Global Insight Perspective | |
Significance | It has been reported that the director of the Department of Petroleum Resources (DPR) in Nigeria, Tony Chukwueke, has been relieved of his post over the allocation of an oil licence to an unknown domestic company. |
Implications | Nigeria's President Olusegun Obasanjo has spent the last few years attempting to clean up the country's image and make business dealings in the oil sector more transparent. The lack of judgement shown by Chukwueke has left Obasanjo with no choice but to remove him. |
Outlook | Obasanjo has no answer to the crisis in the Niger Delta, but he has worked hard in fighting corruption in Nigeria's oil sector. The country's presidential elections are six months away and while Obasanjo is constitutionally barred from standing again, by reminding the international community of the progress his presidency has made since military rule he is indicating that he could be the safe hands needed to guide Nigeria if chaos breaks out over the election period. |
Paying the Price for a Lack of Judgement
It has emerged that Tony Chukwueke has been removed from his job as director of the country's Department of Petroleum Resources (DPR), reportedly over the award of a lucrative offshore oil licence to an unknown domestic company. Reuters says that the decision to fire Chukwueke was made by President Olusegun Obasanjo last month, but details have only now come to light after high-level lobbying to save the DPR chief failed.
Last month the Economic & Financial Crimes Commission launched an investigation after it emerged that an unknown company, Starcrest Nigeria Energy, had been awarded Oil Prospecting Licence (OPL) 291. OPL 291, located offshore next to the giant Agbami oilfield, was one of the blocks on offer in the May licensing round.
India's Oil and Natural Gas Corporation (ONGC) was given first refusal on OPL291 but chose not to take up the offer. The oil block was subsequently awarded to Starcrest, a company with no previous deepwater drilling experience and apparently without any employees. Starcrest's acquisition of this licence came to light recently when it sold a 72.5% share in the block to Canadian-listed Addax Petroleum for US$35 million. The Swiss-based company has announced that it has paid the US$55-million signature bonus and will take on US$75 million in initial costs, including seismic work and the drilling of at least one well.
It is believed that the awarding of this licence to Starcrest is the reason that Chukwueke has been removed from his post, according to the London (U.K.)-based publication Africa Confidential. Chukwueke was unable to recall who actually owns Starcrest.
Cleaning Up Nigeria's Oil Sector
President Obasanjo has made a concerted effort to make the workings of Nigeria's oil sector more transparent after the country's reputation became synonymous with graft and corruption.
A bill to codify the activities of the Extractive Industries Initiative (EITI) was approved by the Nigerian cabinet in February 2005 (see Nigeria: 4 February 2005:Nigeria to Codify Extractive Industry Transparency Initiative). The EITI is a voluntary scheme established by U.K. Prime Minister Tony Blair in September 2002 and designed to increase transparency in oil and mining-related payments made by companies to governments. Since its introduction, the Nigerian government has responded well to the scheme. In November 2003, Obasanjo announced that his government would publish its revenues from oil and also require other companies to do the same (see Nigeria: 10 November 2003: Nigeria Pledges Oil Transparency).
Earlier this year the Federal Government revoked former defence minister General Theophilus Danjuma's ownership of a deepwater offshore oil block (see Nigeria: 5 October 2006: Danjuma and South Atlantic Petroleum Lose Crucial Court Case and Oil Exploration Rights in Nigeria). It is known that Danjuma acquired the oil block from notoriously corrupt former president Sani Abacha. At the Federal High Court in Lagos, Justice Abdullahi Mustapha said the Federal Government was right in asking South Atlantic Petroleum (SAPETRO) to relinquish a portion of the OPL, after an Oil Mining Lease (OML) was granted for a portion of the block. The court ruling was vital for the Federal Government as it warned that if the Court ruled against it, the country's oil licensing policy could be ruined, leading to a spate of other claims (see Nigeria: 26 May 2006: Nigerian Federal Government Warns Oil Licences In Jeopardy if Former Minister Wins Court Case).
Outlook and Implications
President Olusegun Obasanjo has suffered a terribly difficult time presiding over the crisis in the Niger Delta, where militant organisations have flourished, sabotaging oil-company facilities and taking expatriate oil workers hostage. This deterioration in the security situation has led to companies shutting in production of crude oil. There seems to be no way of resolving the Delta crisis, especially as Nigeria's presidential elections next April draw nearer.
However, the legacy Obasanjo will leave is a concerted effort in trying to clean up corrupt practices in Nigeria's oil sector. He has implemented new rules and regulations in Nigeria's licensing rounds and achieved greater transparency to the system, including forcing bidders to put down deposits worth 25% of their offers on the day of the auction to secure the blocks. This new requirement came after the chaotic 2005 licensing round, which saw a number of bidders default on signature bonuses (see Nigeria: 4 January 2006:Federal Government Cancels 29 Nigeria Licences on Non-Payment of Signature Bonuses).
Obasanjo, well aware that the international community's gaze will be focused on Nigeria in the coming months, had to make a difficult decision and Chukwueke seems to have paid the price for his lack of judgement. Obasanjo's desire to rid Nigeria of its corrupt image of billions of dollars siphoned out of the country's oil sector during the decades of military rule, and to present more transparent and efficient business practices, has come at the expense of a valued and hard-working director at the DPR, who made an amateur mistake in awarding a licence to a company with no experience in Nigeria's oil and gas sector.
Obasanjo needs to be seen to be making progress in cleaning up Nigeria's image in international business, and by taking this action he is safeguarding his own legacy. If Nigeria's presidential elections are to end in deadlock in April, then Obasanjo is carefully reminding the international community of the progress the country has made under his tenure. Despite being constitutionally barred from a third term he remains perfectly placed to guide Nigeria through this difficult phase should the election period become chaotic.