How curious $3.3 million tax holiday to Shell, Total, Eni, is killing Nigerians – Report

A teacher in Nigeria's Delta state teaching children outdoors under a mango tree as there are not enough classrooms.
Photo: ActionAid/Nigeria
A teacher in Nigeria's Delta state teaching children outdoors under a mango tree as there are not enough classrooms. Photo: ActionAid/Nigeria

When Dafe Rose (53) was assigned as the head teacher of Abuator Primary School in Delta State in mid-2015, she came expecting a decently well-equipped public school. It is, after all, in the heart of Nigeria’s immensely wealthy oil region. A large oil and gas installation is just a stone’s throw away. But what greeted Dafe on her first day of work was far from decent.

The school has no library, no toilets, no blackboards, and no educational materials. It doesn’t even have a sufficient number of classrooms; three rooms cater for students from primary one to primary six.

To accommodate the different grades, each room has been partitioned into two with planks and disused sacks. Students struggle to hear and concentrate as noise filters easily between the partial, plank and bag walls.

The 14 kindergarten children at Abuator Primary School have it even worse than their elder schoolmates. Their class takes place under a mango tree, where they sit on dirty, disused cement sacks laid on bare ground. Soldier ants frequently drop from the tree and crawl under the children’s clothes.

Dafe says it grieves her every time she has to send the children to their ‘classroom’ under the mango tree. It is far from an ideal learning environment.

What makes the situation even more frustrating is that on the school grounds sits an uncomplete three-classroom block, now in virtual ruins. It was built by the Delta State Primary Education Board around 2005.

“That building has been abandoned for many years,” says Dafe. “If the government can complete that, we would be able to accommodate all our children under a roof away from the elements.” The community has written many letters of protest to the State Primary Education Board over the abandoned building, but has not received any favourable response.

Dafe has since taking matters into her own hands. The community is gripped by poverty, but she managed to convince the parents to contribute a portion of their already meagre earnings to the purchase of plastic chairs and tables for the kindergarten children. She then got a nearby church to let out its building to serve as a classroom.

All across Nigeria, even in the oil-rich south-east, there are dedicated teachers like Dafe struggling passionately to educate the country’s children with little or no provisions from the government.

But this need not be the reality. Billions of dollars in public revenue can be saved if the Nigerian government stopped the granting of harmful tax incentives to foreign investors.

An exceptional 10-year tax holiday offered to three of the world’s largest oil and gas companies, Shell, Total and ENI, cost the public purse US$3.3 billion alone. In a country where 10.5 million children are out of school, this is an amount greater than the 2015 federal education budget.

The lack of accessible maternal health care for women like Elohor puts both their and their babies' lives in danger. Photo: ActionAid/Nigeria Leak
The lack of accessible maternal health care for women like Elohor puts both their and their babies’ lives in danger. Photo: ActionAid/Nigeria Leak

Losing their babies while Shell, Total, Eni enjoy tax holiday

Elohor Siakiere (30) remembers vividly the day she lost her baby. It was July 19, 2015, an unusually sunny day, she says, for that time of year in Delta State, Nigeria. “I was pregnant and when my labour started, I was transported in a canoe to Ukperhren where I was put on a motorcycle to go to the general hospital in Warri,” says Elohor. “But the road was very bad and I fell down many times. It was a painful ordeal to get to the hospital.”

Elohor survived the precarious journey in the canoe and the 15 kilometres on the muddy and slippery road, but unfortunately her unborn child did not. “At the hospital, the doctor told me the baby was dead,” Elohor says quietly. “They did an operation to remove it. I felt very bad losing my baby.”

With the hospital so far away, many women in the community of 6,000 have little choice but to turn to traditional birth attendants in their community who rely on herbs and unscientific practices that often have disastrous consequences for the mother and/or the child.

According to Elohor, the community became fed up with the government’s lack of action and decided to build a healthcare centre themselves. The clinic, which served Esaba and four other communities, was staffed solely by one nurse. Unfortunately, the nurse passed away in February 2015 and as of October 2015 the government still had not provided a replacement, despite the community’s repeated requests.

Elohor says that in this time period about five children have died “because we could not get them to hospital fast enough.” The great and tragic irony of Esaba is that a mere four kilometres away sits a huge source of potential public revenue that could pay for roads, a school and a proper clinic for the community: Otorogun gas plant, operated by Shell Petroleum Development Company.

Meanwhile, the Nigerian government passed a unique law that gave an exceptional ten year tax holiday to Shell as well as Total and ENI, three of the world’s biggest oil and gas companies. This wasteful act has resulted in the loss of US$3.3 billion of public revenue.

