THE MAGAZINE

Crude Oil and Corruption

By Robert Elliott

Big Scale, Big Trouble
Tucked into the crook of West Africa before the continent juts out into the Atlantic Ocean, Nigeria is a wide expanse of low-hilled savanna, mangrove swamp, and a sandy coastline. It is one of Africa’s most controversial countries: Neighbors deride its volatile and chaotic nature, and it consistently ranks among the most corrupt nations in the world, according to Transparency International.

Nevertheless, Nigeria is a heavyweight on the continent and abroad. It makes up one-sixth of Africa’s total population with more than 130 million people who are a potpourri of ethnicities including Arab, West African, Central African, Touareg, and others. Rich in cultural traditions such as textiles, woodworking, and music, Nigerians are also generally well-educated and possess barracuda business instincts that expand their sphere of influence in Africa and beyond.

The country flexes the most muscle with its oilfields. As a member of the Organization of the Petroleum Exporting Countries (OPEC), Nigeria is Africa’s largest crude producer, and the industry yields roughly 65 percent of the country’s budgetary revenues and 95 percent of its foreign exchange earnings. It is the eighth-largest oil exporter in the world, and the fifth largest provider to the United States.

Nigeria “has no diversified industry to speak of—the only driver is oil,” says Drew Weir, head of pipeline availability for SPDC. If that doesn’t change by the time the crude runs out, “the country will go back to the bush,” he says.

The local oil industry was born when Anglo-Dutch behemoth Shell hit pay dirt with a successful well at Oloibiri in 1956. SPDC’s operations now make up about half of the oil market footprint in the West African country. Its pipeline network is by far the largest in the country, with more than 6,000 kilometers (roughly 3,728 miles) of ducts that spread across the delta like the splintered lines of a shattered windshield; this network is fed by more than 1,000 producing wells.

Nigeria is part of Shell’s bread and butter, and the company is indelibly linked to the country, but its local dominance is a double-edged sword. “Most of the problems we have are always multiplied because we are so big and our footprint is larger” than other oil companies in Nigeria, says Vincent Okwechime, part of Corporate Security Strategy Planning and Capability Management for SPDC.

Shell has the capacity to pump 1.1 million barrels of oil per day in Nigeria. Because of shutdowns due to rebel attacks, and to bunkerers, it only achieves about half that, losing billions in revenue at a time when oil prices are at record highs.

Not on the MEND
Besides Shell, Nigeria is host to U.S. oil giants ExxonMobil and Chevron, Italy’s Agip, and several others. The foreign oil companies account for nearly all of the country’s 1.9-million-barrel daily output. But a cool 25 percent of potential production is lopped off by the Movement for the Emancipation of the Niger Delta (MEND), a shadowy, well-armed group that says it fights for less-privileged Nigerians cut out of the country’s oil spoils.

Clad in camouflage fatigues and black hoods, MEND guerillas in speedboats stalk the country’s backyard of Delta rivers and creeks, disrupting the flow of oil at various junctures of the pipeline. The group has since graduated to land-based operations as well, as evidenced by the car bomb set off in a military barracks at Port Harcourt in early 2006.

MEND runs an effective operation with apparently good intelligence. “They know exactly where we are and what we have there. They know exactly where the major connections are and where to do the most damage,” says Weir.

What’s more, members have the support of local communities, who appreciate that they stand for them against the government and that they redistribute resources seen as exploited by big business. “When they are banging on our manifolds, our risers, and our stations, they are making a statement to the government,” says Weir.

“MEND has a raison d’etre, they’re very well organized, they have strict discipline, and they have cash,” adds Weir.

The threat the group presents is real and growing. Their attacks on pipelines have even sent shivers through world crude markets and are a factor in the gyrating price of oil.

During the five years leading up to 2006, oil companies reported 32 attacks against their installations in Nigeria, and the tide of assaults shows no sign of slowing, says Gabriel Ekim, security manager for ConocoPhillips. By this February, kidnappings and shootings of oil workers had become weekly occurrences.

