Energy in Africa

It is hardly necessary to stress the importance of the oil industry to Nigeria’s future. Given that the sector accounts for 45 percent of Nigeria’s GDP, 90 percent of exports and 80 percent of government revenue, it has to be regarded as the “engine” of the economy. But it is also an industry embroiled in chaos that both constrains the country’s development potential and threatens to increase political risk for investors.

In late December and the first half of January, a previously unknown militant organisation, the Movement for the Emancipation of the Niger Delta (MEND), launched a series of attacks on oil pipelines, platforms and workers. The country’s oil production dipped 10 percent in December and nearly 20 percent in early January, while the price of crude spiked to over $63. Nine Royal Dutch Shell employees were kidnapped, prompting the company – the largest player in the Nigerian oilfields with 43 percent of production – to withdraw workers from a number of installations.

It would be all too easy to exaggerate the impact of the Nigerian incidents on the global market. But the fact is that oil traders consider the industry sufficiently unstable to discount fluctuations in Nigerian supply in advance. The biggest scare factors in the recent price surge were Middle Eastern – an attempted attack on a Saudi refinery and the furore over Iran’s nuclear enrichment programme – and, to a lesser degree, Venezuela where President Chavez tends to favour socialist rhetoric.

The sad fact is that history leads analysts to expect Nigerian disruptions. The recent incidents were far from out of the ordinary.

The so-called Warri crisis in Delta state, on the western rim of the oil-producing zone, in 2003, saw hundreds killed and forced all three of the oil majors operating in the area – Chevron, ELF and Shell – to stop production. September 2004 saw the onset of three months of intense fighting between two rival militias – the Niger Delta People’s Volunteer Force (NDPVF) and the Niger Delta Vigilante (NDV) – in Rivers State at the eastern edge of the Niger delta. The fighting, which drew in federal government troops, saw firefights in Port Harcourt, the “oil capital of Nigeria” itself. Shell was forced to close a facility because security concerns prevented workers traveling to an area to fix a technical problem.

In February 2005, Nigerian forces attacked and allegedly razed the Ijaw town of Odioma, in Bayelsa State between Delta and Rivers States, killing 17 people in a failed attempt to arrest vigilantes. Earlier that month soldiers had fired on protestors at Chevron’s Escravos oil terminal in the western delta, killing one and injuring 30. In September 17 people were killed when the federal Joint Task Force – consisting of army, navy, the paramilitary Mobile Police and the Nigerian Police Force – raided villages near Port Harcourt.

These are only the best-known recent incidents in the Niger Delta. There are many immediate causes but all can be traced back to the exploitation of the region’s oil resources.

Some of the sharpest local conflicts are over control of illegal oil bunkering. “Bunkering” is an industry term to describe the process of filling a ship with oil (or coal). “Illegal bunkering” is a euphemism for theft involving, it is said, cartels of expatriates, local businessmen, politicians, military personnel and even oil company staff, this underground industry accounts for 10 percent of Nigeria’s daily production and earns those involved between $1,5bn and $4bn per year.

One operator – Shell – recorded 71 crude oil theft incidents in 2004 alone. And this figure represented a 20 percent drop from the previous year as a result of government anti-crime measures. In 2004 the security forces seized 32 barges, six ships, six tugboats and10 road tankers.

According to Human Rights Watch, many other conflicts are over control of payments, from the oil companies, to “host communities” or those who own the land or fishing grounds where drilling or other activities take place. A “host community” receives compensation, community development funds and promises of labour and security contracts. These conflicts have turned the Corporate Social Investment programmes of the oil companies into potential flashpoints.

It is impossible to keep track of the number of organised formations that have sprung up to contest these resources. There are a number of generic varieties. Vigilantes are often locally popular because they fill a security vacuum. Fraternities, which often originate at Nigeria’s universities, shade into “cults” (essentially gangs) with names like The Icelanders, the Germans, Mafia Lords and Vultures. Youth Organisations frequently contest control of resources with traditional leaders. The term “youth” describes younger men who have not reached the status of “elder” and who may be anything up to the age of about 40. Finally, there are formations that appear to have an overtly political, usually ethnic agenda.

This last type of organisation – of which the newly emerged MEND appears to be representative – typically demand local self-determination, resource control and environmental sustainability. In January MEND forced one of its hostages to read out a list of demands by telephone. According to Reuters these were: “Local control of the Niger Delta’s oil wealth, payment of $1,5bn by Shell to the Bayelsa state government to compensate for pollution and the release of three men, including two ethnic Ijaw leaders”. The organisation also demanded that the oil companies leave the region, pointing out that the government could not protect their workers or assets and saying the companies “should leave our land now or die in it”. MEND has stated that its ultimate aim is “to prevent Nigeria from exporting oil”.

These sorts of demands have been heard before from other organisations, going back (sometimes in a less militant form) at least as far as Ken Saro-Wiwa’s Movement for the Survival of the Ogoni People (MOSSOP) in the early-to mid-1990s.

In some respects MEND appears better organised than most other armed militias in the delta. It appears to have the capacity to coordinate attacks and is undoubtedly better at information dissemination – utilizing e-mail communications with the media – than are the likes of the NDPVF and the NDV, both involved in the 2004 Port Harcourt violence. But there are probably links between some of the militias. One of the leaders MEND wants released is the NDPVF’s Mujahid Dokubo-Asari. It may in fact be that MEND – despite the fact that it operates further west than the NDPVF tended to – is a revived form of that organisation.

But MEND may be a bigger threat to the industry than any previous militant organisation. The Economist Intelligence Unit believes “a major outbreak could occur in the Niger delta, plunging the country into crisis”. This assessment is based on evidence of MEND’s organisational capacity, which, in some respects, appears superior to that of the armed forces.

It is not insignificant that the demands made by the likes of MEND are echoed by local politicians throughout the Niger delta. In explaining the emergence of armed groups in the region, Human Rights Watch refers to “the manipulation of youth groups by local politicians”, the “prevailing culture of impunity” in Nigeria and the widespread availability of small arms, as a result of conflicts in other West African states. What is apparent is that there is extensive complicity, with the militias, on the part of local power-brokers (including politicians and military leaders) throughout the region. Informal structures of governance and arrangements within and between the underground resource cartels are sometimes more important than the formal system. In any case, formal and informal are so intertwined as to often be inseparable.

The delta presents the federal government with an almost intractable challenge. Two generally desirable factors – electoral politics and anti-corruption campaigns – appear to increase the potential for conflict in the region, at least in the short-term.

Nigeria, it is often said has real potential for disintegration. One of the factors keeps regions committed to the federation is the redistribution of oil revenues through the fiscus. But this is exactly what outrages activists in the delta. The 11 oil-producing states receive only 13 percent of oil revenues. Some of the remainder goes to the country’s other 23 (non-oil producing) state government but by far the largest proportion is absorbed by the federal apparatus. It has been said that these revenues are poured into a bottomless pit of corruption ands maladministration.

At the same time, the attempt to deal with delta-based opposition through special development has stalled, with the main institution, the Niger Delta Development Fund effectively inoperative. Oil companies have refused to continue contributions to the fund, citing the failure of state governments to put any resources into the effort.

There are no easy answers. The Economist Intelligence Unit is of the opinion that a military solution may be unfeasible. The nature of the terrain – a maze of mangrove swamps and creeks – makes operations difficult. But it is also difficult to visualize any viable political solution. Muddling through – implementing a mix of some reform of governance, some military intervention and perhaps some political concessions – is what should be expected. That means the international oil market is going to have to accept unreliable Nigerian supply for some time to come.

This article was first published in Business in Africa Magazine, April 2006. To subscribe click here