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Royal Dutch Shell interfering with politics

From pages 41, 42, 43 & 44 of “Royal Dutch Shell and its sustainability troubles” – Background report to the Erratum of Shell’s Annual Report 2010

The report is made on behalf of Milieudefensie (Friends of the Earth Netherlands)
Author: Albert ten Kate: May 2011.

Interfering with politics

Improper involvement?

Oil and politics have a lot to do with each other. The home states of Royal Dutch Shell are the United Kingdom and the Netherlands. These countries might want to secure their oil/gas imports and the economic benefits of having an international oil company based within their territory. These interests might overpower ethical interests, such as the protection of human rights in countries hosting the oil company. Home states often might have the same business interest than “their” oil companies.

Oil companies may lobby their home states, so these will pay more attention to oil business possibilities. Oil companies may speak kindly of regimes that are in fact abusing human rights. Oil companies might keep their finger on the pulses of home as well as host states, in order to keep informed of the latest political developments.

One of the general policies prescribed by the OECD Guidelines for multinational enterprises is that companies should abstain from any improper involvement in local political activities. The OECD does not have a clear definition of improper involvement. It states that companies might want to ask themselves whether their political activities are transparent; whether they would feel comfortable if these activities were described in detail in the media; and whether their activities are in the best interests of the host country.

In this section some examples are given of cases which could be, to some extent, seen as improper involvement in politics by Shell and/or home states and Shell working together to ensure business. Most of the examples became known through Wikileaks and through journalists/activists making use of the UK Freedom of Information Act.

1) Shell’s access to the Nigerian government

In October 2009, Shell’s Executive Vice President (EVP) for Shell Companies in Africa, Ms Ann Pickard met with the United States Ambassador to Nigeria. According to the cable from the U.S Embassy in Nigeria, the Shell EVP told the ambassador that the Government of Nigeria “had forgotten that Shell had seconded people to all the relevant ministries and that Shell consequently had access to everything that was being done in those ministries.”

Following the disclosure of this cable, Shell has stated that the suggestion of infiltration by Shell in the Nigerian government is far from the truth, and that this infiltration would not be in line with Shell’s General Business Principles. According to Shell, it has a total of 11 staff seconded to the Nigerian government, mainly technical specialists. Shell stated that it is usual in the oil industry for governments and businesses to keep close contact with each other. The reasons for this would be the importance of energy for society and the fact that governments often directly or indirectly participate in oil and gas activities.

2) Shell’s access to the Dutch and UK governments

From Wikileaks it also became more clear to what extent the Dutch government and Shell are cooperating. There is an ongoing program in which a Dutch diplomat works at Shell’s headquarters in The Hague and a UK diplomat works at Shell’s London offices. For example, in summer 2008, Mr Simon Smits, Director of Economic Cooperation at the Dutch ministry for Foreign Affairs, completed a two-year secondment at Shell where he focused on government relations in the company’s hot zones. In November 2008, the Dutch Ministry of the Interior and Kingdom Relations signed an agreement with Shell to exchange senior managers. The exchange would take the form of secondment of public sector managers with Shell and vice versa. The posting would last one or two years.

After questions by parliamentarians, the Dutch ministers of Foreign Affairs and Economic Affairs stated that there is no conflict of interest related to the exchange of personnel by Shell and the Dutch government. In the oil and gas sector, more than in other sectors, the role of foreign governments and state companies is dominant. In this context, oil companies from the West rely on support from their own government to secure their position abroad. The secondment of officials of the ministry of Foreign Affairs at Shell should be seen from this perspective. According to the ministers, it could help to build knowledge and get a better understanding of the sector.

3) Shell drafts letters for the UK government to get Libya deal

In May 2005, Shell signed an agreement to start a joint venture with the Libyan National Oil Corporation. The joint venture would revamp and expand the existing liquified natural gas (LNG) Plant at Marsa el-Brega on the Libyan coast. It would also explore for gas and subsequently develop five areas totalling 20,000 square kilometres located in the heart of Libya’s Sirte Basin. Shell was committed to invest USD 637 million in the first phase of the joint venture.

