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Corruption: Beyond the Nigerian oil industry

By Oladipo Okubanjo
24 November 2016   |   3:39 am
Based on statistical and empirical evidences, petroleum, the naturally occurring, yellow-to-black liquid found in geological formations beneath the earth’s surface ...
Oil refinery

Oil refinery

Based on statistical and empirical evidences, petroleum, the naturally occurring, yellow-to-black liquid found in geological formations beneath the earth’s surface, which is commonly refined into various types of fuels and serves as source of energy to people across the world, has been a source joy to some countries and harbinger of pain to others.

Indeed, while some countries have in place structures for the judicious management of the monumental profit derived from the sale of petroleum for economic, infrastructural and technological transformation, others have used the resource to institutionalise corruption that ensures a seeming perpetual underdevelopment and pauperisation of the populace.

According to the International Energy Agency (IEA), in 2016, Saudi Arabia and Russia regained the number one and two respectively, after briefly conceding it to the United States in 2015. Prior to that, in 2014 over 66% of world oil production came from the top 10 countries: Saudi Arabia 542 Mt (13%), Russia 529 Mt (13%), United States 509 Mt (12%), China 212 Mt (5%), Canada 208 Mt (5%), Iran 166 Mt (4%), Iraq 160 Mt (4%), Kuwait 158 Mt (4%), United Arab Emirates 157 Mt (4%) and Venezuela 151 Mt (4%). Total oil production was 4,200 Mt.

Interestingly, most of the aforementioned oil producing countries rank among the most prosperous nations in the world, perhaps with the exception of Iraq and Venezuela, whose oil industries had been blighted by insurgency and questionable leadership. Also, when it comes to oil and gas reserves per capita, countries like Venezuela, Nigeria, Mexico, Angola, Algeria and Oman are among the richest. The problem is, of course, that the vast majority of people in these countries don’t see that wealth transferred in terms of economic growth and job opportunities due to entrenched corruption.

The regime of heist is, however, not restricted to the oil industry of individual nations; reports continue to hug the headlines about oil majors – corporations with exploration and drilling expertise – who operate in developing countries employing all manner of underhand strategies to cheat their host nations and indigenous partnering companies.

In Nigeria, it would amount to an understatement to say the oil industry is plagued with endemic corruption. In one of the scandals involving the Nigerian National Petroleum Corporation (NNPC), the country’s official audit revealed that around $19 billion of oil revenues went missing through corruption and oil theft in 2014 alone. An independent investigative analysis by the Natural Resource Governance Institute (NRGI) had revealed that over $32 billion oil revenue was lost to NNPC’s mismanagement of Domestic Crude Allocation (DCA), opaque revenue retention practices and corruption-ridden oil-for-product swap agreements.

While the impeachment of Brazil’s former President, Dilma Rousseff, officially cites allegations that she manipulated the federal budget to disguise a growing deficit, it was a sprawling scandal at Petrobras, the state-owned oil company, which had taken a greater toll on her government that helped generate support for her removal. Though Rousseff was not accused of any crime, but before assuming the Brazilian presidency in 2011, she was chairman of Petrobras between 2003 and in 2010, when much of the corruption allegedly took place. The opposition alleges her presidential election campaigns of 2010 and 2014 were funded by corruption, charges her political party denies.

Remarkably, Statoil, the Norwegian multinational oil and gas company, appears to be the most corruption-riddled International Oil Company (IOC), going by the avalanche of allegations of corrupt practices against it and some of which the company had been convicted. For instance, between 2002 and 2003, Statoil reportedly resorted to extensive use of corruption in Iran in an attempt to secure lucrative oil contracts for the company in that country. This, according to documented evidence, was mainly achieved by hiring the services of Horton Investments, an Iranian consultancy firm owned by Mehdi Hashemi Rafsanjani, son of former Iranian President Hashemi Rafsanjani. Statoil was said to have paid $15.2 million to Horton Investment to influence important political figures in Iran to grant oil contracts to Statoil. A Norwegian court had on June 29, 2004, found Statoil guilty of corruption and ordered to pay NOK 20 million. And also on October 13, 2006, Statoil reached a settlement with the United States authorities for its involvement in the case and was ordered to pay $21 million in fines.

