THE PRICE OF OIL
III.
OIL AND NATURAL GAS IN NIGERIA
The first discovery of commercial quantities of oil in Nigeria was in 1956 at Oloibiri, about ninety kilometers west of Port Harcourt in what is now Bayelsa State; other discoveries soon followed and exports began in 1958, although significant quantities only began to flow from 1965, with the completion of a terminal on Bonny Island, on the Atlantic coast, and pipelines to feed the terminal. Following a drop in production due to the civil war of 1967 to 1970, output rose rapidly from 1970, and by 1974 oil revenues constituted over 80 percent of total federal revenues and over 90 percent of export earnings, figures which have remained similar since then. In 1980, when oil export revenues peaked at U.S.$24.9 billion, external indebtedness had reached U.S.$9 billion, oil accounted for 27 percent of Gross Domestic Product (GDP), about 80 percent of government revenues and expenditures, and 96 percent of total export receipts.1 Today, the petroleum sector comprises more than 40 percent of GDP, continuing to provide more than 95 percent of exports.2
Estimates of Nigeria’s oil reserves range from 16 billion to 22 billion barrels.3 Most of this oil is found in small fields in the coastal areas of the Niger Delta (according to the Ministry of Petroleum Resources, there are 159 oil fields, producing from 1,481 wells).4 As a result, there is a need for a developed network of pipelines between the fields, as well as for constant exploration to augment existing oil reserves. Nigerian crude is classified as “light” and “sweet,” with a low sulphur content, similar in quality to North Sea varieties, and its price is linked to the price for Brent. Average operational costs in Nigeria are around U.S.$2.50 a barrel, higher than the Persian Gulf, but lower than the Gulf of Mexico and the North Sea; other local expenses, including the payment of kickbacks to government officials and other corruption, are estimated to push costs up by another U.S.$1.00a barrel.5 Nigerian crude oil production averaged 2.21 million barrels per day (bpd) for the first nine months of 1997, half a million barrels per day above the country’s 1.865 million bpd quota set by the Organization of Petroleum Exporting Countries (OPEC). Nigeria’s quota rose to 2.042 million bpd in 1998 as a result of the OPEC meeting of November 1997; but, with the collapse of the oil price early in the year, Nigeria promised to cut back production by 125,000 bpd from April 1998, in line with an OPEC agreement attempting to halt the downward trend in prices.6 In July 1998, the oil multinationals operating in Nigeria were given an order to cut a further 100,000 bpd, in accordance with another OPEC ruling.7 Nonetheless, output of 2.3 million bpd was reported in March 1998, and Minister of Petroleum Resources Dan Etete was said to have set a target of 3 million bpd by 2002 and 4 million bpd by 2010.8 This oil is exported mainly to the U.S. and Western Europe. Nigeria is the fifth largest supplier of crude to the U.S., sending an average of 699,000 bpd during the first nine months of 1997, or approximately 30 percent of its output.9
The Structure of Oil Company Agreements with the Nigerian Government
According to the Nigerian constitution, all minerals, oil, and gas in Nigeria belong to the federal government.10 Nigeria did not have sufficient indigenousexpertise at the time oil was discovered to develop the oil reserves itself, and in all likelihood still does not. In this context, the federal government negotiates the terms of oil production with international oil companies, and takes a proportion of the revenue generated. Since independence in 1960, and in concert with the resolutions of the Organization of Petroleum Exporting Countries (OPEC),11 the government has steadily increased both its control over and the degree of competition within Nigerian oil production.