In addition to the populace’s exclusion from oil profits, Ekim says that the backlash stems from impoverishment—more than half the population falls below the poverty line of $1 a day—along with a dearth of employment opportunities, environmental degradation wrought by the oil industry, a lack of infrastructure and government presence, and a bitter sense that the money that comes from the riches beneath the ground makes its way into relatively few pockets

The Niger Delta has been neglected for many decades. The problems won’t stop until development is put in place and people see it,” says Ekim, a retired police commissioner who is originally from the Delta area. Schools, hospitals, community centers, potable water, good roads, and other infrastructure are needed for the zone’s 70 million people, he says.

Bunkered Down
A morning’s drive to the northeast of Port Harcourt, and far into the swampy interior is the headquarters for SPDC’s Egbema pumping district. Coordinator Tim Kalio shepherds six production stations separated by two-hour drives over potholed roads. The total output of the stations is potentially 35,000 barrels per day, but when I visited Kalio’s office, production had been shut down for two days—a great loss at a time when oil was selling for $76 per barrel on the international market.

The shutdown was caused by damage to a main trunk line by bunkerers. In this case, the thieves found a secluded stretch of trunk line, dug down a few feet, connected a pipe and valve using a “hot-tap” method of applying acid and welding, then siphoned off oil.

When the company discovers such illegal taps, it must completely shut off the section to prevent leaks and subsequent environmental hazards. The time needed to repair the line depends partly on the weather. “Lightning here is terrible—you can’t just go right into an open field [during a storm],” says Kalio.

Repair lag time also depends on the terrain. Some of the pipelines go through dense, watery sections of the mangrove swamp. The lines crisscrossing the Egbema district are predominantly buried in reddish soil that has been cleared on either side, cutting a swath some 25 meters wide through the bush. Boys are seen cropping the grass with scythes. “It’s important to keep the right-of-way clear so thieves can’t disappear into the bush,” says Afohron.

Security experts and company officials estimate that about 50,000 barrels of crude are bunkered in Nigeria each day. Part of the oil is sold to fund MEND’s activities, while the rest flows into international syndicates that have tankers parked offshore. Dennis Amachree, a former security official for oil services group Halliburton, says the tankers loiter in the Gulf of Guinea before being met by barges laden with pilfered oil. “The clients take it to their countries and sell it there. It’s an elaborate operation with a lot of money involved,” says Amachree.

Local security experts say the bunkerers include Lebanese, Serbians, Montenegrins, and Chinese, among other nationalities.

Corruption
Corruption adds to the problems companies face. As a sign of how far local corruption goes, it is strongly suspected that in 2006 Nigeria’s vice president was one of the country’s prime bunkerers. Guard forces and oil company employees also get in on the action.

“It’s lucrative to steal. They become millionaires instantly. For one or two deals, they make a lot of money,” says Amachree. “It is public knowledge; it’s a hush-hush open secret.”

Security experts in Nigeria note that, by law, the multinational companies must employ a majority of Nigerians in their ranks, increasing the likelihood of coruption and inside jobs.

Proprietary information is at risk along with the physical assets. A consultant for ExxonMobil, who often works in Nigeria, told of visiting a tribal chief’s home and being proudly shown an entire bid proposal for one of the oil major’s projects. “It was supposed to be completely confidential,” he says.

Corruption haunts all transactions. At the border with Benin, a dusty barren spot with roadside shantytowns and makeshift markets, I faced a gauntlet of seven desks behind which men sat—some in military dress—ready to collect their informal border tax. “Do you have something for me?” they asked.

“Everyone is on the take. It doesn’t matter who you are, what you are, or where you are, you’re on the take,” says Weir. And the stakes can be high. Kickbacks of up to $1 million are not unheard of.

