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The Menace of Artisanal Refineries

By William Emmanuel Ukpoju

In the heart of Nigeria’s Niger Delta, a battle rages against the scourge of illegal refineries, a menace that threatens not only the region’s environment but also the nation’s economic prosperity. In recent reports, the intricate challenges surrounding the eradication of these illicit operations are brought to light, shedding crucial insights into the ongoing struggle to preserve the Delta’s fragile ecosystems and bolster the nation’s economy.

Nestled amidst the lush biodiversity and abundant oil reserves of the Niger Delta, illegal refineries have proliferated, driven by a cocktail of socio-economic factors including poverty, unemployment and inadequate infrastructure. Operated by local communities desperate for economic opportunities, these makeshift refineries wreak havoc on the environment through their rudimentary and destructive methods of crude oil extraction.

The repercussions are dire: oil spills, pollution, deforestation and air contamination plague the region, posing grave risks to both human health and wildlife. The toll is profound, with reports citing increased respiratory problems and cardiovascular diseases among residents, further exacerbated by the burning of crude oil in open pits and the release of toxic pollutants into the air.

Yet, the environmental devastation is but one facet of the crisis. Nigeria’s economy suffers a significant blow as illegal bunkering drains billions of dollars annually from the nation’s coffers. Moreover, the presence of these rogue refineries undermines the legitimate oil and gas industry, fostering unfair competition and job losses while jeopardizing the quality and reputation of refined products.

In response, the Nigerian government has implemented various measures, from military interventions to community engagement initiatives, aimed at dismantling illegal refineries and addressing the underlying socio-economic grievances. However, challenges persist, including corruption, inadequate resources, and deep-rooted socio-economic issues, hindering enforcement efforts and perpetuating the cycle of environmental degradation and economic loss.

Proposed solutions offer a glimmer of hope. Initiatives such as promoting the establishment of modular refineries and licensing refining sites hold promise in creating jobs, generating revenue, and fostering sustainable development. Calls for collaboration between government agencies, local communities, and international stakeholders echo the need for a unified approach to combating illegal bunkering while balancing economic imperatives with environmental stewardship.

Economic Consequences of Illegal Refineries in the Niger Delta:

Loss of Revenue

The Nigerian government faces a significant loss of revenue due to illegal bunkering. The stolen oil represents a substantial economic drain, depriving the nation of funds that could be utilized for development and infrastructure projects.

Estimating the exact amount of money lost to illegal refineries in Nigeria is challenging due to the covert nature of these operations and the lack of comprehensive data. However, illegal refining activities in the Niger Delta region have been a significant issue for Nigeria’s economy, environment, and security.

For instance, according to various reports and estimates, billions of dollars are lost annually due to illegal refining activities in Nigeria. These activities involve the theft of crude oil from pipelines, which is then processed locally in makeshift refineries. Refined products, such as diesel and gasoline, are often sold at the black market.

A 2013 report by the Nigeria Natural Resource Charter estimated that Nigeria loses around $5 billion annually due to oil theft, illegal refining, and pipeline vandalism.

Additionally, a 2019 report by the Nigerian National Petroleum Corporation (NNPC) suggested that Nigeria loses between 200,000 and 400,000 barrels of crude oil daily to oil theft and pipeline vandalism. This translates to millions of dollars in daily lost revenue.

Further findings by the Nigerian Observer in December 2023, revealed that “In August 2023, the Nigerian Army destroyed an illegal refinery in Warri South Local Government Area of Delta state. According to the Army spokesperson, Brigadier-General Onyema Nwachukwu, the operation led to the discovery of fourteen storage reservoirs containing about 200,000 litres of crude oil, and another 90,000 litres of Automotive Gas Oil popularly known as diesel. Based on this estimation of publicly available data, a barrel contains 159 litres of crude oil. This implied that a reservoir containing 200,000 litres had nothing less than 1,527 barrels of crude oil. At an average price of $75 per barrel, the destruction of the said reservoir cost the three tiers of government in Nigeria about $94,339.62 or N84.91 million. Nigeria also lost N90 million from the destruction of diesel during the same operation, resulting in a total revenue loss of N175 million”.

The report added that “In November 2023, the Nigeria Extractive Industries Transparency Initiative (NEITI), reported that the country lost N16.25 trillion to a combination of crude oil theft, pipeline vandalism and some other underhand tactics by players in the oil and gas sector”.

Likewise, “NEITI disclosed that from its industry reports, Nigeria has lost 619.7 million barrels of crude oil valued at $46.16 billion or N16.25 trillion in twelve years from (2009 to 2020). The losses were from theft and sabotage, based on information and data provided by an average of eight companies covered by the NEITI process over the years”.

Still on the report by Nigerian Observer, “…with an average of 10,000 litres per illegal refinery, at least, 3.47 million litres of crude oil would have been destroyed during those operations meant to curb the activities of illegal refiners, implying 21,824 barrels of crude would have been destroyed in the process. The Nigerian Observer estimated that at an average price of $70 per barrel, a total of N687.46 million would have been lost in the process”.

Generally, while precise figures may vary, it’s clear that illegal refining activities in Nigeria result in significant economic losses for the country.