From 1914, the date of the Colonial Mineral Ordinance, the first oil related legislation in the new colonial state of Nigeria, the grant of licenses for oil production was restricted to British companies and individuals. In 1937, the Shell D’Arcy company, jointly owned by Shell and by British Petroleum (B.P.), was given exclusive exploration and production rights in the whole of Nigeria. This monopoly was maintained until 1955, when the concession area was reduced and Mobil entered the field for the first time. In 1960, Nigeria gained independence from Britain; by 1962, Shell’s concession areas had been further reduced, to the most promising areas, and other companies also began exploration. By the mid-1960s, Gulf Oil (now Chevron), Elf, and Agip were all involved in production. In 1959, still under colonial rule, the Petroleum Profits Tax Ordinance introduced a fifty-fifty profit share between the oil companies and the government; in 1967, the government imposed OPEC terms on the companies operating in Nigeria, ensuring that much greater royalties were paid.12 The 1968 Companies Decree forced all companies operating in Nigeria to become Nigerian corporations; the 1969 Petroleum Decree further increased state control of the industry, and remains the basis for the regulatory system in operation today. The 1970s saw partial nationalization of the industry, as the Nigerian government took an equity stake inthe oil industry, raising its participation in most companies from 35 percent in 1971, to 55 percent in 1974, and 60 percent in 1979.13
The main onshore exploration and production activities undertaken today by foreign oil companies in Nigeria are in joint ventures with the Nigerian National Petroleum Corporation (NNPC), the state oil company.14 The distribution of shares in a joint venture determines the division of investment in all capital projects carried out by the operating company, including exploration, drilling, construction, or environmental improvements; the participating shareholders also jointly own the reserves still in the ground. The multinational companies operate these joint ventures, and take all day-to-day decisions in their management.
The six joint ventures involving foreign owned oil companies are operated by the following companies:15
· Shell Petroleum Development Company of Nigeria Limited (SPDC): A joint venture operated by Shell accounts for more than forty percent of Nigeria’s total oil production (899,000 barrels per day (bpd) in 1997) from more than eighty oil fields. The joint venture is composed of NNPC (55 percent), Shell (30 percent), Elf (10 percent) and Agip (5 percent) and operates largely onshore on dry land or in the mangrove swamp.16
· Chevron Nigeria Limited (CNL): A joint venture between NNPC (60 percent) and Chevron (40 percent) has in the past been the second largest producer (approximately 400,000 bpd), with fields located in the Warri region west of the Niger river and offshore in shallow water. It is reported to aim to increase production to 600,000 bpd.17
· Mobil Producing Nigeria Unlimited (MPNU): A joint venture between NNPC (60 percent) and Mobil (40 percent) operates in shallow water off Akwa Ibom state in the southeastern delta and averaged production of 632,000 bpd in 1997, making it the second largest producer, as against 543,000 bpd in 1996. Mobil also holds a 50 percent interest in a Production Sharing Contract for a deep water block further offshore, and is reported to plan to increase output to 900,000 bpd by 2000.18 Oil industry sources indicate that Mobil is likely to overtake Shell as the largest producer in Nigeria within the next five years, if current trends continue.
· Nigerian Agip Oil Company Limited (NAOC): A joint venture operated by Agip and owned by NNPC (60 percent), Agip (20 percent) and Phillips Petroleum (20 percent) produces 150,000 bpd mostly from small onshore fields.
· Elf Petroleum Nigeria Limited (EPNL): A joint venture between NNPC (60 percent) and Elf (40 percent) produced approximately 125,000 bpd during 1997, both on and offshore. Elf and Mobil are in dispute over operational control of an offshore field with a production capacity of 90,000 bpd.
· Texaco Overseas Petroleum Company of Nigeria Unlimited (TOPCON): A joint venture operated by Texaco and owned by NNPC (60 percent), Texaco (20 percent) and Chevron (20 percent) currently produces about 60,000 bpd from five offshore fields.
Under the terms of the more-or-less standard Memorandum of Understanding (MOU) between each oil company and the Nigerian federal government, the operating company in a joint venture receives a fixed sum per barrel provided the price of oil per barrel remains within certain margins. The risk and benefit of oil price fluctuations thus largely accrue to the government. For example, provided the oil price remains between U.S.$12.50 and U.S.$23 a barrel, the Shell joint venture pays U.S.$3 per barrel to be distributed to the private shareholders according to their shareholding and to provide future investment, U.S.$2 goes to notional operating costs, and the remainder is paid to the government.19 The last MOU was negotiated between the government and the oil companies in 1991, for five years. Although due for renewal, no new MOU has been agreed. In addition, each joint venture has a Joint Operating Agreement (JOA) with NNPC, which governs the administrative arrangements between the partners.
