Last week‘s revelation by former Minister of Defence, General Theophilus Danjuma, about how he sold an oil block for $1bn and netted $500m was a confirmation of how people in position of power benefited immensely from the oil block allocations based on the whims of Nigeria‘s rulers especially under military regimes.
In that process, billions of naira that could have accrued to the government in signature bonuses reflecting the value of the oil blocks were waived for much lesser amounts.
Signature bonuses are paid when an investor bids for an oil block, wins it and signs a contractual agreement with government.
A former top official of the Ministry of Petroleum, who was involved in some of the deals, said. ”You don‘t have to know anything about the business, all you need is just to have the ear of those in government and you can get an oil block.”
According to him, the idea was to get the allocation, assess the hydrocarbon deposits the block contains and sell the block to the oil firms who are the only one in the position to exploit.
Under successive military governments, especially those of Ibrahim Babangida and Sani Abacha, many connected Nigerians, including government ministers, top military officers, politicians and business figures got oil blocks under the discretionary allocation procedure.
It was gathered that at that time, there was no transparent bidding process and if there was any bidding at all, it was done under the table with Nigerians not told the signature bonus paid and the criteria used to select the block winners.
According to a retired Senior Official familiar with a few of the deals, ”Some of them were lucky to strike oil in their fields while some were not that lucky.”
”What happens is that when you get the block, you will get some seismic data from the Department of Petroleum Resources. You may also need to do more studies. There are some companies abroad that can still sell you some data on Nigerian blocks. So, after that, if the block is proven to have oil reserves after data interpretation, you may sell your interest to some foreign companies and pocket millions of dollars.
”Those who got such allocations were not always lucky. Some got fields that did not have oil then or that were full of gas and not oil and they had to abandon the fields after spending a lot of money.”
However, some of those who got oil blocks through discretionary awards did strike it big. For instance, Danjuma‘s South Atlantic Petroleum Limited got Oil Prospecting Licence 246 located in the deepwater from the Abacha government
Today, the field had started producing crude oil and SAPETRO had sold most of its interest to Total.
In February 2005, the block was converted to Oil Mining Lease 130 and thereafter the Federal Government took back part of it through the Nigerian National Petroleum Corporation. In June 2006, SAPETRO divested part of its contractor rights and obligations to China National Offshore Oil Corporation.
Also, Malabu Oil and Gas, a company linked with former Petroleum Minister, Chief Dan Etete, got a block, OPL 245 in April, 1998, still under the Abacha government. The block was also quite juicy and a signature bonus of $20m was supposed to be paid but the company could only pay $2m and then entered into agreement with Shell Ultra Deep in which Shell then agreed to pay $165m for 40 per cent stake in the block and also pay $18m as the remaining balance of the signature bonus.
Although the agreement did not hold eventually, had it worked, Malabu would have pocketed over $140m in profit from an investment of just a bit over $2m while still holding 60 per cent of the stake.
With the coming of Obasanjo, however, the Federal Government introduced the open bidding arrangement, which was generally applauded as though not perfect but a transparent way of auctioning the oil blocks rather than the discretionary allocation method.
At present, to own an oil block, companies have to undergo a bidding process in which the block goes to the highest bidder. However, under the Right of First Refusal arrangement, some blocks are offered to investors willing to invest in downstream projects, power projects or infrastructural projects.
A senior DPR official admitted that the nation could have made much more money if the blocks awarded through discretionary allocation had been awarded through the open bidding process. For instance, many analysts believed that OPL 246 could have been auctioned for about $200m, given the hydrocarbon reserves in the field. In the 2005 bid round, Indian company, ONGC Videsh, had offered $310m for OPL 323, a deepwater field, which may not be as big as OPL246.
The Federal Government, through the Department of Petroleum Resources had introduced the open competitive bidding process in 2000 and about $222m, was realised from the auctioning of the oil blocks then.
In the 2005 bid round, when the process was again applied, about $1bn was realised, while $504m and $502m were earned by the Federal Government during the 2006 and 2007 licensing rounds respectively.
Forty-five blocks were put on offer in the 2007 round. The winners, most of which applied as Nigerian companies, were consortiums that comprised local and foreign firms.
President of the Trade Union Congress, Mr. Peter Esele, said the discretionary allocation system under the military gave room for government officials to award oil blocks to their friends and loss of revenue for the government.
”When Danjuma said he made $500m after selling his stake in Akpo field and did not know what to do with the money, it only showed the poor quality of leadership we have been having in the country. That $500m is enough to build a refinery. We have to do something about the tax regime so that people with big idle cash are taxed heavily, ” he said.
Chairman, Lagos Zone, Petroleum and Natural Gas Senior Staff Association of Nigeria, Rev. Folorunso Oginni, said that the award of the block to Danjuma under discretionary allocation was not properly done adding that that was how the nation‘s assets were sold cheaply to people in government.
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