A court in Milan is considering charges of corruption against Eni and Shell in a controversial oil deal that led to Nigeria losing an estimated $6bn.
The campaign group Global Witness has calculated the OPL 245 deal in 2011 deprived Nigeria of double its annual education and healthcare budget.
Eni and Shell are accused of knowing the money they paid to Nigeria would be used for bribes.
The Italian and Anglo-Dutch energy giants deny any wrongdoing.
This unfolding scandal, which is being played out in an Italian court, has involved former MI6 officers, the FBI, a former President of Nigeria, as well as current and former senior executives at the two oil companies.
The former Nigerian oil minister, Dan Etete, was found guilty by a court in France of money laundering and it emerged he used illicit funds to buy a speed boat and a chateau. It is also claimed he had so much cash in $100 bills that it weighed five tonnes.
Global Witness has spent years investigating the deal which gave Shell and Eni the rights to explore OPL 245, an offshore oil field in the Niger Delta.
It has commissioned new analysis of the way the contract was altered in favour of the energy companies and concluded Nigeria’s losses over the lifetime of the project would amount to $5.86bn, compared to terms in place before 2011.
The analysis was carried out by Resources for Development Consulting on behalf of Global Witness, as well as the NGOs HEDA, RE:Common and The Corner. The estimated losses were calculated using an oil price of $70 a barrel as a basis.
Eni has criticised the way it was calculated because it ignores the possibility that Nigeria had the right to revise the deal to claim a 50% share of the production revenues.
Deal or no deal
Campaigners say the deal should be cancelled.
“We discovered that Shell had constructed a deal that cut Nigeria out of their share of profit oil from the block,” Ava Lee, a campaigner at Global Witness told the BBC’s World Business Report.
“This amount of money would be enough to educate six million teachers in Nigeria. It really can’t be underestimated just how big a deal this could be for a country that right now has the highest rates of extreme poverty in the world.”
Nigeria is the richest economy in Africa, but despite having large resources of oil and gas millions of people are poor.
Lucrative OPL 245
It is understandable why Eni and Shell wanted to acquire the rights to develop OPL 245, because it is estimated to contain nine billion barrels of oil.
But the process of how they secured the contract is dogged by claims of corruption.
The court in Milan is weighing evidence of how a former Nigerian oil minister, Dan Etete, awarded ownership of OPL 245 to Malabu, a company he secretly controlled.
He is accused of paying bribes to others in the government, such as former President Goodluck Jonathan, to ensure that process went smoothly.
Shell and Eni are accused of knowing the $1.1bn they paid to Nigeria would be used for bribes, claims based on the content of emails which have since emerged.
“Looking at the emails it seems that Shell knew that the deal they were constructing was misleading but they went ahead with it anyway even though a number of Nigerian officials raised concerns about this scandalous, scandalous deal,” says Ava Lee from Global Witness.
No wrongdoing
The Anglo-Dutch and Italian energy giants insist they have done nothing wrong, because they paid the money to secure the exploration rights directly to the Nigerian government.
Shell issued a statement to BBC World Business Report saying: “Since this matter is before the Tribunal of Milan it would not be appropriate for us to comment in detail. Issues that are under consideration as part of a trial process should be adjudicated in court and we do not wish to interfere with this process.
“We maintain that the settlement was a fully legal transaction and we believe the trial judges in Italy will conclude that there is no case against Shell or its former employees.”
Eni has also denied any wrongdoing and told the BBC that it questions the competence of the experts commissioned by Global Witness and its “partners”, as well as raising the possibility that the report by the campaign group is defamatory.
The Italian oil and gas company said “as this matter is currently before the Tribunal of Milan, we are unable to comment in detail”.
In a statement it noted: “Global Witness together with its partners Corner House, HEDA Resource Centre and Re: Common had requested twice to be admitted as aggrieved parties in the Milan proceedings. On both occasions, the request was firmly denied by the Tribunal of Milan.”
Eni also said it “continues to reject any allegation of impropriety or irregularity in connection with this transaction”.
Biggest ever corruption case
Campaigners believe this is a landmark case and the outcome of the trial in Milan will cause an earthquake to reverberate through the oil and gas industry.
Nick Hildyard of the Corner House wonders if investors are comfortable. “Fund managers should be alarmed at this brazen dishonesty,” he said.
Nigeria’s leader is being encouraged to intervene by Olanrewaju Suraju, from HEDA. “President Buhari should reject any deal,” he said.
The contrast between the way Italy deals with migrants and the actions of one of the nation’s biggest companies has been raised by Antonio Tricarico of Re; Common.
“The Italian government is discouraging Nigerian migrants trying to reach Italy by claiming that it will help them at home, but Italy’s biggest multi-national, part owned by the state, is accused of scamming billions from the Nigerian people.”
