Dr. Gary K. Busch
In is an unusual set of coincidences there have been several newsworthy events which has provoked a revival in the public awareness of the problems associated with Nigeria’s oil refineries.
The most obvious is the nationwide strike by the labour movement; one of whose key objectives is to reverse the privatisation of the refineries conducted in a highly suspect procedure in the twilight On the day before, the Nigerian Government rolled out new guidelines for investors planning to establish new oil refineries in the country.
In a move to boost local supplies of petroleum products, Tony Chukwueke, head of the Department of Petroleum Resources, said that the mistakes made in the previous award of eighteen licenses for refineries issued in 2003 and rescinded recently would not be repeated. Investors interested in setting up refineries with at least 10,000 b/d capacity will now have to deposit $1 million with the government, while those with refineries that will produce up to 100,000 b/d will pay $10 million, he said. Investors must complete their projects within 18 months or lose their licenses, he added. The new rules are intended to help the government meet its target of processing 50% of the country's crude oil production by 2010, and ensure it engages only investors with the funds and the technical expertise to operate refineries. He was silent on the issue of the newly-privatised refineries.
Also, two days earlier, the U.S. Securities and Exchange Commission announced it was trying to force a local attorney to cooperate with a federal bribery probe involving a tiny Houston firm that controls potentially lucrative oil drilling rights in West Africa. SEC officials investigating Houston-based ERHC Energy's business activities overseas are trying to compel attorney O.J. Chidolue of Sugar Land to hand over documents and speak with federal investigators, court documents show. SEC officials are trying to determine whether "ERHC Energy ... and others may have violated certain of the anti-bribery, books and records, and internal control provisions" of federal securities laws, the agency said in a statement. They believe that Chidolue has documents that "are directly related to the SEC's ongoing investigation into possible violations of the federal securities laws by ERHC and others."
ERHC Energy has the rights to explore for oil in a stretch of the Gulf of Guinea thought to hold billions of barrels of crude. ERHC had engaged the island nation of São Tomé and Príncipe years before other oil companies would give the former Portuguese colony a passing glance. The Nigerian-born Chidolue, according to the SEC filings, is an attorney for Houston-based Chrome Energy and has served as a secretary and director of an affiliate, Chrome Management Services. Chrome is controlled by Nigerian businessman Emeka Offor, according to ERHC's SEC filings.
It is the role of Emeka Offor that ties in the disastrous history of Nigeria’s refineries with corruption at the very top of Nigeria’s oil pyramid and the dubious privatisation of the refineries. Chrome Energy is the majority shareholder in ERHC. The SEC subpoena requires Chidolue to produce documents related to Chrome, ERHC and Feltang International. Feltang International, according to ERHC's previous filings with the SEC, is a British Virgin Islands-based company that got a Chinese oil company, Sinopec International, to sign a production-sharing agreement with ERHC to explore in the Gulf of Guinea.
Feltang was paid $3 million in cash, along with stock and options that last year were valued at nearly $10 million, according to the ERHC filing. The SEC first launched an informal probe of ERHC two years ago, after the Nigeria and São Tomé and Príncipe Joint Development Authority awarded ERHC equity stakes in five offshore blocks. In December 2005, São Tomé's then-attorney general called on U.S. officials to investigate ERHC's dealings in the region.
"At every stage," the attorney general said in a report, are suggestions ERHC and Offor "may have made improper payments to government officials." The report cited a $100,000 payment Offor's Chrome made to a company controlled by São Toméan President Fradique de Menezes, and the role of Foreign Minister Mateus "Nando" Rita in helping to renegotiate ERHC's contract while also holding 500,000 shares of company stock.
The SEC launched a formal probe in February 2006, and three months later FBI agents raided ERHC's offices on Westheimer and carted off 118 boxes of documents. The investigators were looking for possible "things of value" paid to officials in São Tomé and Nigeria, an FBI affidavit filed in Houston said. On Nov. 15, 2006, the SEC served Chidolue with a subpoena, court records show. He was ordered to produce documents by Nov. 30 and give testimony on Dec. 7, but he has yet to do so.
On June 1, the SEC went to federal court to force him to comply with the subpoena. He has been ordered to appear in court June 26. The subpoena requires Chidolue to produce any documents regarding "the business activities of ERHC ... including any communications with or payments to any government officials in Nigeria or São Tomé and Príncipe." When FBI agents raided ERHC's offices last year, they seized a file labelled "William Jefferson."
Understanding the role of Emeka Offor is the key to understanding an important part of what has gone wrong with Nigerian oil refining.