If the Nigerian government were to stop offering such harmful tax incentives to foreign investors, women like Elohor may not be mourning the unnecessary death of their children and worrying about the futures of their surviving ones.

Why does it matter? The human cost of the tax holiday

With its 182 million inhabitants, Nigeria is the most populous country in Africa, and the seventh most populous country in the world.40 Nigeria is endowed with enormous natural resources including more than 30 different minerals. Nigeria is the largest oil producer in Africa and holds the largest natural gas reserves on the continent.41 Nigeria is also Africa’s largest economy. By 2050, Nigeria is expected to become one of the largest 20 economies in the world.

But while the country is building its economy, Nigeria also has the third largest population of extreme poor in the world.42 More than 60% of the population lives in extreme poverty.43 This means that more than 110 million Nigerians live on less than one US dollar a day. Research by the UN Development Programme (UNDP) shows that less than half of the population has access to clean water.44 Nigeria is one of the countries in the world with the largest income inequality between the few super rich and the majority living in extreme poverty.

Looking at social spending, the Nigerian government budgeted a total of US$2.61 billion for education, and US$1.4 billion for healthcare in 2015.

This means that if the Consortium would have been given a five-year tax holiday instead of a decade, the additional revenue to the Nigerian government could have paid education at the current level for over a year, or healthcare at the current level for over two years.

Increasing the education budget is a necessary investment. Almost half of the Nigerian population isunder 15 years old. This puts an enormous pressure on the educational system. Despite an increase in the enrolment rates in recent years, approximately 11 million children are out of school, out of which 4.7 million children of primary school age are not in school.

While an inadequate budget is not the only factor preventing children from going to school, more funds in education could greatly improve access to education. A higher budget could pay for more qualified teachers, build new schools, buy necessary materials and eliminate school fees, the latter a crucial factor for the poorest.

Similarly, a better and more accessible health care system is needed to fulfil basic rights for Nigerians living in poverty. Child mortality rates illustrate this. Skilled health personnel attend just over half of all births in the country, and out of thousand live births, 61 infants do not survive the birth, and an additional 95 children die before their fifth birthday. Of the children that survive, one in four is under weight.

In its 2010 strategy for reaching the Millennium Development Goals (MDGs), the Nigerian Presidential Committee on the Strategy and Prioritisation of the MDGs estimated that meeting the MDGs would cost Nigeria approximately US$163 per person per year between 2010-2015. With US$3.3 billion extra on its books and accompanied by effective policies, the Nigerian government could have ensured that in that period 4 million persons had access to the basic services described in the MDGs.

US$3.3 billion would do a lot for Nigeria What is the value of US$3.3 billion to the Nigerian economy?

More than the US$2.4 billion Nigeria allocated to education in the 2015 budget, in a country where 11 million children and young people do not go to school.

More than twice the US$1.4billion Nigeria allocated for healthcare in the 2015 budget, in a country where almost 15 out of 100 children die before their fifth birthday.

What is the value of US$3.3 billion to Shell Total and Eni?

Just over 4% of the three companies’ total world wide reported net profits in 2013.
22% of the three companies’ profit from the Consortium between 2004-2013.

Wasteful tax incentives in Africa and beyond

The Consortium’s tax holiday in Nigeria is one of many examples of corporations being offered generous tax terms in developing countries. Benefits can include reduced tax rates, exemption from specific taxes or tax holidays granted for a period of time.

In a 2014 paper, the OECD names tax holidays as one of the two potentially most harmful types of tax incentive.56 Tax incentives can be offered in a specific sector, aiming to boost investments in strategic sectors of the economy. They can also be offered in specific geographical areas, often called special economic zones.

Not all tax incentives are harmful. The tax system may be used to promote domestic policy choices, such as environmental objectives, or the development of particular domestic sectors, in accordance with a country’s national development plan. Tax incentives for corporate investment are meant to generate economic benefits which outweigh the cost of lost revenue, but they can just be a handout.

In order to assess the public benefits of tax incentives, it is necessary to set clear objectives for them and consistently evaluate whether or not these objectives are being met. Where objectives are not being met, this should trigger the removal of the tax incentives.

Finally, the potential economic benefits of tax incentives need to be balanced against the lost revenue in a systematic fashion. Incentives which do not meet these criteria are harmful.

The main reasoning behind granting tax relief to corporations is the idea that it will promote investments that attract capital and contribute to job creation, and that this will deliver a high return in the long run or promote investments into a specific sector such as renewable energy. Other potential benefits are technology transfer and increased demand that can boost local and national industry.

Investors will sometimes ask for tax incentives on the basis that a particular investment will not be viable without them. While this has been the predominant narrative, evidence suggests differently.

