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How Nigeria Would Have Lost $6billion In Future Revenues Through Controversial OPL 245—HEDA

May 27, 2021

The Malabu scandal involved the transfer of about $1.1 billion by Shell and ENI through the Nigerian government to accounts controlled by a former Nigerian petroleum minister, Dan Etete.

President Muhamadu Buhari has been commended over his stance on the controversial Nigerian offshore Oil Prospecting Licence (OPL) 245 oil bloc.

In a letter delivered to Buhari, the Human and Environmental Development Agenda (HEDA) praised Buhari for his stance to suspend all activity on the contract till the investigation of corruption allegations regarding it was fully carried out. 


OPL 245, estimated to hold 482 million barrels of economically recoverable oil, expired on May 11th, ten years after Shell and Eni paid $1.3 billion for the license in a deal trailed by criminal investigations and trials.


The Malabu scandal involved the transfer of about $1.1 billion by Shell and ENI through the Nigerian government to accounts controlled by a former Nigerian petroleum minister, Dan Etete.


From accounts controlled by Etete, about half the money ($520 million) went to accounts of companies controlled by Aliyu Abubakar, popularly known in Nigeria as the owner of AA oil.


Anti-corruption investigators and activists suspect he fronted for top officials of the Goodluck Jonathan administration as well of officials of Shell and ENI.


The transaction was authorised in 2011 by ex-president Jonathan through some of his cabinet ministers and the money was payment for OPL 245, one of Nigeria’s richest oil blocks.


The oil resources of the OPL 245 license have remained undeveloped since the controversies began.


Eni initiated international arbitration proceedings against Nigeria in September, alleging the government has breached its obligations by refusing to let the firm develop the license, which has now expired this May.


“In 2011, the administration of your predecessor President Goodluck Jonathan oversaw the purchase by oil multinationals Shell and Eni of the license for Nigeria’s biggest offshore oil bloc, OPL 245. The bloc contains an estimated 482 million barrels of recoverable oil reserves,” HEDA said.


“If burned, these would add 200 million metric tonnes of carbon dioxide to the atmosphere, equivalent to the annual emissions from 50 coal-fired power stations. And this is without taking account of emissions from associated gas.


“The 2011 deal was wholly one-sided. Apart from a $209 million signature bonus, Nigeria received nothing. All the money paid for the license – some $1.1 billion – went to a former oil minister Mr. Dan Etete who had awarded the bloc to his own company. Moreover, under the terms of the license, Nigeria would not have received a kobo in royalties from the field, depriving the country of an estimated $6 billion in future revenues – equivalent to twice the country’s annual health and education budget, or enough to train six million teachers.  


“Since you first took office in 2015, you and your government have resisted immense pressure from the Italian oil company ENI to exploit the OPL 245 oil field. You have rightly insisted that no Oil Mining License (OML) could be considered until corruption prosecutions relating to the award of the 2011 licence have made their way through the courts. Although the companies have been acquitted of corruption by a court in Milan, their subsidiaries are still charged in Nigeria and Shell has publicly commented they had been informed by Dutch Prosecutors of potential breaches of laws in the Netherlands that could be prosecuted. 


“Consequently, no OML has yet been granted and the oil remains in the ground. We applaud the stand that you have taken. The 2011 licence awarded to Eni and Shell has now expired. It would, of course, be open to Nigeria to re-license the field. However, oil prices have declined considerably since 2011 and it is questionable whether there would be oil companies willing to tender on terms that that would be beneficial to Nigeria. 


“Rystad, the Norwegian-based energy consultancy, has reportedly identified OPL 245 as one of 13 major African oil and gas projects that may no longer be viable at current oil prices. Whilst it may be a fools-game to project long-term oil prices, it seems not to be in doubt that wild price fluctuations and their long-term decline are highly likely scenarios, in a world that does actually (in policy terms) start to fully respond to the climate crisis – a task which already demands an annual drop in fossil fuel consumption across the board of at least 6% per annum. It is therefore becoming increasingly difficult to see how expensive-to-develop oil projects, such as OPL 245, can remain economically viable going forward. Indeed, in 2020, Shell wrote down its OPL 245 investment. 


“Although Eni still hopes to exploit the field, it appears clear from the bullying international arbitration case it has launched against Nigeria, that it will only do so on the terms agreed in 2011. The prospects for Nigeria benefitting economically from the field are therefore slim.


“An alternative exists that would secure Nigeria an income consistent with a re-licencing under current production sharing terms, whilst also delivering major benefits for climate. As you may be aware, Brazil is negotiating an agreement with the USA under which it would be paid $1 billion a month to cut forest clearance in the Amazon by 30-40% in the interests of the world’s climate. We would urge Nigeria to press for similar arrangement to be agreed at COP 26 whereby an international fund would be established that would pay Nigeria $15.6 billion over the expected 16 year lifetime of the OPL 245 field to keep the oil and gas in the ground.


“The economic logic of such an arrangement is compelling: a guaranteed income as against the uncertainties of a deal reliant on a declining market for oil and gas. The political logic is also hard to contest: the fund could be used to diversify the Nigerian economy away from its toxic dependence on oil and gas multinationals. And the climate logic is overwhelming: indeed, were OPL 245 to be exploited, the emissions from burning its oil could only make it still harder for current and future generations to avoid the deprivations and costs of climate catastrophe. If this proposal were to be viewed in terms of the climate crisis being a matter of “common, but differentiated responsibility,” which are key principles adopted at past UNFCCC meetings, it is self-evident that those wealthy countries of the world, which bear the greatest responsibility for the crisis and which have gained most economically from past greenhouse gas emission, should bear such costs as additional burdens on top of their current efforts to adjust their own economies.”


The group also urged the government to punish companies indicted for gas flaring, claiming that the country loses billions of naira to the menace annually.


In the letter, HEDA said the huge sum if properly harnessed, can transform the country’s economy and revive its ailing infrastructure.


“Your country has always demonstrated strong leadership in her dealings with African neighbours and the rest of the world. Nigeria’s contribution to peacekeeping efforts all over the world, the fight against corruption and global terrorism, and her struggle to entrench democracy are commendable leadership virtues. We urge you to extend same leadership for which Nigeria is widely admired to helping the world to tackle climate change,” part of the letter read.


“Mr President, you have the powers and historical responsibility to help the world set and achieve bigger emission cut ambitions that could make all the difference whether or not we bequeath a healthier planet to future generations. We urge you to:


“Announce a moratorium on the re-licencing of OPL 245 pending negotiations to establish a global fund through the United Nations that would rent the oil field for its intended lifetime in exchange for the oil and gas being left in the ground.


“Make a strong case for climate change and repatriation of African’s stolen assets illegally stashed in and outside of the continent. End gas flaring and instigate immediate measures to recoup the billions of dollars owed to Nigeria by oil companies.


“Use the funds due to Nigeria from gas flaring fines to implement an immediate programme to bring off-grid renewables to the Nigerian people.”

Oil Scandal