Opinionista Ivo Vegter 25 February 2014

Look ma, I’m defending Shell’s record in Nigeria!

It was always going to come to this. Last week, former cabinet minister Jay Naidoo wrote a scathing indictment of Shell's record in Nigeria, in the hope of convincing South Africans to oppose shale gas drilling in the Karoo. Here's why he's wrong.

In July 2013, the Treasure the Karoo Action Group, which campaigns against shale gas drilling in the Karoo, appointed Barry Wuganaale, a pastor from Ogoniland in Nigeria, as its chairman. Some observers thought he was just a token appointment to blunt the perception that the group expressed the knee-jerk anti-industry views of wealthy urban environmentalists. I gave them the benefit of the doubt, and instead, suggested this might mean they intend to tackle Shell where it is most vulnerable: its record in Nigeria. In fact, I was quoted to that effect.

To my surprise, the good pastor, far from being the “formidable protector” that environmentalists anticipated, has been astonishingly quiet. The Nigeria argument, when it finally did come, was made by Jay Naidoo, former cabinet minister and founding general secretary of the trade union federation Cosatu.

It is impossible to whitewash the Nigerian situation, of course. Many of the claims of environmental harm and health risks in Naidoo’s column, although anecdotal, are consistent with the findings of international observers, and in particular, with the United Nations Environment Programme’s 2011 report, which he duly cites.

However, when considering Shell’s record in Nigeria, all is not quite a simple as it seems. A number of important points merit consideration.

Since Naidoo did not approach Shell for comment, I’ll keep the playing field level by imposing the same restriction on myself. In writing this, I’ve relied on publicly available documentation. I have not discussed this article in any way with the company. I remain scrupulously independent, a fact for which I even have documentary evidence.

The first point to consider is that the phrase “Shell in Nigeria” is deceptive. Despite being named the Shell Petroleum Development Corporation (SPDC), Royal Dutch Shell is in fact only a minority shareholder in the main operating company. The Nigerian oil industry was largely nationalised during the 1970s, in part because state control was a requirement to join the OPEC cartel.

Today, Shell owns only 30% of the joint venture, as a technical partner to the government-owned Nigerian National Petroleum Corporation, which owns the controlling 55% stake. The remaining shares are held by French company Total SA (10%) and Italian oil firm Agip (5%).

Given the structure of the company, it is clear that the Nigerian government has effective control over both the regulatory environment and the company’s management.

Moreover, of the company’s revenue after costs, some 95% goes to the Nigerian government in royalties, taxes or dividends. That revenue amounted to $42 billion in the five years to 2012. Oil revenue accounts for 95% of the country’s exports, and 80% of the government’s income.

Granted, 5% of a lot is still a lot, and proven reserves aren’t something Shell will want to give up, but when Naidoo accuses Shell of putting “profit before people”, it is important to realise that the Nigerian government, which claims to represent the Nigerian people, has control over most of the profit, too.

While we’re apportioning blame, it is equally important to recognise that Shell’s big brand might catch the most flak, but besides its junior partners, Total and Agip, the multinational giants Chevron-Texaco and Exxon-Mobil also have operations in Nigeria.

Second, a substantial amount of oil pollution in Nigeria cannot in fairness be blamed on the Shell joint venture in particular, or even oil companies in general.

As the UNEP report Naidoo cites confirms, illegal or “artisanal” oil refining has a “disproportionate environmental footprint”, and the problem is widespread and on the rise. Shell attributes 70% of all spills to oil theft. Much of the remainder, according to the UNEP report, can be attributed to historical bad practices and badly-maintained infrastructure at older sites.

Environmental activists dispute sabotage as a valid defence, but the problem of oil theft is widely documented in leading newspapers. A Dutch court last year cleared the company on four out of five charges related to pollution in the Niger Delta, and the company has accepted responsibility in cases where spills are due to operational shortcomings.

A recent BusinessWeek story on oil theft in the Niger Delta reveals a complex web of vested interests. There are many locals who would lose their black-market income if the oil industry is better policed. Others are after a legitimate share of the wealth, and since their government has failed them, they take it out on the oil companies. Many government enforcers are also in on the racket.

The Stakeholder Democracy Network (SDN), an NGO that seeks “sustainable solutions to the issues facing the Niger Delta”, recently conducted the first major study of the business of illegal oil refining.

