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| Sunday, 26 September 2004 |
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Features |  |
| News Business Features Editorial
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Shell the scandal-hit sick giant of oil by Lucien Rajakarunanayake Shell shock! The price of LPG goes up by almost another Rs. 100. We read the headlines so often and it appears the people can do nothing but look on helplessly as the senior executives of Shell Gas Lanka Limited, announce the next rise in gas prices almost with a touch of glee. Their reasons as always are the fluctuations in the world market price of oil and gas and the removal of the government subsidy. Is this really true? One can expect such statements to be credible when it comes from a company that has a clean record in its dealings with the public. But this is certainly not the case with Shell. Its parent body, the Anglo-Dutch oil giant, the world's third-largest quoted oil group, is in fact mired in controversy, corruption and worst of all misleading its own shareholders. When it is a company with such a record that keeps on talking of losses in its LPG business here, possibly being silent about any profits from its offshore LPG terminal operations, it is important that the local regulators carry out a deeper probe into all aspects of its operations. It is also a matter of importance to make a real assessment whether Shell Gas Lanka Ltd, is in fact acting as the good citizen it pretends to be with a some scholarships thrown in for good effect, all the while hiding the perks that its senior management gets. Misleading investors There is clear evidence that Shell, finally admitted by Shell itself, has deliberately misled investors about the financial health of the Company. The Anglo-Dutch company earlier this year sacked its chairman Sir Philip Watts and its exploration director Walter van der Vijver after admitting that it had overstated the amount of oil and gas reserves it has in the ground by more than 20 per cent. Internal inquiries revealed that the figure was nearer 25 per cent and admitted that Sir Philip and Mr. Van de Vijver had known about the problem for at least two years and possibly as many as seven years. Would a company that misled its own investors about such a vital matter as its own reserves for possibly seven years, only to ensure that its stock ratings would remain high, have any qualms about fooling the Sri Lankan people, and our regulators about the actual costs of their LPG and the price to be charged by helpless Sri Lankan consumers? Terry Macalister writing in The Guardian Weekly (20.4. 2004), said that extraordinary messages between senior directors, that were revealed, increased the likelihood of them facing criminal charges from the US justice department, which is investigating events. The most damning statement comes in an email from Mr. Van de Vijver to Sir Philip dated November 9, 2003, which says: "I am becoming sick and tired about lying about the extent of our reserves issues and the downward revisions that need to be done because of far too aggressive/ optimistic bookings." Dual company structure Of special interest to Sri Lanka is the promise made by Shell, in the wake of mounting criticism, to accelerate its review into its controversial dual company structure. It would be good for our own regulators to make an exhaustive inquiry as to whether Shell is carrying on a dual company structure here too, As The Guardian Weekly reports, this new commitment to accelerate the review came as an initiative to restore confidence in the scandal-hit group. "It came alongside a third downgrade of reserves and an admission that it [Shell] would need to re-file financial figures in the United States, knocking off $100m from its earnings annually for the 2000-03 period" says Terry Macalister of The Guardian Weekly who has been probing the activities of the Shell group. Although Shell seeks to project an image of a very highly rated company in Sri Lanka, few are aware of its fraudulent actions, especially the deliberately incorrect reporting of its reserves of oil and gas, and incompetence in other areas which led to Standard & Poor's announcement that it would be downgrading the company's prized AAA credit rating to AA+. The share price has already been badly mauled since the oil giant's problems were made public. Confidence in Shell was further undermined by a dramatic and damning report into senior management's behaviour regarding the downgrading of reserves earlier this year, which triggered the crisis. Shell tried many ruses to prevent the exposure of its huge scandal, especially that of misleading its own investors. Shell's joint chairman, Lord Oxburgh, accepted in full the report of the law firm commissioned to carry out an investigation. While expressing his full confidence in Sir Philip's successor, Jeroen van der Veer, he promised to draw a line under the past. "We believe that following the actions we have announced, Shell will be able to re-engage with its stakeholders and re-establish confidence in our behaviour as a business and employer." The world's third-largest quoted oil group said it was already "exploring all possibilities for improved governance and structure", and would bring its conclusions to the delayed annual meeting on June 28. But the changes introduced were only of a cosmetic nature. It shifted finance director Judy Boynton to another post and said it will look outside as well as inside the company for a full-time successor. Her role will be temporarily filled by the group controller, Tim Morrison. Meanwhile Shell's ruling committee of managing directors assumed responsibility for reviewing and signing off reported reserves, and reserves auditors now report to the group's internal audit. However, the essentially cosmetic nature of these changes was clear when the group turned its back on demands that it should have all its reserves figures audited by an outside firm. The reserves downgraded this in April 2004 bringing the total to 4.35bn barrels of oil equivalents to the end of 2002 with an additional 500m for 2003. Only 90 per cent of Shell's oil and gas reserves have been reviewed. Interestingly for a company as large as Shell, Davis Polk & Amp Wardwell, the firm that carried out the inquiries, concludes that the booking of "aggressive" reserves and their continuing place on Shell's books were only possible because of deficiencies in controls. The internal reserves audit function was understaffed and undertrained, says the firm's report. "This function was performed by a single, part-time former Shell employee; his cycle of field audits was once every four years; he was provided with virtually no instruction concerning regulatory requirements or the role of an independent auditor and no internal legal liaison." Is this any example of good corporate practice? If this were so with the parent company how much worse are audits, controls and reporting of the truth in a distant outpost of the company such as Sri Lanka? These are all areas about which the local regulatory authorities need to be fully aware of whenever Shell Gas Lanka comes with hat in hand, asking for a price hike in LPG, to a virtually captive market, claiming fluctuations in the world market oil and gas prices and its operational costs. Has the price of oil in the world market never dropped since Shell began operations here, with and without a subsidy? Has it never done any forward purchasing at such times to make gas available cheaper to the consumer? The Nigerian tragedy I will now come to Shell's true international performance, especially with a third world country, Nigeria, which accounts for 10 per cent of Shell's global production and has some of its most promising reserves. Nick Mathiason of The Observer UK, reproduced in The Guardian Weekly says that according to evidence amassed by a team from Friends of the Earth (FoE) "Substantial layers of crude oil" were found in mangrove forests but have received no attention. Community water pumps that were polluted by oil spillages have not been cleaned up for a year. The evidence threatens to debunk claims by Shell that it is committed to acting in a socially responsible manner. "We saw pipes clearly corroded and spilling. They were all over the place," said Brian Shaad, FoE's parliamentary campaigner, who spent three weeks in Nigeria. "Communities repeatedly say their grievances are dealt with by security forces rather than the company itself." Shell had also published a report in which the company admitted that it has inadvertently fuelled strife, poverty and corruption through its activities in Nigeria. "Sometimes we feed conflict by the way we award contracts, gain access to land and deal with community representatives," the company said. "Feel good projects" such as academic scholarships and playgrounds "divert attention from serious health and environmental impacts," says FoE. Are we also to be fooled by such feel good projects into believing that Shell has any interest in the betterment of our people and society? At a time when the country faces a major economic crisis, is it too much to ask of companies such as Shell why they cannot make some concessions or accept some losses, even temporarily, until we see better times. Or are they happy to cheat us as the parent company did to its shareholders, until found out? |
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