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Nigeria Loses $1bn to Illegal Bunkering Annually as Oil Companies Patronise Illicit Market
5 Sep 2017
Author:
Country: Nigeria

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.

Link: https://www.thisdaylive.com/index.php/2017/09/05/nigeria-loses-1bn-to-illegal-bunkering-annually-as-oil-companies-patronise-illicit-market/

 

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