Aside from the partners in the six main joint ventures, other foreign oil companies involved in Nigeria include B.P, Statoil, Total, Pan Ocean, British Gas, Tenneco, Deminex, and Sun Oil.
In recent years, the Nigerian government has also endeavored to increase indigenous participation in the oil industry. Over twenty local firms have been awarded oil mining leases, allowing them to produce, and the government has issued new guidelines for the development of “marginal fields” which favor local companies, threatening to review the license arrangements of NNPC’s joint venture partners and reallocate to indigenous operators marginal fields in blocks previously granted to the oil majors. In August 1996, the Petroleum (Amendment) Decree provided that any holder of an oil mining lease may farm out any marginal field within its area, with the consent of the head of state, and also that the head of state may compulsorily farm out a marginal field where it has been left unexploited forten or more years.20 Although this threat has not been carried out, due to legal and commercial objections from some of the partners, notably Shell, who claim that such fields are unexploited because of funding difficulties caused by NNPC, former Minister of Petroleum Resources Dan Etete looked set to move forward with the proposal.21 If the new government does implement the decree, abandoned or underexploited fields will be recovered from joint venture partners and production rights re-allocated. Foreign firms may participate as technical partners, but they will be limited to a maximum of 40 percent equity.22 Some deals of this type have gone through on a voluntary basis: in May 1997 it was reported that Nigerian African Petroleum had taken on U.S. company Huffco (founded by a former U.S. ambassador, Roy Huffington) as a technical partner in a deal to acquire marginal acreage from Chevron.23
Disagreements between the oil companies and the Nigerian government over the level of funding budgeted by the government for the joint ventures with NNPC have dominated the politics of the upstream (exploration and production) sector in recent years. Funding to the NNPC from the Finance Ministry was below budgeted levels throughout the period during which General Abacha was head of state, and consequently exploration and other investment in the joint ventures has been greatly reduced. In the budget for the coming year announced in early January 1998, the U.S.$2.5 billion allocated to the six joint ventures was again more than U.S.$1 billion below the amount requested by the international oil companies. By April 1998, the oil companies were reported to be considering borrowing on the international capital markets to make up the shortfall.24
Although the cuts affected all the six main joint venture partners, they were not, reportedly, at a uniform across-the-board rate, leaving the oil companies fighting over the distribution of the money that has been allocated and exacerbating the usual rivalry for political goodwill with the key players in the military government. In this regard, Mobil and Chevron were active in the U.S., lobbying to fight off threats of oil sanctions against Nigeria; Shell believes it suffered as a result of the more assertive stand of the U.K. Labour Party government against theNigerian military; while Elf, with the support of the French government (which regularly flouted European Union visa restrictions for members of the Nigerian government coming to France for discussions with oil companies and argued for those sanctions to be lifted) and apparently in an effort to curry favor with the Nigerian government, drilled a well in an offshore area over which Nigeria has a territorial dispute with Equatorial Guinea, and which is already being explored on behalf of Equatorial Guinea by Mobil.25
One of the consequences of the perpetual financial wrangles between the Finance Ministry, NNPC, and the oil companies has been a shift to production sharing contracts (PSCs). Under a PSC the operator covers all exploration and development costs and pays tax and royalties to the government only when it starts to produce; the contractor has title to oil produced, but not to oil in the ground. Since PSCs entail no capital expenditure from the state oil company there is less risk of political interference to the foreign investor. New prospecting licences and mining leases granted in the deep water fields off the Nigerian coast have been on these terms, and the oil companies have been pushing for the onshore joint ventures to be converted, freeing them from the annual budget struggle.
Following the death of Gen. Sani Abacha, Gen. Abdulsalami Abubakar, the new head of state, announced that “as a first step” he had immediately paid a quarterly amount of U.S.$630 million in line with outstanding “cash call” obligations to the joint venture partners (though no commitment was made that underpayment for the first quarter of 1998 would be redressed), and that the government was “currently reviewing an alternative funding mechanism for the joint venture operations with a view to permanently eliminating the cash call problem.”26 The speech was welcomed by the oil majors, and negotiations for a new structure are continuing. The fall in the oil price, however, meant that, at U.S.2 billion, the cash call contributions announced in the January 1999 budget speech were again well below those requested by the oil companies, and arrears remained unpaid.
