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It is not our role to replace government’s responsibility – Shell’s Country Chair


Basil Omiyi, Shell’s Country ChairViolence is becoming a constant presence in the Niger Delta, with a steady wave of attacks by militants against oil installations. Shell’s Country Chair in Nigeria, Basil Omiyi, discusses the causes of the crisis and analyses the role companies like Shell can play in helping Nigeria to find a way out. He says companies like Shell can generate revenues and jobs and invest in community development, but it’s not their role to replace government.

What is the root cause of the security crisis in Nigeria’s Niger Delta region?
The root cause is poverty. The geography of the area has been an obstacle to development. The marine part of the Delta is swampy and it’s very difficult to build roads and other essential infrastructure. Despite efforts by successive Nigerian governments in the past 40 years, the Delta region has remained poorer than most of the rest of Nigeria.

Recognition that the region requires special attention goes back to even before oil was found there. When oil production began and the Delta became the breadbasket of the country, the lack of delivery on the development aspirations of the people in the Delta region became even more obvious. As a result, political and social tensions increased. That really is the background to the Niger Delta crisis.

So how did the situation deteriorate from poverty and lack of development into the present situation of crime and lawlessness?
Against this background of poverty and underdevelopment, the next component of the crisis is a political one. The Nigerian constitution currently states that all mineral wealth found below six feet underground belongs to the federal state. The proceeds from mineral resources are redistributed to the individual states from the federal purse. But the Delta states argue that the allocation formula is unfair and that they should get more, citing the difficult terrain and environmental consequences of oil production as a justification. So the Niger Delta states are challenging the Nigerian constitution, adding to the complexity of the crisis.

The political conflict got worse in 2003, in the wake of a government decision to redraw the boundaries of administrative units. This led to inter-ethnic fighting in the Delta region, which, in turn, introduced a lot of arms there and gave birth to the militant groups. Some of these militant groups say they are acting to pressure the government into seriously addressing underdevelopment and political concerns of the region. But I fear that for many of them crude oil theft has become an end in itself. They have joined forces with criminal gangs and turned to “illegal bunkering”, or crude oil theft and illegal trade. It’s a very lucrative trade and has become such a significant concern for the country that President Yar’Adua has called for international help to deal with this “blood oil” or “rogue crude”.

Many people believe that oil companies are at least partly to blame for these problems. How responsible are oil companies for getting the Delta region into this mess and, hopefully, out of it again some day?
It’s convenient to scapegoat oil companies for what is truly a very complex situation. Some of our critics seem to believe that because the oil companies are the avenues through which the central government gets its oil revenue, we are therefore party to the dispute – which we’re not. What they forget is that companies like Shell have to abide by the laws of the country. A company can create employment through its activities, produce oil, create wealth for the nation, pay its taxes and levies as due and enable businesses in other sectors to thrive by linkages to the oil and gas sector. That is the legitimate role of oil and gas companies. It’s not their role to replace government.

But I do understand where the frustration comes from. The need on the ground is so great and people feel more should be done. And that is true. That is because the primary agents for development, the various local and state governments, whose statutory duty it is to do so, have not been doing enough. Many people, including journalists, wish the oil companies could fill this gap.

Even if companies cannot replace governments, they can invest in communities. Is Shell doing enough to contribute to development in the Delta region?
Oil companies have, for a long time, ploughed a considerable share of their revenues back into development. For example, Shell in Nigeria contributed in 2007 close to $110 million to the federal government’s Niger Delta Development Commission.

We also separately invest between $50 million and $70 million each year in scholarships, supporting universities, hospitals, micro-credit schemes and immunisation for children, as well as programmes to combat HIV/AIDS. And, of course, you’ll find we also invest significantly in human capacity development in the broad sense of the word. Think of our contributions to social and economic infrastructure, such as schools and roads.

Some of these programmes we do by ourselves. In others, we work with partners like USAID, UNDP and Africare. These are big development agencies that we fund because they are better at this kind of work than we are.

All in all, I’m very proud of what we at Shell have done and achieved in this regard over the years. People who want to be fair recognise us for this and, fortunately, there are many people who do.

Oil spills are one reason why companies like Shell face criticism. Who or what is responsible and what can be done to limit the damage they cause?
Around 70 per cent of the oil spills – that’s two-thirds of the spilled oil measured by volume – are deliberately caused. I’m talking about acts of sabotage for political reasons or economic benefit. Our critics may not want to hear it, but this is the reality.

The main reason people cause the spills is to seek compensation. They sometimes even direct the spill into their property to increase the spread of the spill. The bigger the spread, the bigger the compensation they hope to get, or the higher the amount of money they hope to earn by being contracted to clean up the spill. Compared with local income, these are significant sums. Again, it is a sad human story of poverty that leads individuals to seek profit in ways that damage their own environment and goes against the interest of the wider community.

