Sanusi’s claims were seen by some Nigerians as part of the historic tensions between the country’s mostly Christian south and poorer, mostly Muslim north. Jonathan and oil minister Alison-Madueke are Christians from the oil-producing Niger Delta in the south. Sanusi is a Muslim from the country’s north, as is Muhammadu Buhari, a former military ruler of Nigeria who is the main presidential candidate running against Jonathan. The two regions have historically taken it in turns to hold the presidency. Since 2009, though, Jonathan has broken with this tradition.Sanusi has said any notion there were religious or ethnic politics behind his allegations is absurd. He has declined to be interviewed since becoming the Emir of Kano.
But last April, two months after he was sacked but before he took on his new role, Sanusi told Reuters he worried that the sheer quantities of cash going missing were “unsustainable.””You are taking what doesn’t belong to you and transferring it to private hands,” he told Reuters. “The state is captive to vested interests.”
NO BID CONTRACTSS
Sanusi’s documents identify three key mechanisms through which Nigeria has allegedly allowed middlemen to channel oil funds away from the central bank. Among the recipients, Sanusi alleges, are government officials and high-flying society figures.The three mechanisms are: contracts awarded non-competitively to two companies that did not supply services but sub-contracted the work; a kerosene subsidy that doesn’t help the people it is meant to; and a series of complex, opaque “swap deals” that might be short-changing the state.Sanusi’s concerns around the first of these mechanisms centre on the 2011 sale by Royal Dutch Shell of its interests in five oil fields. The blocks were majority-owned by NNPC.
The government, keen to end the domination of the oil industry by foreign oil majors, had been encouraging Shell and others to sell to local firms.Shell sold its interest in the fields to companies in Poland and Britain. But the new owners 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 (NPDC).Without soliciting bids, the NPDC signed “strategic partnership agreements” worth around $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 southerner. 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 member of Nigeria’s elite. He owns a fleet of supercars, including a Ferrari 458 GT2 that he races with Swiss team Kessel Racing. He also owns a $50 million yacht, according to Forbes magazine, and divides his time between a $40 million home in Los Angeles, an $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 style.”Aluko, whose stake in Seven is now minimal, did not respond to emailed questions.Omokore has also become rich from oil and gas. Forbes has estimated annual revenue at another of his companies, Energy Resources Group, at $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 percent of profits in the three oil blocks it operates, while Atlantic gets 30 percent of profits in its two blocks. The contracts also show that, unlike Shell, neither firm pays royalties, profit tax or duties to the state.Both companies quickly sub-contracted production 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 $345 million.
In May 2013, Nigeria’s parliament threatened to investigate the NPDC contracts because they were not issued through competitive tender. But the NNPC argued no tender was needed because the contracts involved no sale of equity in the oil fields; the probe did not go ahead.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’ 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 Senate 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 $500 million, more than doubled production from its three blocks, and paid $48.8 million in taxes in 2013. Atlantic did not comment.
KEROSENE SUBSIDIES
The second mechanism Sanusi’s report identifies 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 subsidies carried on regardless.
The NNPC told parliament last February that it still deducts billions of dollars a year from its earnings to cover it.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 $100 million a month. It said kerosene retailers – 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 litre from importers and then sells it to retailers at just 40 naira per litre. Sanusi’s analysis found consumers pay an average of 170-200 naira per litre, and sometimes as much as 270 naira.”The margin of 300 percent to 500 percent over purchase price is economic rent, which never got to the man on the street,” Sanusi wrote.NNPC said in a statement last year that it can’t force retailers to sell kerosene at the subsidised price.
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