The root of Nigeria’s problems can be found at the Nigerian National Petroleum Company. This is the most important constraints on Nigeria’s economy and the mother lode of Nigeria’s corruption. The current crisis over the price of fuel tax has led to the labour movement’s call for a national strike. Once again, is a direct result of the corrupt activities of the NNPC.
The simple fact is that shortly before Obasanjo took office on May 29th 1999, the country was importing petroleum products at the cost of $234.00 per ton during the Abacha and Abdulsalmi Abubakar regimes, but shortly after Obasanjo assumed office, this was reviewed upward without rhyme or reason to $569.55 per ton, a whopping 143%.
Statutorily, it is not the responsibility of the NNPC headquarters to import refined products; it is the responsibility of its subsidiary company, PPMC, a limited liability company with a bona fide Board. The PPMC should have been allowed to determine its market requirements, advertise for tender, select the competitive offer and, only when its board approved, a recommendation to the NNPC Board would be forwarded through the Managing Director of NNPC to the President for approval. However, this was never allowed to happen. The issue of fuel importation was personally handled by Obaseki and Obasanjo using the CBN account at the inflated price of $569.55 per barrel when the on-going market landed price was less than $300 per barrel.
Nigeria is selling almost 2.8 million barrels of oil a day at a price of around $68 per barrel or $204 million dollars a day. The major cost is the total failure of the refining capacity controlled by the outstandingly inefficient Nigerian National Petroleum Company (NNPC). Nigeria's total refining capacity is 445,000 barrels per day, installed in three stages between 1965 and 1989. A modest capacity of 35,000 bpd was installed in Port Harcourt in 1965 amid the political turmoil which led to the Biafran War in 1966. This was expanded to 60,000 bpd in 1971 preparing for the post-war oil-led economic boom. This was the period that saw an eight-fold crude production increase from 1969 to 1974.
It took another eight to nine years before the Warri and Kaduna Refineries were commissioned (within a year of each other) with capacities of 125,000 bpd and 110,000 bpd respectively, coinciding with the 1979/80 upstream production peak. Production was again on the upsurge when the most modern of the three refineries was commissioned in Port Harcourt in 1989 with a capacity of I50, 000 bpd. The timing of these investments was very significant as they coincided with major increases in crude oil revenue accruing to the Federation. It was the Government's intention to plough back revenue surpluses in order to further add value, cater for domestic needs and conserve foreign exchange.
In 1988 there was the addition of a polypropylene and carbon black unit in Warri and a linear Alkyl Benzene unit in Kaduna. The policy was definitely well intentioned, but the implementation has left much to be desired, especially in the area of maintenance. This disregard for maintenance prevails throughout the downstream sector. The Eleme Petrochemical Plant, a major downstream strategic investment, is going the same way as the refineries. Streamed in 1994/95, with an installed capacity of 125,000mt/yr of polyethylene and 80,000 mt/yr of polypropylene, this plant was intended to meet the needs of a wide range of industries and have plenty left for export. Unfortunately, slow policy implementation led to serious cost overruns and globally mistimed completion. The loans persist with huge accrued interest, while capacity utilization continues on a downward trend, occasioned by missed maintenance schedules as well as by knock-on effects from problems at Port Harcourt Refinery's Olefins Plant.
Port Harcourt Refinery: The last but one Turn Around Maintenance (TAM) carried out in 1994 was followed six long years later by another in 2000. The power unit remains its main problem. The premier unit was neglected until 1993/94 when it was rehabilitated, but ever since then, it has had to remain shut in favour of the main one because of power limitations, or because of crude allocation, which historically have sometimes proved inadequate.
Warri Refinery: Another example of inadequate maintenance led to catastrophic system failures such as the main Crude Heater blow up of 2000. The last full TAM was 1994. There has not been one since. Capacity utilization was a mere 37.4% in 1995 down from 72% in 1992. It has declined since then.
Kaduna Refinery: Inadequate maintenance, combined with internal staff relations (as in Warn) and a lack of resources for maintenance were a major factor in the poor refinery performance. Problems with the FCC (‘cracker’), water intake and cooler units are a regular occurrence. The 1992 TAM ran over budget and was never satisfactorily concluded, while the one started in 1998 has still to be concluded; there were two TAMs in between which were funded but never started
Capacity utilization has dropped from 73.9% in 1988 to a mere 42.4% in 1995, with debilitating results on the economy and people's daily lives, especially in the northern part of the country where Kaduna is the only hub. These have declined further, year-by-year. The estimated remedial costs are monumental, especially for Warri Refinery (nearly N28 billion) and Kaduna (N2 billion). There is no way the government was willing to pump in these huge sums of money, and has sought any number of shortcuts to relieve itself of the responsibility.
