A new government, led by former President Buhari, is about to take power in Nigeria. Nigeria should be one of the wealthiest countries on earth, with vast oil and gas reserves, rich in ores like tin, gold, iron, tantalum, columbite, wolframite, niobium, limestone, coal, coke, lead, zinc and uranium; with large stands of hardwood timber; with a system of rivers and roads linking all parts of the country and even a railroad and inland canals.

Nigeria has five steel plants: at Katsina, Warri, Ajaokuta, Oshogbo, and Jos, but they barely work because of many factors; the most important being lack of a functioning rail system to bring materials to and from the plants.

In addition there are vast tracts of arable land for farming for foodstuffs, flowers and even a cattle ranch in Obudu. Nigeria used to lead the world in palm oil production and was a major player in the cocoa industry.

Despite all these bountiful natural resources Nigeria has managed to become poor, deeply in debt and suffering from the deterioration of its infrastructure on a massive scale. The once-modern road system has been ravaged by lack of care; potholes are the rule and illegal toll booths block the passage in areas where it is possible to drive. The railroads are in a state of disrepair.

The China Civil Engineering Construction Corporation (CCECC) was brought in under General Abacha's regime in 1997 to repair tracks, supply the rolling stock and train NRC staff. Most of their track rehabilitation was completed and CCECC shipped 35 locomotives, 320 wagons, 118 coaches, and 20 rail cars into Nigeria. They later added a communications system involving VHF radio and microwave equipment as well as signal-relaying towers. Later new locomotives were acquired from General Electric and the CCEC was engaged again in 2006 to try to upgrade the track width from narrow gauge to standard gauge. Almost all of these upgrades and improvements have failed to solve the problem of Nigeria's rail lines and the only operational segment of Nigeria's rail network is between Lagos and Kano. The governments keep trying to privatise the railroads and the inland ports but no one is interested.

The basic problem is that these infrastructural changes in Nigeria are supposed to be funded by the Petroleum Trust Fund. The Petroleum Trust Fund (PTF) is a body created by the government of General Sani Abacha which was notionally funded from the revenue generated by the increase in price of petroleum products, to pursue developmental projects around the country. Its first Chairman was Muhammadu Buhari. He was noted for allocating a 20% share in the PTF to the military which did very little for the infrastructure. The problems surrounding the Nigerian oil industry which have restricted transfers to the PTF has meant that the PTF has had very little to actually spend on the infrastructure. The biggest failure of the PTF was that it did not have the money to invest in equipment to monetize the wasted natural gas which is flared off during processing. Nigeria wastes the equivalent of 63% of its annual budget in burning off these gases during processing instead of turning them into a marketable commodity or used as a source of electrical power in local gas-fired generating units. It is a double loss to the economy.

Nigeria is the largest oil producer in Africa, holds the largest natural gas reserves on the continent, and is among the world's top five exporters of liquefied natural gas (LNG). Nigeria became a member of the Organization of the Petroleum Exporting Countries (OPEC) in 1971. Nigeria's oil and natural gas resources are the mainstay of the country's economy. The country's oil and natural gas industry typically accounts for 75% of government revenue and 95% of total export revenue. Nigeria's economy is very dependent on oil revenue and the absence of other exports due to the failures of the revenue produced in the oil industry has made this dependence ever stronger.

In 2014, Nigeria produced 2.4 million bbl/d of petroleum and other liquids, of which 2.0 million bbl/d was crude oil and the remainder was condensate, natural gas plant liquids, and refinery processing gains. Nigeria's 2014 production was slightly higher than in 2013 because of fewer supply disruptions but still lower than previous years. No major oil fields have started production since the 125,000-bbl/d Usan deep-water field came online in February 2012. The 40,000-bbl/d Bonga North West field finally came online in 2014, helping to offset production declines. However, the drop in the world price of crude oil has had a major effect on the Nigerian economy and, with a breakeven price of $76.50 per barrel Nigeria is losing money on each barrel it sells. To maintain its currency value, even after the devaluation, the government has had to take money from the Excess Crude Account to support the Naira and has allowed its foreign reserve position to decline to a little over US$34.30 billion. Now the government is having trouble paying its bills and the monies for infrastructural development have disappeared.