In February 2016, investigators at Norway’s anti-crime agency, Okokrim, started looking into what happened to hundreds of millions of Kroner (the Norwegian currency) that Statoil paid to Angola’s state oil company, Sonangol, over the past several years. The money was supposed to be used for a research centre that’s never been built, and for “social contributions” to Angola that remain unclear, and Statoil’s management knew they posed a “considerable” risk to Statoil’s reputation. The payments, which date back to 2011, were reportedly tied to Statoil’s bid to win licences and operating responsibility on Angola’s Kwanza oil field.

The catalogue of corruption cases involving Statoil is seemingly endless. A company inherited by StatoilHydro was enmeshed in a messy deal in Libya. StatoilHydro, according to the October 7, 2008 edition of the New York Times, may have made payments to win business in Libya that breached the United States and Norwegian anti-corruption rules. The executive vice-president for Exploration and Production, Norway, Tore Torvund and executive vice-president for Projects, Morten Ruud, had “resigned with immediate effect” in the wake of the allegation. Also in 2014, a Norwegian Business School Professor, Petter Gotts chalk, had queried why Statoil employed the judge who administered a case in which the company was a party. He said it was much greater cause to examine Statoil’s role.

Yet again, Statoil was at the heart of it all when in 2014, when a scandal broke out in Tanzania raising questions about good governance agenda in managing the oil and gas industries. Public concern over the fairness of Production Sharing Agreements (PSA) between Statoil and the Tanzanian government was leaked to the public. Its revelations included the fact that the split of “profit gas” between the Tanzanian government and Statoil was between 20% and 30% lower than what was described in model contracts. Put in another way, the higher revenue to the Norwegian partner from the deal could be more than twice the total of Norwegian aid given to Tanzania since independence.

Oddly enough, while all the highlighted corruption cases involving Statoil had emanated from its dealings with governments, the story is different in Nigeria, where the Norwegian company had been taken to court by a private enterprise, Inducon Nigeria Limited, over alleged breach of a partnership agreement. According to court documents, Inducon had in 1991 brought the British Petroleum-Statoil Alliance to the Nigeria and three blocks – OPL 213, 217 and 218 – were initially awarded to BP-Statoil Alliance with Inducon as the main promoter. Inducon, according to court documents, decided to sue Statoil when upon the start of oil production in 2008 in the Agbami-Ekoli block, with Statoil’s portion being 20.28%, Statoil refused to honour agreements in place between BP, Statoil and Inducon.

In both the Federal High Court and Federal Court of Appeal, Inducon had judgments in her favour and the case has been at the Supreme Court since 2012. In the middle of 2016, Inducon chose to file a “Motion on Notice” at the Supreme Court accusing Statoil of transferring all income from the sale of crude oil (40-45, 000 bpd) through a Nigerian bank to an account in JP Morgan Chase Bank in London. Statoil’s action, says Inducon, was in total disregard of the Order of Court given on April 26, 2010 by a Federal High Court and on December 10, 2010 by the same court, that all monies, revenue, income, funds, proceeds, earnings or however called derived from all offshore oil fields shall remain within the jurisdiction of the court in Nigeria and not to be expatriated to Statoil of Norway or any other foreign entity.

In the affidavit and application to the Supreme Court, Inducon is asking the order that is still subsisting to be enforced and that Statoil be made to return to Nigeria, the $4.3 billion it had expatriated. Indeed, legal experts have expressed shock at this new twist in development and wondered why an international oil company like Statoil will disregard a subsisting court order in Nigeria while it complied in other climes.

This writer had taken the pains to research and make public some of the untoward activities of international oil companies, whether in their home nations or outside, to highlight the incalculable damage they have done to the economy and general wellbeing of billions of people. It is the responsibility of governments to protect the interests of the citizenry by ensuring that there is justice, fairness, probity and accountability in oil or any business transaction it regulates.

Okubanjo is a journalist based in Lagos