Already in March 2004, Malcolm Brinded, head of exploration and production at Shell, stated: “We were in Libya in the Fifties and we were in Libya in the Eighties for an exploration programme, but for this one we came back in 2001 and so this is the culmination of discussions over that.” International sanctions on Libya were lifted in 2003 and 2004. Thus, Shell had been fishing for contracts from Gaddafi a long time before international sanctions were lifted.

In April 2010, documents obtained by the UK newspaper The Times revealed that the former UK prime minister Tony Blair lobbied Colonel Muammar Gaddafi on behalf of Shell. Shell had written a letter in draft form for Mr Blair to write to Colonel Gaddafi. In May 2005, shortly after Mr Blair’s official letter was written, Shell secured the deal.

Both letters were released after a lengthy Freedom of Information process. The Cabinet Office of the UK government would release only a part of Mr Blair’s official letter. In its draft-letter, Shell tells the Prime Minister to congratulate the Libyan leader on Revolution Day and to comment on the “remarkable year of progress for Libya”. In relation to its deal, the draft letter from Shell said: “Understand that all the terms of the agreement have now been negotiated and approved now waiting for [Libyan] Cabinet approval.” The section on Shell in Mr Blair’s official letter sounded very similar to the draft: “I understand that the necessary technical discussions with the relevant authorities in Libya have been completed satisfactorily. All that is needed now are final decisions by the [Libyan] General People’s Committee to go ahead.” Shell declined to comment to The Times. The journalist of The Times, David Robertson, later characterised Shell’s draft- letter “unusually informal or unusually forward in the way that Shell thought it would be able to dictate British foreign policy.”

In September 2009, The Times requested all communication between the UK Department for Business and the following companies: BP, BG group and Shell (all oil and gas companies), and defence company BAE Systems. A limited number were released in December 2009. One was an email from Shell to UK Trade & Investment dated September 2004 complaining of slow progress with its Libyan deal. Just months earlier Mr Blair and Colonel Gaddafi had met in a tent outside Tripoli to end Libya’s diplomatic isolation.

4) Shell and Dutch government lining up against U.S. Iran sanctions

In January 2011, Wikileaks revealed that during 2009 the Dutch government and Shell maintained the same position with regard to proposed U.S. legislation to impose sanctions on oil companies producing oil/gas in Iran or selling refined products to Iran. They thought this would give Chinese and Russian companies access to Iran’s hydrocarbon resources at the expense of U.S. and European competitors, among other Shell.Dutch parliamentarians asked the Dutch ministers of Foreign Affairs and Economic Affairs to inform them on the extent to which the Dutch foreign policy is tailored to the demands of Shell, as seemed to be the case with regard to the position on the U.S. Iran Sanctions Act. The ministers answered that the Netherlands has, within the European Union, always plead for severe sanctions against Iran. However, the Netherlands had also always opposed the extraterritorial impacts of U.S. sanctions, whenever these are stricter than EU and/or UN measures. They would always defend the business interests of Dutch companies when these could be disproportionately affected.

5) Invasion of Iraq: UK and Dutch governments understand Shell’s needs

In April 2011, it became publicly known that the exploitation of Iraq’s oil reserves was discussed by UK government ministers and oil companies during months before the March 2003 invasion of Iraq, in which the UK took a leading role. Late 2002, at least five meetings were held between civil servants, ministers, BP and Shell. The documents describing these meetings were released under the Freedom of Information Act to oil campaigner Greg Muttitt. “It was a five-year struggle to get them, but they provide evidence of what many of us suspected: that oil was at the centre of the Blair government’s thinking on Iraq,” he said.

Minutes of a meeting with BP, Shell and BG (formerly British Gas) on 31 October 2002 read: “Baroness Symons [then the UK Trade Minister] agreed that it would be difficult to justify British companies losing out in Iraq in that way if the UK had itself been a conspicuous supporter of the US government throughout the crisis.” After another meeting in October 2002, the Foreign Office’s Middle East director at the time, Edward Chaplin, noted: “Shell and BP could not afford not to have a stake in [Iraq] for the sake of their long-term future… We were determined to get a fair slice of the action for UK companies in a post-Saddam Iraq.”

Shell has always denied that it has actually sought discussion with the UK government. In March 2003 it stated: “We have neither sought nor attended meetings with officials in the UK Government on the subject of Iraq. The subject has only come up during conversations during normal meetings we attend from time to time with officials.”

