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Nigeria: Back to the future?

The government faces some tough decisions as it decides how to handle the corruption allegations surrounding the acquisition by Shell and Eni of offshore block OPL 245

It's a tough enough task for Nigerian president Muhammadu Buhari's government to convince investors that its anti-corruption drive in the oil and gas industryand, indeed, the rest of the economyis working. That's even without constant reminders of the country's imperfect past record being dragged up.

So, the headlines generated by a new spike in corruption and bribery allegations surrounding the acquisition by local subsidiaries of Shell and its partner Eni of the license for the oil-rich OPL 245 offshore field in 2011 will not be welcome, even if it did happen on the watch of the previous president, Goodluck Jonathan. The companies could face legal proceedings in Nigeria, Italy, the Netherlands or the UK.

Italian prosecutors allege $1.1bn of the $1.3bn paid to the Nigerian government for the license was passed on to companies controlled by convicted money launderer Dan Etete. He had an interest in Malabu, a firm that gained controlled of the OPL 245 for just $2m in a controversial deal in the late 1990sa period when Etete was oil minister but whose legal right to the block has been contested over the years.

The license was taken away from Malabu and then transferred to Shell, but later given back to Malabu, before the 2011 deal that saw Shell return, along with Eni. Then, in January this year, a court ordered Shell and Eni be temporarily deprived of the license, before that decision was overturned.

Shell and Eni maintain that, as they paid the money for OPL 245 directly to the government, what happened to it after that was beyond their control. However, earlier this month, the Anglo-Dutch firm responded to the publication of compromising emails by the Global Witness and Finance Uncovered transparency charities by revealing it had held talks with Etete in the year leading up to the acquisition of OPL 245.

A wiretapped phone conversation made last yearand now made publicbetween Shell chief executive Ben van Beurden and his then-chief financial officer Simon Henry also shows the two executives' concerns over possible fallout from the emails, which were originally acquired by Dutch police in a raid. Van Beurden's predecessor Peter Voser was chief executive in 2011, at the time of the OPL 245 deal.

Shell says it had little choice but to talk to Etete to get the deal done and that, while it knew the government would compensate Malabu to settle its claim on the block, the company itself had behaved legally.

Pro-active stance

Whatever the whys and wherefores, the affair is a reminder of the bad old days of opaque Nigerian business practices and enough to pique worries that those times might not have been left behind.

The controversy over this deal is unlikely to disappear anytime soon. It is the subject of investigations in both Europe and Nigeria, which are likely to prove protracted. Italian prosecutors said earlier this year they had laid charges against Shell and Eni, as well as various individuals, including Claudio Descalzi, Eni's chief executive, who has been accused of corruption relating to the OPL 245 dealwhich he deniesalthough it is unclear when or if there will be a trial.

Such prosecutions aren't all bad for Nigeria's image - that they are happening at all reflects a more pro-active stance by the Nigerian authorities to back up the anti-corruption rhetoric prominent in President Buhari's agenda.

Nigeria's Economic and Financial Crimes Commission (EFCC) has taken a high-profile stance in investigations. It pushed for the court order to temporarily withdraw the OPL 245 license from Shell earlier this year, while Italian prosecutors looking at Eni's involvement have praised the EFCC as a partner in securing evidence.

Parliament is also engaged. The National Assembly said in mid-April that it had set up a committee to investigate the award of the OPL 245 license. That could involve inviting Goodluck Jonathan, the former president, to provide testimony. Jonathan and others in his government are alleged to have benefited financially from the OPL 245 deal. His spokesman recently described these allegations as a "false narrative".

Dealing with Shell

It seems unlikely the Nigerian government would want Shell and Eni to be deprived of the OPL 245 license, becauselegal complications asideNigeria desperately needs the oil from one of its very few big prospects, as it seeks to ramp up production to support its troubled economy. Before the current round of revelations, the companies were reportedly close to making a positive final investment decision on the project, which could hold up to 9 billion barrels of oil, according to industry estimates.

It would also prove difficult to find an adequately resourced replacement for Shell as operator. The lack of clarity over the future structure of the Nigerian oil and gas sector has already been enough to trigger an exodus of investment, before taking into account the trepidation any newcomers may have over investing in such a contentious block.

Shell remains a pretty stalwart partner for Nigeria in difficult timesand the Nigerian ventures where it is operator account for over 700,000 b/d of production capacity, which is roughly a third of the country's total capacity. So, a deal that punishes Shell, while leaving it in place as OPL 245 license holder, could be the government's desired outcome, if any court proceedings permit.

One possible politically acceptable outcome is that Shell and Eni could commit to plough a substantial amount of cash into new industrial and social infrastructure in the Niger Delta, which has seen comparatively little benefit from the oil industry to which it plays host. Shell remains the target of action against its environmental record in that region. That could be portrayed as a form of payback to the country and could act as a sop for the concerns of the militants in the delta, who have been attacking oil and gas installations there.

A court case over the OPL 245 deal starts on April 20 in Italy - it is unlikely to be the last.

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