In the oil industry one speaks of crude oil in terms of barrels, sulphur content (sweetness), viscosity (API gravity) etc. The international price is quoted in terms of marker crudes (West Texas Intermediate, Brent, Bonny, Dubai and Isthmus). The price differs among them based on a variety of relatively stable factors. However, the market in refined products is very different. This is based on the 'netback' of the crude being refined. That is the value of all the petroleum products which are produced in the refining process. To understand this it might be useful to sketch out what happens when crude oil is refined.

The problem with crude oil is that it contains hundreds of different types of hydrocarbons all mixed together. You have to separate the different types of hydrocarbons to have anything useful. Fortunately there is an easy way to separate things, and this is what oil refining is all about. Different hydrocarbon chain lengths all have progressively higher boiling points, so they can all be separated by distillation. This is what happens in an oil refinery - in one part of the process, crude oil is heated and the different chains are pulled out by their vaporization temperatures. Each different chain length has a different property that makes it useful in a different way. Most Nigerian crudes are refined in a 'straight-run' fractioning of the oil content and do not require additional catalytic refining. A typical fractioning column looks like this:

The various components of crude oil have different sizes, weights and boiling temperatures; so, the first step is to separate these components. Because they have different boiling temperatures, they can be separated easily by a process called fractional distillation. The steps of fractional distillation are as follows:

1. You heat the mixture of two or more substances (liquids) with different boiling points to a high temperature. Heating is usually done with high pressure steam to temperatures of about 1112 degrees Fahrenheit / 600 degrees Celsius.

2. The mixture boils, forming vapour (gases); most substances go into the vapour phase.

3. The vapour enters the bottom of a long column (fractional distillation column) that is filled with trays or plates.

The trays have many holes or bubble caps (like a loosened cap on a soda bottle) in them to allow the vapour to pass through.

The trays increase the contact time between the vapour and the liquids in the column.

The trays help to collect liquids that form at various heights in the column.

There is a temperature difference across the column (hot at the bottom, cool at the top).

4. The vapour rises in the column.

5. As the vapour rises through the trays in the column, it cools.

6. When a substance in the vapour reaches a height where the temperature of the column is equal to that substance's boiling point, it will condense to form a liquid. (The substance with the lowest boiling point will condense at the highest point in the column; substances with higher boiling points will condense lower in the column.).

7. The trays collect the various liquid fractions. These fractions include:

Volatile gases - Propane, butane

Naphtha or Ligroin - intermediate that will be further processed to make gasoline

Gasoline - motor fuel

Kerosene - fuel for jet engines and tractors; starting material for making other products

Gas oil or Diesel distillate - used for diesel fuel and heating oil; starting material for making other products

Lubricating oil - used for motor oil, grease, other lubricants

Heavy gas or Fuel oil - used for industrial fuel; starting material for making other products

Residuals - coke, asphalt, tar, waxes; starting material for making other products

Each crude oil, because of the structure of its hydrocarbons, produces different quantities of each fraction. Sometimes the trays can be positioned to get a little more of one substance. In the winter, in North America, the 'bottom end of the barrel' increases in value as cold weather requires heating oil. The 'top end of the barrel' is better in summer because more gasoline is used.

However, the refining of oil is not additive in that you cannot get out of the barrel more than you put in. Therefore, when making a market in refined products the �net back' of the products becomes important. That is, each fraction has a variable price. So, if one can get 16% of the product as gasoline then that 16% quantity times the market value of the product gives you the value of the gasoline. If the residuals are 40% then the volume of the 40% times the price of the residuals gives you the value of the residuals, and so on. The sum of all the products of percentage volume times the current market price for those products gives you the net back value of the barrel of oil. From this one can deduct the cost of transport, the loss of volatiles during shipment and the insurance costs.

The important point of all this is, if the crude oil exports of the 445,000 barrels a day are only bringing back to Nigeria the PMS, kerosene and diesel, where is the value for the rest of the barrel? Who has the money for the butane, propane, residual oils, asphaltenes, etc. which are an inevitable result of the refining process? These favoured exporters of oil not able to be refined in Nigeria are getting the oil at source at a considerable discount. Including shipping costs to the US Gulf the net cost is under $30.00 a barrel which they sell as a profit. They are shipping back PMS, kerosene and diesel at the world price for these products. Right now the price of fuel in Nigeria is marginally more than the price of similar fuel in Texas made from Nigerian crude. Equally as important the sale of the rest of the barrel is not being returned to Nigeria as cash or additional product. As these represent, even with the best of cuts of the fractioning column, slightly more than half of the value of the barrel this is a tidy profit for those who are in the subsidy business.