The outcome of the unprecedented court case in Milan could force the oil industry to change how it conducts its business, especially in countries where corruption is rife, because more transparency about contracts and payments made would discourage fraud.
Amount is more than double the combined education and healthcare budget of Nigeria
A string of former Shell executives and current and former Eni executives as well as the two companies themselves, are on trial in Milan over the purchase of rights to the block.
Nigeria will miss out on $6bn (£4.7bn) in a scandal-plagued deal with Shell and Italian energy giant Eni for one of West Africa’s most promising oil fields, leading industry experts have concluded.
The oil companies’ 2011 purchase is mired in a huge corruption case because most of the £1bn they paid for the offshore oil block ultimately ended up being paid as bribes. The Nigerian government kept just a £164m “signature bonus”.
Research by Resources for Development Consulting, a group of economists, lawyers and auditors, has now found that Nigeria was worse off under the deal than previously thought.
Shell faces one of the biggest corporate corruption cases in history
Its public purse also missed out on £4.6bn in shared profits from the oil field because the agreement was extraordinarily favourable to the European oil companies.
This is more than double the combined education and healthcare budget of Nigeria, a country in which, despite vast oil wealth, 87 million people live in extreme poverty.
After years of denials, Shell admitted last year that it knew much of the money initially paid for the block, known as OPL245, would pass to convicted money launderer Dan Etete, who took a cut for himself with much of the rest paid to well-connected officials.
Under the contract, just 41 per cent of future revenues from the oil block will accrue to Nigeria, according to the report commissioned by NGO Global Witness and anti-corruption campaigners at Re:Common, the Corner House and HEDA.
Typically, 65 to 85 per cent of profits from such deals go to the government that granted the licence, under what’s known as a production sharing contract (PSC).
But with OPL245, Shell and Eni dispensed with the PSC structure and effectively cut Nigeria out of all future profits. Instead the government will receive only tax revenues.
Internal emails reveal that state oil firm Nigeria National Petroleum Company (NNPC) was of the “strong view” that one clause could be illegal.
It violated the terms on which PSCs are based, which dictate that the “government have both a say and a take in the block”, NNPC said.
It added that a “0 per cent royalty” combined with no right to acquire an equity stake “are likely to be a bitter pill” for the Nigerian government. It urged Shell to consider changes.
During contract negotiations, Malcolm Brinded, then Shell’s head of exploration and production, informed fellow managers that the deal was unprecedented.
He wrote: “The solution proposed leaves NNPC without any economic interest in the licence – a first in deepwater [offshore oil drilling] and obviously carrying some longer-term risks.”
Despite these concerns, Shell managed to persuade members of the government to come round.

Nigeria’s attorney general (AG) at the time, Mohammed Adoke – who was negotiating the deal with Shell, is alleged to have been one of the bribe recipients.
Shell’s legal counsel in Nigeria wrote to senior colleagues in February 2011: “The AG indicated strongly that he wanted the escrow agreement concluded this week.”
Internal emails demonstrate that senior Shell employees knew about planned bribes.
In 2009, two Shell vice presidents were briefed that Mr Etete – the former oil minister who while in office had awarded OPL245 to a company he controlled – would keep only a fraction of the money Shell and Eni were offering because “the rest goes in paying people off”.

According to Italian prosecutors, around £406m was withdrawn in cash and delivered to key officials including then oil minister Diezani Alison-Madueke and former president Goodluck Jonathan. The amount would weigh about five tonnes in $100 bills. The pair have not been charged by prosecutors in the Milan case.
Unfavourable terms
Under the 2011 agreement Nigeria will receive an estimated £7.6bn over the field’s lifespan as opposed to more than £12.2bn under terms proposed in 2006. The calculations are based on Eni’s estimates of 550 million barrels of recoverable oil in the block at a price of $70 a barrel.
The analysis is the latest development in a scandal that has dogged Shell for years.
A string of former Shell executives and current and former Eni executives as well as the two companies themselves, are on trial in Milan over the purchase of rights to the block.
Two middlemen in the deal, Nigerian Emeka Obi and Italian Gianluca Di Nardo, were convicted of corruption in September and a judge ordered the seizure of more than £93.6m from the pair.
A spokesperson for Shell said: “We are aware of the latest claims from Global Witness and have responded to them directly, however since this matter is before the tribunal of Milan it would not be appropriate for us to comment in detail.
“Issues that are under consideration as part of a trial process should be adjudicated in court and we do not wish to interfere with this process.
“We maintain that the settlement was a fully legal transaction with the federal government of Nigeria and Eni and, based on our review of the prosecutor of Milan’s file and all of the information and facts available to us, we do not believe that there is a basis to convict Shell or any of its former employees.”
Eni rejected “any allegation of impropriety or irregularity” and said that in light of the trial it would be inappropriate to comment.
The company said “the technical and contractual assumptions adopted as the basis for the analysis appear to be partial and inaccurate, if not misleading”.
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