Daily Times: Comment: Shell’s corrupt shell game in Nigeria

By Ike Okonta
Sunday 4 April 2004

Under fire from shareholders, and facing investigations in the United States, the United Kingdom, and the Netherlands for misrepresenting its oil reserves, Royal Dutch/Shell is trying to shift the blame to Nigeria.

Confidential company documents made available in late March suggest that Shell withheld vital information on the extent of the downward revaluation of its Nigerian reserves – by 1.5 billion barrels (60 percent of the country’s total reserves) – because it wanted to strengthen Nigeria’s hand in negotiating with OPEC to increase the country’s production quota. Nigeria presently produces two million barrels per day. OPEC calculates member countries’ quotas based on proven reserves.

Nigeria, grappling with a worsening economic crisis, wants to double daily production to four million barrels, to reflect new discoveries that the Nigerian National Petroleum Corporation (NNPC) claimed in December 2003 had increased reserves to 34 billion barrels. Officials also argue that Nigeria’s large population relative to other OPEC members, and the urgent need to earn foreign exchange to invest in infrastructure and social services, necessitates preferential treatment. Shell claimed it did not want to jeopardize these negotiations by making public the true state of its Nigerian reserves.

This image of Shell as a sensitive, caring company mocks the evidence. At the heart of Shell’s oil reserves scandal is the desire for profit and the elaborate mechanisms that it nurtured in collaboration with corrupt military dictators over the years to ensure that its operations yield enormous dividends at the expense of ordinary Nigerians.

Shortly after General Ibrahim Babangida seized power in a coup in 1985, the military government signed a “Memorandum of Understanding” with Shell and other oil companies. The Memorandum, revised in 1991, entitled Shell to a guaranteed profit of between $2 and $2.50 per barrel produced as long as oil prices remain in the range of $12.50 to $23.50, and provided that it invests a minimum of $1.50 on every barrel it produces. As a further sweetener, Shell was entitled to a bonus of ten to fifty cents per barrel for every operating year in which it discovers new oil fields with reserves greater than the volume of the oil it extracts.

Shell has been laughing all the way to the bank ever since. On average, world oil prices have not fallen below the stipulated $12.50 baseline since 1986. Moreover, Shell also operates a joint venture partnership between the NNPC, the French oil company Elf, and Agip of Italy. The Joint Operating Agreement guiding the venture, in which the Nigerian government has 55 percent equity, stipulates that while all parties share in the cost of operations, Shell prepares the annual work programs and budget.

Control over operating costs is the key to understanding of Shell’s big profits in Nigeria. The NNPC’s executives admit that proper monitoring of the company’s operating costs consistently eludes them and that what keeps Shell and the other western oil companies in business is not the theoretical margin, but the returns they build into their costs.

Because the operational budget is set by Shell, and because the NNPC is plagued by corruption and lacks the expertise to verify production claims, the operating company has a powerful incentive to inflate costs. Similarly, new reserves “discovered” by Shell to enable it to press a claim for the Reserves Addition Bonus was a key source of company profits until 1999, when a new government reviewed the Memorandum of Understanding.

Production costs have been a subject of bitter dispute between Shell and Nigeria’s government since the early 1990’s. Alarmed that the production costs put forward by Shell were always increasing, in 1996 Nigeria’s petroleum minister promised to establish a monitoring unit to scrutinize all of Shell’s invoices and claims. Nothing came of this.

Last February, the newly elected Senate attempted to block $1.6 billion from going to Shell and two other companies for production expenses until they provided adequate documents to support their claims. This effort was brushed aside by President Olusegun Obasanjo and NNPC officials.

The latest scandal is unlikely to elicit vigorous responses from Nigeria’s government, even though it has been paying millions of dollars for new oil finds that exist only in Shell’s imagination. Nigerian officials are anxious to swat away charges that Shell padded its figures for reserves in Nigeria to take advantage of lax oversight and regulatory mechanisms and reap millions of dollars in bonus payments. Indeed, Shell insists that Nigeria owes it $385 million more.

Shell has powerful friends in Nigeria’s government. In the mid 1990’s, the company worked closely with the late dictator, General Sani Abacha, to suppress the Movement for the Survival of Ogoni People, a grassroots environmental and minority rights organization led by Ken Saro-Wiwa, who was later executed by the regime. Human Rights Watch investigators linked Shell officials to gross human rights violations committed by government troops at the time.

This slick alliance of corrupt state officials and self-serving company executives, anxious to keep the petrodollars flowing, is still in place. Facing the sharp end of the stick are the seven million Niger delta peasants, who bear the brunt of the violence, environmental devastation, and social anarchy that Big Oil produces wherever it sets up its drilling rigs.

Ike Okanta is a research fellow at the Institute of International Studies, University of California, Berkeley and the author of Where Vultures Feast: Shell, Human Rights and Oil. —Daily Times—PS

http://www.dailytimes.com.pk/default.asp?page=story_4-4-2004_pg5_19 

RELATED ARTICLE

Electronic Green Journal -Review: Where Vultures Feast: Shell, Human Rights, and Oil in the Niger Delta

By Ike Okanta and Oronton Douglas

Issue 15 December 2001

ISSN: 1076-7975

Reviewed by Carl M. Hand

Valdosta State University, USA  

Ike Okanta & Oronton Douglas. Where Vultures Feast: Shell, Human Rights, and Oil in the Niger Delta. San Francisco: Sierra Club Books. 2001. 268 pp. ISBN 1-57805-046-4 (cloth). US$24.00

Okanta and Douglas provide a vivid and relentless account of human tragedy since oil was discovered in the Niger Delta in 1956. Foreign manipulation and exploitation of the Delta has always been a central fact of life.