So the fuel importers are bringing back to Nigeria, at best, 48% of the products refined overseas from subsidised oil to replace the inability of Nigeria's refineries to refine its crude. They bring these back at the world price for these refined products and sell them to the Nigerian public at the world price less the fuel subsidy from the Federal government. That is the Nigerian consumer buys the fuel at the world price for fuel less the fuel subsidy. The importer gets paid the world price because the Federal Government pays them the subsidy which they pass on to the public. In addition, 100% of the full value of the remaining 52% of the products of refining of Nigerian crude goes entirely to the importers as these other products are never brought back to Nigeria or accounted for to the NNPC. The fuel importation business is a license to print money. It is small wonder that the NNPC has made such little effort to improve its refineries or add new ones. The supposed $20 billion missing from the NNPC is only a small fraction of what the importers have been stealing for twelve years; and that is for the fuels they actually sold to the Nigerian public. They make much more when they get paid the subsidy and don't even deliver the fuels into the market.

The new Buhari government has pledged to investigate the missing funds. However there already exists a full report by Price Waterhouse on the US$20 billion missing from the NNPC and a 205-page 2012 parliamentary report which uncovered a long list of alleged wrongdoings involving oil retailers, Nigeria's Oil Management Company and the NNPC

According to that report, a total of 15 fuel importers collected more than $300m two years ago without importing any fuel, while more than 100 oil marketers collected the same amount of money on several occasions. The report states that the importers had stolen US$6.8 billion in the years 2010 to 2012.

The annual $8bn fuel subsidy means prices are lower than in neighbouring countries - and many Nigerians see cheap fuel as the only benefit they get from their country's oil wealth, much of which is pocketed by corrupt officials.

Bunkering:

However, the cheap price of the subsidised fuel in the Nigerian market has promoted another type of stealing. This is called 'bunkering'. Originally this bunkering covered the theft of crude oil. Every day the Nigerian economy loses between 150,000 and 320,000 barrels of oil. These are stolen by 'bunkerers', who have small tanker vessels which load the oil in the Delta and tranship this stolen oil to offshore tankers which deliver this stolen oil to other West African states. Further inland illegal tanker trucks load their stolen oil and refined products and drive these into neighbouring countries for black market sale. At the current price of around US$50 per barrel this amounts to a 'leakage' of around US$7.5 to US$16 million a day for the sale of crude oil. The sale of refined products adds to the total. On a monthly basis this amounts to around US$365 million or US$4.4 billion a year.

This illegal trade was pioneered under President Abacha when Akhigbe, Victor Ombu and Ibrahim Ogohi perpetrated the smuggling of petroleum products from Port Harcourt and Warri to neighbouring West African countries. When a real effort at anti-corruption was undertaken by the journalists of the 'Insider', retribution was swift and severe. The editor-in-chief, Chucks Onwudinjo, and Janet Mba-Afolabi, both executive editors of Insider, a weekly magazine, were picked up by men of the State Security Services. Their arrest and detention were on the orders of Atiku Abubakar, the vice-president. They were arrested on Monday, November 24, 2004

While the nation enjoyed Ed-el-fitri public holiday, the trio cooled their heels at the Panti Police Station in Yaba, Lagos where they were detained for a story the Insider ran in its November 24 edition. The story, which made the magazine's cover alleged that Abubakar and a close colleague were behind a bunkering ring recently smashed at the Forcados and Escravos Creeks.

Specifically, Atiku was accused of being behind three of the vessels, MT Gloria. MT Tina and MT Sara, which had about 4,000 metric tonnes of crude oil aboard, while his colleague was allegedly linked to two vessels, MT Berinelo and MT Breton 1 with 17,800 metric tons aboard. The eight ships captured in the bunkering deal collectively had about 124 million barrels on board valued at N35 billion.

On August 30, security officials attached to the Vice-President, Atiku Abubakar, attacked and beat into coma, Akintunde Akinleye, a photojournalist with the Daily Independent newspaper. He was eventually compensated in a face-saving mission by the Vice President. He received $1,900 and N 56,287.00 cash.

This bunkering has continued despite the efforts of the Joint Task Force and other law enforcement officers largely because bunkering has the blessing of the local state governors and the high federal officials who condone and prosper from the bunkering operations.

