracts.” 
A source said: “Unfortunately, the off-taking companies will accept such products without scrutiny to determine the source, thereby patronising illegally refined products and by extension, causing gross loss of revenue to the federal government.  The current price of gasoil at Intercontinental Exchange (ICE) is about $500 per metric tonne. Granted that gasoil is deregulated in Nigeria, the local price for imported cargo is derived from and determined by the international market as published on the ICE or Platts. 
“So, the price of an imported cargo of gasoil is a factor of ICE or Platts plus contractor’s premium to take care of freight and other associated costs. An importer cannot successfully import gasoil into Nigeria at a cost lower than ICE or Platts price converted to Naira at parallel market exchange rate or CBN intervention rate or at a price lower than fixed refineries’ price.”
He argued that any contract price that is lower than the international market price of gasoil based on ICE/Platts or local refinery price – inclusive of freighting cost – automatically implies that the importer did not import the product from a legitimate international market.
THISDAY gathered that one of the reasons foreign vessels refuel outside the Nigerian coastal waters is that vessels and barges that are not seaworthy are regularly engaged to supply bunker fuels in Nigeria, with the attendant health, safety, security and environmental hazards.  
The vessels, which are not seaworthy, it was learnt, pose the risk of grounding, and collusion with other marine structures and equipment, potentially causing fire outbreak and the resultant loss of lives and property. 
It was also learnt that there is also a high risk of such vessels spilling the products onboard, thereby causing pollution to the marine environment. 
The award of contracts to vendors to supply bunker fuels piecemeal, it was gathered, is another strong evidence of complicity of some oil companies in illegal bunkering.
According to the bunkering operators, no legitimate importer of products imports cargoes or buys from the refinery in piecemeal as it makes no business sense because the prevailing hire rate for vessels needed to import bulk gasoil is the same for small quantity. 
“Vessels are hired in dollars ranging from $6, 000- $25, 000 per day, depending on the capacities. So, it makes no business sense to hire a small vessel for the importation of cargoes,” said an operator. 
“The fact that these oil companies accept products in piecemeal beats the principle of international oil trading and price build up and also a tell-tale sign of dubious sourcing,” he added. 
But officials of some of the oil firms, who spoke off the record, denied their companies’ alleged involvement in off-taking illegally sourced fuel products, saying their procurement processes are in line with best practices. 
“We strongly dismiss these allegations as false. Critical considerations in our contracts are: the source of origin; quality of the product in line with Petroleum Act and regulator’s specifications; as well as the assurance of the quality of vessels and road tankers to be used. As a prudent company with a focus on commercialisation and profitability, the cost is indeed a factor. However, this is just one element,” said one of the officials. 
An official of another oil company told THISDAY that as a victim of crude theft, his company always ensures that its supply sources are credible and in line with all applicable laws.
“We wish to clarify that the lowest bid policy is adopted by all world-class organisations, including governments, as a governance model focused on matching quality with cost by awarding contracts to the lowest ‘evaluated’ bidder where evaluation is based on proven technical ability and cost-efficient commercially-proven rates.   Using the lowest bid policy, organisations subject bidders/suppliers to a process that ensures that commodities are obtained at competitive market rates,” he explained.
Osu, however, noted that in the case of coastal trade, it is a regulatory requirement that any vessel loading or discharging petroleum products at facilities licensed by the DPR should also be licenced by the regulator.
“For the purpose of clarification, coastal vessel licence is distinct from bunkering licence. Coastal vessel licences are issued to vessels engaged in the transportation of Petroleum and its products from one Coastal location or Mother Vessels out at sea to coastal storage facilities. The coastal vessel licence was never meant to be used as bunkering licence or to bunker other vessels. So any coastal vessel involved in bunker trade is clearly engaging in an illegal activity,” Osu explained.
  • henry price

    comrades US 3,000,000,000 is significant amount of money but it is minute in comparison to amount loss due to officials corruptions. When viewed in light monies illegally acquired by bunkering is spreaded among many unemployed Nigerians loss is small unfortunately act is illegal. Due to illegality plus danger to environment bunkering should receive strict monitoring however, where corruption in oil industry is of concern it remain best to monitor plus scrutinize actions by officials plus oil companies. They steal much plus help few. Very much sincere, Henry Price Jr. aka Obediah Buntu IL-Khan aka Kankan aka Gue.

  • Political Affey

    Where are the armed forces? This is their day job. Stop bunkering. Period. But we all know they are involved in the business themselves. Shame on our Colonial Armed Forces.

  • MDG2020

    buhari REGIME only know how much goment have lost, but don’t know how goment can recover the loss!
    buhari REGIME knows how many TRILLIONS was stolen by ‘kwarrapt fiful’, but doesn’t know how much recovered!
    buhari REGIME knows their is kwarrapson in the country, but doesn’t know how to eliminate or mitigate kwarrapson. He is rather fighting kwarrapson!
    buhari REGIME came to power through RULE OF LAW, but will rather RULE through DERCREES!
    buhari REGIME believes ALL GRIEVANCE by separatist and RESTRUCTURIST should be channeled through the JUDICIARY or NASS, but he is not ready to obey court orders, and sees NASS as kwarrapt.

  • henry price

    comrades only equitable way to manage small scale illegal oil operation is by providing jobs that pay livable wages. In some cases that will not work due to those individuals do not have skills required for jobs paying livable wages or they are criminally inclined to extent they will not consider employment outside crime. However, those lacking skills to be employed in jobs paying livable wages but are willing to work where academically qualified or willing to become academically qualified should be given government provided necessary training. They could then with their skills become long term productive tax paying citizens. Very much sincere, Henry Price Jr. aka Obediah Buntu IL-Khan aka Kankan aka Gue.