However, the ferocity of the assault on both the people and the ecology of the Delta in the wake of nearly unrestrained oil development is unprecedented. While Shell is not the only oil company in the Delta, it has played a unique role in the country's oil development, having nearly exclusive concession over the Delta and accounting for half of the government's revenue. Oil is not the Delta's only natural resource. The Niger Delta is an area of tremendous biodiversity and vitally significant ecosystems. The impact of oil production, logging and hunting, unsustainable farming practices, and rapid population growth is resulting, however, in the slow death of this ecological heritage.

Despite the wealth of natural resources, little of the revenue generated in the Delta returns in the form of social and economic development. After the oil boom in the seventies, the region has witnessed growing impoverishment and declining GNP per capita, made worse by International Monetary Fund led "structural adjustment" policies imposed in the mid-eighties. As the authors note, Nigerian political and economic realities reflect its "dependent, peripheral capitalist structure" (p. 28) inherited from the British but exacerbated by a nearly exclusive dependence on oil exports.

By 1990, growing poverty and ecological destruction within the Delta created the ferment for social reform. While the movement had many different levels, the lighting rod organization came to be the Movement for the Survival of the Ogoni People (MOSOP), founded by Ken Saro-Wiwa. The military junta of General Babangida attempted to thwart this movement through the appearance of social reform and the promise to divert more oil profits to the Niger Delta. These efforts were largely palliative. In 1993, 300,000 Ogoni took to the streets to protest Shell's "ecological warfare and the government's continued denial of the Ogoni right to self-determination" (p. 119). In the months following, the military junta unleashed a systematic and brutal campaign of violence and massacre against the Ogoni.

This part of the story of the Niger Delta-ecological disaster, genocide, and the strategic alliance of the Nigerian military junta and Shell oil, is relatively well known. What is not as well known, but fastidiously documented by the authors, is Shell's role in the country's genocidal conflicts, including the "judicial murder" of Ken Saro-Wiwa and the rest of the Ogoni Nine by the Nigerian military in 1995. The second author, O. Douglas, was in fact a member of Ken Saro-Wiwa's legal team. The book provides insight into the backroom machinations between the government and Shell that anyone should find shocking. While the authors are never dispassionate in their writing, they support their arguments throughout with available evidence and make every effort to preserve the integrity and truthfulness of their account.

The efforts of MOSOP and the aftermath of Ken Saro-Wiwa's death have raised the stakes for Shell and the Nigerian government. Environmental and human rights are on the table in Nigeria; whether they are ever realized depends on the shape of "globalization" to come. As the authors note, the people and ecology of the Delta are dying, a fact that must be significant for Nigeria and for the world. Recommended for all libraries.

Carl M. Hand <chand@valdosta.edu>, Associate Professor of Sociology, Department of Sociology, Anthropology, and Criminal Justice, Valdosta State University, Valdosta, GA, USA. TEL: 1-229-249-4973.

http://egj.lib.uidaho.edu/egj15/hand1.html

FURTHER RELATED ARTICLE: Netherlands Institute of Human Rights

In 1995 the world was shocked by the news of the murder of Ken Saro-Wiwa. Yet his summary execution by Niger's brutal military junta was only the latest horrific event in a centuries-old pattern of human rights abuse and environmental exploitation.

The organisation of Ken Saro-Wiwa, Movement for the Survival of the Ogoni People (MOSOP) was formed out of a final, desperate need to protest the destruction of a people's land and culture by two forces: a giant multi-national corporation, Royal Dutch Shell, and a series of corrupt and repressive Nigerian governments.

In this book, the authors present a devastating case against both Shell and Nigeria's military regime of the 1990s. Since Shell first began to plunder Nigeria's rich reserves of oil and gas in the 1950s, the environment and economy of the country have been in steady decline, while Shell's profits have continued to rise. Irresponsible practices have degraded agricultural land in this once-rich delta and left local people destitute, often lacking such basic amenities as piped water and sanitation facilities.

Although Shell's "spin doctors" try present a rosier image of the corporation's presence in the Niger delta, the authors offer evidence to support charges of environmental degradation.

http://sim.law.uu.nl/SIM/Library/books.nsf/0/7bf8f3872ba13a6341256b74004bc8c8?OpenDocument

FURTHER RELATED ARTICLE:  Sierra Club

International Campaigns: Nigeria

Ken Saro-Wiwa and the Ogoni

In the morning on November 10, 1995, Ken Saro-Wiwa - Nigerian poet, writer, and the leader of a minority ethnic group called the Ogoni - was hanged by the Nigerian government for a trumped up crime.

His commitment to nonviolent protest of the environmental destruction created by Shell Oil and the Nigerian government brought him and his cause world notoriety. He mobilized tens of thousands in the Niger Delta to stand up against the environmental destruction wrought by Shell's oil drilling.

This act of murder on the part of the Nigerian dictatorship will never be forgotten, nor will the role that Shell Oil played in supporting the Abacha dictatorship.

http://www.sierraclub.org/human-rights/nigeria/