One driver of this corruption is Nigerian cultural tradition, which dictates that men are under enormous pressure to take care of friends and family in their townships and cities. Whoever scores the big job is obligated to bring others on board and to maximize profit.

Corruption is also an issue within the government security forces (GSF), which consist of a few thousand men who are supposed to help SPDC and other oil companies protect their installations. Ostensibly the force is part of the return SPDC gets for the government’s 55 percent ownership of its production. The company receives 30 percent, and the rest is a joint venture. But it’s unclear sometimes which side of the law the forces are on.

Higher-ups in the GSF have been removed from their posts for engaging in bunkering, and others in the ranks are known to partake in the spoils—leaving them without incentive to halt oil theft when they have the opportunity.

Even if they wanted to do the job well, the government forces would have a difficult time of it, given their shoddy resources. They have only nine boats at their disposal to patrol the endless lagoons and mangrove swamp. “The GSF are completely ineffectual, ill-equipped, underpaid, poorly led, and not up to the task,” says a manager for one of the leading foreign security companies in Nigeria.

To make matters worse, anyone who gets caught is unlikely to pay dear consequences. “There is no commitment from the court systems to actually prosecute these guys, because the policeman is probably in on it as well,” says Weir.

Wrong Target
SPDC officials and private security experts blame the government for shortchanging local communities and sparking anger against the oil companies. “The reality is that providing for communities economically and socially is the business of the government,” says Okwechime. But the companies are visible targets that are seen to be taking resources, so they have become a lightning rod for resentment.

Seeking Solutions
Whether or not security is the government’s responsibility, oil companies are coming to the realization that they must provide their own solutions.

To fend off corrupt practices, head off bunkerers, and assuage MEND, Shell has developed a three-pronged strategy of intelligence, public relations, and technology that will be funded up to $1 million over the next couple of years.

In Shell’s security strategy, the human element trumps the technology component. “The hardware is the second-line of defense—the first is good community relations and a good intelligence information system, as in people seeing, hearing, and talking,” says pipeline system manager Ir W. R. Vranckx.

The backbone of the plan is outreach to communities, which Shell insiders say have had a “sour” rapport with the oil behemoth for the last 50 years. “With anything you do here, if you don’t get the buy-in of the communities, you have a problem,” says Okwechime.

Human Intelligence. SPDC has about 2,500 private security force members of its own, including investigators, personnel protectors, and guards. About a thousand of them are at the main facility in Port Harcourt, while others are in far-flung locations guarding against bunkering at particularly vulnerable and oft-attacked manifolds.

But security cannot be achieved with an outside guard force alone. The greatest goal is to gain the trust and aid of the thousands of communities along the pipeline, residents of which are hired by SPDC as contractors to guard the line and right-of-ways. Along with the government forces and SPDC’s security, these workers are supposed to serve as the key human intelligence aspect of pipeline protection.

To enlist their aid, SPDC deals with a lead local serving as head contractor—perhaps the village chief—who hires workers to cut grass and maintain the area along the line. In addition to their routine duties, these agents in flip-flops are remunerated for spotting and reporting suspicious activities or pipeline breaches along their path.

Weir says the current program is “disorganized,” and payment is not consistent, but now Shell wants to compensate contractors for their operating costs, plus offer regular pay and bonuses of up to 70 percent that can be hiked after three months if they do a solid job. “We want them to own their share of the pipeline,” says Weir.

Steve Casteel, senior vice president for international business at Vance International, says a similar system has been employed in spots like Iraq. Tribes living along the network are paid a base fee by oil companies based on the percentage of the pipeline in areas where they hold jurisdiction. In addition, they receive bonus money as the number of pipeline incidents in their area decreases.

Hiring people for these programs is not easy because contractors historically have paid workers poorly, if at all.

It is also tricky to find workers in the increasingly fractious communities. “It’s very hard to find cohesive communities where you still have a sense of order. There’s all kinds of disagreements and in-fighting,” says Okwechime.