Nigeria has already issued several licenses for the repair and maintenance of the refineries. A lot of money has been paid, but very little maintenance completed.
New refinery tenders were issued. The local Nigerian companies who won the tenders for this have not been able to attract overseas firms willing to co-operate with them, nor have they been able to raise the capital needed to perform these tasks.
These provisional licenses to establish private refineries were awarded in 2002. There were eighteen indigenous oil companies awarded these but none of them were able to get foreign technical partners and the required funding for the projects. With only one visible exception, whose level of commitment is still very minimal, most of the invited technical partners have shunned the downstream sector of the industry.
The indigenous companies were expected to raise offshore loans and to help in the production of Basic Design Packages to be submitted during the second phase of licensing exercise. Experts say that for the kind of design required by the Ministry of Petroleum Resources for the project, the local companies needed to invest, up front, about US$360 million to prepare the document, adding that getting the money and the expertise that will handle the job requires the participation of foreign technical partners. Without such a professional document raising funds either from the local banks or international financial institutions will be a big problem to the operators.
Since the preliminary licence was issued in May 2002, none of the 18 companies submitted any report on the progress of its work to the Petroleum Ministry. Recently, the NNPC withdrew the licenses it had awarded to 18 companies to set up oil refineries; five years after the companies failed to commence work. The companies, which were granted licences include Akwa Ibom Refinery and Petrochemicals Ltd, Badagry Petroleum Refinery Ltd; Clean Waters Refinery, Ilaje Refinery and Petrochemicals, Niger Delta Refinery and Petrochemicals Ltd, NSP refineries and oil Services Ltd, Ode-Aye Refinery Ltd, Orient Petroleum Resources Ltd, Owena Oil and Gas Ltd, as well as Rivgas Petroleum and Energy Ltd. Others are: Sapele Petroleum Ltd, Southland Associates Ltd, Southwest Refineries and Petrochemicals Ltd, Starex Petroleum Refinery Ltd, the Chasewood Consortium, Tonwei Refinery, Total Support Refineries, and Union Atlantic Petroleum Ltd. Each is associated with a leading politician-businessman.
These licenses have now expired, unused. Nigeria had awarded licenses to 18 companies, mostly locals, in 2002 to build private oil refineries in a major restructuring of the country's downstream petroleum sector launched by the government to boost domestic supply of petroleum products. Nothing has been done or achieved. It is a total failure. Nigeria’s four oil refineries have suffered from years of neglect and poor management and can meet just about 20% of the nation's fuel demand estimated at 40 million litres per day.
The rest is bought in at world prices, through fuel dealers related by blood or political ties to the former Oil Minister. Fuel, even at 300 Naira is in short supply. The turnaround maintenance underperformed by Emeka Offor, at great expense, has been an unrelieved disaster.
The Labour Movement’s Complaint
Throughout the Obasanjo years the harshest critics of the heavy burden placed on Nigeria’s poor by the refusal of the NNPC to operate refineries properly and to maintain the subsidies on the price of fuel has been the labour movement.
Nigerian trades unions have played an important part in the economy and political structure of the country since well before independence. As an essentially national organisation which transcended region and ethnic group it was a powerful uniting force in the mainstream of national life. Nigeria has undergone a major and extended crisis over the role and function of trades unions. Under Obasanjo, the Federal Government has undertaken a co-ordinated attack on the labour movement on several fronts; most directly by seeking to amend current labour legislation. The most salient fact of this attack is that Government’s policy is at variance with the body of Nigerian labour law, labour practice and international treaty obligations in organisations like the ILO. As in many areas of Nigerian public life the Government makes up the rules as it likes and then tries to change the laws later. The existing rules are, perforce, not applicable. Public policy, as determined by the President, becomes the governing statute. The unions have taken on the mantle of defender of the public weal in the absence of any opposition parties in the country. They have been acting as a spokesman for the poor and disenfranchised; the government calls this “setting up a parallel government”. The conflict lines are clearly drawn.
The Last Oil Strike:
In the last strike, the Nigeria Labour Congress (NLC) confronted the Federal Government over its decision to increase fuel price from N26 to N40. The struggle lasted an excruciating 10-day period. It tested the endurance, cohesiveness and negotiating ability of the NLC, the Federal Government and the various Senate and Assembly bodies that tried to intervene. After one false dawn, peace was achieved when the suggested new price for fuels was reduced to 35 Naira. This turned out to be a theoretical victory as actual prices have uniformly been higher. Obasanjo’s parting shot on leaving office was to raise the price to 70 Naira (while fuels are being traded at the pump at almost 300 Naira).
