A Nigerian oil deal at the centre of a landmark bribery trial involving Royal Dutch Shell and Italy’s Eni cut the African nation out of billions of dollars in potential revenues, according to a new analysis.
Resources for Development Consulting found that Nigeria stood to lose out on nearly $6bn in projected revenues because of the unusual structure of the 2011 deal for one of Africa’s most lucrative remaining oil concessions.
Campaign group Global Witness commissioned the consultants, who specialise in natural resource contracts, to scrutinise the impact on the Nigerian government’s finances.
The undeveloped deepwater plot, named OPL 245, is already at the heart of a corruption trial in Milan where prosecutors have alleged bribes of $1.1bn out of a $1.3bn deal were paid to public officials for the licence.
The report raises questions about why Nigeria would have agreed to such a deal and will be seized on by anti-corruption campaigners, who allege officials for years conspired with multinational companies to plunder the country’s oil riches.
Using publicly available contracts and industry methodology for assessing the value of the block, the authors found the 2011 terms for OPL 245 were hugely favourable to Shell and Eni.
“The fiscal terms that current govern Block 245 are not, in our view, consistent with the essence of a normal production sharing system,” said RDC in its assessment.
The new report found the companies would pay taxes to the government but the state would not receive royalty payments or an allocation of the oil produced after costs are taken into account, as is typical.
Assuming a $70 a barrel oil price, prior fiscal terms governing the plot from 2003 and 2005 would generate potential revenues of more than $14.3bn and $15.6bn respectively for the state. In the 2011 deal, this falls to $9.8bn.
The fallout of the 2011 deal has reached the top ranks of Shell, whose head has been subject to wiretaps, and Eni, whose chief executive is standing trial in Milan on charges of corruption.
Managers and middlemen from both companies are also standing trial. In September, a judge found two defendants — Nigerian Emeka Obi and Italian Gianluca Di Nardo — guilty of international corruption.
The Nigerian federal government has joined this case as the victim and is pushing for damages as part of the criminal trial. Prosecution evidence began in October 2018 and all the defendants have pleaded not guilty.
Global Witness, whose director was a witness in the Milan trial, has argued that the Nigerian government should revoke the OPL 245 licence as the country’s citizens are being “starved of funds”.
Shell said it could not comment in detail about the report given the Milan trial but said the deal was a “fully legal transaction”, adding there was “no case against Shell or its former employees”.
Eni said the analysis contained “incorrect technical and contractual assumptions” adding Nigeria has an option to take a share in the plot after costs have been recovered. It rejected any allegation of “impropriety or irregularity” in the deal.
The report comes as Nigeria has sought for decades to install a new framework to govern the petroleum sector, motivated in part by a sense that the state was not generating a fair revenue from deepwater oil blocks.
Shell’s chief executive this month maintained the deal’s legality but said the perception it was “unethical” had hit the company. “It is not [a position] that we would want to find ourselves in again,” said Ben van Beurden in a speech.