Entitled Communities not Criminals, it makes for fascinating, if dispiriting, reading.

About 75% of the stolen crude is exported, which hints at the tacit complicity of government security forces. The remainder is refined at temporary camps, using primitive “cooking” techniques. More than half of the product is discarded as waste, and these refiners are less scrupulous than Shell might be about how they do that. Hint: access to a river is important for them.

The SDN report says there are 500 illegal refineries operating in the Niger Delta at any one time, even though thousands are are shut down each year by the military. They’re quick to move and cheap to set up.

The reasons for all this underground activity are hard to disentangle. They emerge from a tortured history dating back almost 60 years, and covering the Biaffra War of the late 1960s, the disproportionate allocation of oil revenues to the central government after nationalisation in the 1970s, military dictatorship in the 1980s, and the Ogoni resistance against what they felt to be exploitation and marginalisation by the government in the north since the 1990s.

The most famous victim of the latter conflict was, of course, Ken Saro-Wiwa, who was executed by Sani Abacha’s military government for allegedly conspiring to murder a number of pro-government chiefs. Shell later settled a civil claim by the families of some of Abacha’s victims, including that of Saro-Wiwa, without admitting wrongdoing.

According to the SDN report, sabotage once again rose during conflict in the Niger Delta that began in 2004. An amnesty granted to militants in 2009 led to a boom in illegal activity as they took their pipeline tapping, sabotage and refining knowledge back to their communities.

Here, economic conditions played a role. High unemployment and poverty made profit opportunities attractive, no matter how illegal or harmful to the environment. The costs of “artisanal refining” are astonishingly low, and mostly involve paying for transport, security and bribes. Of the sales revenue, some 99% can be considered pure profit.

Besides for frequent reports of abductions for ransom, I’ve heard anecdotal tales of oil company clean-up teams that arrive at an oil spill site only to be shot at by local communities. The motives for such attacks are as complex as the political and economic circumstances. Sometimes it’s revenge, sometimes crews are perceived to be agents of a corrupt and exploitative government, and sometimes there are lucrative damages payouts on the table which trump the desire for spill remediation. Other stories tell of how illegal refiners install taps on pipelines, without even needing to bribe company personnel to reduce pipeline pressure, as the SDN report suggests. First, cause a rupture by means of sabotage, and then, while the pipeline is shut down for repairs, install your tap, underground if you can. Once the pipeline comes back online, detecting the diversion is almost impossible.

In short, operating in Nigeria is tough. Making matters worse is the fact that Shell is damned, no matter what it does.

If it withdraws, it’ll be accused of exploiting Nigeria and leaving behind a toxic legacy. Moreover, it is easier to hold a company with a major global brand accountable than it is to keep a watchful eye over a wildcat outfit of which nobody has ever heard. (Although, the one advantage would be that such an outfit could more aggressively defend its oil from thieves, without attracting much attention for extra-judicial action.)

If it stays, however, it gets accused of perpetuating the problems, or not doing enough to help solve them.

The best way forward, as indicated by UNEP, the SDN, and indeed Shell itself, is to implement agreed remediation measures, root out corruption, and step up the fight against sabotage and theft. This will require a significant commitment from the Nigerian government, not only as the seat of political and armed power, but also in its dual role as both oil industry player and regulatory referee.

A third point that is worth noting is that Nigeria is not representative of Shell’s international operations. Its home country, the Netherlands, has few problems dealing with Shell, and the same is true for other countries where it has a major presence, such as New Zealand and Canada. It isn’t just that developed countries can control the evil behemoth, either. Shell has oil drilling operations in Malaysia, for example, and helped develop a massive natural gas plant on Russia’s Sakhalin Island. Nobody ever hears about them outside the business pages. In Gabon, Shell has oil operations where, in partnership with the Smithsonian Institute, the company has achieved higher biodiversity measures than in the national parks surrounding the wells.

That Nigeria is unique, while Shell is multinational, suggests that the Niger Delta problem has its roots in Nigeria, not in Shell.

Fourth, gas is not oil, and does not pose the same environmental risks. In particular, it is much less vulnerable to theft or sabotage. A decision on whether to permit shale gas operations ought to be based on a scientific assessment of the actual risks, hazards and remediation potential of air pollution, surface spills and groundwater contamination. Drawing a simplistic parallel with a worst-case oil-industry scenario is not helpful.