The Malabu Deal:

Another important loss of money by the Nigerian people has come through the payment of large sums for oil leases and concessions. The best example is the 'Malabu Deal'.

In March 2000, Nigeria opened competitive bidding on 22 new oil blocks, including 11 in the Niger Delta deep and ultra-deep offshore, in which 46 oil companies participated and 14 blocks received a total of 51 bids. Awards for eight of the offered exploration blocks were announced in December 2000. The licensing round was the Nigeria's first in over a decade.

In July 2002, Shell was awarded Block OPL 245 after the license had been withdrawn from a local firm, Malabu Oil & Gas. The government has said the license was revoked in May 2001 because Malabu, owned by former Nigerian President Sani Abacha and his former oil minister Dan Etete, was improperly given the concession and also that it failed to pay the $20-million signature bonus by the agreed deadline.

Malabu sued Shell, accusing it of colluding with Nigerian officials to snatch its juicy oil prospecting license, OPL 245, a giant block in the deep-water area of the Niger Delta, with estimated reserves of more than 1 billion barrels. The tiny oil concern wanted $1 billion in compensation to go away.

The ill-fated venture started in 1998, just before the collapse of General Sani Abacha's military regime. Early that year Abacha's petroleum minister, Dauzia Loya Etete, awarded himself a license to develop OPL 245 and set up Malabu as the license holder. (Though technically not an owner, Etete is widely believed to control Malabu.) After Abacha's dictatorship collapsed, the civilian administration of President Olusegun Obasanjo set up a panel to review oil licenses and revoked a number of them. But Malabu got to keep its claim.

In late 1999 Malabu offered Shell's Nigerian subsidiary 40 % of the profits in exchange for bearing exploration and production costs. Soon after, the new government wanted a piece of the action, according to Etete. In a written deposition to Nigeria's House Committee on petroleum resources, Etete claimed to have dined in August 2000 with Vice President Atiku Abubakar who, Etete says, demanded a stake as a condition for not revoking the license.

In depositions Etete claimed he has taped conversations of meetings he had with Abubakar's middlemen, discussing the payment of bribes to Abubakar, President Obasanjo and Shell managing director Ron van den Berg. Shell maintains it doesn't know who is on the tape

In late 2000, Etete alleges, he received a phone call from an agent of the vice president, asking him to sell Malabu's stake in the block. Etete refused, and in July 2001 the government revoked Malabu's oil prospecting license; Shell lost its stake, too. Months later the government invited Shell and ExxonMobil to bid on OPL 245. Exxon reportedly offered $40 mm; Shell won with a $ 210 mm bid, securing 100 % of the license. Malabu cried foul saying Shell's bid was based on insider knowledge of the block's huge reserves.

Malabu accused the president's men of improperly organizing the auction, a function that should have been carried out by the department of petroleum resources. Etete alleged that Shell wooed the vice president with oil services contracts for a company he reportedly has a stake in, Intels. In his deposition Etete claimed to have taped conversations between agents of the vice president and Shell discussing such deals

Malabu Oil then sued several Shell subsidiaries and the Nigerian government over exploration rights to Block 245 offshore Nigeria in a NY court. The small Nigerian oil and gas company alleged that the Nigerian government had granted it rights to Block 245 in 1998 but that government officials took bribes in exchange for reallocating the block to certain Royal Dutch units. The suit stated that seismic studies of block 245 indicate that it has almost 3 billion barrels of oil reserves. The suit, filed in Manhattan federal court, seeks more than $1 billion in compensatory damages and unspecified punitive damages.

The licence was awarded to Malabu in 1998 by the Abdulsalami Abubakar military government among several others, but was later revoked by President Olusegun Obasanjo on the recommendation of the Christopher Kolade panel. The oil bloc, however, was re-awarded to Shell Petroleum. Malabu Oil had in the petition to the committee accused Shell Petroleum, Pecos Energy Limited and the Department of Petroleum Resources, DPR, as being jointly responsible for the revocation of its licence.

When the committee of the House of Representatives concluded its investigation in the matter, it faulted Shell's involvement in the revocation exercise and recommended that the licence be returned to Malabu Oil and Gas Limited. It also recommended that Shell should pay $550 million to Malabu Oil as compensation for damages resulting from the revocation of the licence.

The committee said it was wrong for Shell to have participated in the bidding that followed the revocation of the licence, having being engaged by Malabu Oil to carry out the seismic surveys of the same bloc.