In addition to its oil wealth, Nigeria has an estimated 104.7 trillion cubic feet (tcf) of proven natural gas reserves, the tenth largest reserves in the world; reservesmay in fact be as high as 300 tcf.27 Plans to exploit this gas by liquefying it and shipping it to gas markets in Europe and the U.S. date back at least thirty years.
In November 1995, in a move heavily criticized by human rights groups, including Human Rights Watch, since it was in the immediate wake of the internationally condemned executions of Ken Saro-Wiwa and eight other Ogoni activists, a project to construct a U.S.$3-4 billion liquefied natural gas (LNG) facility on Bonny Island was finally announced. When completed, planned for 1999, it will be able to process 5.2 million metric tonnes per year (mmt/y) of LNG. Nigeria LNG Ltd, which is developing the project, is a consortium jointly owned by NNPC (49 percent), Shell (25.6 percent), Elf (15 percent), and Agip (10.4 percent). It is planned that “non-associated” gas, from gas reserves, will be used to supply the facility initially, but “associated” gas, produced as a by-product of oil extraction, will comprise 65 percent of supply by 2010.28 Nigeria LNG Ltd has been subject to disagreements among its partners. In June 1997, oil minister Etete dissolved the board of directors of the company and accused Shell of using its position as technical adviser to the project “to subject other shareholders to its whims and caprices.”29 The project does, however, appear to be moving forward: by May 1998, all but 5 percent of its projected production had been sold, and there were new plans to add 50 percent to its capacity.30
In July 1998, a liquefied natural gas plant jointly owned by Mobil (51 percent) and NNPC (49 percent) came on stream, producing 50,000 bpd. Also based at Bonny, the facility collects associated gas from Mobil’s Oso field.31
In addition, there are plans to build a West African gas pipeline to transport Nigerian gas to Ghana, Togo, and Benin. In October 1998, Chevron, responsible for the project, succeeded in signing up its first potential customer, a twenty-year commitment from a Ghanaian power-plant run by Virginia-based KMR Power.32
Exploration and production is referred to in the oil industry as the “upstream” sector; processing of crude oil into the various petroleum products is the “downstream” sector. Nigeria has refineries in Kaduna (in the “middle belt” of the country, outside the oil producing area), in Warri (Delta State), and two in Port Harcourt (Rivers State), with a nominal total capacity of 445,000 bpd. However, chronic lack of maintenance means that the refineries rarely if ever operate at this level, usually coming in at around 200,000 bpd or less: in December 1997, for example, crude oil allocation to the refineries was cut to 150,000 bpd, as a result of the poor state of equipment in the plants.33 In November 1998, a breakdown of the fluid catalytic cracker at the 125,000 bpd Warri refinery left the country without a single operational catalytic cracker, needed to separate different petroleum products from crude.34 The older refinery in Port Harcourt has been out of regular production since 1989; the new refinery was commissioned in 1989 and has a nominal capacity of 150,000 bpd. There are also petrochemicals plants at Eleme, on the edge of Ogoniland, near Port Harcourt, and two in Ekpan, Warri.35
If all the refineries are working, output of gasoline should be thirteen million liters a day; instead it was in July 1997, for example, less than five million liters a day. Domestic demand was estimated at the same time to be around eighteen million liters a day.36 The Nigerian government was for a large part of 1997 in negotiation with French oil company Total to carry out “turnaround maintenance” at the 110,000 bpd Kaduna refinery at a cost of U.S.$240 million, a deal favored by finance minister Anthony Ani, though oil minister Etete claimed that it could be done at a cost of U.S.$170 million by NNPC.37 In May 1998, it was reportedthat Total had finally started work on the project and hoped to have the refinery back in production by July, subject to funding.38 In mid-August, it was hoped it would resume production “in the next few weeks”; in November, the refinery was still out of commission.39 In September 1998, NNPC appointed Shell as technical adviser for the turnaround maintenance of the Port Harcourt refinery complex.40