The Nigerian trades unions operate on several levels. There are unions which represent a sector of the national industry. In the oil sector, there are two; the Petroleum And Natural Gas Senior Staff Association (PENGASSAN) and the Nigerian Union of Petroleum and Natural Gas Workers (NUPENG). These represent, respectively, the white-collar and blue-collar workers in the oil and gas industry. Their members are actually workers in the industry and they have a direct working relationship with the oil companies.
There is also two ’national centres’; the National Labour Congress (NLC) which is a political organization of the affiliated trades sectoral trades unions (like the TUC in Britain or the AFL-CIO in the U.S.)and the Trades Union Congress (TUC). It members are unions. The TUC represents primarily white-collar workers. This distinction is very important. PENGASSAN belongs to the TUC while NUPENG belongs to the NLC. The NLC doesn’t speak for the oil workers and this distinction is crucial to understanding the inherent weakness of the NLC. A general strike is unpleasant and annoying, but if it doesn’t engage the sector of the economy which brings in over 90% of the national revenue, it is a futile gesture.
The ‘victory’ of reducing a suggested 40 Naira price to 34 Naira was a virtual victory for the striking unionists. Only the most deluded Nigerian believes that he can actually buy fuel for this price. Since this ‘victory’, prices have stayed high, illegal ‘bunkering’ has continued. Pirated tankers still carry Nigeria’s oil to neighbouring markets and shortages are still the rule. Bunker ships carry Nigerian crude to parts unknown. Around 300,000 gallons of fuel are lost every day into the parallel markets.
Since many of the illegal traders and bunkerers are stalwart members of the President’s party and are elected and appointed officials in state and regional offices it is unlikely that a political epiphany will suddenly occur and that these pirates and bandits will choose the path of righteousness and become law-abiding citizens. Still less likely is it that the political appointees of the NNPC and the satellite oil agencies will have a fit of conscience and obey the law. Since the law cannot be policy, the Federal Government has embarked upon a campaign to turn policy into law.
After the last strike, the NLC devoted itself to lobbying the legislature and the governors. It requested the formation of a Stakeholder’s Forum to find a long-term solution to high fuel prices. This was an aborted process, largely because the President/Oil Minister felt he could bypass the legal constraints and order prices and wages as he saw fit.
One of the most critical issues in Nigeria has been fight to ‘privatise’ the downstream oil industry. The refineries cannot produce enough refined products to service the nation. There is plenty of crude but restricted refinery capacity. Theoretically, there should be enough capacity in the four refineries to service domestic needs but disrepair, absence of spare parts and a market which rewards imports has mean that these refineries are in terrible shape. The government has spent hundreds of millions of dollars in Turn Around Maintenance contracts to cronies but this money has been largely wasted.
It is wildly uneconomic to import fuels in dollars and to continue to sell the imports at a fixed Naira price. Since the domestic price of fuels is a political issue; indeed the unions held a strike to maintain the fixed Naira price; the government decided to escape this trap with a plan to ‘deregulate’ the downstream industry by decree. It lifted the price cap and announced that it was going to sell off the refineries to private companies. The unions, especially the two oil unions PENGASSAN and NUPENG, objected most strongly. Their jobs, working conditions and security were at risk. They asked that the price cap be maintained because, without a functioning refinery, the street price would escalate and scarcity would rule.
Obasanjo decided, as was his wont, to act decisively. He ordered the sale of the refineries. He wanted this problem off his hands. He was unable to control the NNPC and its various components or to get fiscal responsibility from within the oil industry. He figured that, whatever the short-term unfavourable feedback, he could rid himself of the problem and reap a lot of money from the sale of the refineries at the same time. The unions balked (or as they say in Nigeria, ‘kicked’). The unions told Obasanjo to solve the problems of the fuel supply and force the removal of the ‘bunkerers’ from the industry. They warned Obasanjo that he had until the end of 2003 to set this right or they would strike. In a series of meetings, culminating in a direct interview with the President on 17 December, the unions agreed to postpone their strike. On January 6 a meeting confirmed the removal of the strike threat. The unions realised, as did the major oil companies, that this privatisation or downstream deregulation was, effectively a non-starter.
In the meeting with the unions, the Federal Government soft-pedalled its planned privatisation of the nation’s four refineries and agreed to retain 49 per cent interest in them with a promise to make them work at an optimal level by May 2004. With this decision, the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN) and National Union of Petroleum and Natural Gas Workers (NUPENG) shelved their plan to go on strike over the issue, while further dialogue between labour and government on the proposed N1.50 fuel tax was put on hold.
