Home' Trinidad and Tobago Guardian : February 8th 2015 Contents FEBRUARY 8 • 2015 www.guardian.co.tt SUNDAY BUSINESS GUARDIAN
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been encouraging Shell and others to sell to
Shell sold its interest in the fields to com-
panies in Poland and Britain. But the new own-
ers did not get the same rights Shell had. To
promote local control, the NNPC gave the right
to operate the fields to its own subsidiary, the
Nigerian Petroleum Development Company
Without soliciting bids, the NPDC signed
"strategic partnership agreements" worth
around US$6.6 billion with two other local
firms to manage them.
One firm, Seven Energy, signed for three
fields; another, Atlantic Energy, for two.
Seven Energy was co-founded in 2004 by
Kola Aluko, an oil trader and Christian south-
erner. Aluko also co-owned Atlantic with
another southerner, former oil trader Jide
Omokore. Atlantic was incorporated the day
before it signed the deals.
Geneva-based Aluko is a high-profile mem-
ber of Nigeria s elite. He owns a fleet of super-
cars, including a Ferrari 458 GT2 that he races
with Swiss team Kessel Racing. He also owns
a US$50 million yacht, according to Forbes
magazine, and divides his time between a
US$40 million home in Los Angeles, an US$8.6
million duplex on Fifth Avenue in New York,
and homes in Abuja and Geneva. A colleague
describes him as a "work hard, play harder
kind of guy. He s extravagant. That s just his
Aluko, whose stake in Seven is now minimal,
did not respond to e-mailed questions.
Omokore has also become rich from oil and
gas. Forbes has estimated annual revenue at
another of his companies, Energy Resources
Group, at US$400 million. His jet-setting
lifestyle is a regular feature in the local press.
Omokore could not be reached for comment.
Reuters has reviewed the contracts the firms
signed with NPDC. They give Seven Energy
10 per cent of profits in the three oil blocks
it operates, while Atlantic gets 30 per cent of
profits in its two blocks. The contracts also
show that, unlike Shell, neither firm pays roy-
alties, profit tax or duties to the state.
Both companies quickly sub-contracted pro-
duction work to other operators, according to
Sanusi s submission to parliament and several
market sources. The companies did not disclose
terms of these contracts.
Atlantic does not publish accounts, but
Seven s 2013 annual report shows its deal with
NPDC helped its revenue more than triple to
In May 2013, Nigeria s parliament threatened
to investigate the NPDC contracts because
they were not issued through competitive ten-
der. But the NNPC argued no tender was need-
ed because the contracts involved no sale of
equity in the oil fields; the probe did not go
Sanusi did not accuse Seven and Atlantic of
any illegalities, but he did question why the
NPDC chose those companies. His report said
the deals s only purpose seemed to be "acquiring
assets belonging to the federation (state) and
transferring the income to private hands."
Asked about this, NNPC referred to the Sen-
ate report, which found that no-bid partnership
agreements are not new. It also said that "it
may be good policy to encourage indigenous
players by giving them greater participation,"
but called for such deals "to be conducted in
a transparent and competitive manner."
Seven did not comment. It says on its website
its agreement with NPDC pre-dated the
Jonathan administration and included an
allowance for taxes. The company says it has
invested more than US$500 million, more than
doubled production from its three blocks, and
paid US$48.8 million in taxes in 2013. Atlantic
did not comment.
The second mechanism Sanusi s report iden-
tifies as problematic is a decades-old state
subsidy provided to retailers of kerosene, the
fuel most Nigerians use for cooking.
Nigeria lacks the refining capacity to make
kerosene, so imports it instead. The government
then sells the kerosene to retailers at a cheaper
price than the import price. This subsidy is
meant to make kerosene affordable for the
poor. In reality, though, retailers have long
hiked prices so consumers pay much more
than official levels.
In June 2009, Jonathan s predecessor, Umaru
Yar Adua, ordered a halt to the scheme on the
grounds that it was not working. But the sub-
sidies carried on regardless. The NNPC told
parliament last February that it still deducts
billions of dollars a year from its earnings to
In his report, Sanusi called the kerosene
subsidy a "racket" that lines the pockets of
private kerosene retailers and NNPC staff. The
report estimated the cost of the subsidy at
US$100 million a month. It said kerosene retail-
ers---there are hundreds of them around the
country---routinely charged customers much
higher prices than the government pays to
import the fuel.
Sanusi s report included an analysis of
kerosene prices across Nigeria s 36 states over
two years. It found that the government buys
kerosene at 150 naira per liter from importers
and then sells it to retailers at just 40 naira
per liter. Sanusi s analysis found consumers
pay an average of 170-200 naira per liter, and
sometimes as much as 270 naira.
"The margin of 300 per cent to 500 per
cent over purchase price is economic rent,
which never got to the man on the street,"
NNPC said in a statement last year that it
can t force retailers to sell kerosene at the sub-
The third mechanism Sanusi identified
involves other types of refined petroleum prod-
ucts, such as gasoline. Like kerosene, these are
also imported. Nigeria is Africa s biggest oil
producer but it depends on imports for 80 per
cent of its fuel needs because its refining capac-
ity is tiny.
To pay for the imported products, Nigeria
barters its crude oil. Sanusi s dossier focuses
on these barter exchanges, which are known
as "swap deals." The idea is that importers
who bring in refined fuel worth a given amount
receive an "equivalent value" in crude oil.
How that equivalent value is determined is
unclear. Sanusi said he was uncertain how
much, if anything, is lost in these deals. But
he expressed concern at the sheer value of oil
that changes hands and the lack of oversight.
His report estimated that between 2010 and
2011, traders involved in swap deals effectively
bartered 200,000 barrels of crude a day---
worth nearly US$20 million at average crude
prices over the period---for a loosely determined
equivalent value in refined products. It is impos-
sible to tell, he said, if all the refined products
were delivered, let alone if the terms were fair.
"It was clear to us that these transactions
... were not properly structured, monitored
and audited," he wrote.
Sanusi wrote in his report that mismanage-
ment and "leakages" of cash in the industry
cost Nigeria billions of dollars a year.
Since the price of oil has fallen by around
half since the start of 2014, such losses are
even more significant. As it approaches elec-
tions, Nigeria faces plummeting oil revenues
and a lack of buffers to shield the economy.
Construction projects are on hold and the gov-
ernment is struggling to pay its sizeable work-
Multiple scandals in the oil sector since
Jonathan took power have boosted the pop-
ularity of his rival, former military leader
Muhammadu Buhari. Remembered by some
for deposing a civilian government in a 1983
coup and trampling on civil liberties, the san-
dal-wearing general often promises to "free
Nigeria from corruption."
Jonathan, too, says he will "clean up" Nigeria.
By using technology and strengthening insti-
tutions, "I will solve the problem of corruption
in this country," he told a crowd in Ibadan in
Nigeria's then-central bank governor Sanusi
Lamido Sanusi attends an interview with
Reuters at the World Islamic Economic Forum
in London in this October 30, 2013 file photo.
Cleaning up the nation
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