Among its complexities, Nigeria is a land of intense tribal rivalries: in the southeast are the Ijaw and the Ibgo; in the north are the Hausa; in the southwest there are the Yoruba ethnicities. All are clamoring for representation, and the heat rises during election time.

“Oil is the only resource, and everyone now wants a part of it,” says Okwechime. Disgruntled surveillance guards will simply turn a blind eye to illicit activities and take a cut themselves, he says.

Public relations. Contractual surveillance work does help solve a major community dilemma: employment. SPDC has a Sustainable Committee for Development to help communities and create positive publicity.

The company’s good deeds in the past have included building schools, clinics, hospitals, and water projects, and funding scholarships. The idea is to “create a structure in this community, like roads and electricity, for companies to begin to want to invest and create employment opportunities,” says Okwechime.

“The community development department is constantly trying to reinvent things and show there is some level of benefit that people derive from us,” he adds.

Technology. As a part of the three-pronged approach, SPDC is testing the extent to which security systems can help it achieve the objectives. Among the systems being tested are access controls, CCTV, and motion sensors.

Weir says that a complete communication network with effective video coverage would require more than 1,000 CCTV cameras. Initially, surveillance cameras will be situated at only a portion of the network’s 87 flow stations, specifically those located in the 80 kilometer stretch between Ibaa and Asa. “We will put them high up on communications towers so people can’t steal them or tamper with them,” says Sekobe.

Geoseismic sensing cables will run underground along the same 80-kilometer stretch of pipeline. The sensors can differentiate between the weight of a goat and a human. In this case, the alarms they set off would go to a response center in Port Harcourt, and a team would be sent out to the site.

Many of the manifolds and flow stations currently have double chain-link fencing or cinder-block walls around them. Still, ingenious thieves manage to skirt some of the barriers and make off with such items as solar panels.

Some oil company employees and security experts I talked with were skeptical of whether the security systems would prove effective. They pointed to thievery and a lack of maintenance, technological know-how, and proper response. Cameras will be stolen, says one private security country manager, and even if equipment is not removed, it likely won’t withstand the blustery wet weather or be properly maintained, says Weir.

And those charged with monitoring the feeds are as likely to be sleeping at their desk as watching the images, says the other manager. But, Weir says, “we will try it.”

The sensors will get a test run, but unless they are watched vigilantly by the surveillance teams, they are too easily sabotaged, Weir says. “If they know it’s there, all they do is dig it up and cut it, and you’ve lost your cable,” he explains.

And if the system works, questions remain about the response teams’ effectiveness. “The real problem with pipeline protection in Nigeria is not so much based on identifying when a pipeline has been breached, but rather what is the appropriate response,” says the private security country manager.

Overall, the pilot project will be monitored for up to three years to gauge its effectiveness. “If all this works, a lot of our problems will be solved. But it has to be a combination of technology, community empowerment, and company action,” says Okwechime.

Future Prospects
Many oil drillers in the Delta region are now keen to set up more deepwater rigs. In the open sea, they stand less chance of interdiction by rebels on the prowl, the piracy threat is declining, and they can pump crude with minimal interference.

Onshore, security officials agree that to cut down on pipeline attacks and bunkering, officials must improve reparations to communities in exchange for protection of the oil ducts. The money has to flow generously into the right hands and go toward infrastructure, schools, and a better quality of life.

The effectiveness of government security forces also must be addressed. Shell officials are pushing for the government to establish forward operating bases in different strategic locations in the Niger region. The country’s major Navy base is now in Port Harcourt, making it difficult to respond to incidents deep within the Delta.

There is also the need to edge the rebels out of the spotlight. Currently, the militants are popular and not afraid to engage the GSF. “They very much purport to being latter-day Robin Hoods, and they are getting press, empathy, and sympathy,” says the private security manager. Until that changes, “the problem of bunkering and pipeline attacks is not going to go away.”

Robert Elliott is a former assistant editor of Security Management.

 

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