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Overview
A much-needed account of an issue that will likely transform the fortunes of a number of African countries – for better or for worse.
Product Details
| ISBN-13: | 9781783601158 |
|---|---|
| Publisher: | Bloomsbury Publishing |
| Publication date: | 04/09/2015 |
| Series: | African Arguments |
| Sold by: | Barnes & Noble |
| Format: | eBook |
| Pages: | 256 |
| File size: | 2 MB |
About the Author
Read an Excerpt
Africa's New Oil
Power, Pipelines and Future Fortunes
By Celeste Hicks
Zed Books Ltd
Copyright © 2015 Celeste HicksAll rights reserved.
ISBN: 978-1-78360-115-8
CHAPTER 1
Chad: a model project
Chad's sizeable oil deposits had been known about since at least the 1970s. Geological studies had revealed that several of the country's dried-out riverbeds and basins – including Lake Chad (which at one point had been a giant inland sea) and the Bongor Basin – could contain up to 1 billion barrels of oil. However, the political instability and violence that had plagued Chad since independence in 1960, combined with its landlocked status and extremely poor infrastructure, had made the projected costs of exploitation and exportation prohibitive for many IOCs.
The CCDP was conceived in the late 1990s by the World Bank, in consultation with a number of IOCs and the government, as a way to finance the estimated US$4.2 billion cost of an export pipeline that would make Chad's reserves economically viable. At the same time, the World Bank was keen to offer the country a pathway out of poverty. The agreed plan was that a consortium of IOCs – ExxonMobil (which is known as Esso in Chad), Petronas and Chevron ('the Consortium') – would finance the full cost of the development of the oilfields and one-third of the cost of the pipeline; the World Bank would provide loans for around US$300 million through the International Bank for Reconstruction and Development (IBRD) and the International Finance Corporation (IFC); and the remaining costs would be funded through loans from other commercial and public sector banks (Gary and Reisch 2004: 11).
The original World Bank projections were firmly on the conservative side but nevertheless suggested that Chad could earn some US$2 billion in government revenues over the thirty-year life of the project, assuming that the oilfields would cease to be economically viable by around 2030 (ibid.: 35). These projections were based on a very low global oil price of US$15 a barrel and the assumption that no more wells would be brought on stream. However, the promise of US$2 billion being injected into an economy with a GDP of just US$2.1 billion in 2003 (and with per capita gross national product (GNP) of US$210) was significant, and for many seemed to offer Chad a once-in-a-lifetime opportunity to spur on its national development.
The World Bank was in an interesting position in the late 1990s. It was then under the leadership of the Australian James Wolfensohn, who had inherited an institution 'under fire from antipoverty campaigners for its reliance on the financing of large infrastructure projects' (Coll 2013: 165). During the rapid expansion of private investment in poor countries with natural resources in the 1990s, Wolfensohn seems to have become concerned that governance structures in such countries were insufficiently robust to manage the great variety of new functions that would be required to manage that investment; records of contemporary speeches he made suggest that he believed that poor countries would struggle to protect labour rights and the environment when global capitalism roared into town. He seemed to believe that the World Bank could help, and the solution he favoured was to provide loans to private–public partnerships between host countries and companies on a conditional lending model, as this might lead to a more controlled extraction of resources. As he said at the fifth German World Bank Forum in November 2000:
For business people to be involved in the issue of development, they must recognise not just an appeal to their moral position or social position or ethical position, but that it is also helpful to have a sense of the economics and the self-interest of business in promoting development.
The CCDP was controversial even within the World Bank. For some it seemed a novel plan for development for one of the world's poorest countries. For others there was much to discuss about whether it was appropriate for the World Bank to be getting involved in an essentially commercial deal, shifting the focus of what the World Bank thought it was supposed to do. There was a great deal of pressure from some European countries to establish an entirely new monitoring body – the International Advisory Group (IAG) – to report back on the project's impact and to ensure that Chad's interests and the public voice were being taken into consideration. Observers close to the deal in the early 2000s believe that the project passed the final vote only because of the detailed conditions attached to the loan. 'Some argued that it was naïve as the only guarantee we had that development objectives would be met was that we knew not one penny would have been spent on development without our involvement,' says Robert Calderisi, former World Bank Country Director for Central Africa from 2000 to 2002 and author of The Trouble with Africa. 'There was a lot of stress, anxiety and bad blood.'
Nevertheless, the proposed provisions of the CCDP were an important step forward in challenging the notion that the resource curse was inevitable. Rather than simply arguing that poor and underdeveloped countries should not develop their natural resources, the World Bank was involved in a series of discussions that suggested that oil money could be turned from a curse to a blessing. The question was: could good governance really be achieved or expected without first investing in education and expanding civil society capacity? And could those objectives be achieved without rapid economic development, which could easily be delivered through natural resource exploitation?
