International management issues- Shell in nigeria

Executive Summary

This report focuses on the issues surrounding Shell operation and ethical practices in Nigeria. After a detailed analysis it's found that the Shell has been involved with issues such as violence, spillover, land invasion which is hampering the company's performance and image.

Report also provides evidence that the issue has been lasting for the past number of years and Shell has not been able to resolve issues. Based on all the data available, recommendation are provided which could help the benefit in short term and long term. Some of the short term recommendations are rapid clean up of spill over, compensation etc. Few long term recommendations are Improve pipelines, transparency etc.

Introduction

In a competitive world, Multinational Corporations (MNC) have been involving in tough competition. These corporations are often very large. Such companies have offices and/or factories in different countries. They usually have a centralized head office where they coordinate global management (Hodgetts, Luthans and Doh, 2004). Companies are not only known for their position in the stock exchange, profits, etc. But also for the companies involvement in community development, business ethics practices and culture.

These factors also add to the overall outlook of the company. Oil industries have been in focus for a long time. Not just for the fact that the whole world relies on oil, but also for the environmental damages caused in the process of refining oil. This report will focus on Europe's second largest oil company-Shell Group facing ethical, environmental issues surrounding them in Nigeria.

Shell

Shell is a group of energy and petrochemicals companies which are operating in more than 140 countries and territories. Shell is widely known to the public for its service stations and for exploring and producing oil and gas on land and at sea. A part of these, shell also delivers wide variety of energy solutions and petrochemicals such as transporting and trading oil and gas, producing and selling fuel for ships and planes and generating electricity and providing energy efficiency advice. Moreover, it employs more than 112,000 people in more than 140 countries.

Shell carries out its operation in different part of the worlds such as Americas, Europe, Africa, Commonwealth of independent states, Middle East and South Asia and Asia Pacific which are shown below.

www.shell.com

Shell does invest and collaborate in the development of new technologies that will keep improving its performance. As a part of that, in 1907, the Royal Dutch/Shell Group of companies was created to carry out its operations all over the world. Royal Dutch/Shell Group is commonly known as Shell. 60% of the group is owned by Royal Dutch of Netherland and 40% is owned by the Shell Transport and Trading group of Great Britain. Shell includes many companies like Shell Petroleum of the USA, Shell Nigeria, Shell Argentina, Shell South Africa etc.

Royal Dutch/Shell Group is Europe's second biggest oil company. Shell Nigeria is one of the largest oil producers in the Royal Dutch/ Shell Group. Shell Nigeria operates in the Niger Delta, southeast region of the country, which accounts for 80% of the oil extraction in Nigeria. Shell Nigeria supplies 9 % of the company's oil (www.essentialaction.org).

Competitors in World Market

Shell's parent, Royal Dutch/Shell Group is the world's third petroleum company behind BP and Exxon Mobil. The Royal Dutch/Shell group has proved reserves of 14.4 billion barrels of oil equivalent after 14.6 and 21.2 billion barrels of oil equivalent of BP and Exxon Mobil respectively. The Royal Dutch/Shell Group had sales of $ 265,190 million and net income of $ 18,183 in the year 2004. On the other hand, BP and Exxon Mobil had sales of $ 2,85,059 and $ 2,63,989 respectively in the same year (Williams).

Shell in Nigeria

Four of Shell companies which operate in Nigeria to make use of vast energy resources which are listed below.

Shell Petroleum Development Company (SPDC) :

SPDC operates with joint venture with Nigerian National Petroleum Corporation (NNPC), which holds 55 per cent, Shell 30 per cent, EPNL 10 per cent and Agip 5 per cent. SPDC has the capacity to produce around 1.3 million barrels but its restricted through quota to produce 9,00,000 to 1,000,000 barrels of oil per day (www.shell.com).

Shell Nigeria Exploration and Production Company (SNEPCO) :

SNEPCO is Africa's leading deepwater and oil Gas Company. The company is also responsible for technology transfer into Nigeria through complex deep water technology (www.shell.com).

Shell Nigeria Gas (SNG) :

SNG was incorporated in the year 1998. SNG aims to provide clean, reliable, and low cost alternate to liquid fuel by 2010. Two projects which SNG are involved at the present point of time are Agbara / Ota Gas Distribution Project and Aba Gas Distribution Project (www.shell.com).

