Illegal refining on the rise in Nigeria

18 December, 2018, Week 50, Issue 768

Illicit refining in the Niger Delta has increased by “at least five times” from five years ago, according to recent research by Stakeholder Democracy Network (SDN). This is despite the various military operations in the area intended to deter such activities, such as Operation Delta Safe. 

Annual earnings in Bayelsa and Rivers states from the sector have reached US$679 million, SDN estimated. Profits for facility owners are often cycled into legitimate businesses, in order to reduce the risk of over exposure to one revenue source. 

A report from SDN, “More Money, More Problems”, said there was increased organisation and production capacity, which has allowed this business to integrate better with a formal infrastructure. As such, increased amounts of illicitly refined products are being consumed at fuel stations, in Nigeria and abroad. 

Connected to this increase in “artisanal” refining, are environmental, health and security problems. One cause of pollution is the destruction carried out by military forces, which tend to burn equipment and dump products into land and waterways. Another is the use of the “bottom of the barrel” products, such as bitumen and tar, which are burned in order to heat the crude. While this generates more heat than firewood, making the process more efficient, it is significantly worse for the local environment. 

Profits have grown over the past five years, the report continued, driven by increased efficiency and fewer workers, with the owners of facilities able to breakeven on initial investment within nine to 20 days, depending on the size of the plant. 

Furthermore, the government’s response – increased military operations – has led to the destruction of refineries, making these actions seem effective, but “the illicit industry has historically recovered rapidly”. New plants are constructed faster than the military can destroy them. 

SDN said action should be taken to provide sufficient resources to end the chronic fuel shortage in the region, while the government should adopt a plan for new investments, to provide alternative employment, which would pull people out of the illicit refining business – and deter new entrants. 

While the wage bill is down by around 40% in five years, bribes have increased by around 20 times, it said. This assertion came with a caveat, with SDN saying such calculations are difficult, “and total informal taxes are expected to be much higher than these calculations indicate”. It went on to say there was competition within the ranks for positions in the Niger Delta, given the lucrative nature of the business. 

Tapping pipelines is the most lucrative part of the business, it reported, given that the major input is free. One organised group came to control all the major theft points in Bayelsa after the state drove out competitors. This allowed profitability to increase from 89% in 2012 to 97%. Additional profits were driven through consolidation. Reliable figures for total oil theft are virtually impossible to calculate, given the poor state of metering, but SDN relied on a conservative estimate of 140,000 bpd. 

While profits are up, these are largely going to the owners, rather than the workers, providing what SDN has referred to as an opportunity. Workers receive a smaller share of the profits and are exposed to the greatest hazards. Refinery owners are even expressing an interest in corporate social responsibility (CSR), with one quoted as expressing an interest in establishing a gas plant, in order to generate electricity for the local community. 

 

Edited by

Ed Reed

Editor

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