Finally, let’s consider our government. Last Saturday, Naidoo and Daily Maverick held an online discussion about the Niger Delta. Unfortunately, nobody thought to give me a heads-up about the debate until it was almost over.

During that debate, however, Naidoo made a good point: “The real revolution will come when citizens realize that all politicians will fail them and build grassroots [organisations] to defend their rights.”

As a libertarian, I entirely agree. I don’t trust the government any more than he does. But it is only fair to point out that South Africa is not Nigeria.

We don’t have a history of military dictatorships and civil wars. We don’t have a long legacy of petroleum pollution, and can start with a clean regulatory slate built on modern environmental practices. We have stronger governing institutions, great academic resources, and far better administrative capacity than Nigeria can muster.

Nigeria ranks 144th out of 177 countries in the Transparency International Corruption Index, with a score of 25 out of 100. South Africa ranks well into the top half, at 72nd, scoring 42. The World Economic Forum’s Global Competitiveness Report, categorises countries by three stages of development: factor-driven, efficiency-driven, and innovation-driven. Nigeria is still a factor-driven economy, while South Africa is firmly in the efficiency-driven stage. In particular, South Africa scores well in the quality of its institutions, the effectiveness of its legal system, and is ranked an astonishing second in the accountability of its private institutions. If the question is whether we can hold Shell accountable, this report’s answer would be a resounding yes.

Civil society organisations have since the late 1990s campaigned to “publish what you pay” in international petroleum-related dealings. The hope was to counter the so-called resource curse, ameliorate the problem of revenue capture by corrupt political elites, and reduce conflict with local communities who felt exploited and neglected.

When BP shocked Angola in 2001 by disclosing the $111 million “signing bonus” it paid to government officials, it soon became clear that oil companies could not be expected to take a stand against corrupt governments alone. A global standard was developed, known as the Extractive Industries Transparency Initiative (EITI). Eighty-five companies have signed on, including Royal Dutch Shell.

However, the seventeen countries that are EITI stakeholders do not include South Africa. It seems we can trust the South African government even less than we can trust a multinational oil company.

The legitimate concerns about our government’s commitment to transparency, and its ability to administer environmental regulations, raise the question of how we ought to respond when a private company seeks permission to operate in South Africa.

We could say that we don’t trust the government to enforce the rules, share the tax revenue, and protect our rights. But that would disqualify virtually all industry. After all, we rely on government regulations for airline safety, for keeping accountants honest, for limiting factory pollution, and for ensuring farmed food is fit for human consumption, do we not?

Most companies are fairly responsible. After all, they need to attract employees that want to work for them, and customers that want to buy from them. They cannot take the risk of being shut down for financial malfeasance or earning a reputation for health and safety violations. This doesn’t prevent all air accidents, financial fraud or industrial waste incidents, but does that justify opposing entire industry sectors? No. Instead, we focus our efforts on how we enforce clean-up, exact compensation, hold offenders accountable and prevent recurrence.

Our concerns about corruption and regulatory capacity are good reasons to combat corruption and improve regulatory capacity. But in order to do that, we need a healthy economy. We cannot stunt our country’s growth until conditions are just the way we want them.

We ought to focus on the real issues, instead of indulging our desire for dramatic scapegoating, false comparisons, worst-case scenarios, media sensationalism and knee-jerk resistance.

So, while it is indisputable that the Niger Delta stands as a warning to the world about how petroleum extraction can go wrong, and Shell must shoulder at least some of the blame for that situation (which it does), we’ve seen that there are also counter-points to consider.

Notably, that Shell does not have full control over the situation in Nigeria; that much, and perhaps most, of the pollution in the Niger Delta cannot be blamed on Shell; that Shell does take responsibility and cooperates in remedial efforts; that Nigeria is not representative of Shell’s global operations; that shale gas is very different from crude oil; that South Africa is not comparable to Nigeria; and finally, that corruption or regulatory inadequacy is not a sufficient reason to oppose an industry.

The irony is that foreign investment by major global brands, committed to global standards like EITI and accountable to international customers and well-resourced civil society groups, can likely help South Africa in its quest to become more efficient, less corrupt, and driven by innovation.

South Africa ought to welcome long-term foreign investors like Shell, and then sign up to the same standards of transparency. DM


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