A new report by the anti-corruption group, Global Witness, says Shell and Eni’s deal for Nigeria’s OPL 245 oil block reduced Nigeria’s expected revenue by nearly $6 billion.
The Malabu deal involves Africa’s most promising oil block and was struck in 2011 under President Goodluck Jonathan. The arrangement saw the Nigerian government stand as a negotiator in the controversial sale of the oil block in offshore Nigerian waters.
Two international oil and gas giants, Royal Dutch Shell and Italian Agip-Eni, paid out about $1.1 billion to Dan Etete, a former Nigerian petroleum minister who had previously been convicted of money laundering in France.
The payout immediately became a subject of a cross-border investigation spanning over six countries. Several Nigerian government officials were believed to have received several million dollars in bribes for the enabling roles they played.
Global Witness in its new report titled Take the Future said the projected lost revenue could fund Nigeria’s combined annual federal health and education budgets twice over.
The report draws on an analysis from leading experts at Resources for Development Consulting commissioned by Global Witness and NGOs HEDA, RE:Common and The Corner House.
The analysis of the contract terms estimated these changes could reduce the Nigerian government’s projected revenue from the oil fields by $5.86 billion over the lifetime of the project when compared to the terms that had applied before the 2011 deal and assuming an oil price of $70 per barrel.
The oil giants are already facing bribery charges over the deal in a landmark trial in Milan.
The new report shows the companies altered the terms of the agreement in their favour, through the removal of “profit oil” which was caused by the exclusion of the Nigerian government in the signing of the Production Sharing Agreement, PSA. This, the new report says, was designed to be favourable only to the oil companies as the arrangement would give the nation a poor share of 41 per cent as against the International Monetary Fund (IMF) recommendation of 65 to 85 per cent revenue.
The report posited that Nigeria should revoke the OPL 245 licence rather than allow the oil companies to make enormous profits from the deal.
Rather than revoke the deal, the Nigerian government is currently allowing the oil firms to process one of the fields in the block, called Zabazaba. Although the oil giants and their Nigerian collaborators are also being prosecuted in Nigeria, the government, through the petroleum minister, Ibe Kachikwu, has argued that is more interested in striking a financial deal with the oil majors.
According to Barnaby Pace from Global Witness, “Shell and Eni execs set the deal up so that Nigeria would earn some $6 billion less than it could have. This scandalous deal must be cancelled.”
The report noted that Shell did not comment on the specific points put to them, saying that “issues that are under consideration as part of a trial process should be adjudicated in court”. It added however that “there is no basis on which to convict Shell or any of its former employees,” adding that “We believe that the trial judges will conclude that there is no case for us to answer and we are vigorously defending our position accordingly”.
The report said the company also disputed the methodology and alleged that wrongful factual assumptions were made, but did not specify any particular error.
Eni on its part rejected “any allegation of impropriety or irregularity”, adding that in light of their ongoing trial, it would be “inappropriate for us to comment on such circumstances outside the court”.
The oil giant did not comment on the specific points put to them about the study other than to say “the technical and contractual assumptions adopted as the basis for the analysis appear to be partial and inaccurate, if not misleading,” the report said.
Both companies, together with their managers and other defendants, have denied wrongdoing and vowed to establish their innocence in the trial.
The new report also called on the Nigerian authorities to ensure proactive disclosure of details of deals struck in the extractive industry, in line with the dictates of the Extractive Industries Transparency Initiative, EITI.
The controversial Malabu deal claimed its first convicts when a Nigerian man and his accomplice in Italy were sentenced to four years each for their roles in the controversial deal. Emeka Obi, a Nigerian consultant in England, and Gianluca Di Nardo, an Italian, stood as middlemen in connecting the parties and the transfer of the funds through international bank accounts.
They were found guilty and sentenced four years each and had some assets confiscated in connection with the case. The pair had opted for a quick trial for their roles in the deal. The process in Italian law offers a possible reduction in any sentence.