International institutions such as the World Bank, the International Monetary Fund (IMF) and the Organisation for Economic Co-operation and Development (OECD) now increasingly warn against excessive tax incentives.

Countries’ fear of losing out on investments if not granting generous tax deals has created a harmful competition based on large tax incentives. A 2012 IMF paper confirms a ‘partial race to the bottom’ over tax incentives. While this may be good for international businesses whose tax bills are lowered, evidence shows that tax incentives are not efficient in attracting investments. A 2006 IMF study shows that the countries that have been the most successful at attracting foreign investors have not offered large tax or other incentives.

The report also shows that providing such incentives was not sufficient to attract large foreign investment if other essential conditions were not in place.

A report prepared for the G20 by the IMF, OECD, United Nations and World Bank in 2011 concludes along the same lines: “Incentives, including corporate income tax (CIT) exemptions in free trade zones, continue to undermine revenue from the CIT; where governance is poor, they may do little to attract investment – and when they do attract foreign direct investment (FDI), this may well be at the expense of domestic investment or FDI into some other country.”

Even businesses themselves say that tax incentives are not key deal-breakers. Investment decisions depend more on factors such as stable economic and political conditions.61 In the World Bank’s recent Investor Motivation Survey for the East African Community, 93% of investors said that they would have invested anyway, had tax incentives not been on offer. Tax incentives ranked only 17th, behind a host of factors including exchange rates, utility and transport infrastructure.

Generous tax incentives may even contribute to undermining what investors seem to value the most. In a 2014 study, the OECD cautions that ineffective tax incentives may erode resources for the more important drivers of investment decisions.

Investors attach great value to factors such as good infrastructure, security, a stable energy supply and not least a healthy and well-educated work force. Tax revenue is a prerequisite for the existence of these public goods, and businesses may make higher profits if they contribute their fair share of taxes and get public goods in return.

The OECD warns that tax incentives that lower government revenues cannot compensate for or be an alternative for a poor investment climate. Discretionary tax incentives – that is, incentives that are granted on an ad-hoc basis to individual investors – are particularly undesirable because they undermine consistency of treatment between investors.

Leaking revenue 15 ActionAid estimates that corporate tax incentives cost developing countries over US$138 billion every year.64 Apart from the sheer value of the lost revenues from tax incentives, decisions to grant them are often shrouded in secrecy, and not based on a thorough public cost-benefit analysis. Corporate tax incentives are frequently unaccounted for in the national budget and are non-transparent, reducing public accountability.

Tax incentives, like cuts to headline tax rates on corporate profits, have negative long-term impacts by encouraging harmful tax competition. Apart from the immediate losses of tax revenue, the practice also runs a risk of encouraging a race to the bottom, where countries undercut each other’s effective tax rates in order to attract investment, with all countries involved losing out on tax revenue as a result.

As Christine Lagarde of the IMF has pointed out – “By definition, a race to the bottom leaves everybody at the bottom.”

Some governments are however responding to this problem. In April 2015, Kenya was reported to be considering a proposal from its tax authority to scrap tax exemptions, including a 10-year tax holiday for foreign investors in its export processing zones.

Tanzania passed new laws in 2014 to curb tax incentives, aiming to collect another US$500 million a year in revenues. In the Philippines, however, a new law to bring more transparency to tax incentives appeared to be contested by the government.

CULLED FROM ACTIONAID’S RECENT LEAKING REVENUE REPORT

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  • 9ja deserves better dan Buhari

    Egbesu

    Mightier Fraternity, the group warned the Federal Government will ‘get

    what they want’ should they continue to toe the path of harassing their

    leaders.

    They issued a cease and desist order threatening Nigeria’s strategic oil

    interests and hinting that any attacks on Oil facilities will make things

    worse for Nigeria in the light of the recent decline in oil prices.

    “With oil prices slipping below 40 dollars a barrel, if the government of

    President Buhari is willing, we will help to reduce its price of barrel to

    15 dollars.

    Nigeria will collapse under the watch of All Progressive Congress (APC)

    and President Muhammadu Buhari as we will do everything necessary to

    actualize the American prediction“.Unquote–( Soon the Apes in APC will ask–as it is usual with them Buharimice–from the Fulani Emirate and the Republic of Beninn in the South West–ati their surrogates from the south east–that—(Wetin una governors do with their 13 percent derivation which Buhari had promised he will stop very soon)———

    “The silence in the region is a legacy of former President Umaru Musa

    Yar’Adua should not be thrown away on the altar of vindictiveness. The

    government should thread with caution and wisdom by ensuring that anything

    capable of provoking anger in the region is avoided or else every region

    shall maintain their respective resources because the money belongs to the

    people of the region and not APC and Buhari government“.