The price of gasoline (petrol) on the forecourts of Nigeria’s gas stations was fixed at _11 (eleven naira; U.S.12¢) per liter from November 1994 (when it was raised from _3.25 (U.S.4¢)) until December 1998, when it was raised to _25 (U.S.28¢).41 Previous attempts to reduce the level of subsidy in recent years, prompted by negotiations with the IMF for structural adjustment lending beginning in 1986, or otherwise, have led to street riots, strikes and security clamp-downs on several occasions, most recently in 1992. Following negotiations with the union umbrella organization the Nigerian Labour Congress over a threat to strike, the government announced that it would review the increase, and on January 7, 1999, the price was reduced again to _20.42 Nevertheless, on January 4, five were shot dead in riots in Lagos over the fuel price rise. During fuel shortages unofficialgasoline prices can rise many times: during a shortage in April 1997, for example, a fifty-liter can was selling for _4,000 (U.S.$44), more than seven times the usual price; in July 1998, a liter was going for _400 (U.S.$4.44) on the black market.43
Nigeria’s perennial shortages of fuel and other refined petroleum products have owed perhaps as much to corruption as to refining shortfalls. Allocations of refined products to political favorites by the president’s office have often been sold in neighboring countries, where prices have been up to fifteen times higher—in 1993 some oil industry sources estimated that up to 100,000 bpd were being smuggled into Benin, Cameroon and Niger.44 The Abacha government itself identified hoarding and smuggling as major causes of fuel shortage, and threatened those alleged to be involved with trial before the Miscellaneous Offences Tribunal.45 The right to import gasoline also allows spectacular profits to be made: although expensive for the country, individual oil trading companies and their political sponsors have made lucrative deals based on crude-for-refined swaps or cash deals; the government budgeted U.S.$600 million for import of fuel between January and September 1998.46 Large up-front payments for the right to such deals are common: in mid 1997, for example, Swiss trader Glencore was said to have paid a sum of several million dollars for a contract to supply thirty-three cargoes of petroleum products.47 At the same time it was estimated that NNPC had overpaid by about U.S.$20 million since late 1995 for deliveries of Saudi Arab Light oil to the Kaduna refinery, as a result of “high-level interference in structuring the deal,” which was based on swaps for Nigerian oil.48 Hence, although fuel shortages are usually precipitated by refinery breakdowns, they can also be generated or exacerbated by profit-seeking among government officials.
In October 1997, while the Kaduna refinery was completely closed down and the usual technical problems reduced output from Port Harcourt and Warri, a twenty-cargo import program was awarded to Swiss-based trading firm Glencore,supplied by German refiner Wintershall AG. This fuel was found by the Nigerian Federal Environmental Protection Agency (FEPA) to have been contaminated with a high level of pyrolysis gasoline, that could be hazardous to human health. Residents of traffic-choked Lagos complained of nausea and respiratory problems.49 Fuel shortages persisted through 1998, and in March 1998—at which time only one of Nigeria’s refineries was working, producing only 70,000 bpd and forcing a closedown of much of Nigerian industry—further contracts were awarded to Wintershall and Glencore for import of thirty 30,000 tonne cargoes of petroleum products.50 Commissions on these contracts were reported to have averaged U.S.$14 to $15 a tonne. The Wintershall contracts were canceled by General Abubakar on Abacha’s death, and contracts for import of fuel given to the major oil companies instead: following their cancellation officials of the state-owned Pipelines and Products Marketing Company (PPMC) estimated that Nigeria had overpaid by about U.S.$10 per tonne and stated that the government would not pay for the fuel, which in any event did not comply with specifications.51 Abubakar also announced that payments in hard currency for fuel supplies would no longer require presidential approval, while funds would be released for the rehabilitation of the refineries. Shell, Elf, Agip, and Mobil were contracted to import a total of forty cargoes of petroleum products, producing huge savings over the Glencore/Wintershall contracts.52 Within a few months, however, this new regime had broken down, and the oil traders were back in business, including Glencore as well as several involved in the business under the government of Gen. Ibrahim Babangida, reportedly at the same inflated prices.53 The fuel shortage remained as severe as ever at the end of the year.