In a nine-point communiqué issued in Abuja, PENGASSAN, NUPENG, the Nigerian National Petroleum Corporation (NNPC), Bureau of Public Enterprises (BPE), Petroleum Products Pricing Regulatory Agency (PPRA) and Directorate of Petroleum Resources (DPR) agreed that competent and credible investors would be allowed to acquire 51 per cent equity in the refineries while the government retained the remaining percentage.
They also resolved that another stakeholders’ meeting be convened to address the problems in the Niger Delta region. The parties also agreed that the refineries would operate at an optimal level by May 2004 and could produce up to about 18 million litres of PMS per day once the fluid catalytic cracking (FCC) units were on stream. On the proposed retrenchment of thousands of employees in the NNPC the parties resolved to halt the exercise and allayed the fears of workers.
Despite the planned layoffs in the NNPC and the increased casualisation of workers in the oil sector, it was agreed that employment stability would be addressed and dealt with. Above all, the parties agreed on the need to maintain industrial peace and harmony while dialogue would be held on regular basis.
While there was peace and harmony among the social partners reality began to destroy the mood. The reality was that, whatever Obasanjo and Kupolokun had to offer, no one of substance was willing to buy the refineries. These refineries are not just pigs in a poke; they are just plain pigs. The major oil companies operating in Nigeria have urged the Federal Government to jettison its planned divestment from the nation's four refineries and opt for a management contract system instead.
Under the contract scheme, the government through the Nigerian National Petroleum Corporation (NNPC) will appoint a competent firm to manage the refineries for the government on mutually agreed terms. This way, the NNPC would retain its 100 per cent ownership of the refineries and still achieve a proper turn-around and operation of the outfits. The scheme currently operates in Kuwait, Cote d'Ivoire and Senegal. The oil companies have told the government that buying into the refineries may be counter-productive for them. This is, of course, what the oil unions have been suggesting all along.
The stakeholders' meeting, agreed to shift the planned sale of government's shares from to the end of 2005. At least, three of the major players in the global downstream marketing, refining and distribution activities contacted by the government to buy into the refineries have turned down the offer. Also, the oil firms were said to have complained that the government's position on deregulation is not clear as several distortions make it unclear how much freedom there will be to set prices and supply in the market.
This followed the government's concession to the leadership of the two main oil workers' unions where it agreed not to dispose of the refineries as scrap as well as allowing the strategic option of partnering in the privatisation of the plants. This concession was to avert a major strike threatened by the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN) and the Nigerian Union of Petroleum and Natural Gas Workers (NUPENG).
The oil majors pointed out to the government officials that it was the Niger Delta crisis which was responsible for the closure of the Warri and Kaduna refineries for more than six months. The violence in the area had cut crude supplies to the plants after youths vandalised the Escravos crude pipeline last May. In a real business environment no investor would allow its plant to remain out of production for that long, the failure of the Federal Government to deal with the ever-growing Niger Delta Crisis has impeded tee sale of these refineries.
Obasanjo reacted by attempting to punish the unions by altering its dues structures, representation rights, it international affiliation rights and by withholding wages which were due and owing; as well as monetisation payments. This policy continued until the day he left office. Obasanjo saw in the labour movement as popular national organisation capable of confronting and challenging his dictatorial policies. The current strike is as much about Obasanjo’s unfettered ability to order labour and industrial relations by a whim of the moment as it is about the issues. The Nigerian labour movement has never recognised the divine right of president’s. That is its strength and the roots of its popularity. The current strike is a direct follow-on from the issues of the last two strikes which remained unresolved.
The Role of Emeka Offor
One of the most important links in this story of fuel prices and refineries is that of Emeka Offor. Offor is very rich. His wealth has made him a power broker in politics. He is one of the principal financiers of the ruling Peoples’ Democratic Party, PDP, at both the national and state levels. In the 2003 election he ‘donated’ some N200million to the PDP. The election of some of the senators, House of Representative members, state assembly members and council chairmen was said to have been funded by him. Most of the Igbo federal political appointees are said to be his nominees. They include Emeka Ani, chairman of the federal Poverty Eradication Programme; Martin Agbaso, presidential adviser on ecological problems and Martin Igbokwe, chairman of the NITEL board.
His overblown residence at Oraifitte, his hometown, situated along Onitsha-Owerri highway in Anambra State, looks like a presidential palace, brimming with opulence. It is heavily guarded by scores of mobile policemen. Offor moves about in a long convoy. He has several houses and flats in London and in Houston. He was the ‘godfather’ in Anambra politics when Mbadinuju was governor and the ‘Bakassi Boys’ ruled the streets.
