Royal Dutch Shell Group .com Oil Giant Could Do Better in Nigeria: “where the contrast between the region's poverty and its mineral wealth has fuelled unrest”


Last year's tally: 176 violent incidents against Shell; 33 million barrels of oil lost.


By Stephan Faris

Oct. 1, 2001 Issue


Prince Oforji wiggles the pump's long steel arm, but no water comes out. "When they mounted it newly, it was working," says Oforji, 35, who lives in the eastern Nigerian town of Oyigbo. "It worked about three weeks." Now it takes more than 15 minutes to get a trickle.


The pump, a rare source of drinking water here, is one of eight installed last year by the Shell Petroleum Development Co. of Nigeria, a subsidiary of Royal Dutch/Shell Group, the world's second-largest oil company. Like most of Shell's community development efforts in this part of the country, the project has been less than successful.


An internal Shell report, written by independent consultants and obtained by FORTUNE, offers a harsh assessment of the company's aid programs in the Niger Delta, where it extracts some 800,000 barrels of oil a day. "SPDC development activity remains 'top down,' and consultation extends only as far as the local elite," says the report, dated March 12 and never made public. Some details: Classrooms are built but not furnished; a commuter bus sits locked away in one man's compound; transformers have burned out; drugs are dispensed without medical supervision.


Shell commissioned the team of consultants--from government as well as nongovernmental and international organizations--to review 81 of the 408 projects listed by Shell as completed in 2000. Their conclusion: Less than a third were successful, and nearly one in eight had not been finished.


The report says some projects, such as solar power for a hospital, have improved the quality of life. But it urges the company to make its plans more transparent and to involve more women in management teams.


Last year Shell spent $60 million on community development in the Niger Delta, where the contrast between the region's poverty and its mineral wealth has fuelled unrest. While oil provides 80% of the country's revenue, little of that has seeped down to those whose farms and back yards host the wells. Their only experience with Nigeria's wealth: crisscrossing pipelines, foul-smelling spills, and nightlong artificial sunsets of blazing natural gas, a byproduct of oil extraction. Electricity, drinkable water, and employment are all in short supply. Responsibility for the Delta's development, Shell officials say, lies with Nigeria's government, which earns $15 on every $20 barrel of oil. Production costs $4, leaving the oil companies with $1 in revenue for each barrel.


Such reasoning does little to ease local anger. "They tell us, 'We don't see the federal government, we see you,' " says Donald Boham, a Shell spokesman in eastern Nigeria. That anger costs Shell dearly. Last year there were 176 violent incidents against Shell staff and 33 million barrels of lost production. Just last month villagers raided a Shell contractor's oil rig, held 99 workers hostage, and demanded jobs. Shell negotiators secured the workers' release and agreed to meet the attackers.


Tensions have eased since 1999, when disruptions cost Shell 87 million barrels of oil. But patience may again be running out. The expectations of Delta residents, raised with the return to civilian rule in 1999, have been boosted by a new federal development commission and the oil companies' own publicity campaigns.


Acknowledging that past decades of development efforts produced little satisfaction, Shell switched tracks in 1998. Rather than unilaterally deciding where its money went, it began--at least in some communities--to seek local guidance. And rather than awarding funds in easily stolen lump sums, it now doles them out in installments.


In comments sprinkled throughout the report, Shell argues that some of its projects received poor ratings because they were misunderstood. A "Library Project," in which books were locked in a principal's office, should have been called a "School Textbook Project," Shell argues. A concrete path to an unopened hospital ("What is the purpose of building a walkway to an unused building?" the report asked) is part of a larger hospital project.


Delta residents are infuriated by such excuses. The hospital, which Shell's annual report listed as built in 2000, helped no one that year because it hadn't opened. Oyigbo received, along with the hand pumps, something Shell refers to as an "Electricity Extension." But the single transformer is unable to handle the power load, says the local king, Mike Nwaji, 50. He waves a draft version of his community's agreement with Shell. "This is where there is electrification," he says. "Inside this uncompleted memo."


From the Oct. 1, 2001 Issue,15114,373831,00.html


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