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FT REPORT – NIGERIA: Militants bent on ‘resource control’

Financial Times
Published: Jul 12, 2007

Standing in a luxurious hotel room in the capital Abuja in a suit and tie, a militant leader from the oily swamps of the Niger Delta reveals his strategy to the FT.

“First you do war-war and then it’s a bit of jaw-jaw,” he says, standing over a draft contract for work on a state-owned gas pipeline that his own armed group had blown up in an act of “war-war” before negotiations, or “jaw-jaw” began.

The leader, carrying the code name “Duty Calls”, had flown to Abuja after militant attacks on oil and gas facilities last year cut about a quarter of Nigeria’s oil output. “If we get the contract, things may calm down,” he says.

Since then, further attacks on oil facilities in the delta have again raised the pressure on international oil markets and highlighted the vulnerability of Africa’s largest oil producer. With the military too under-equipped and ill-disciplined to patrol effectively the maze of creeks that are home to the bulk of Nigeria’s oil production, companies are often at the mercy of the militants and their demands.

Many militant groups claim they are fighting to bring development and justice to delta communities scarred by poverty and military incursions. But the reality of exactly what they are fighting for is a little more complicated.

Often tied into broad requests for the betterment of the delta’s people are specific demands intertwining the personal interests of some militant leaders with the very same industry they seem bent on destroying.

Many militants started off as local strongmen in delta communities. Armed by cynical politicians to help enforce rigging in the 2003 elections, some then engaged in the illegal theft of crude oil, building up theirarsenals with the proceeds and turning themselves into warlords.

Some, like “Duty Calls”, were even guaranteed a place on state government payrolls while cutting unofficial contract deals with oil companies, partly in exchange for stopping attacks against oil facilities.

This strategy of extortion is justified as “resource control” by militants who argue that the government and oil companies have provided the delta’s majority tribe, the Ijaw, with few benefits, despite sourcing most of its wealth from the region.

Basil Omiyi, the head of Nigeria’s unit of Royal Dutch Shell, historically the country’s largest producer, says his company’s new strategy is to “significantly” increase the amount of contracts he offers to local communities as a way of damping the climate of hostility. The contracts, which chime with Nigeria’s policy of requiring companies to source “local content” in their operations, could include barge and boat leasing, maintenance, catering and transportation work, he says.

Shell is confident that by this approach it will soon be able to persuade militants to give them full access to the oilfields in order to restore the 500,000 barrels a day it lost in the attacks in the delta last year.

But sceptics say that the strategy could end up backfiring. Last year Shell admitted it had inadvertently given lucrative contracting work to two local companies that had close links to the very same militant group responsible for the 500,000 barrels a day cut.

Mr Omiyi says Shell will carry out its own due diligence on companies it uses as contractors but that it would be difficult to “sieve out” all militant sympathisers from those communities awarded contracts.

As armed groups have attempted to pull in greater revenues, the number of kidnappings of foreign oil workers for ransom has also risen dramatically. Over the past year, many foreign contracting companies doing essential drilling and engineering work for the oil multinationals, from giants such as Schlumbergerand Halliburton to smaller sized companies, have faced prohibitive security costs as a result.

In the past few months, a handful of servicing companies have either withdrawn or considered withdrawing from the delta,unable to stay commercially viable in a high-risk climate prone to disruptive attacks by armed gunmen on powerful speed boats.

Some of the companies have started turning their attention towards work offshore, where militants are less likely to operate. “But turning to deep-water operations entails higher engineering costs and ultimately producing more expensive oil,” says one director of a big oil servicing company in Nigeria. The government encourages investors to remain in the delta as much as possible because onshore production is taxed at a much higher rate than offshore projects, which are only just starting to come on stream.

To reverse the tide of problems in the delta and improve its attractiveness for investors, the government needs a comprehensive plan to solve the region’s crisis. President Umaru Yar’Adua has said he has such a master plan that will bring peace and development back to the region.

But critics say there is no sign that it will be implemented in any different way than the failed initiatives of the past that were corrupted by systems of patronage conducive to bloated development contracts and cronyism.

“The masterplan is basically a drainpipe to drain money for the development of the Niger Delta back to the senders of that money,” says Anyakwee Nsirimovu, a human rights lawyer from the delta. “The only way they can shut militants up is to give them contracts.”

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