The ongoing fuel crisis had tragic
effects
on Saturday October 17, 1998, when more than one thousand people were
burned
to death by an explosion at a ruptured NNPC petroleum products pipeline
at Jesse, near Warri, Delta State. Those killed were collecting fuel
from
the pipeline—fuel unavailable from the proper sources. It was not clear
whether the leak had been deliberately created to tap the fuel or was
due
to mechanical failure, although the government immediately claimed it
was
due to sabotage and that consequently there was no question of
compensation.
The government appointed a panel from within NNPC to investigate the
causes
of the disaster, but resisted calls for an independent inquiry.54
1 Sarah Ahmed Khan, Nigeria: The Political Economy of Oil (Oxford: Oxford University Press, 1994), p.189; Tom Forrest, Politics and Economic Development in Nigeria (Boulder, Colorado: Westview Press, 1995), p.133.
2 Nigeria: Selected Issues and Statistical Appendix, IMF Staff Country Report No.98/78 (Washington DC: International Monetary Fund, August 1998), pp.6 to 11.
3 U.S. Energy Information Administration (U.S. EIA), “Nigeria Country Analysis Brief,” December 1997.
4 Environmental Resources Managers Ltd, Niger Delta Environmental Survey Final Report Phase I; Volume I: Environmental and Socio-Economic Characteristics (Lagos: Niger Delta Environmental Survey, September 1997), p.195.
5 Jonathan Bearman, “Squandered Inheritance,” Financial Times (London), June 7, 1998.
6 U.S. EIA, “Nigeria Country Analysis Brief”; Reuters, March 31, 1998.
7 Radio Nigeria (government radio), July 3, 1998, as reported by the BBC Summary of World Broadcasts (SWB), July 7, 1998.
8 Bearman, “Squandered Inheritance”; “Minister on Oil Situation, Processing Oil Abroad,” Lagos NTA Television Network May 19, 1998 as reported by the U.S. Foreign Broadcast Information Service (FBIS), May 20, 1998.
9 U.S. EIA, “Nigeria Country Analysis Brief.”
10 Article 40(3) of the 1979 constitution, Article 42(3) of the 1989 constitution, and Article 47(3) of the draft 1995 constitution (echoing similar provisions in previous Nigerian constitutions, and the situation prior to independence) each provide that: “the entire property in and control of all minerals, mineral oils and natural gas in, under or upon any land in Nigeria or in under or upon the territorial waters and the Exclusive Economic Zone of Nigeria shall vest in the Government of the Federation and shall be managed in such matter as may be prescribed by the National Assembly.” The 1979 constitution, which was drafted during the process of the first military handover to civilian rule, was suspended by the military coup of 1984. The 1989 constitution was drafted in the course of a subsequent transition program, implemented by Gen. Ibrahim Babangida. It was brought into force by the Constitution of the Federal Republic of Nigeria (Promulgation) Decree No.12 of 1992 and was suspended by the Constitution(Suspension and Modification) Decree No.107 of 1993, which restored the 1979 constitution in general, while suspending certain guarantees set out in the bill of rights. The draft 1995 constitution was prepared by a constitutional conference meeting in 1994 and 1995 as part of the discredited transition program of General Abacha. It was finally published by General Abubakar in September 1998, and a committee appointed to receive public submissions and make recommendations as to its amendment and adoption. The committee was given until December 31, 1998 to report to the government on its recommendations, and ultimately recommended the readoption of the 1979 constitution with a number of amendments.
11 Nigeria first attended an OPEC conference as an observer in 1964, and joined the organization in 1971. Khan, Nigeria, pp.16-18.
12 Scott R. Pearson, Petroleum and the Nigerian Economy (Stanford: University of California Press, 1970), pp.24-26.
13 Khan, Nigeria, pp.16-18, and 69. The actual dates on which the government acquired an equity share varied in the case of each company. See below for a description of the regulatory regime.
14 The NNPC was created by Decree No. 33 of 1977, as a successor to the Nigerian National Oil Company, itself created in 1971 as the first major effort to “indigenize” the oil industry, in response to the OPEC call for member states to participate more actively in oil operations. NNPC is responsible for production, transportation, refining, and marketing of oil and petroleum products. In 1986, the Petroleum Inspectorate, responsible for regulation and policy formulation, was detached from NNPC and given instead to the Department of Petroleum Resources; while preferable to the previous situation, in which NNPC regulated itself, the inspectorate still lacks independence. NNPC became a “commercial and autonomous” entity in 1992, though it remains state owned. Khan, Nigeria, pp.22-28.