Shell Nigeria Oil Products (SNOP) :

SNOP is a oil marketing company which provides professional and customer-oriented services through supply and distribution of products. SNOP is responsible to market petroleum products such as Lubricants and Chemicals, Marine/Coastal Fuel Supplies and Inland Fuel Deliveries (www.shell.com).

Nigeria Importance

Nigeria is among the ten greatest oil reserves countries in the world in the year 2005. Nigeria has 35.3 billion barrels of oil reserves in the same year (Pearson Education). Moreover, Nigeria is the seventh largest oil exporter in the world which produces about two million barrels a day. The oil industry is the backbone of the Nigerian economy, accounting for over 80% of all government revenues, 90-95% of export revenues and over 90% of foreign exchange earning. In addition, Nigeria exports 40% of its total export to the United States which is 10% of U.S. oil imports (Aluko).

Issues surrounding Shell in Nigeria

Violence:

Nigeria majority of oil reserves are available in the Niger River Delta. Violence is evident in this region which kills about 1,000 people a year. Violence is not only affecting Shell, but the same is been evident in the lives of the locals. According to a survey conducted it is believed that Shell feeds the violence. Given this scenario it is believed that Shell might have to leave the country by 2009.

The major cause of the violence dates back to 1995 by hanging writer Ken Saro-Wiwa by a military government of General Sani Abacha. Ken Saro-Wiwa protested that Shell polluted environment and recruited police to attack villages (Meier). Pollution, spill over, land invasion are few of the many reasons for violence. People feel that they have been cheated, violated these most often then not have led to protests and in some cases attacks. Due to which Shell has to be protected by the military which results in deadly results such as shooting. This is the last thing any company would want when they are trying to operate.

The local people feel that the government is the police which are to protect oil companies not the people (Lehrer). According to a published article in Washington Post Foreign Service in Nov2004 about 100 men died in a protest at an oilrig operated by Shell Petroleum Development Co. of Nigeria, the region's largest oil firm.

The protestors were surrounded by army troops, who opened fire on the locals who wanted Shell to have discussions with their leaders. One of the major reasons is that the rise in oil price has led to large government revenue. The one's who do not gain are the locals who stay near the oil wells and unhealthy environment. Evidence of no basic drinking water, proper roads leave alone schools in the region (Timberg). The protests are evident till date according to an article on October2, 2005. Dr. Owens Wiwa (brother of Ken Saro Wiwa) is taking active part in protests and recently a rally in Dublin (Byrne).

Community Development:

Shell Community Development in Nigeria is not reaching its objectives. The objectives were to improve the living standards of the locals. Through which the company can create a rapport with the locals. Instead there are no paved roads nor power, scarcity of drinking water in the locality which is a basis necessity for any human being (Washington Post). Community development was emphasized to create relation with locals. But the program is conceived to be a promotional activity for the company. KPMG an auditing company has certified that there has been weakness in data integrity. This kind of auditing report does indicate that there is a big weakness in company's operation (Pirani).

Environmental Devastations:

Oil spills have been a big worry for Shell and for the locals. The number of spills in 2004 were 236, whereas 221 in 2003. Spills due to corrosion have been on rise from 18 in 2003 to 38 in 2004 (Annual Report, 2004).In October2003 a spill site in Yenagoa visited by Christian Aid Researcher where oil had poisoned the key water sources.

It was confirmed after two months that the clean up work had not yet started due to the disagreement with local authorities over which contractor to use. In 2004, Friends of Earth visited the same site and found no cleaning ever took place (Pirani). Oil spills have contributed to soil erosion, which is resulted in no income for the local farmers.

Land Invasion:

Concrete evidence can be provided to prove that Shell is involved in land invasion from the local citizens. Felix Ouolewemen and Vincent McGrath have been prisoned due to their involvement in stopping Shell to build pipelines on their lands (Sinnott).

Effects on Shell

The report so far focused on the ethical issues on Shell part and the problems caused to the locals. Now the report will highlight the effects of these issues on Shell. First and foremost is that the locals consider that Shell is accountable for the murderer of their leader Ken Saro-Wiwa. This is lead to violent clashes which exist till date. Shell is capable to produce 1,00,000 to 1,40,000 barrels of oil in a day.