    It will be recalled that Gas line from Olero creeks to Escravos were blown away by the new Buhari Gestapos in DSS-with a view to blaming Militants who are yet to even start the struggle for the liberation of the SS-from the hands of our Internal Colonizers- .Unquote–( Soon the Apes in APC will ask–as it is usual with them Buharimice–from the Fulani Emirate and the Republic of Benin in the South West–ati their surrogates from the south east–that—(Wetin una governors for Niger Delta do with their 13 percent derivation which Buhari had promised he will stop very soon)–Oil was discovered in Bayelsa state in 1957—–not 2011 when Jonathan become-President–Let my people go-even if oil is sold at 5 cent per barrel-

    • Daniel

      Time wasting. Outlaws have their special treatment. We cannot leave in a Hobbesian society.

    • Baba B

      My friend go get a life. If any of our so called ” leaders”have been indicted for stealing or fraud, then he or she must go and clear him/herself. The Niger Delta belongs to everyone of us and not just for militants and thieves.

      • IZON Redeemer

        he Wondering Wanderer….

        20 MOST RICHEST OML’s IN NIGERIA AND THEIR OWNERS…

        (1) This oil block business is so lucrative that Danjuma’s Sapetro divested of its investment in Akpo condensate for $1billion dollars. This business is second to none in Nigeria. That is why any attempt to investigate the activities in this sector will always be futile. The money is so much that they give bribes in millions of dollars. A birthday gift or child naming gift from an oil block owner to a government official could be as paltry as $2million dollars, and if the official’s father died, the condolence gift could reach mere $3 million dollars. When they want to bribe legislators, it is in millions of dollars and any ongoing investigation ends within weeks. They are so confident that with excess money they can buy up Nigeria and they are succeeding

        (2) OML 110 with high yield OBE oil fields was given Cavendish Petroleum owned by Alhaji Mai Daribe, the Borno Patriarch in 1996 by Sanni Abacha. OBE oil field has estimated over 500 million barrels of oil. In layman’s language and using average benchmark of $100 dollars per barrel, translates to $50 billion dollars worth of oil reserve. When you remove the taxes, royalties and sundry duties worth about 60% of the reserve payable over time you get about $20billion dollars worth of oil in the hands of a family.

        (3) OPL 246 was awarded to SAPETRO, a company owned by General Theophilus Danjuma, by Sanni Abacha in 1998. Akpo condensate exports about 300,000 barrels of crude daily.

        (4) NOML 112 and OML 117 were awarded to AMNI International Petroleum Development Company owned by Colonel Sanni Bello in 1999. Sanni Bello is an inlaw to Abdulsalami Abubakar, former Head of State of Nigeria.

        (5) OML 115, OLDWOK Field and EBOK field was awarded to Alhaji Mohammed Indimi from Niger State. Indimi is an inlaw to former Military President Ibrahim Babangida.

        (6) OML 215 is operated by Nor East Petroleum Limited owned by Alhaji Saleh Mohammed Gambo.

        (7) OML 108 is operated by Express Petroleum Company Limited is owned by Alhaji Aminu Dantata.

        (8) OML II3 allocated to Yinka Folawiyo Pet Ltd is owned by Alhaji W.I. folawiyo–Let my people go

  • Arabakpura

    The product of schools like the above can better be imagined! No, not at this stage of civilization would a country willingly train miscreants and armed robbers! It is grossly unfair!

  • Amir

    But a sitting president of the same Niger Delta extraction that claimed he had no shoes gave N400 million gift to an ordinary publicity secretary of his party, and devilishly went further to squander saved foreign reserves, left no savings even borrowed more to finance elongation of his mediocrity and desire for re-election.

  • Artful ºDodger

    Beautiful and sensational write up and nothing more than that. Did the same tax holiday possessed Ibori, Lucky Igbinedion, Odili etc to steal the billions of dollars that could have been used to develop their states and converted the money to themselves? Is the same tax holiday the one that has possessed the psyche of those serving as governors in these states of the SS now?
    People become politicians in Nigeria because they want to steal and not because they have any ideology or vision to improve the status of their states. The revenues comes in, they take most of it for themselves, their demon fathers, traditional rulers etc. A Nigerian politicians idea of being a good governor for example is being able to meet his state wages obligation to her civil servants. Anything beyond that is not in their heads! You cannot blame Shell, Eni, Mobil etc for their lack of vision and imaginations.
    A Nigerian politician is about the dullest excuse for a human being you can ever come across. Besides politics and the evil that is laced with it in Africa, he would have been a failure in life so how on earth do you expect someone like that to come up with bright ideas to bring infrastructures to his people? The best and patriotic are not those running the affairs of Africa which is why poverty will continue to be an issue there.

