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Shell Niger Delta File Shows Legacy Of Broken Promises

11 Dec 2008 15:17 GM


By Benoit Faucon 


LONDON (Dow Jones)–A Royal Dutch Shell PLC (RDSB.LN) venture’s internal review reveals a history of unfulfilled promises to communities in the Niger Delta, with 766 pledged development projects by the company either unfinished or never started.

Shell has successfully completed $200 million in projects for communities in the last five years, the company said. Shell’s internal review doesn’t assess these successful projects, but its existence suggests that the many unfinished projects remain a key obstacle to the reliable supply of one the world’s cheapest sources of high-quality crude.

The supply gaps continue, even as the International Energy Agency warned last month of an impending shortage of affordable oil. Current and former Shell staff said the company, the Nigerian authorities and communities shared responsibility for bogging down $150 million worth of projects.

The Nigerian government also is investigating what happens to funds earmarked for development for all joint ventures between Nigeria and foreign oil companies.

Other oil companies also have failed to follow through on promises. But because the Shell-operated joint venture Shell Petroleum Development Co., or SPDC, is the largest and oldest onshore producer in the region, its inability to deliver on written pledges has greater impact, local leaders say. Shell, the operator of SPDC, owns 30% of the joint-venture and NNPC 55%. “They are the biggest and they are more rooted on the ground” because they have been in the Delta for half a century, said Kennedy West, president of the nonprofit Association for Nonviolence in the Niger Delta, which mediates between militants and authorities.

West, who renounced violence five years ago, said he had participated in the armed occupation of SPDC’s Cawthorne Channel gas pipeline project in the eastern Niger Delta in 2002, prompted by a dispute with Shell and its contractors over the employment of community residents. Shell didn’t return a request for comment on this dispute.

“The companies have actually not kept their promises,” said Abdullah Bukar, a former operational manager at SPDC. “That’s part of the problem of the Niger Delta.” A commander operating within the umbrella group of militants known as the Movement for the Emancipation of the Niger Delta said: “You can see children in morning with nothing to do. That is the reason why people join the struggle.”

The commander, introduced to Dow Jones Newswires by West, uses the pseudonym “Busta Rhymes,” and is unrelated to the hip-hop artist. He is from Elem Ifoko, a Rivers State community where the review listed two schools projects as either in progress or “yet to start.”

Shell would not comment on specific allegations. But it did defend its commitment to Niger Delta development. “We are deeply committed to helping bring about peace and addressing poverty through development,” a Shell spokesman said. Communities in the oil-rich Nigerian region have long criticized Shell, citing unfulfilled agreements to build badly needed schools, health centers, and water and power systems to make up for the negative impact of oil projects on their environment.

But the internal SPDC report obtained by Dow Jones Newswires shows for the first time the extent of Shell’s unfinished commitments. Each promise was passed to the relevant community, but the whole list has never been made public. Shell, speaking as the operator of SPDC, says it has made some progress. The SPDC has completed a large number of other community projects, investing an annual $40 million on directly to Niger Delta development for the past five years. The spending included around $19 million in improving community healthcare, around $30 million in economic development and around $127 million on infrastructure development, the Shell spokesman said.

The internal SPDC report, which covers so-called legacy projects – those unfinished projects left on the books for many years – doesn’t include projects that Shell has completed within a few years. The Shell spokesman said: “We don’t comment on the detailed content of confidential internal reports.”

People familiar with the company’s community relations said Shell promised to complete many of the community projects after residents promised not to disrupt new or expanding oil and gas developments.

In other cases, the development projects were designed to offset environmental or social damage attributable to Shell’s oil and gas developments.

Lack Of Investment A Factor In Unrest

The SPDC review of community projects says that most communities have written pledges verifying Shell’s promises, but in some cases the pledges have gone unfulfilled for more than two decades.

A person familiar with the review said the verifying documents are memoranda of understanding, or MoUs, a standard form of preliminary agreement between companies or public institutions. Shell said in July it was reducing its spending on community projects for Nigeria’s SPDC as it faces a financial crisis partly due to the Nigerian output disruptions.

The total budget of the projects’ backlog is the equivalent of about $150 million, the document shows. That’s only a fraction of Shell’s 2007 annual profit of $31.33 billion. But current and former Shell staff said the Nigerian authorities and the communities share some of the responsibility for the uncompleted work.

Bukar, the former SPDC manager, said the projects lack continuity because oil company expatriates shift regularly and local government representatives are reelected in short term periods. The people familiar with the review said one manager would make a promise to sort out a short-term problem but leave before the community project was started or completed. “His replacement won’t feel bound by the promise. He might think it made no sense,” one person familiar with the review said.

A former Shell staff member said that a community elder often would remember the Shell manager who made a promise, even describing the color of trousers or shirt the manager wore and whether he was skinny or fat, short or tall. Yet “the manager in question has long left the country.”

The projects’ funding was supposed to be drawn from an operational budget shared with Shell’s state partner in SPDC, the Nigerian National Petroleum Co., or NNPC, but NNPChad paid only part of its contribution. Several bogged down projects are still “awaiting budget provision,” the SPDC review says. Shell said in July that the projects were delayed in part by the NNPC’s inability to fund its share of the joint venture.

NNPC has acknowledged it was unable to pay but said the problem would be resolved with the finalization of a refinancing deal. Communities also have changed their demands – sometimes due to internal divisions. “Everybody agrees (on an MoU) and the following day, they disagree,” Bukar said.

One school project was interrupted because the council of chiefs requested the substitution of one contractor for another. A town hall project was “stalled by community … now insisting on (an) auditorium costing about four times (the agreed) amount in MoU,” the review said. “Not all the blame is on SPDC,” community leader West said.

Lee Maeba, chairman of the Nigerian Senate’s upstream (oil) committee, told Dow Jones Newswires in an interview that the assembly is investigating the spending of budgets earmarked for community projects by all Nigerian joint ventures with foreign companies, including SPDC.

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By Benoit Faucon, Dow Jones Newswires; +44-20-7842-9266; [email protected]

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