15 Information from U.S. EIA, “Nigeria Analysis Country Brief,” except where otherwise indicated.
16 Figure for bpd from Tony Imevbore, Paul Driver, and Chris Geerling, “Environmental Objectives Discussion Document” prepared by SPDC for its April 1998 “Stakeholders Environmental Workshop” held in Port Harcourt, section 1.2.a. In 1973, the government first acquired a 35 percent stake in the Shell-B.P. Petroleum Development Company of Nigeria, Ltd, jointly owned by Shell and British Petroleum (B.P.) and operated by Shell. This share was raised to 55 percent in 1974, and 60 percentin July 1979. In August 1979, B.P.’s assets in Nigeria were nationalized (for which compensation of U.S.$125 million was paid), following the “Kulu incident” when a B.P. chartered tanker with connections to South Africa unloaded at Bonny, and the company was suspected of breaking the oil embargo against South Africa. NNPC’s share in the joint venture (of which the operating company was renamed the Shell Petroleum Development Company of Nigeria, Ltd) thus rose to 80 percent, and was reduced again to 60 percent only in 1989, when Shell’s share rose to 30 percent, and Elf and Agip each acquired a 5 percent holding. In 1993, Shell’s share decreased to 55 percent, and Elf increased its holding to 10 percent. Khan, Nigeria, pp.69-71; for further detail on the structure of Shell’s business operations in Nigeria see also Jedrzej Georg Frynas, “Political instability and business: Focus on Shell in Nigeria,” Third World Quarterly vol.19, no.3, pp.447-468. “Shell” is used here to refer to the Royal Dutch/Shell Group of companies, of which the two ultimate holding companies are the U.K.-based Shell Transport and Trading PLC (40 percent) and the Netherlands-based Royal Dutch Petroleum Company (60 percent). Elsewhere, “Shell” will be used to refer either to the group of companies or to SPDC; similarly for the other international oil companies listed below.
17 Bearman, “Squandered Inheritance.”
18 Matthew Tostevin, “Nigerian Mobil Says More Funding Needed,” Reuters, December 18, 1997; “International Close Up: Africa,” on the Mobil website, at http://www.mobil.com, as of March 4, 1998; Bearman, “Squandered Inheritance.”
19 SPDC, “Nigeria Brief: Harnessing Gas,” Lagos, August 1996.
20 The Department of Petroleum Resources published “Guidelines for Farm-out and Operations of Marginal Fields” in September 1996.
21 Energy Compass, (London) vol.9, no.3, January 17, 1998.
22 U.S. EIA, “Nigeria Country Analysis Brief.” The main domestic companies are Dubri Oil, Pan Ocean, Consolidated Petroleum, Yinka Folawiyo Petroleum, Amni International, Atlas Petroleum, Cavendish Petroleum, and Express Oil and Gas.
23 Energy Compass, vol.8, no.21, May 23, 1997.
24 Energy Compass, vol.9, no.15, April 10, 1998.
25 Interviews with oil industry sources 1997 and 1998; Energy Compass, vol.8, no.49, December 5, 1997.
27 U.S. EIA, “Nigeria Country Analysis Brief.”
29 Robert Corzine, “Shell is Accused in Nigeria Gas Row,” Financial Times (London), June 13, 1997; Felix Onuah, “Nigeria’s Etete Blasts Shell Over LNG Project,” Reuters, June 12, 1997.
30 Energy Compass, vol.9, no.22, May 29, 1998.
31 “Abubakar Commissions Offshore Gas Project,” AFP, November 20, 1998; Dulue Mbachu, “Mobil Natural Gas Project Questioned,” IPS, April 1, 1996.
