THE MALABU DEAL SAGA

Recently, an Italian court ruled that the executives of Shell and Eni should go on trial over allegations of bribery in the OPL245 purchase from Nigeria’s Malabu Oil & Gas Ltd in 2011. How much do Nigerians know about the nitty-gritty of the scandal? THE SHIFT SOCIETY, a Nigerian civil group promoting transparency and human rights, offers a bird’s eye view on the history, issues and dramatis personae in probably the most problematic deal in the history of the country’s oil industry.

In April 1998, the government of Gen. Sani Abacha awarded an Oil
Prospecting Licence (OPL) to Malabu Oil & Gas Ltd for Block 245. The owners ofMalabu were listed as Kweku Amafagha,
Mohammed Sani and Hassan Hindu.
Premium Times, an award winning investigative website, later revealed that Chief Dan Etete, the then Minister ofPetroleum under Abacha, was the “Kweku”,
Mohammed Abacha, son of the former Head of State, was the “Mohammed Sani” and Hassan Hindu was the wife of Alhaji Hassan Adamu, who was then Nigeria's Ambassador to the US.

Malabu Oil Ltd made an advance payment of $2m on the concessionary $20m signature bonus for the oil block. Meanwhile, Malabu Oil Ltd and Shell Nigeria Ultra Deep Limited (SNUD), a special vehicle of Shell, signed an agreement for the block and Malabu Oil was to transfer 40% interest to SNUD. In 2001, along the line, Gen.Abacha died. Then a new President and commander in Chief came onboard after elections in a new democratic dispensation. Chief Olusegun Obasanjo was the new President and commander in chief as a civilian president. He, immediately and without hesitation revoked the licence and invited Shell to bid

for it. Shell, however, got it and went into a production sharing agreement with the Nigerian National Petroleum Corporation (NNPC).

Shell agreed to pay a new (whooping sum) signature bonus of  $210m — the biggest ever in Nigeria's history then. The oil company paid $1m of the
amount to the Federal Government then and paid the balance of $209m into an escrow account, jointly operated by it and the Federal Government. This was in apparent anticipation of litigation by Malabu Oil Ltd over the revocation.

The House of Representatives, then, held a public hearing and asked the Federal Government to return the licence to Malabu. The, then, president Obasanjo's led federal government refused, following which Malabu Oil Ltd headed for the courts. It lost but later went on appeal. Eventually, the Federal Government buckled and agreed to settle out of court. It was then agreed that OPL 245 should be returned to Malabu Oil Ltd as the rightful owners. However, Shell kicked and filed an arbitration case against Nigeria at the International Centre for the Settlement of International Disputes (ICSID), an organ of the World Bank, claiming not less than $1.5 billion from Nigeria for alleged breach of contract.

When Obasanjo's successor, Alhaji Umaru Musa Yar'Adua came to power in 2007, he set up an inter-ministerial committee headed by Chief Michael Aondoakaa, his Attorney-General, to look into it. The committee’s recommendations were not implemented as Yar’Adua battled ill-health for most of his tenure. He died in May 2010.

When Dr. Goodluck Jonathan assumed office, Malabu brought up the 2006
agreement, also called “consent judgement”. Mr. Mohammed Bello Adoke, the then Attorney-General, reportedly advised Jonathan to honour the agreement
so that progress could be made on the potentially lucrative oil block. In 2011,

Malabu decided to sell the block but was no longer ready to discuss with Shell because of “betrayal”. Eni of Italy, which already owns the contiguous OPL 244,
stepped in. After negotiations, a price of $1.1bn was agreed with Malabu by
Eni/Shell. And the deal was done. Eni/Shell paid a total of $1.3bn ($1.1bn to Malabu to buy the block, and $210m as “signature bonus” to the Federal Government).

So where was the scandal? Rather than pay directly to Malabu, Shell/Eni paid to the JP Morgan's account of a third party, FGN, who then transferred part of the payment to Malabu. Global witness and Finance Uncovered that anti-corruption organisations based in the UK, would later reveal that leaked emails from
the executives of Shell and Eni suggested they knew that bribes were going to be
paid from the deal. To avoid the bribes being traced to them, Shell and Eni

allegedly decided to pay directly to FGN
for onward disbursement. That is the reason for the indictment of the oil executives.
Officially, Eni/Shell insist they paid $1.3bn to FGN, and not Malabu, for OPL 245.

Any other thing we need to know?

Dan Etete had been convicted of money laundering in France in an unrelated deal,
but his involvement in OPL 245 transaction raised the eyebrows of observers who then went to search for possible wrongdoing. What happened to OPL 245?

All is fine. Oil and gas discoveries had been made in Etan and Zabazaba fields in 2005 and 2006 respectively. Eni continues prospecting. It later awarded a $5.42bn contract to Italian engineering, construction and drilling contractor, Saipem,
for chartering, operations and maintenance
for a Floating Production Storage Offloading tanker. Production is expected
to start in 2020.

THE BIG QUESTION, THEN, WAS WETHER $1.1bn ACTUALLY DIVERTED???

Most commentators on the payment of $1.1bn to Malabu by Shell/Eni in the OPL 245 deal use the word “diversion” - suggesting that the money belongs to the Nigerian government. Infographics have been used to depict how the money could have gone into social services, such as health and education. As plausible as this sounds, it is not exactly correct. Yet this notion still generates the most public anger about the deal.

Having allocated OPL 245 to Malabu and collected $210m signature bonus, the Federal Government no longer had a stake in the block. However, the federal government would still make money in taxes, royalties and levies when oil production actually starts.

Rtrd. Gen. Theophilus Danjuma’s Sapetro subsequently sold 45% of OPL 246 to CNOOC of China for $1.7bn and nobody said the Federal Government lost $1.7bn or that the proceeds should have gone into social services. For example, if you buy a plot of land from government for N1m and resell it for N3m, the profit is yours.
Government could still make money from the land use charge, property tax and other levies.