Business - Business & Economy - News - Oil & Gas - November 23, 2022

Crude oil theft, losses: Senate committee submits report; blames conflicting roles by regulatory agencies, others

Report said $2billion lost between January and August 2022; blames crisis on conflicting directives by the Minister which contradict regulatory powers under the PIA

By Bassey Udo

The wanton incidences of crude oil theft and revenue losses reported in the country is as a result of conflicting roles by the two regulatory agencies and other government agencies assigned the responsibility to supervise operations in oil and gas industry, the Senate Adhoc Committee has reported.

The 13-member Committee constituted by the Senate on April 14, 2022, to investigate crude oil lifting, theft and the impact on petroleum production and oil revenues submitted its report on Tuesday and blamed the crisis in the industry on the conflicting roles by the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) and the Nigerian Midstream-Downstream Petroleum Regulatory Authority (NMDPRA).

The Committee, headed by the Chairman of the Senate Committee on Petroleum (Upstream), Bassey Akpan, also blamed the crises, including conflicting crude oil production, lifting and export figures, on the activities of other government agencies.

The agencies included those under the Federal Ministry of Transportation as well as the Nigerian Customs Service, Nigeria Immigration Service, Nigerian Drugs Law Enforcement Agency (NDLEA), Port Health and other affiliate inspectorate bodies like Inchcape, Trobel, Arlington Nigeria Ltd., SIFAX, etc.

Under the provisions of the Petroleum Industry Act 2021, the NUPRC is charged with the responsibility of regulating the operations in the upstream petroleum industry, which include exploration, development, production and export of crude oil, while NMDPRA is in charge of the midstream and downstream petroleum industry focused on marketing, storage and distribution of petroleum and gas products.

In the report presented at plenary on Tuesday, the Committee said due to incessant sabotage of crude oil pipeline and theft, Nigeria’s crude oil production capacity dropped from 2.13 million barrels per day in January 2020 to about 1.38 million BPD as at July 2022.

The Committee said out of the total oil production capacity, about 33 percent, valued at over $2 billion, was lost between January and August 2022 as a result of pipeline vandalism, crude oil theft, inadequate investments, host community issues and output restrictions by the Organisation of Petroleum Exporting Countries (OPEC).

Detailed findings following engagements with critical industry stakeholders, site visits to major crude oil terminals, overfly of the affected pipeline right of way, and investigative hearings revealed a dual and conflicting regulatory presence by NUPRC and NDMPRA.

“Both the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) and the Nigerian Downstream and Midstream Petroleum Regulatory Authority (NMDPRA) in one of the floating and offloading terminals in the Ebok field operated by Oriental Energy Resources, offshore Akwa Ibom State, is outrightly against the spirit and letters of the Petroleum Industry Act, 2021 (PIA),” the report observed.

Whereas the PIA vests the regulatory oversight over all upstream operations and activities (including crude oil terminals, whether integrated or otherwise, on the NUPRC, the Committee said dual regulatory oversight has a constant source of conflict and crises among staff of the Commission and NMDPRA.

The conflict, the Committee noted in its report, has led to several complaints by oil and gas producers on the terminals, resulting in a negative impact on the ease of doing business by the industry operators at the terminals.

Contrary to the provisions of the PIA, which allow the NUPRC to be in charge of the upstream sector and the NMDPRA for the midstream and downstream sector, the Committee said the latter was mandated to regulate future stand-alone export terminals for export of refined products for non-holders of Petroleum Mining Lease or Oil Mining Lease.

The Committee said considering that the stand-alone export terminals was not available under the Terminal Dues Act, which authorized the establishment of crude export terminals only for holders of Oil Mining Lease or Oil Prospecting License, the NMDPRA had no legal mandate under the PIA to regulate crude oil export terminals given that its mandate was restricted to midstream and downstream terminals.

Beyond the conflicting regulatory functions, the Committee frowned at the interference of the Federal Ministry of Transport in the deployment of the Advance Crude Cargo Declaration solution, which should be the responsibility of the NUPRC, in line with its mandate as the technical and commercial upstream regulator under the PIA.

“At no time did the PIA contemplate that the NMDPRA will perform crude oil terminal activities regulation, which is an upstream regulatory function and should necessarily include hydrocarbon accounting and crude oil revenue assurance and consolidation, as these are interdependent and contingent on crude oil terminal regulation.

“Crude oil being a product of upstream, in line with its definition under Section 318 of the PIA, its Terminals can only be under the regulation of the NUPRC for optimal hydrocarbon accounting, ease of doing business and transparency in royalty computation as well as revenue assurance,” the Committee said.

The Committee traced the source of the dual and conflicting roles between the two regulatory agencies to a February 3, 2022 letter from the Minister of State for Petroleum Resources, Timipre Sylva, who pursuant to his powers under section 3(4) of the PIA, delineated the scope of the regulatory authority of NUPRC and NMDPRA over terminals operations.

Again, the Committee said another letter dated July 7, 2022 by Sylva gave a counter directive on the same delineation of the scope of regulatory authority of NUPRC and NMDPRA over terminals operations which conflicted with the extant provisions of the PIA, particularly sections 7(ee), 8(d), 32(ii) and 174(a).

In its recommendations, the Committee said the directives contained in the Minister’s letter of July 7, 2022, which conflict with the extant provisions of the PIA, particularly sections 7(ee), 8(d), 32(ii) and 174(a), which are inconsistent with the provisions of the PIA, should be removed.

“The NUPRC should resume full regulatory oversight of all existing crude oil terminals in Nigeria, including integrated terminals, crude oil pipelines, issuance of loading clearance and processing of export permit in line with section 8(d) of the PIA, as regulatory activities as crude oil terminals are interdependent and contingent,” the Committee said.

“As intended in the PIA, the NMDPRA, on the other hand, should concentrate fully on regulating the midstream and downstream activities, i.e. from refineries, mid and downstream gas infrastructure, supply, storage and distribution of refined petroleum products, petrochemicals, virtual pipelines and retailing facilities, in line with the provisions of the PIA, including future stand-alone crude oil and natural gas export terminals,” the committee added.

Also, the Committed asked for an immediate streamlining of the agencies present at the terminals in line with the relevance of their PIA delineated upstream and midstream/downstream statutory functions, while NUPRC should strengthen deployment of digital accounting procedures (such as advance cargo declaration, digital integration of LACT units) at all crude oil terminals for transparent hydrocarbon accounting.

Again, the Committee said the NUPRC should fast track the upgrade of the National Production Monitoring Systems (NPMS) to enable Real Time monitoring of Flow station and Terminal activities, while expediting the deployment and strict enforcement of the Advance Crude Oil Cargo Declaration solution for detection and mitigation of illegal movement of vessels, to ensure adequate revenue generation and optimal crude oil accounting, to enhance revenue generation for the federation.

In addition, the Committee urged the NUPRC to ensure all vessels coming into the Nigerian waters for the purpose of crude oil liftings adhered strictly with Advance Cargo Declaration (ACD) in line with international best practices in collaboration with the Nigerian Navy and other relevant statutory agencies in line with presidential approval.

While advising the Ministry of Transportation to immediately withdraw its interference with Advance Cargo Declaration on wet petroleum cargoes in alignment with the statutory mandates of the NUPRC under the PIA, the Committee urged the NUPRC to summarily conclude engineering audits of existing LACT Units and flow meters for efficient regulation and monitoring for integrity assurance and standardization of crude oil measurement systems in the Nigerian upstream oil and gas operations.

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