Similarly, the committee blamed the DPR for revoking the licence after it had assured the oil company in 2000 and 2001 that the oil bloc would not be affected by the revocation exercise of the Federal Government. The key point at that juncture was that re-award of OPL245 to Shell is that Shell, when it had been given the lease, in whatever murky circumstances, then transferred most of its signature fee to an account in the U.S. to Emeka Offor; a sum of US$186 million. Of that sum an amount of $170 million then went into the bank account of Atiku Abubakar (who said it was to pay the school fees of his children). This caused such problems within the U.S. banking system that the Nigerian authorities were told to get the money out of the country.

Nothing much was resolved by the U.S. court actions but in 2011, two of the world's biggest oil companies agreed to pay $1.1 billion dollars to the Nigerian government, in return for the rights to OPL 245. Shell and ENI paid $1.1 billion, plus a signature bonus of $200 million, to the Nigerian government for the concession. In a back-to-back deal negotiated by the Attorney General of Nigeria, the Nigerian government then undertook to transfer $1.1 billion to Etete's company, Malabu. The deal effectively converted into money an asset that had been acquired by Malabu Oil and Gas in highly suspicious, possibly illegal, circumstances.

Shell and ENI deny paying any money to Malabu Oil and Gas. But they were aware and in agreement that the deal was for the benefit of Malabu. In 2011, a middleman acting for Malabu sued the company in the UK Commercial Court for fees he claimed he was owed for services rendered to Malabu in the sale of OPL 245. Pending the outcome of the case, the Court froze some $215 million from the proceeds of the oil concession sale.

The money was first paid to an account set up by the Nigerian government, who then transferred the exact same amount to a company called Malabu Oil and Gas which in turn passed the money to a network of anonymously owned companies, which appear to be vehicles for paying others involved in the deal. Both oil companies, having paid the money to the Nigerian Government, deny paying money to Malabu. But court evidence shows that they knew that the payment was going to Malabu, as they had on several occasions negotiated directly with Malabu, including a face to face meeting between a Shell executive and Etete over 'iced champagne'. Little of this would ever have come to light, if middlemen had not sued Malabu for unpaid fees in London and New York. In 2012, the New York court said that the Nigerian government effectively acted as a 'straw man'. A subsequent London High Court case found that Etete was the real owner of Malabu.

Since then, the case has been investigated by authorities in three countries. The Nigerian House of Representatives called on the Nigerian government to cancel the deal, condemning Shell and Eni's lack of transparency and describing the deal as 'contrary to the laws of Nigeria. In the UK police have been investigating allegations of money laundering connected to other parties involved related to the block. US$190m of the proceeds of the $1.1bn payment has been frozen in UK and Switzerland at the request of Italian prosecuting authorities. In Italy, both the current and former CEOs and other senior managers at Eni (Italy's biggest company) have been named as suspects in a corruption inquiry. That case is ongoing.

Summary:

The Malabu OPL245 example is only one of many which illustrate the inherent larceny in the selling of oil leases and the huge payments of signing bonuses which never reach the NNPC Federation accounts. It is the Nigerian people who are paying for this, just as they pay a very high price for their fuels. The Nigerian banking system facilitates this as they are important cogs in the wheel of destruction. To this can be added the vast sums lost to Nigeria through corrupt deals with companies like Halliburton which involve the very top of Nigerian political offices in receiving bribes from the companies seeking to do business to exploit the Nigerian peoples' natural resources. These losses can eventually be calculated.

What cannot be calculated is the immense losses due to lost opportunity costs. Because there is no reliable and affordable energy there is no electric power. Shops and businesses cannot flourish, even with generators. The striking lack of an established Nigerian middle class can be directly attributed to the energy deficit. All the potential of beneficiating ores and metals are lost because there is no reliable internal means of transport. The failing steel industry proves this beyond any doubt. Land lies fallow where it could provide crops and sustenance for want of fertilisers which are a by-product of natural gas processing. The aluminium smelter suffers from the lack of electricity. All of these, and many more lost opportunities, are the true curse of Nigeria. Small businesses cannot expand for want of credit from banks who are in the laundering business. The infrastructure is crumbling and not repaired. It is bad enough that Nigeria's ogas and agbadas have stolen Nigeria's money. It is worse that their actions have stolen the future for a new generation of Nigerians.