Offor admits that he had a humble background. He was born in Kaduna. His father was a policeman. After secondary school, he went into business. He hit big money in 1983 when he won a contract of N19 million. He now has a chain of businesses in Nigeria and abroad. He owns Chrome Oil Services which handled the turn-around maintenance of Port Harcourt refinery. He also owns Chrome Air, a charter airline which is on retainer by the Central Bank of Nigeria. He is co-owner of African Express Bank, (Afex Bank) and a director of Niger Insurance, amongst several other companies, including Chrome Radio station in Oraifitte. Offor is a knight of the Catholic Church and close to the Opus Dei.
Transparency Watch alleged that Offor claimed in his interview with The News magazine that he was worth $3 billion. “Informed sources say he is in fact, worth $6 billion. May we ask, Mr. President where Sir Emeka Offor, a mere driver for Julius Berger a few years ago got this mind-boggling wealth from?” Transparency Watch argues that since Offor does business mostly with Nigerian government, his wealth could be estimated. “What comes out of this is that this wealth could be as a result of inflated contracts. Is he a major conduit for siphoning Nigerian funds abroad? Is he a money launderer?” It asked.
In one of his deals, Chrome Consortium was paid millions of dollars for the repairs of the old and new Port-Harcourt refineries. According to experts in the industry the nation was ripped off to the tune of about $100 million as inflated payments in this contract alone. Transparency Watch said it documented about 20 other serious cases of corruption, influence peddling, abuse of office, involvement in illegal acts and cover-ups, harassment and intimidation of political and business opponents, procuring law enforcement agents to act unlawfully, infringement of transparency rules and regulations of government associated with Offor. It called on the president to direct the inspector-general of police, the director-general, SSS, the National Security Adviser, the director-general, National Intelligence Agency, the International Police, INTERPOL, the CIA, M16 and other international agencies to investigate these serious issues with a view to commencing prosecution.
Offor got his start in business operating as a front for President Sani Abacha. Abacha arranged for his first contract and his first ‘mobilisation’ payment. Since then Offor, it is said, has been one of the main money launderers for Atiku Abubakar (then a Customs official and recently Vice-President) and has worked closely with other Nigerian luminaries, including President Obasanjo.
A Nigerian security document (NSO) coded “Oracle” alleges that Offor and Gidado Idris (chairman of Offor’s Apex Bank) contributed to the ill-fate that befell defunct Oil Mineral Producing Areas Development Commission, OMPADEC; the National Fertiliser Company of Nigeria, NAFCON, and The Eleme Refinery through inflated contracts. “Most of the contracts in NAFCON and these other institutions were hijacked and the contract sums manipulated and criminally inflated including the contracts for the turn-around maintenance of the refineries,” it said, describing Offor “as the alter ego of Alhaji Gidado Idris.” These contracts, it is said, were attained through the intervention of Atiku.
Offor allegedly used his connection with the vice-president to corner the $8 billion NEPA contract for building the Yola/Bauchi transmission line. The original sum for the contract was said to be $6 billion. Pivot Engineering allegedly came first on the list of bidders. Annoyed that the contract was awarded to Chrome, Pivot allegedly petitioned the presidency. Offor denies Atku’s intervention, “It was an open tender handled by NEPA management and approved by the federal executive council,” he said. Other aides at the presidential villa said that no one person could influence a contract of that magnitude which had to be approved at the highest level. They said that the contract was approved by the presidency and that if the president didn’t want Offor to have the contract, he would have cancelled it. There is a certain reluctance on the part of some NEPA officials to give accurate information on the contract. When NEPA was contacted, its top officials denied there was any project as Yola/Bauchi transmission line. However, the Chrome Consortium was paid part of the contract sum up front.
The two major areas of concern, in addition to the overcharging of domestic contracts are the cases of the acquisition by Chrome of the Environmental Remediation Holding Corporation, ERHC, by Offor (allegedly on behalf of Atiku and Obasanjo) which has oil holdings in Sao Tome and Principe and the controversy over the removal of OPL245 oil lease from Malabu Oil and the re-tender of this bloc to Shell. Both of these controversies are worth looking in some detail.
The Sao Tome Deal
Emeka Offor is the Chairman of EHRC, trading as Chrome Energy, a company incorporated in the U.S. and trading its shares on the Over The Counter Market the U.S. It has never had any income and has been trading as insolvent for several years.
Environmental Remediation Holding Corp. (ERHC) operates as an independent oil and gas company and, since 1996, has engaged in the exploration, development, production and sale of crude oil and natural gas properties. The company's goal is to maximize its value through profitable growth in oil and gas reserves and production in the Gulf of Guinea offshore central West Africa. In addition, ERHC seeks to acquire interests in non-producing oil and gas properties, particularly high potential international prospects in known oil producing areas.