The fact is that this number does not get out of Nigeria due to violence (Lehrer). Shell is accused for desire in profits and it collaborates with the corrupt Nigerian government over the years to ensure smooth production at the expenses of innocent locals (Okonta). Faulty pipelines are not only causing spill over but also providing the locals an opportunity to steal hundreds of thousands of barrels of oil straight from the delta's pipeline each day (Washington Post). Shareholders are not happy with the way Shell has gone about showing their accounts.

Shell Counter Attack

It won't be true to say Shell is not responding to these issues. Shell has entered into joint venture with US Aid and Africare. Shell spends more than $60 million a year in Nigeria on a variety of community development projects ranging from funding jobs programs and school scholarships to building roads and financing electricity production. The company cut short their budget from $69 million in 2002 to $30.8 million in 2003.

Recommendations

"MNC's are increasingly engaged in a range of responses to growing pressure to contribute positively to the social and environmental progress of the communities in which they do business" (Hodgetts, Luthans & Doh, 2004).

Short Term

Compensation:

The local's main source of income are fishing and farming. Due to the spill over the locals are not been able to make use of the land. Shell has to take up responsibility to compensate for the damages to the land till the clean up of land is done. Compensation should be decided by inspection on the extent of the damage. Shell is expected to incur heavy expenses considering the oil spill in the locality. Shell should look to implement this recommendation with due effect. Advantages are that locals will not raise the issue of spill over as the company is compensating financially.

This will give Shell the time to check and improve their pipelines, which is a long-term solution. Violence could reduce and the company will be in a position to take all its oil produces outside Nigeria which is been a great concern for the company.

Rapid clean up Programme:

Shell should look to implement rapid clean up programme for the spill over as it's their responsibility. As the company is company looking to compensate financially to the damaged properties. It will be advisable to clean up the area as quickly as possible. Intention will be to give the land owner rights to use his/her land as per their wish. This will also contribute to minimizing the violence and expense to the company.

Transparency:

The company should be looking to improve their auditing reports. KPMG auditing report on Shell has provided with loop holes in the way company had been operating. Shell has to provide accurate financial data which the company has incurred towards local community development. It's important for the company to improve their auditing report. This will keep the shareholders happy.

Long Term

Improve Pipelines:

Oil spill has been one of the main reasons for violence. Oil spill has led to serious issues such as oil contaminations, soil erosion. Due to which the locals are not able to use their land. The company needs to keep in mind that the main source of income are fishing and farming. Compensation on spill over is a short term remedy; issues will be raised in the future.

Company should divert some part of their finances to check and if not change the faulty pipelines. Advantages are that the company will reduce oil spill, this could result to not paying compensations to the locals. Locals will be in a position to make the best use of their land, which is their right. This will result in no violence over spill over.

Minimal Government Involvement:

Shell activity in Nigeria indicated that where there is government involvement there has been violence. Local view government has been military, which is to protect Oil Company not the people. When there is no violence there are better chances for a positive outcome.

The company will be in apposition to take minimal help from the government if the above recommendations are implemented successfully. Initially the company will face violence but gradually the company will send message to the locals that the company is doing everything to solve this issue by not harming the locals. The company will gain respect from the locals and there will be chances for future negotiations.

Conclusion

It is evident that Shell is surrounded with issues on various issues in Nigeria. The report also provides enough information that Nigeria is an important region for Shell. According to Simon Buerk a spokesman, Shell will not leave Nigeria instead the company will help reduce conflicts, community development (Meier). The company will have to look to change their style of operation to turn this into reality.

The company could look to benefit if the short term solution are implemented with immediate effect, which will later determine the extent to which the long term solution are successful. These recommendations will help the company do business in harmony by building a healthy relationship with the locals which will lead to a bright future for both the parties.

References:

PUBLISHED

Craig Timberg. The Washington Post Company. Nigeria's Oil Fuels Anger, Bloodshed: In Delta Region, Villagers Reap Few Rewards Despite Surging Profits. Published on Dec9, 2004; Page A22. Copyright 1996-2005. Retrieved on September29, 2005 available at http://www.washingtonpost.com/wp-dyn/articles/A49472-2004Dec8.html

Hodgetts, R.M., Luthans F. & Doh, J.P. 2004. International management: culture, strategy, and behavior. (6th Ed). McGraw-Hill.

