Under the Nigerian constitution, all minerals, oil and gas in Nigeria belong to the federal government. Oil extraction outside the framework of an agreement with the federal government is illegal, as is the possession of crude oil by anyone not licensed to do so; specific crimes have also been created relating to damage to oil installations (including for the purpose of siphoning off crude oil or petroleum products).58 Yet theft of crude oil, known as illegal oil bunkering, accounts for perhaps 10 percent of Nigeria’s daily production and is a highly organized operation.59 Governor Ibori has stated that as much as 300,000 bpd (or 15 percent of production) are lost because of bunkering activities.60 The major oil companies operating in Nigeria have stated that this is likely an overestimate; for the whole Niger Delta, illegal oil bunkering probably reaches a maximum 150,000 or 200,000 bpd. But these figures also fluctuate significantly, responding to periodic efforts to police the riverine areas more effectively.61 There are other claims that the theft of oil is greatly underreported, reaching more than 250 million barrels for the year 2002 (that is, more than 650,000 bpd).62 The illegally bunkered oil is sold to refineries in Nigeria, in nearby West African states (including Côte d’Ivoire and Cameroon), or further afield.
Illegal bunkering leads to the loss of billions of dollars in public funds. Those funds could be used to fund initiatives to reduce violence or to protect and fulfill human rights; including ensuring proper training for the security forces, not to mention the establishment of schools, hospitals and other essential services in the neglected riverine areas. There is also an urgent need to improve the transparency and effectiveness of government budget management spending, in order to reduce the diversion of funds into private hands. Reducing illegal bunkering will not in itself necessarily improve government spending practices, but the diversion of revenues before they reach government coffers means that there is not even the possibility that these resources will be used for the public benefit.
The fight for control of illegal bunkering opportunities has also significantly escalated the violence in Delta State and worsened the human rights abuses suffered by its people. Oil has become literally the fuel for the violence—despite the fact that in theory it should be easy to stop its theft (it is hard to hide a tanker and easy to trace its owner). Some clashes in the creeks appear to have no political component whatsoever, but are simply a straight fight for opportunities to steal oil; in other cases, motives are mixed.
Illegal oil bunkering is effectively Nigeria’s most profitable private business. The stolen crude can currently be sold at around U.S.$15 to $20 per barrel on the spot market, assuming some level of discount for its illegitimate origin. Since there are virtually no capital costs—the infrastructure belongs to the Nigerian government and the oil companies—the cleared profit is therefore around U.S.$2-3 million daily (750 million to a billion dollars annually), assuming a figure of 150,000 bpd stolen oil. The Nigerian government is far more severely affected by this theft than the oil companies, since the government share of revenue from each barrel of oil is much higher than that of the private shareholders in the joint ventures that produce most of Nigeria’s oil.63 The loss to the Nigerian government from illegal oil bunkering amounts to figures in the order of U.S.$750 million to $1.5 billion annually at oil prices between nineteen to thirty dollars a barrel, assuming bunkering at around 150,000 bpd (close to 55 million barrels a year); or $3.5 to $6.2 billion annually, if the figures are as high as 250 million barrels stolen each year. Governor Ibori has stated the amount lost is around $3.5 billion a year.64
Illegal oil bunkering—long prevalent in the delta—has become a sophisticated operation that no longer requires the cooperation of oil company staff to operate equipment at wellheads or allow access—though there are still reports that they are involved. The bunkerers tap directly into pipelines away from oil company facilities, and connect from the pipes to barges that are hidden in small creeks with mangrove forest cover. Frequently, both in the riverine areas and on dry land, the police and military are involved in the process or are paid off to take no action against those tapping into pipelines. Violent conflict that clears the creeks of other traffic makes bunkering easier to carry out; though violence that significantly closes down production also reduces bunkering, since it is much easier to steal oil from the larger pipelines after the gas has been separated from it, for which the oil company facilities must be operational.