The remaining 30 per cent of the spills result from operational failures. We try to minimise these by improving the integrity of our assets. Once a spill occurs, whatever the cause, we try to go in to stop the spill, contain it and clean it up. But, again, some local people will delay granting access for the industry, in order to get a maximum spread and compensation.

These facts are conveniently ignored by some of the NGOs that try to focus the world’s attention on the underdevelopment in the region. But by glossing over these facts, they damage their credibility, even if their cause is worthy.

What would you say to people who criticise Shell for not meeting its deadline on flaring?
To understand why there is continuous flaring in Nigeria at all, we must go back to the birth of the Nigerian oil and gas industry. When Nigeria found oil, the country was eager to develop its newfound oil wealth to improve living standards. There was no industry that could serve as the end-user for the associated gas that was emitted during oil production. Getting the income from oil was the first priority.

Shell from the outset recognised that this approach was unsustainable and that the industry would have to find an outlet for the flared gas. So we began to promote gas utilisation to industries and power plants. Today, some 60 per cent of power generation in Nigeria is fuelled by natural gas from Shell-run operations. In addition, for over 20 years Shell promoted a project to export liquefied natural gas (LNG). Our sustained campaign ultimately led to the creation of Nigeria LNG, a very successful joint venture between Shell and the Nigerian government that supplies LNG to the world’s markets.

So when the Federal Government mandated all gas flares to be put out by the end of 2008, we as a company supported that. We drew up a detailed set of specific projects and thought we had found the necessary funding. We knew that the challenge was considerable: the Shell-operated onshore joint venture (55% owned by Nigeria’s government) would have to gather gas from 1,000 wells across a swampy area over half the size of England.

But still, if we had been able to fully implement our plan, we would really have put out the flares at all our operations by the end of 2008. Over the past seven years the joint venture invested around $3 billion and managed to reduce flaring by a third. We need more than double that amount to complete the job.

We were well on the way to eliminating all routine flaring by the end of this year when our government-owned partner, the Nigerian National Petroleum Corporation (NNPC), ran into a funding crunch. At the same time, the security situation deteriorated, blocking access to many locations.

This combination of a funding gap and lack of security has made it impossible to complete the flares down programme this year. But I remain hopeful that we will soon be able to continue this important work. We have found a solution to the funding gap and once there is safe access to the locations we’re all set to resume our work.

What solution was found for the funding gap?
We reached an agreement with the government that in our joint venture, Shell will finance the gas-gathering projects for an agreed return. In addition, Shell provides a bridge loan to cover historical outstanding arrears owed to it from work already done.

Is this a one-off solution, or is it part of a broader rethink in Nigeria about how the oil and gas industry should be funded?
Yes, it forms part of a bigger story. Nigeria is a country of 140 million people and the government recognises that there is a huge requirement for investment in transport, aviation, railways, education, health, agriculture, and other sectors of the economy. To free up the necessary funds, the government has asked the oil and gas industry to move towards being completely self-financing.

There are several ways to achieve that. One approach would be to focus more on project financing by private partners who put up the money for projects and get returns for the money they invest. But the government has announced it wants a more profound restructuring than that. They are looking ultimately to the joint ventures becoming incorporated entities that can go to the financial market, raise capital for the business and pay dividends to their shareholders. So, for example, the government-owned partner in our onshore joint venture will have to become a commercial, capitalised company. 

This government plan will fundamentally change the way the industry is funded, and I think it’s for the better.

Is Shell’s reputation in Nigeria improving?
Surveys show that Nigerians consistently regard Shell as the number one company in areas like technology, know-how and the quality of our people. But on subjects like environmental and social performance, our reputation is not as good as we would like it to be. To a degree we still suffer from legacy issues like the Ogoni troubles.

So what more can Shell do to improve its community relations on the ground and its reputation?
After a number of experiments, we chose to engage local communities using broad framework agreements we refer to as “General Memorandums of Understanding” (GMoU). Since there are so many local communities, we have worked together with NGOs and the communities to group them into clusters. This provides critical mass and, hopefully, alignment across broader segments of society.

In this new form of cooperation, the communities themselves are in charge of identifying priority projects and implementing them, with the help of NGOs. Shell provides its own funding and syndicate funding from other partners, including the government and NGOs. So the communities articulate their own future. And we hope this form of cooperation will contribute to building self-help capacity, increasing social cohesion, and reducing crime.

That’s the theory. We have signed 20 agreements so far. If this new way of working with the people in the Niger Delta works out the way it is meant to, we should see some improvement on the ground and, by extension, of Shell’s reputation in Nigeria.

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