The News (Lagos)
Oluokun Ayorinde
15 February 2004
Shell and Halliburton, two notable firms operating in the Nigerian oil industry, direct international attention on the country for all the wrong reasons.
The Royal Dutch Shell Oil Company and Halliburton Oil Services Company share the unique attribute of being the biggest oil production and oil services multinationals operating in the Nigerian oil industry respectively. And now, rather infamously, the two companies, have not only drawn the ire of their shareholders and the regulatory authorities in their home countries, they have also turned the corruption search light on Nigeria.
Halliburton has, hanging on its neck two bribery cases, one relating to tax evasion which dates back to 1991 and the other to the contract for building of Nigeria Liquefied Natural Gas, LNG, trains one and two contracts for which its men may keep a date with the Economic and Financial Crimes Commission, EFCC, soon. The government has also ordered an inquiry the into circumstances surrounding the re-appearance of a radioactive device it declared stolen between Warri and Port Harcourt in December 2002 at its headquarters in the United States. On the other hand, Shell is facing a two - pronged attack from its shareholders globally over the downgrading of its proven crude oil reserves by 3.9 billion barrels or 20 percent worth some $120 billion and pressure from the Nigerian government to refund about $30 million granted the company as additional reserve bonus in the period 1991 to 2001. Government had, between 1991 and 2000 as a way of using fiscal measures to gear up exploration among oil companies, introduced RAB to encourage companies to devote funds to oil exploration.
The Department of Petroleum Resources, DPR, stirred the hornet's net on November 2003 when it announced that it may soon be forced to drag six oil companies before EFCC over an alleged underhand payment of about N64.5 billion or $500 million.
The DPR said though it never approved the payment, the oil companies had surreptitiously submitted their claims to the Federal Inland Revenue Service, FIRS, which ordered the payment without seeking DPR's approval. As explained by sources with the DPR, the normal practice is that at the end of each year, the Department will compare its account with the claim of oil companies, and a committee will be set up to harmonise the differences. The report of the committee will then be submitted to the DPR which will subsequently give its recommendations to the Minister of Petroleum Resources for approval. The approval will then go back to the DPR and from there to the Ministry of Finance for payment.
In the present case, the DPR said contrary to its advice, the oil companies by passed it and instead opted for the use of a consultant. The most guilty of the companies, according to the DPR, are the joint venture partners of the Nigerian National Petroleum Corporation, NNPC. "Some of them claimed $300 million as reserve addition bonus.
What we are saying is that for us at DPR, we have record to show that we never approved or recommended such payment," said a DPR source.
However, President Obasanjo was to take the cloak off the face of the companies involved when he announced last month that Shell and Agip, a unit of Italy's ENI SPA had agreed to pay back a total of $500 million in tax breaks given the two companies over a nine-year period starting from 1991. Edmund Dakoru, Presidential Adviser on Energy Matters, said the payback became necessary because of doubts over the veracity of the reserves claimed by Shell and Agip. "No debts or unsettled taxes are outstanding with the Nigerian government," an ENI spokeswoman told Dow Jones Newswires while denying the government's claim.
Simon Buerk, Shell's spokesman, however said.
"What has been under discussion is not the volume of the reserves claimed by Shell but what portion of the reserves qualified for bonus," Buerk said in a desperate attempt to prove that the dispute with Nigeria is not related to the downsizing of its stated proved oil reserves earlier in the year.
Just as the Nigerian government is putting pressure on Shell for the repayment of the $300 million RAB, investors and regulatory authorities in the United States and Britain are furious that the company did not inform then that it was receiving incentives from the Nigerian government over new discoveries. The Financial Times of London, however, reported earlier this month that Nigeria accounted for about a third of 3.9 billion proved reserves, thus making the country the largest single contributor to the slashed reserves. To put a shine to the discovery, Shell was reported to have told the government that it expects to reinstate at least half the downgraded reserves as proved within five years. Industry sources also said natural gas was a big factor in Shell's misjudgement in prematurely booking some of Nigeria's oil and gas fields that are ready for development between 1996 and 2002. Chris Finlayson, chairman and managing director of Shell Petroleum Development Company, SPDC, would not comment on the reasons for reclassifying the reserves.
Already, shareholders of the company globally are calling for the resignation of Sir Phillip Watts, Shell's chairman who was also at the head of Shell Nigeria operations in the early 90s.
But while the Nigerian government seems contented to wait for Shell to play ball, it's not ready to extend such courtesies to Halliburton. Government last week ordered a probe into allegation that a subsidiary of the company which was part of a joint venture that built the Nigeria Liquefied Natural Gas, NLNG, trains one and two paid $180 million in bribes to obtain the contract.
The $4 billion NLNG plant was built in the 1990s by a TSKJ consortium that included Kellog, Brown & Root, KBR, a unit of Halliburton, with a 25 percent stake in the project.
Other partners in the Joint Venture were Technip SA of France, ENI SPA of Italy, and Japan Gasoline Corp.
The allegations are already under scrutiny in the United States and France. Renand Van Rnymbeke, the French magistrate investigating the payments, had threatened to file embezzlement charges against the United States Vice President, Dick Cheney, who was at the head of Halliburton's operations when the bribe was allegedly given to Nigerian officials by the company.
"President Obasanjo has already ordered another high level investigations into allegation that Halliburton paid kickback worth $180 million to secure a natural gas project in the 1990s in Nigeria, Senior Special Assistant to the President on Media Matters, Mrs. Remi Oyo, said last week.
"Investigations have already begun and EFCC is the arrow head of that probe. The Commission will look into all the parameters whether in the country or outside and the President has said no stone should be left unturned to get to the bottom of this," she said of the determination of the administration to get to the root of the bribery allegation.
Already, local and foreign financiers of trains five and six of the project are expressing fears on the implication of the bribery allegation. The NLNG had raised $1.6 billion in local and international financial markets. Each of the five international finance institutions involved in the deal had put in $160 million while the Nigerian banks had collectively put in $160 million.
However, the Managing Director of NLNG, Dr. Andrew Jamieson, said last week that the bribery scandal would not affect NLNG. "We don't have direct involvement with Halliburton as such. The bribery scandal does not involve NLNG, but another company which is one of the consortium that the NLNG has contracted to construct the plant," he noted.
Last year, Halliburton that its officials paid $2.4 million in bribes to officials of the Federal Inland Revenue Service, FIRS, to help it reduce its tax liabilities. The tax scandal was blown open by the United States Security and Exchange, Commission, SEC, when the company filed its papers at the New York Stock Exchange. The US SEC discovered that the $5 million Halliburton claimed it paid as tax to the Nigerian government was not reflected in the paper submitted to it. Halliburton's corporate headquarters later admitted that its Nigerian subsidiary paid the $2.4 million to some officials working with KBR Engineering to bribe Nigerian tax officials to evade payment of tax running to $5 million. The bribes were paid between 2001 and 2002. The EFCC, which is still investigating the case, had recovered about N80 million from the American firm.
Last week, the government set up a six-man committee to look into the circumstances surrounding the disappearance of some radio-active materials which were declared missing last year and subsequent reappearance of the material at Halliburton's office in the United States. The company had informed the Nigerian government and officials of the International Atomic Energy Agency, IAEA, of the disappearance of the nuclear device last year.
"These revelations by Halliburton will only help to actuate our position as the second most corrupt nation in the world and I will not be surprised if we actually came first the next time around," an industry source told TheNEWS.
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