Impacts on the Oil and Gas Industry

The presence of illegal refineries contributes to a decline in the overall productivity and efficiency of the legitimate oil and gas industry. It undermines efforts to maintain a stable and reliable energy sector, hampering Nigeria’s ability to meet domestic and international demands. Illegal refineries also undermine legitimate oil and gas businesses by creating unfair competition. Experts posit that these local miners produce low-quality refined products that are sold at lower prices, undercutting the market for legitimate refined products. Illegal refineries often produce low-quality refined products through crude and makeshift processes. These products are typically sold at lower prices compared to those from legitimate refineries, creating unfair competition in the market.

Legitimate oil and gas businesses invest significant resources in adhering to safety and environmental regulations, maintaining quality standards, and paying taxes and royalties to governments. However, illegal refineries bypass these regulations and costs, enabling them to offer their products at lower prices.

This unfair competition undermines the viability of legitimate businesses in the oil and gas industry, as they struggle to compete with the lower-priced products from illegal refineries. It can lead to decreased revenues, job losses, and even closures of legitimate refineries (as the case is today in Nigeria) and downstream operations.

Additionally, the qualities of products from illegal refineries are often questionable, posing risks to consumers and potentially damaging the reputation of the entire industry. This further worsens the challenges faced by legitimate businesses in maintaining consumer trust and market share.

Addressing these challenges requires a multi-faceted approach by the government that combines robust law enforcement measures with targeted socio-economic interventions deliberately aimed at addressing the root causes of illegal refining and promoting sustainable development in the Niger Delta region.

The ongoing battle against the destruction caused by illegal refineries in Nigeria’s Niger Delta is a complex and polygonal struggle. For instance, law enforcement agents are also guilty of environmental degradation because each time an illegal refinery is destroyed; dangerous chemicals are emitted into the ecosystem. Certainly, there should be another form of approach other than destruction.

It will be recalled that following the directive of former President Buhari, the then Vice President, Professor Yemi Osinbajo in 2016, embarked on a tour of oil-producing communities in the Niger Delta, in a bid to address lingering issues in the region.

This was heralded by the President’s meeting with Niger Delta leaders under the aegis of Pan-Niger Delta Forum, (PANDEF) which led to the PANDEF 16-point demand to the Nigerian Government and was subsequently captured in Government’s 20-point agenda to develop the region.

According to the Vice President; “One of the nagging issues we were confronted with during my tour was how to deal with the proliferation of artisanal refinery and its attendant negative environmental impact. Our solution was to promote the establishment of modular refineries.”

Speaking further on how to resolve the issue, he said, “These artisanal refiners will be seen as investors and considered for strategic equity partnerships with technical and financial partners. This vision is hinged on the commitment of this present administration to develop the region and ensure that the people of the region benefit maximally from the wealth of their land. Indeed, the New Vision speaks to a progressive partnership between the federal government, state government, private sector, and the local communities”, he stressed.

Recently, The Nigeria Union of Local Government Employees (NULGE) appealed to the Federal Government to stop the Navy from destroying refining sites tagged “illegal” in the Niger Delta. The NULGE President, Ambali Olatunji, who made the call at a press conference to mark the end of its National Executive Council meeting recently in Abuja, said, “Destroying those sites has no benefits whatsoever for the country’s oil and gas sector as well as for Nigerians at large. Instead of destroying those refining sites, they should be licensed properly and mandated to pay taxes. This will create job opportunities and be sources of revenue earnings.”

Mr Ambali also called on the Federal Government to consider licensing more modular refineries that can refine crude oil in Nigeria.

In his words, “If the multinationals are leaving the country, we should encourage individuals that are willing and capable to do it in Nigeria. If we can work on those areas, coupled with minimum wage, the effects of fuel subsidy removal will go down.” The question is how proactive the Nigerian government is, in ensuring that this issue is urgently laid to rest?

Way out

In the end, balancing the need for economic development with environmental preservation requires comprehensive and sustainable solutions by the apex government. Therefore, collaboration of government agencies, local communities, and international stakeholders is crucial to addressing the root causes of illegal bunkering and mitigating its devastating impact on the nation’s economy and ecosystems.

As the battle against illegal refineries rages on, the imperative for sustainable solutions grows ever more urgent. In the delicate balance between economic development and environmental preservation, the fate of Nigeria’s Niger Delta hangs in the balance. Only through concerted efforts and collaborative action can the region emerge victorious, securing a future where prosperity and sustainability coexist harmoniously.

The battle against illegal refineries in Nigeria’s Niger Delta represents a critical juncture in the nation’s quest for sustainable development and environmental preservation. As efforts to dismantle these illicit operations continue, the stakes remain high, with the delicate balance between economic prosperity and ecological integrity hanging in the balance. The stories of environmental devastation, economic loss, and societal upheaval underscore the urgent need for collaborative action and innovative solutions. Moving forward, it is imperative for government agencies, local communities, and international stakeholders to unite in a shared commitment to combat illegal bunkering while fostering sustainable growth and ensuring the well-being of both present and future generations. Only through collective resolve and unwavering dedication can the Niger Delta emerge from the shadows of environmental degradation and economic disparity, to chart a course towards a brighter, more sustainable future for all.