32 Energy Compass, vol.9, no.42, October 23, 1998.
33 Reuters, December 12, 1997.
34 Energy Compass, vol.9, no.45, November 6, 1998.
35 Environmental Resources Managers Ltd, Niger Delta Environmental Survey Final Report Phase I, Volume I, p.199.
36 Energy Compass, vol.8, no.31, July 31, 1997.
37 Allocation of funds for maintenance at the refineries was the subject of a struggle between finance minister Anthony Ani and petroleum minister Dan Etete under General Abacha’s regime. Ani refused to release funds unless NNPC and the Ministry of Petroleum Resources provided him with a satisfactory explanation of expenditure since 1994, which he alleged should have been adequate to carry out the required repairs. Officials in NNPC and the oil ministry, however, stated that the funds were not in fact transferred from the Finance Ministry, as alleged. The joint external auditors of NNPC, Peat Marwick, Ani, Ogunde & Co (of which former Minister Ani is, extraordinarily, one partner) and Makhtari Dangan and Co, have yet to complete their audit of the 1993 and 1994 accounts, and so the issue remained unresolved. Energy Compass, vol.8, no.31,July 31, 1997; Energy Compass, vol.8, no.46, November 14, 1997; James Jukwey, “Oil-Rich Nigeria has no Answer to Fuel Scarcity,” Reuters, June 20, 1997; “The Oil Hostage,” Africa Confidential (London), August 29, 1997.
38 “Business confidence hits rock bottom,” Africa Analysis (London), May 15, 1998.
39 “Nigeria’s Ruling Council Ends Meeting on Fuel, Security,” Lagos NTA TV Network, August 14, 1998, as reported by FBIS, August 15, 1998; Energy Compass, vol.9, no.45, November 6, 1998.
40 Energy Compass, vol.9, no.39, September 25, 1998.
41 AFP, December 21, 1998. Revenue from the sale of domestic petroleum products is paid into the Petroleum Trust Fund (PTF), which subsequently disburses the funds. With the price at _11, _2.00 (U.S.2¢) went to NNPC as notional payment for refining, storing and distributing products (although the true cost of refining was estimated at _5.67 (U.S.6¢) in early 1988); _2.40 (U.S.3¢) to the federal government as compensation for the cost of the crude; and _5.30 (U.S.6¢) to the Petroleum Special Trust Fund (PSTF) for the implementation of various projects in health, education, and infrastructure. The marketers deducted _1.30 (U.S.1¢) per liter directly from the pump price prior to transfering the balance to the PTF. Dalhatu Bayero, “The Politics of Oil,” West Africa (London), February 2 to 8, 1998; IMF, Nigeria: Selected Issues and Statistical Appendix, p.52. In 1993, with the price at _3.25, the level of the annual subsidy to the domestic petroleum product market was estimated at 17 percent of oil export earnings. Khan, Nigeria, pp.127-128. Throughout this report, an exchange rate of _90 to one U.S. dollar has been used, the rate current in late December 1998.
42 Lagos NTA TV Network Network December 29, 1998, as reported by FBIS, December 30, 1998; Nigeria Today, January 8,1999.
43 James Jukwey, “Nigeria Fuel Crisis Caused by Greed, Watchdog Says,” Reuters, April 9, 1997; Nigeria Today (London-based e-mail news service), July 14, 1998.
45 Opposition radio reporting the acting director of defense information, Col. Godwin Ugbo, following a meeting of the “states task force on petroleum products.” Radio Kudirat Nigeria, June 6, 1997, as reported by BBC SWB, June 17, 1997; see also “Meeting on Fuel Crisis Ends, Measures Taken,” Lagos Radio Nigeria Network, as reported by FBIS, May 14, 1998.
46 James Rupert, “The Collapse of Nigeria: Oil but no Fuel,” Washington Post, March 31, 1998.
47 Energy Compass, vol.8, no.27, July 3, 1997.
48 Energy Compass, vol.8, no.24, June 12, 1997.
50 Energy Compass, vol.9, no.11, March 13, 1998.
52 Reuters, July 21, 1997 and July 23, 1997; Energy Compass, vol.9, no.34, August 21, 1998.
53 “As bad as it gets,” Africa Confidential, vol.39, no.25, December 18, 1998.
54 Adekunbe
Ero and Adegbenro Adebanjo, “Horror in the Delta,” Tell
(Lagos),
November 2, 1998; Janet Mba-Afolabi, “Jesse Town tragedy,” Newswatch
(Lagos), November 2, 1998.
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