The company's sole asset is an oil and gas exploration concession in Sao Tome received pursuant to an agreement which became effective in July 2002. The company's focus is to exploit its only asset. The agreement with the government of the Democratic Republic of Sao Tome & Principe concerns oil and gas exploration in Sao Tome, an island nation located in the Gulf of Guinea off the coast of central West Africa, as well as in a joint development zone between Sao Tome and the Federal Republic of Nigeria. The agreement was embodied in a consent award issued by the arbitrator as a result of the satisfaction of several conditions, including the ratification of a treaty between the Federal Republic of Nigeria and the Democratic Republic of Sao Tome & Principe.
The company needed to explore forming relationships with other oil and gas companies having technical and financial capabilities to assist the company in leveraging its interests in Sao Tome and the joint development zone. The company had no other operations as of Sept. 30, 2002. Chrome Energy, LLC, which appointed the company's board of directors, beneficially owns approximately 51.1% of the company's outstanding Common stock, as of Dec. 16, 2002. As a result, Chrome has the ability to substantially influence, and may effectively control, the outcome of corporate actions requiring stockholder approval, including the election of directors. This concentration of ownership may have the effect of delaying or preventing a future change in control of the company.
Incorporated in Colorado May 12, 1986, as Valley View Ventures, Inc. Name changed to Regional Air Group Corp. Sept. 20, 1988; and to Environmental Remediation Holding Corp. Aug. 29, 1996. August 19, 1996, acquired Environmental Remediation Funding Corp. (incorporated in Delaware) for 2,433,950 Common shares. It has yet to show a profit.
The company has no assets, only debts. Every time it has a major bill to pay (for geological surveys, etc.) it issues shares to the creditor. It appears to be trading as insolvent.
The real question is how did EHRC get this lucrative contract. Environmental Remediation Holding Corp. has one full-time employee at its headquarters in the U.S. It hasn't reported a penny of revenue for four years and has piled up more than $30 million in losses.
Yet thanks to its sole asset -- a contract that gives it a major stake in a tiny West African nation's oil fields -- the obscure Texas oil company is on the verge of a stunning turnaround. ERHC secured its oil rights from Sao Tome and Principe. The company's oil contract which gives it rights to two offshore fields in Sao Tome's territorial waters and a significant share in deposits in an area jointly controlled by Sao Tome and Nigeria.
About 4 billion barrels of crude are believed to lie beneath those waters. Without a drilling rig to its name, ERHC will reap hundreds of millions of dollars from its holdings. The company was formed and run by a number of minor U.S, players and was able to pay the Sao Tomeans a small sum for the contract. The contract ran into trouble when it was realized that these prospective oil leases would have no value until an international treaty was made between Nigeria and Sao Tome, delineating the territorial boundaries between the two countries. A visit to Sao Tome by the American head of the company proved useless. The U.S. owners were persuaded by Offor that he could arrange that Nigeria set out such a treaty, using his friends Obasanjo and Atiku. The company agreed to sell its shares to Offor, while retaining a number of shares in their own name. They didn’t so much sell the shares as donated them in exchange for Offor agreeing to be liable for the debt. In mid-2001 Offor acquitted a 75% stake in EHRC. A few weeks later the Government of Nigeria and the Government of Sao Tome signed a treaty delineating their borders. Now the oil leases (which promised a 5% of the revenue stream to Chrome) now had a putative value.
This ability to start to sell the oil leases attracted other players. Obasanjo was pushing two companies for the Joint Development Zone (JDZ). These were the Nigerian branch of Norwegian PGS, headed by Otunba Onabanjo (father-in-law of Obasanjo’s second son) and Yinka Folawiyo Petroleum, run by Wahab Folawiyo (close friend of Obasanjo). Atiku was happy with Chrome as it was widely believed that he actually owned the Chrome shares and Offor was his nominee.
This activity irritated Exxon/Mobil who were then also exploring offshore and several Bretton Woods institutions. The new Sao Tomean Government, despite receiving hundreds of thousands of dollars from Offor’s offshore companies, attempted to revaluate the Chrome contact. In response to complaints from Sao Tome officials, Offor renegotiated ERHC's deal in May 2001 with the Trovoada administration.
Under the new agreement, ERHC relinquished certain rights, notably its stake in the state oil company. In return, it was granted, among other benefits, a share of Sao Tome's future oil profits and retained its rights to choice oil fields. Two months later, De Menezes was elected president and, after taking office in September 2001, vowed to revoke the agreement. ERHC threatened legal action but eventually agreed to yet another renegotiation, which began in earnest this year.
