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Business Analysis & Features

Power in Nigeria

Shell was a pioneer in Africa's largest crude oil producer but now faces a PR repair job. Tom Bawden reports from Port Harcourt

Driving down the traffic-clogged road from the city of Port Harcourt in the Niger Delta region, the two machine-gun wielding soldiers in the pickup truck ahead of us prove effective at nudging vehicles out of our path with intimidating glares and aggressive finger pointing.

One of a group of journalists under the care of Shell – and the armed guards fore and aft – we're on our way to the airport on the outskirts of the city – and running very late.

Our scheduled ride failed to arrive at the Shell compound where we were staying, and our replacement bus looks likely to miss our 8.40am flight to Lagos by a wide margin.

But Precious, a press officer for Shell's oil production joint venture with the government in Nigeria, doesn't seem too concerned. He has phoned ahead to the airport to tell them we're running late and is confident that we'll make the flight.

And his optimism is well-placed. A full plane of 180 passengers was sitting on the runway waiting for us as we boarded at 9.10am last Thursday.

In its own small way, the experience lent credence to suggestions that Shell wields an awful lot of influence in the country, in particular in the Niger Delta where most of its oil operations are based.

In the most high-profile case of Shell's alleged influence, the company paid out £9.6m in 2009, without admitting guilt, to settle a case accusing it of complicity in the execution of the environmental activist Ken Saro-Wiwa and eight other leaders of the Ogoni tribe in the Niger Delta.

More recently, in WikiLeaks revelations in December 2010, a senior Shell executive in Nigeria apparently boasted to US diplomats that the company had seconded employees to every relevant department and so knew "everything that was being done in those ministries". At the time, Shell denounced the leaked cables as "absolutely untrue, an absolute falsehood and utterly misleading" – a stance that has not changed.

Whatever the true extent of Shell's influence in Nigeria, there is no doubt that the company is working hard to improve its public image – and to strengthen its standing with the government – as it eyes up lucrative offshore oil exploration contracts.

Nnimmo Bassey, the executive director of Friends of the Earth in Nigeria, said: "Shell has huge influence over the Nigerian government. But Shell is painting itself as a victim and as a benefactor as it positions itself to win lucrative offshore oil contracts. It is doing all it can to put the blame for oil pollution on the victims when it should be on Shell." In its role as benefactor, in 2010 Shell pumped $59.8m (£37m) into local projects in the Niger Delta such as hospitals and schools, as required by law as a term of its licences. It also threw an additional $19.7m into development projects that it didn't have to, and paid $18m into a rehabilitation fund.

Not that this impresses Mr Bassey much. "While any new hospital is to be welcomed, the amount of money it costs pales into insignificance compared with how much they can make from the oil," he said.

Shell has also contributed about $10bn to the government's coffers in the past five years in the form of royalties, taxes and other fees.

When Shell flew us journalists over the Niger Delta by helicopter to inspect a series of oil spills, it was at pains to emphasise that about 70 per cent of recorded spills these days are down to theft from, and sabotage of, its ellheads and pipelines. Shell claims this costs the Nigerian joint venture, which it runs and in which it has a 30 per cent stake, up to 100,000 barrels of lost oil a day – worth $4.5bn a year at today's prices.

Shell's prominence as the country's first and biggest oil producer makes it well placed to win some of the new exploration contracts that will be coming available in the deep waters off the coast of Nigeria – a fledgling oil province which Shell and other oil majors have high hopes for.

And Shell's prominence may also give the company a loud voice in the crucial debate over a giant new bill the Nigerian government is putting together that will, among other things, modify the contract terms of deepwater oil production.

Current contracts are very generous to the existing offshore producers – as the government sought to attract oil companies into uncharted territory – but analysts say it is inevitable that licence terms will worsen, now that the area's potential has been proven.

But it remains to be seen how the terms will change. Further offshore development is on hold, together with the sale of new exploration licences, until potential investors can be more certain about their likely returns.

Mutiu Sunmonu, Shell's country chairman for Nigeria, said he was hopeful that the new oil bill could be finalised by the end of the year.

Shell is the pioneer and leading player in Nigeria's offshore oil industry, having set up in 2005 the country's first offshore operation – the Bonga floating production storage and offloading vessel.

If the company has its way – and assuming the new bill doesn't dilute potential returns too much – this will be the first in a series of offshore projects.