  • Seye D. Awofolaju

    Editor Premium Times,

    Is it $3.3million or 3.3 billion dollars?

    When was a tax incentive of 3.3billion dollars granted to the oil companies? Who granted it;
    and for what purpose? Those three vital questions were not answered in this culled report.
    I will like to advise Premium Times to do its own newsreport in answering those three issues.
    The Premium Times’ own story will reconcile the headline figure of 3.3 MILLION dollars with
    the figure of 3.3 BILLION dollars appearing contradictorily in the body of this culled report.
    For it could be that 3.3million is the annual tax holiday multiplied by 10 years totaling $3.3b.

    • Seagull2000

      @Seye:

      What are you saying? Multiply three million by ten, what do you get? You’ll get 30 million dollars, not three billion.
      Ditto, multiply $300,000 by ten, what do you get? You’ll get three million dollars. Add the 30 million to the 3 million.
      You will get 33 million dollars? How can 3.3 million dollars annual tax holiday become 3.3 billion after ten years?

      That’s voodoo maths. There’s a mistake somewhere in this story saying: “An exceptional 10-year tax holiday offered to three of the world’s largest oil and gas companies, Shell, Total and ENI, cost the public purse US$3.3 billion alone.” The math just does not add up on that one. We cannot force these wrong figures into compromise.

  • shola

    How can our politicians be so heartless? There is budget allocated for health, school, etc. Kindergarten children sitting on cement bags having their lectures under a Mango tree. The risk that these children might contact asbestos (a major curse of cancer) from the cement bag is high. One wonders if we are human beings at all.

  • IZON Redeemer

    he Wondering Wanderer….

    20 MOST RICHEST OML’s IN NIGERIA AND THEIR OWNERS…

    (1) This oil block business is so lucrative that Danjuma’s Sapetro divested of its investment in Akpo condensate for $1billion dollars. This business is second to none in Nigeria. That is why any attempt to investigate the activities in this sector will always be futile. The money is so much that they give bribes in millions of dollars. A birthday gift or child naming gift from an oil block owner to a government official could be as paltry as $2million dollars, and if the official’s father died, the condolence gift could reach mere $3 million dollars. When they want to bribe legislators, it is in millions of dollars and any ongoing investigation ends within weeks. They are so confident that with excess money they can buy up Nigeria and they are succeeding

    (2) OML 110 with high yield OBE oil fields was given Cavendish Petroleum owned by Alhaji Mai Daribe, the Borno Patriarch in 1996 by Sanni Abacha. OBE oil field has estimated over 500 million barrels of oil. In layman’s language and using average benchmark of $100 dollars per barrel, translates to $50 billion dollars worth of oil reserve. When you remove the taxes, royalties and sundry duties worth about 60% of the reserve payable over time you get about $20billion dollars worth of oil in the hands of a family.

    (3) OPL 246 was awarded to SAPETRO, a company owned by General Theophilus Danjuma, by Sanni Abacha in 1998. Akpo condensate exports about 300,000 barrels of crude daily.

    (4) NOML 112 and OML 117 were awarded to AMNI International Petroleum Development Company owned by Colonel Sanni Bello in 1999. Sanni Bello is an inlaw to Abdulsalami Abubakar, former Head of State of Nigeria.

    (5) OML 115, OLDWOK Field and EBOK field was awarded to Alhaji Mohammed Indimi from Niger State. Indimi is an inlaw to former Military President Ibrahim Babangida.

    (6) OML 215 is operated by Nor East Petroleum Limited owned by Alhaji Saleh Mohammed Gambo.

    (7) OML 108 is operated by Express Petroleum Company Limited is owned by Alhaji Aminu Dantata.

    (8) OML II3 allocated to Yinka Folawiyo Pet Ltd is owned by Alhaji W.I. folawiyo

  • Ochon

    Apc is really working hard to keep Nigerians hopeful by churning out sensational and emotion whipping news. Hope apc knows that the clock is ticking a hungry man will not get satisfied by reading stories about how pdp grounded Nigeria. People are beginning to loose their good will and patience with this govt

  • udemeobong

    By the way, did Jonathan see this picture? I think someone who have link with him should volunteer to send this picture to him o. We are talking a place or a region where the former president comes from. What a shame!!!!

  • NIGERIAS_COLONIAL_MASTER

    NOW YOU KNOW WHY THEY LOVE NORTHERN NIGERIA, the Weakest Link
    Britain loves to steal from every country they can through their puppets.