In November 2001, the Nigerian federal government set up a Special Security Committee on Oil Producing Areas, “to address the prevailing situation in the oil producing areas which have, in recent past, witnessed unprecedented vandalisation of oil pipelines, disruptions, kidnappings, extortion and a general state of insecurity.” Reporting to President Obasanjo in February 2002 (in a report that has not been published), the committee noted that a “major threat to the oil industry … arises from the activities of a ‘cartel or mafia’, composed of highly placed and powerful individuals within the society, who run a network of agents to steal crude oil and finished produced from pipelines in the Niger Delta region.”65 The committee indicated that many of the militant youth groups responsible for halting or diverting oil production and preventing free traffic on the waterways “could be enjoying the patronage of some retired or serving military and security personnel.”66
Despite this high-level recognition of the seriousness of the problem, there appears to be no proactive government strategy for investigating the organized illegal oil bunkering rackets. There have been some seizures of the vessels involved. More than nineteen vessels used in the illegal bunkering business are reported to have been seized by the army and navy in the year to July—though it is often not clear what happens to their cargoes thereafter.67 Speaking to Human Rights Watch, Capt. Ogunjinmi said that the navy had captured six boats since he had taken command of the Warri naval base in April (excluding small barges), and handed over several dozen people to the police for prosecution.68 In August, the navy announced that it had arrested ten foreigners (among them Senegalese, Burkinabe, Togolese, Ivorians and Beninois) and a number of Nigerians for involvement in oil smuggling, and seized four ships; in late October, several more ships were arrested, with a reported combined cargo of oil worth several hundred million dollars.69 But there are few if any successful prosecutions for involvement in the theft of oil, and it is not always clear what happens to the cargoes of oil that are seized. Moreover, the oil companies say that they frequently report suspicious ship movements to the authorities—with the waterways all but closed to normal boat traffic, any vessel that does not belong to an oil company is probably involved in bunkering—but no action is taken.
Those running the rackets at the top are apparently untouchable. In May 2003, a new Economic and Financial Crimes Commission began work at federal level to investigate various forms of fraud. Its head has freely admitted that “you have government institutions responsible for taking charge of the whole thing [crude oil theft]: the sale of the product, the security of the area.”70 The commission has reportedly arrested two executives from small Nigerian-owned oil companies for stealing oil; but has as yet laid no charges.71 Its work is also apparently not linked to any parallel efforts by the police. The Nigerian Police Force Commissioner responsible for federal operations stated to Human Rights Watch only that any crime reported to the police would be “thoroughly investigated,” but could not identify any proactive measures being taken to tackle illegal oil bunkering.72 Police Affairs Minister Broderick Bozimo, interviewed in the media, has also not put forward any serious strategy for investigation and bringing to court those responsible for bunkering at the highest levels, though he has promised additional policing in the riverine areas.73 Delta State Deputy Governor Elue stated to Human Rights Watch that the Nigerian government “is beginning to identify the bunkerers among the people high up; intelligence will fish them out.”74 Governor Ibori has blamed criminals with their own armies, dealing with non-Nigerians.75 According to many statements to Human Rights Watch, however, individuals very close to Governor Ibori are themselves involved. Others mentioned are senior figures in the current and former governments in Delta and other Niger Delta States, and in the federal government in Abuja. Protestations by those same people that they are acting against the culprits are met with skepticism by those who bear the brunt of the violence the business generates.
In a measure apparently designed to address the demand side of the illegal oil bunkering equation, the federal government has begun to take some action to reduce the sale of oil to neighboring states. On August 10, Nigeria closed its border with Benin, accusing the Benin authorities of turning a blind eye to oil smuggling. The Nigerian federal government has also embarked on a strategy of signing contracts with neighboring countries for supply of petroleum products to ensure they source oil from lawful suppliers. On August 19, Nigeria signed an agreement with the government of Côte d’Ivoire for the supply of 30,000 bpd of crude oil; Ivorian Minister for Mines and Energy Monnet Leon Emmanuel admitted that much of the crude oil delivered to his country was stolen from Nigeria.76 In November 2003, President Obasanjo announced that the Nigerian government would publish budgets, records of revenue collection and other statistics in line with the international “Publish What You Pay” campaign and the British government’s Extractive Industries Transparency Initiative.77 Increased transparency should make a contribution both to the proper management of official government revenues and to the measurement of the extent of theft of crude oil.
In June 2003, Shell proposed the certification of oil exports based on the chemical fingerprinting of crude oil to prevent stolen oil from being sold on the open market.78 The oil companies operating in Nigeria have developed the technology to trace oil to individual flow stations and even individual wells, meaning that if a ship is stopped and it contains oil that does not appear to have a legitimate source, a sample can be taken and the place it was taken from identified. In theory, if there is no record of a sale from that source to the owner or operator of the vessel concerned, then the Nigerian government should be able to confiscate the oil if it intercepts a vessel in Nigerian territorial waters; or it should be possible to require those purchasing oil, such as refineries, to verify the provenance of the crude they are buying. In principle, it should be possible in this way to create a paper trail for crude oil similar to or better than that established for rough diamonds by the Kimberley Process, which aims to halt the trade in “conflict diamonds” from Africa’s war zones.79 Even if such a system cannot halt the sale of stolen oil completely, it should at minimum mean that stolen oil will have to be sold at a greater discount on the international spot market, thus undercutting the profits of the illegal bunkerers and the incentives to fight for control of supply.
