Oilfields in the Niger Delta drive the Nigerian economy
Earlier this month, nongovernmental organisation Global Witness accused Royal Dutch Shell of “knowing” that more than a billion dollars from the purchase of an offshore oil lease would be passed on to ministers and officials connected to former Nigerian president Goodluck Jonathan, who lost power in the 2015 election.
The claims date back six years. From its headquarters in The Hague, Shell denied wrongdoing and said it would counter the allegations. But the Global Witness report, seen by the Mail & Guardian, has pages of data that seem to back its case.
Yet this may not be the only matter of concern for shareholders in Europe’s largest company.
Shell has been in Nigeria for more than 80 years and was the first to strike “black gold” there, shortly before the country gained independence in 1960.
But, in 2014, with rising problems over safety in the Niger Delta, Shell decided to sell its oil-mining lease (over what some say are the richest on-land wells in Africa) and a 100km-long pipeline carrying crude to the coast.
The buyer, Benedict Peters, was Nigerian and so was his company, Aiteo. There have been no claims of anything untoward in the deal. But Shell’s investors might ask how Aiteo has since managed to more than triple the flow of oil, and why Shell failed to pump the same amount while it held the lease.
Two years ago, when the sale went through, Shell obtained 23 000 barrels a day from the oilfield in question. Aiteo has lifted output nearly 400% to 90 000 barrels a day.
Nigeria’s government has talked of indigenisation since the 1970s, but with a succession of coups and a barrel price that rose and fell with conflicts in the Middle East, it never quite happened. Oil makes up 94% of the country’s export revenue, so a lot is at stake. By contrast, South Africa’s biggest export is gold, but it accounts for just 10% of the total.
Jonathan has had bad press since losing office. His successor, Muhammadu Buhari, campaigned on a promise to end corruption in one of the world’s most bent economies, but critics say he has simply gone after political rivals, including Jonathan. Barely a week goes by without Nigeria’s woes being blamed on the old regime.
Buhari’s main agency for fighting graft is the Economic and Financial Crimes Commission or EFCC, headquartered in Abuja. The commission has had some success in identifying criminals, though few have been prosecuted and cases are often short on evidence.
Like many others, Peters appears on a list of people the EFCC wants to interview about political donations made during the 2015 election, but no warrant has been issued and he continues to run his business.
Transparency International’s 2016 figures show that corruption has grown slightly under Buhari, and last week’s report by Global Witness makes no reference to Aiteo, Peters or Shell’s sale of the oil-mining lease.
What is not in doubt is that, during his time as president, Jonathan became serious about the local ownership of oil, taking what some would see as a risk. The latest figures show he may have been right.
In recent years, Nigerians have spent more than $10‑billion buying back their oilfields, with 70% of this funded by local banks.
According to Peters, new sites are being developed that could give his company a flow of 150 000 barrels along with 5.6‑million m3 of gas a day.
Originally a town planner, Peters started buying and selling goods while still at school. He is fluent in French, English and the local languages of Nigeria, and has spent most of his life in business.
The purchase of the Shell oilfield required him to borrow heavily, risking his equity in other assets.
Despite his recent business success and unlike many wealthy Nigerians, he has not run for political office.
Peters has long condemned the country’s reliance on oil and its lack of local industry, calling for “a diversified and resilient economy” so that, when the oil price drops, it doesn’t lead to “a rise in unemployment and a rise in hunger”.
Other problems that complicate doing business in Nigeria include:
- The Niger Delta, where much of the oil comes from, struggles with lawlessness and unemployment;
- Half the population lives below the United Nations poverty line;
- Muslim cattle herders from the north have moved into the region to graze their livestock, leading to a low-scale civil war with the largely Christian locals;
- Equipment, ranging from buckets to bulldozers, must be guarded day and night because thieves bore into the pipelines, tap the flow into drums or even tankers and sell it, and;
- Nigeria, with nearly four times South Africa’s population, produces a tenth of the amount of electricity, and mines have to rely on generators.
After years of facing such challenges, international oil companies, including Shell, have either scaled down or moved their rigs out to sea, selling some of the delta wells. With the blessing of the government and the banks, local buyers snapped them up.
But Peters believes prosperity is the only path to peace. “By working together, we inspire people and communities,” he told journalists recently.
“We have shown by our story that indigenous oil companies are competent.” This, he says, opens the way to “a transformed energy sector that creates wellness and economic prosperity”.
In South Africa, Julius Malema has called for mines to be nationalised, but if Nigeria had seized foreign wells it could have seen wholesale disinvestment and a collapse of the naira. Instead, a system was nurtured that allowed locals to raise finance against future revenues, buying not just oil claims but, in Aiteo’s case, also the key pipeline that carries crude from mine to port.
As Shell and Global Witness trade blows and Buhari continues with his war on corruption, Nigerian oil output is growing, raising gross domestic product and keeping profits largely in the country. There may be a lesson here for Africa.