Ike Okonta. Project Syndicate. Shell's Corrupt Shell Game in Nigeria. Copyright April 2004. Retrieved on Sep24, 2005 available at http://www.project-syndicate.org/commentary/okonta3/English

Jim Lehrer. MacNeil/Lehrer Productions. Online news hour: Tension over oil in Nigeria. Published on August25, 2005. Copyright 2005. Retrieved on Sep20, 2005 available at http://www.pbs.org/newshour/bb/africa/july-dec05/oil_8-25.html

Nicola Byrne. Guardian Newspaper Limited. Call for Shell to drop gas line as Mayo men are freed: Brother of murdered Ken Saro Wiwa backs Rossport 5. Published on Sunday October2, 2005. Copyright 2005. Retrieved on Oct3, 2005 available at http://www.guardian.co.uk/oil/story/0,11319,1583095,00.html

Robbie Sinnott. Radio.indymedia.org. Bogoniland: Effects of Shell in Nigeria and Ireland. Published on Sep. 05, 2005 at 4:44 AM. Copyright 2000-2005. Retrieved on Sep21, 2005 available at http://radio.indymedia.org/news/2005/09/6606.php

Shell Petroleum Development Company of Nigeria Limited. Annual Report: 2004 People and The Environment. Retrieved on October4, 2005 available at http://www.shell.com/static/nigeria/downloads/pdfs/2004_rpt.pdf

ELECTRONIC

Allafrica.com. Oil Industry Operators Urged to End Unethical Practices. Published on April9, 2001. Copyright 2005. Retrieved on Sep24, 2005 available at http://allafrica.com/stories/200104090693.html

Author Unknown. Shell in Nigeria: What are the issues?. Retrieved on Sep27, 2005 available at http://www.essentialaction.org/shell/issues.html

Karl Meier. Shell `Feeds' Nigeria Conflict, May End Onshore Work. Published on June10, 2004. Retrieved on September26, 2005 available at http://www.nigeriavillagesquare1.com/Articles/Karl_Meier_shell.html

Mobolaji E. Aluko. Shell, Nigeria and Oil & Gas Reserves Revision - Sloppiness or Fraud?. Retrieved on September25, 2005 available at http://www.nigerdeltacongress.com/sarticles/shell_nigeria_and_oil__gas_reser.htm

Pearson Education. Greatest Oil Reserves by Country, 2005. Copyright 2000-2005. Retrieved on Sep27, 2005 available at http://www.infoplease.com/ipa/A0872964.html

Randy Williams. Hoovers Inc. Royal Dutch/Shell Group of Companies. Copyright 2005. Retrieved on October1, 2005 available at http://www.hoovers.com/royal-dutch/shell-group/--ID__50019--/free-co-factsheet.xhtml

Shell SNOP in Nigeria. Retrieved on Sep18, 2005 available at http://www.shell.com/home/Framework?siteId=nigeria&FC2=/nigeria/html/iwgen/about_shell/what_we_do/snop/zzz_lhn.html&FC3=/nigeria/html/iwgen/about_shell/what_we_do/snop/snop_home_2909_1730.html

Shell SPDC in Nigeria. Retrieved on Sep18, 2005 available at http://www.shell.com/home/Framework?siteId=nigeria&FC2=/nigeria/html/iwgen/about_shell/what_we_do/zzz_lhn.html&FC3=/nigeria/html/iwgen/shell_for_businesses/exploration_production_shared/dir_spdc_1203_1027.html

Shell SNEPCO in Nigeria. Retrieved on Sep18, 2005 available at http://www.shell.com/home/Framework?siteId=nigeria&FC2=/nigeria/html/iwgen/about_shell/what_we_do/snepco/zzz_lhn.html&FC3=/nigeria/html/iwgen/about_shell/what_we_do/snepco/dir_snepco_1203_1033.html

Shell SNG in Nigeria. Retrieved on Sep18, 2005 available at http://www.shell.com/home/Framework?siteId=nigeria&FC2=/nigeria/html/iwgen/about_shell/what_we_do/gas/zzz_lhn.html&FC3=/nigeria/html/iwgen/about_shell/what_we_do/gas/dir_sng_1203_1046.html

Simon Pirani. Shell in Nigeria. Oil and Gas Reserves crisis and political risks: shared concerns for investors and producer-communities. Published on June24, 2004. Retrieved on Sep18, 2005 available at http://www.stakeholderdemocracy.org/pdf/shell04web.pdf

Z Magazine. Oil reserves, production and consumption in 2001. Retrieved on Sep19, 2005 available at http://www.scaruffi.com/politics/oil.html