58 See “The Niger Delta: No Democratic Dividend,” Human Rights Watch Short Report, October 2002, pp.27-28.
59 “Bunkering” is a term used to describe the process of filling a ship with oil (or coal). “Illegal oil bunkering” is a euphemism for theft.
60 Olly Owen, “The Economics of Nigeria’s Delta Conflict,” WMRC Daily Analysis August 5, 2003; “Nigerian Pres, Governors Vow to End Pipeline Vandalism,” Dow Jones Energy Service, July 31, 2003. On illegal bunkering, see generally the information at www.legaloil.com. Nigeria’s total oil production under the quota set by the Organization of Petroleum Exporting Countries (OPEC) is 2.018 million bpd, though the actual output varies above and below this figure.
61 Kenneth Ehigiator, “Oil smugglers accused of fueling Warri crisis,” Vanguard, August 21, 2003; SPDC letter to Human Rights Watch, October 17, 2003. According to Shell, illegally bunkered oil from SPDC facilities had fallen in October 2003 to around 5,000 bpd in the Western Division and 25,000 bpd overall.
62 “Oil Theft - What Does Obasanjo Know?” Vanguard, December 29, 2002.
63 Under the terms of the 2002 Memorandum of Understanding between the oil companies and the Nigerian government, according to Shell, “at an oil price of $19 barrel, the Government’s take in taxes, royalties and equity share is $13.78 barrel. Of the remaining $5.22, operating cost and future investment take the lion’s share with about $1.22 left to be shared as a margin among private shareholders. [The SPDC joint venture is owned 55 percent by the Nigerian government, 30 percent by Shell; 10 percent by Total (formerly Elf), and 5 percent by Agip.] At $10 per barrel, Government’s take falls to $5.12 barrel, while the margin to be shared amongst the private shareholders reduces to 88 cents. At $30 per barrel, the government’s take increases to 24.13 per barrel, while the margin shared by the private partners increases to $1.87.” 2002 People and the Environment Annual Report (Lagos: SPDC, 2003), p.6. The oil price was around U.S.$25-$30 in March/April 2003 (as the Iraq campaign came to its close), when the shut-down was at its height.
64 “Nigerian oil theft rampant,” BBC website, August 1, 2003, quoting an interview on the BBC’s Network Africa program. See also “Oil Theft—Overview,” Information Paper No. 1, www.legaloil.com, October 2003, which gives slightly different figures for the revenue split between government and companies. In practice, the theft of oil depletes Nigeria’s oil reserves, thus depriving future generations of the revenue that would otherwise accrue to government from the development of such resources. In the short term, Nigeria meets its daily OPEC quota while also pumping an extra 10 percent or so for the benefit of the illegal bunkerers.
65 Report of the Special Security Committee, paragraph 40.
66 Ibid., paragraph 51.
67 “Niger Delta moving from agitation to rebellion?” IRIN, July 8, 2003.
68 Human Rights Watch interview, September 10, 2003.
69 Hector Igbikiowubo, “Government loses x149b oil revenue to Warri war,” Vanguard, August 26, 2003; “Nigerian navy arrests Russian, Romanian ‘oil smugglers,” AFP, October 22, 2003; Kingsley Omonobi, “Navy arrests 7 ships with crude worth $250 m,” Vanguard November 3, 2003.
70 Daniel Balint-Kurti, “Nigerian anti-fraud tsar targets oil thieves,” Reuters, November 12, 2003.
71 Ibid. See also, “We’ll bring the high and mighty to justice—crimes commission boss,” Daily Trust (Abuja), October 9, 2003.
72 Human Rights Watch interview, Police Commissioner Lawrence Alobi, Abuja, September 18, 2003.
73 “Bunkerers are behind the Niger Delta Crises, says Police Affairs Minister Bozimo,” Vanguard, September 22, 2003.
74 Human Rights Watch interview, September 10, 2003.
75 Austin Ogwuda, “Warri: Governor blames crisis on oil syndicate,” Vanguard, August 26, 2003.
76 Vincent Nwanma, “Nigeria Shuts Border with Benin to Stop Oil Smuggling,” Dow Jones Energy Service, August 13, 2003; Vincent Nwanma, “Nigeria, Ivory Coast Supply Deal to Help Stop Piracy,” Dow Jones Energy Service, August 20, 2003.
77 See text of President Obasanjo’s speech, “Nigeria: From Pond of Corruption to Island of Integrity,” November 7, 2003, available at www.transparency.org. See also www.publishwhatyoupay.org and www.dfid.gov.uk.
78 See “Fingerprinting oil,” Information Paper No. 2, November 2003, www.legaloil.com, for a description of the chemical fingerprinting of oil.
79 See www.kimberleyprocess.com.