To the UK government, Shell had always argued that there should be a “level playing field” in the event of post-war development of Iraq’s oil fields. Shell had also told the Dutch ministry of Foreign Affairs that it would welcome a lobby by the Netherlands for a “level playing field”. There was concern at Shell that certain companies would be favoured. In March 2003, the British ambassador Colin Budd told the Dutch top-official Rob Swartbol that UK prime minister Tony Blair had addressed the concerns of Shell towards U.S. president Bush.

In January 2010, the report of the independent inquiry into the Dutch decision making in 2002/2003 towards political support for the invasion of Iraq was published. The report stated that trade or oil interests didn’t seem to have been part of discussions about Iraq in the Dutch Cabinet. However, in March 2002 the former Dutch minister of Foreign Affairs Jozias van Aartsen met with the former U.S. Defence Minister Colin Powell and other people in the Pentagon. There were also discussions about a post-Saddam Iraq. Van Aartsen stated that Shell had never asked him to mediate, but that he “would have been a lousy minister whenever he would not kept those economic interests in mind.”

Both the Netherlands and the UK government were among the very few European countries that were in favour of U.S.-dominated military actions against the Iraqi regime of Saddam Hussein. In the case of Iraq, Shell doesn’t seem to have interfered with Dutch and UK politics so much. The governments seemed to be already aware of business possibilities of a post-Saddam Iraq.

Presently, Shell is already having a big role in increasing Iraq’s oil/gas output:

? December 2009, at an auction by the government, the Majnoon oil field was awarded to a consortium of Shell (45%), the Malaysian Petronas (30%) and Iraq’s state-owned Missan Oil Company (25%). The proven reserve of the Majnoon field is a whopping 12.6 billion barrels. The deal intends a 20-year service and development of the field. The project will require tens of billions of dollars over the 20-year period. Shell and Petronas will pay the investment, and after they have their money back they will receive USD 1.39 per barrel. The consortium aims to increase production from 45,000 barrels to 1.8 million barrels of oil per day within seven years. Production from Majnoon involves the continuous flaring of natural gas produced with the oil. The flaring is expected to rise as production increases.

? November 2009, a consortium grouping ExxonMobil and Royal Dutch Shell plc (15% share) won the right to develop the 8.6 billion barrel West Qurna Stage 1 field. Under the terms of the 20-year contract, the two companies aim to increase output from the current 280,000 barrels per day to 2.1 million barrels per day in seven years. The companies will receive USD 1.9 for every barrel they produce.

? In September 2008, Shell signed a Heads of Agreement (HoA) with the Iraqi Ministry of Oil that sets out the commercial principles to establish a joint venture between Shell and the South Gas Company. Iraq’s South Gas Company would be the 51% majority shareholder in the joint venture, with Shell holding 44% and Mitsubishi Corporation holding 5%. The joint venture would gather, treat and process raw gas produced from three fields within Basra and sell the processed natural gas (and associated products, such as condensate and LPG) for use in the domestic and export markets. As of March 2011, contract terms are still subject to ongoing discussions with the Iraqi government. Iraq’s deal with Shell and Mitsubishi will cover the following oil fields: Rumaila (being developed by BP and CNPC); Zubair (being worked on by ENI, Occidental and KOGAS); West Qurna (stage 1 in the hands of Exxon and Shell, stage 2 in the hand of Lukoil and Statoil). Wikileaks revealed that at a Iraq petroleum conference, held late 2008, participants expressed nearly unanimous concern about the HoA on southern gas between Iraq and Shell. Though the Iraqis present were content with the joint venture arrangement, others cited problems including a lack of transparency; the fact that HoA precludes Iraq from talking to other international oil companies about gas in the coming year, thereby creating a monopoly; the HoA’s review of export options when domestic concerns were a priority; and the fact that the HoA dictates that the joint venture must sell Iraqi gas domestically at international market rates. By the end of March 2011, Iraq and Shell were still discussing an obstacle about handling exports, so the USD 12 billion joint-venture deal is still not signed.

THE COMPLETE 73 PAGE REPORT (with reference sources)

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