New analysis has found that oil giants Shell and Eni's controversial deal for a Nigerian oil licence included unprecedented terms which funded an alleged bribery scheme.
The terms replicated military-rule era "Sole Risk" contracts, and boosted Shell and Eni's internal valuations of the oil deal enough to justify the companies paying $1.1bn upfront.
Italian prosecutors allege that the $1.1 billion paid by Shell and Eni for the OPL 245 licence was used to pay former Nigerian oil minister Dan Etete and "intended for payment to President Jonathan, members of the government, and other Nigerian public officials."
Shell, Eni and some of their senior managers are now standing trial, charged with international corruption, with prosecution pending in other countries.
The award of military era style contracts for deep water fields to huge international oil companies appears to be unprecedented since the advent of civil government in Nigeria. The deal transferred massive economic benefits to the companies at the expense of the Nigerian people by giving away Nigeria's right to its share of the oil produced, terms which resemble 'Sole Risk' contracts granted only to Nigerian companies during military rule in Nigeria's Deep Water.
The Nigerian Department of Petroleum Resources currently lists the OPL 245 license as a Sole Risk type contract in its annual report.
The analysis of Shell and Eni's valuation documents prepared before they agreed the deal in 2011 appears to show that the transfer of Nigeria's share of future revenue to the companies was essential for the companies to be willing to pay over a billion dollars upfront, money that prosecutors say was used to pay massive bribes.
The analysis also found that the Nigerian state's ability to buy their rights back was heavily restricted in the deal with Nigeria having to pay $650m plus interest up front to re-acquire a stake worth an estimated $2 billion in future revenue. These rights would still leave Nigeria with a far lower share of the oil production than recommended by the IMF, and 15 per cent or $3.5 billion lower than previous terms for the same license.
The analysis was carried out by expert oil consultancy firm, Resources for Development, commissioned by NGOs Global Witness, HEDA, Re: Common and The Corner House using publicly available documents including Shell and Eni's valuations of the oil block.
An analysis published in late 2018 by the same firm showed that the terms of the contract could reduce the Nigerian government's revenue from the fields by $5.86 billion over the lifetime of the project when compared to the standard Production Sharing Contract (PSC) terms in place in Nigeria since 2005, assuming an oil price of $70 per barrel.
Emails between Shell managers at the time showed they were aware that the deal would not give Nigeria rights to the share of its oil that is usual in deals between country governments and international companies.
Nigeria's most senior civil servant in the Department of Petroleum Resources objected strongly to the terms of the deal at the time, calling it "highly prejudicial to the interests of the Federal Government", but Nigerian ministers appeared to have ignored or overruled these concerns. Shell managers had been briefed that the ministers who overruled civil servants to approve the deal were likely to receive bribes.
Nigeria is currently pursuing civil claims against Shell and Eni over the deal which they claim "Shell and Eni engaged in for "bribery and unlawful conspiracy" to harm the Federal Republic of Nigeria and that they dishonestly assisted corrupt Nigerian government officials."
The current Nigerian Attorney General, Abubakar Malami, reportedly suggested that Nigeria could reach a settlement with the companies with a deal including Nigeria re-acquiring a stake in OPL 245. President Buhari reportedly rejected any settlement, ordered a halt to development of the oil block until all issues are resolved and the legal process has run its course.
Barnaby Pace, a campaigner at Global Witness said, "We've known of allegations of vast bribery in this deal for years. Now we've learned that Shell and Eni profited unfairly through military era contract terms meaning that it was Nigeria's share of oil that was used to fuel profiteering and payoffs. It is simply unacceptable that Shell and Eni should be allowed to hold on to this scandalous deal."
"These companies and Nigerian officials agreed a sweetheart deal that deprives Nigeria of money it badly needs to build schools and pay doctors. President Buhari should reject any deal that leaves the OPL 245 oil license with these companies," said Olanrewaju Suraju of HEDA.
"Shell and Eni represented their OPL 245 contract as a production sharing system, yet it includes no sharing of production for Nigeria. This shockingly poor deal must be cancelled," said Nick Hildyard of The Corner House.
"The Italian government is discouraging Nigerian migrants trying to reach Italy by claiming that it will help them at home, but Italy's biggest multinational, part owned by the state, is accused of depriving the Nigerian people of billions. The OPL 245 scandal appears to show that Italians are not helping the poorest, but profiting from them," said Antonio Tricarico of Re: Common.
Shell and Eni were asked for their comments on the analyses. Both companies and their managers have denied wrongdoing and criminality in the deal. Shell stated that "In line with correct legal process, many of these issues will be considered by the court and we do not wish to interfere with those proceedings".
Eni claimed in light of their ongoing trial, Eni is "unable to disclose... information relevant for the pending proceedings, nor is it otherwise willing to publicly disclose data that are sensitive in nature." They noted that Eni appointed experts in court will "cover the significant benefits for Nigeria" from the deal and that it will be shown to be "transparent, lawful and beneficial for Nigeria".