By that point, Sao Tome was eager to sign a deal so exploration could commence. They saw Nigeria, Equatorial Guinea, Angola and other countries getting rewards from oil, and they were sucking sand. The country's lead negotiator was the minister of natural resources, Rafael Branco, whose two children were among those who had received college scholarships from ERHC, according to Wilson and Callender, the former company officials.
Sao Tome's National Petroleum Commission played an advisory role. One of its members was an ERHC shareholder and former company consultant. Two other commission members had been on ERHC's payroll at the state-run oil company. So had two members of another government board overseeing oil exploration in the Joint Development Zone with Nigeria.
The contract, as renegotiated by the Branco-led team, gave ERHC a 14% stake in nine especially promising fields in the Joint Development Zone. It left intact the company's rights in Sao Tome's wholly owned territorial waters, where ERHC has full ownership of two oil fields and a 30% share in two others.
In most of the fields in which it was awarded rights, ERHC was exempted from paying a "signature bonus" -- a one-time fee that oil companies typically pay governments for exploration rights. In West Africa, such bonuses have ranged from a few million dollars per field up to $300 million, the sum ExxonMobil recently paid for rights in Angola.
The JDZ have licensed nine fields, in which the most lucrative of which EHRC is participating. This is not bad for a zero investment.
The Malabu Deal
By far the most dangerous deal in which Offor is involved is the ongoing suit by the company, Malabu Oil & Gas of Dan Etete and the late Sani Abacha which is seeking US$2.5 billion in the U.S. courts against President Obasanjo and Vice-President Atiku Abubakar.
In March 2000, Nigeria opened competitive bidding on 22 new oil blocks, including 11 in the Niger Delta deep and ultra-deep offshore, in which 46 oil companies participated and 14 blocks received a total of 51 bids. Awards for eight of the offered exploration blocks were announced in December 2000. The licensing round was the Nigeria's first in over a decade.
In July 2002, Shell was awarded Block OPL 245 after the license had been withdrawn from a local firm, Malabu Oil & Gas. The government has said the license was revoked in May 2001 because Malabu, owned by former Nigerian President Sani Abacha and his former oil minister Dan Etete, was improperly given the concession and also that it failed to pay the $20-million signature bonus by the agreed deadline.
Malabu sued Shell, accusing it of colluding with Nigerian officials to snatch its juicy oil prospecting license, OPL 245, a giant block in the deepwater area of the Niger Delta, with estimated reserves of more than 1 billion barrels. The tiny oil concern wants $1 billion in compensation to go away.
The ill-fated venture started in 1998, just before the collapse of General Sani Abacha's military regime. Early that year Abacha's petroleum minister, Dauzia Loya Etete, awarded himself a license to develop OPL 245 and set up Malabu as the license holder. (Though technically not an owner, Etete is widely believed to control Malabu.) After Abacha's dictatorship collapsed, the civilian administration of President Olusegun Obasanjo set up a panel to review oil licenses and revoked a number of them. But Malabu got to keep its claim.
In late 1999 Malabu offered Shell's Nigerian subsidiary 40 % of the profits in exchange for bearing exploration and production costs. Soon after, the new government wanted a piece of the action, according to Etete. In a written deposition to Nigeria's House Committee on petroleum resources, which is investigating the charges, Etete claims to have dined in August 2000 with Vice President Atiku Abubakar who, Etete says, demanded a stake as a condition for not revoking the license.
In depositions Etete claims he has taped conversations of meetings he had with Abubakar's middlemen, discussing the payment of bribes to Abubakar, President Obasanjo and Shell managing director Ron van den Berg. Shell maintains it doesn't know who is on the tape
"Conversations between two people nobody has identified in no way establishes any link whatsoever with Shell's managing director," says Tony Okonedo, head of Shell's media relations in Lagos. (The parliamentary committee requested a warrant for the arrest of Van den Berg for failing to show up for questioning.)
In late 2000, Etete alleges, he received a phone call from an agent of the vice president, asking him to sell Malabu's stake in the block. Etete refused, and in July 2001 the government revoked Malabu's oil prospecting license; Shell lost its stake, too. Months later the government invited Shell and ExxonMobil to bid on OPL 245. Exxon reportedly offered $40 mm; Shell won with a $ 210 mm bid, securing 100 % of the license. Malabu is crying foul. It says Shell's bid was based on insider knowledge of the block's huge reserves.
"Until you start drilling you can't say for sure how much oil there is," says Donald Boham, Shell's spokesman in Lagos, licking his thumb and holding it up to an imaginary gust of wind to make his point. "We bid on the block; Exxon bid on it. We won."