Companies Count the Cost of Kidnapping in Nigeria

October 11, 2006

Oil companies in Nigeria are being hit with rising costs due to kidnappings of their staff that have become so commonplace in the volatile Niger Delta one Nigerian company is selling T-shirts calling it the country’s “fastest growing business!”

For many though, it’s no joke. In the face of growing insecurity, companies trying to keep fearful staff from fleeing are paying more for insurance, salaries, perks and housing.

“My wife doesn’t want to bring our kids back,” said Scotsman Graeme Kerr, a general manager of two oil services companies whose family left the country after a Port Harcourt bar Kerr was in was attacked by gunmen in August. “Now I’m looking for some work outside of Nigeria.”

Kerr escaped the August attack by hiding under a table, but his best friend was seized by gunmen. Nearly 60 other foreigners have been snatched this year, 10 of them friends of Kerr. All were released unharmed.

Militant groups say they are fighting for a greater share of the region’s oil wealth, which has largely bypassed Delta inhabitants and ended up in the pockets of corrupt politicians. However, many say that what may have once been a politically motivated protest has degenerated into simple extortion, as splinter groups seize foreigners and demand cash from their companies for their safe return. Most companies deny they pay ransoms, although militant groups and the Nigerian government tell a different story.

In the latest violence Tuesday, attackers wielding automatic rifles overran a navy base and occupied a nearby oil facility, holding several troops and 60 Nigerian oil workers hostage in violence that trimmed crude output in Africa’s biggest producer.

“Our deployment allowance just got raised,” said one private security contractor working for a large oil services firm, referring to the extra money employees get for working in region designated as risky. He declined to discuss figures or let himself or his company be identified due to restrictions on speaking with the press, but said the financial impact of kidnappings was “huge.”

Apart from ransoms, which most companies deny they pay, “insurance goes up, and salaries, perks and housing all go up too to try to keep the staff,” he said.

The security contractor said companies had to balance profit against safety. He said his own company recently lost US$2.5 million on a project after he decided the risk of kidnapping was too high in that area and work had to be suspended. Five months later, it has still not resumed.

Antony Goldman, a London-based oil analyst, said that major oil firms were trying to shift some of the risk and the cost to subcontractors, but he played down fears oil companies would start pulling out of the lucrative region.

“Oil companies are farming out the risky jobs … but with oil at over $60 a barrel I think we’re a long way from any oil companies pulling out of the delta for risk reasons alone,” he said.

The volatility in Nigeria has helped push oil prices up.

Other daring raids recently include an attack on an oil platform over 40 kilometers (25 miles) offshore and a raid in which during which two guards were killed and seven foreigners were taken from a residential compound in Eket, Akwa Ibom state. Kerr said the attack, in a previously peaceful part of the country, was a watershed for him, showing “they can take people out of their houses anytime.”

Noticeboards on, the company selling the T-shirts, are full of reports of kidnappings, rumors of impending attacks, and foreigners chafing at curfews imposed by their companies.

Local businesses are suffering, too. Goodfella’s bar in Port Harcourt, popular with expatriates, said earnings were halved to US$1,500 a month because so many customers had company-imposed restrictions. Twenty-four Nigerian workers had been laid off.

Bisi Ojediran, a spokesman for a subsidiary of Royal Dutch Shell PLC, declined to comment on security or wages but confirmed that Shell-operated installations had had to shut down nearly half a million barrels of production per day due to militant attacks. Thirty percent of the lost revenue belonged to Shell, he said.

Analysts say the character of kidnappings has also changed. What were once mainly community-related disputes, typically carried out by lightly armed local people aggrieved over a lack of jobs or environmental degradation, have become far more serious. Attacks are now carried out by professional gangs using assault rifles, machine guns and even rocket propelled grenades. Few demand projects to benefit local communities, like light or water, or bother to issue even perfunctory political demands before asking for a ransom.

After a high of 18 foreigners taken in eight incidents in August, President Olusegun Obasanjo ordered a crackdown. The delta had a quiet September but many observers say the problem is flaring up again.

While most believe that there is little risk that a hostage will be executed, the risk of becoming caught in a crossfire is increasing. After a string of bloody attacks last week, the military in the creeks are jumpy, firing warning shots at approaching vessels.

In August, a Nigerian employee of Shell died during a botched rescue attempt, sparking a national strike by Nigerian oil workers. An American working for an oil services company, who asked that he not be identified because his former captors had threatened to kill him if he returned, recalled his abduction earlier this year.

“The militants had put us all into boats and we were leaving, when we kept hearing fire from our right side,” he said. “The army over at Forcados terminal were shooting at us. So we all ducked down and I was looking for water splashes, you know, bullets hitting the water. I didn’t see any, but we could hear the big 50 caliber.”

But the lure of wages 20 percent higher than he could make in the States brought him back. “It’s mostly the money, and it’s a good job,” he said with a smile. “It’s not Iraq just yet.”

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