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Wednesday, 22 October 2014
Over $300 million illegal payment from Nigeria ease out Afren bosses
Afren has shown its chief executive, chief operating officer and two associate directors the door after an independent review confirmed all had received illegal payments from a Nigerian oil company. The scandal certainly raised concerns over Afren’s internal controls, and the search is now on for a new management team.
11 employees, both past and present, were found to have benefited from payments from Nigeria’s Oriental Energy Resources, including CEO Osman Shahenshah, COO Shahid Ullah and associate directors Iain Wright and Galib Virani.
In exchange for multi-million dollar funding, Oriental paid 15 percent of the agreed net cash flows from its Ebok project into Ntiti Limited, a special purpose vehicle owned and/or controlled by CEO Shahenshah and COO Ullah. From the $45 million paid in for 2013, “extraordinary” bonuses were paid to themselves and other members of staff they didn’t want to lose, the statement said. The CEO and COO paid themselves $17.1 million in bonuses that year. The Afren board are not thought to have known about the arrangement.
The review also looked into three instances of Afren allegedly failing to comply with reporting obligations.
In 2012, Afren agreed to pay $100 million to Oriental and, in an effort to avoid disclosing the agreement under listing rules, Shahenshah organised the two tranche payments to be in lieu of oil from Oriental’s Ebok project, thus a seemingly ordinary source of revenue. With the payment agreed to represent up to 5 percent of Afren’s market capitalisation, the first payment of $93 million was followed by a further $7 million due to a rise in its share price. But due to an accounting error, this was an over payment representing 5.3 percent of Afren’s market cap.
The second agreement with Oriental saw Afren Resources Limited (ARL) paid $300 million, around 12 percent of its market cap, for tax allowances and increasing the Afren’s share of oil revenues from Ebok. Again, this was disguised as “ordinary” of Afren’s business, but the review concluded that due to its size and incidence, it should have been declared. From the two-tranche payment $180 million has been returned and $120 million of tax benefits were noted in its financial statements.
From the $100 million loaned in the first Oriental agreement, $90 million has been returned to Afren, with the remaining $10 million expected by the end of the year.