Revenue management
The cornerstone of the CCDP, designed to reassure the project's detractors, was the passing of a genuinely innovative new law by the Chadian parliament. This law was intended to govern the management and spending of revenues by the government, and to ensure transparency of payments between the IOCs and the state. The revenue management law – or Law 001, as it became known – was passed unanimously by the National Assembly in 1998 after only three hours of debate (Gary and Reisch 2004: 30).
The law required that all direct revenues (i.e. royalties and share dividends) from the sale of oil on the international market for the life of the project should be deposited into an offshore escrow account in London; an escrow account is one where an independent and trusted third party receives and disburses money or documents for the transacting parties. In addition, 10 per cent of the revenues deposited were to be put into an untouchable 'Future Generations Fund'. Of the remaining 90 per cent, 80 per cent were to be invested in five priority sectors; these were defined as education, health and social services, rural development, infrastructure, and environmental and water resources. A further 5 per cent was to go to the Doba producing region, and 15 per cent was allowed for recurrent government expenditure (Figure 1.1).
Finally, the law created the Collège de Contrôle et de Surveillance des Ressources Pétrolières (CCSRP, or the Petroleum Revenue Oversight and Control Committee), a joint government–civil society organisation that was charged with monitoring and authorising the government's spending plans for the money in the escrow account (ibid.: 42).
Environment
The project also established ground-breaking rules on environmental and social standards, with the original loan agreement specifying a collection of texts to cover the norms and standards required; these ran to some nineteen volumes (van Vliet and Magrin 2012: 93). The agreement stated that environmental impact assessments (EIAs) had to be carried out before the project started and a rigorous environmental management plan (EMP) had to be adopted; this was to stipulate measures to avoid adverse impacts on the environment, such as air quality targets and rules on waste management and what to do in the case of a spill or an accident. The project also established a network of environmental monitoring systems, including a Chadian government/civil society body and a group of international experts, the External Compliance Monitoring Group (ECMG). The ECMG continues to visit Esso's production site to verify compliance with the EMP even now that the World Bank is no longer involved and the remaining IFC loans have been repaid. This set of procedures, taken together with the revenue management aspects of the project, has been described as theoretically 'exemplary' (ibid.: 92). The CCDP also ensured that Chad updated its own environmental laws, which included the passing of law 14 in 1998 to establish the principles of 'the polluter pays' – something that has become incredibly important as the relationship with the Chinese oil company CNPC has developed since 2008 – and the 'precautionary method', and of protecting the environment (ibid.: 90).
The political context
Despite these legal frameworks – which in summary established a transparent escrow account for revenue collection, priority sectors for government spending, high environmental standards and a robust system of environmental and spending monitoring – the project still attracted much external criticism. International groups such as Friends of the Earth and Greenpeace argued that Chad's political system and economy were not robust or mature enough to handle such a large influx of oil revenue, particularly as the pressure to get the oil to market quickly seemed to be pushing the scheme forward too quickly. In fact, this conclusion was supported by a report from the Independent Evaluation Group (IEG), which the World Bank itself commissioned to look into the Chad project in 2008.
In 2000, President Idriss Déby Itno was viewed as a bad choice of African leader to do business with, and many feared that Chad would simply not be able to control the money coming in and going out. Chad was one of the poorest countries in the world, wracked with corruption and with weak and underdeveloped institutions. The country had emerged from decades of civil war only in the mid-1990s and democracy was struggling to take hold. A skilled general and fighter pilot and a Zaghawa from Chad's harsh eastern deserts, Déby had come to power in a coup launched just ten years earlier against his repressive predecessor Hissène Habré. Although he had allowed elections to take place in 1996, the opposition had largely been co-opted with an ineffectual National Assembly, and the country was known for a poor human rights record and a lack of a free press from the dark days of Habré in the 1980s. Chad's political elite was (and still is) tiny, with President Déby surrounding himself with a close cabal and a number of his tribal Zaghawa clansmen; the Zaghawa is a non-Arab, predominantly Muslim group that lives on the border between Chad and Sudan and makes up just 2 per cent to 3 per cent of the population. Even today, the Zaghawa elicit a feeling of frustration in some in N'Djaména who feel that they enjoy a sense of entitlement or dominance in the city. Legal systems are poorly developed in the country and corruption is rife. The rebellions and other internal political crises throughout the years – particularly from members of his own family – have shaken Déby's power base to the core and have shown that it is too simplistic to view him as a case of 'l'État c'est moi'. For that part of Africa, however, Déby is still a leader with an unusual amount of personal control: 'Déby has a tight grip on power and strives to mute dissenting voices,' says the Economist Intelligence Unit. The challenges against his rule are numerous, with fairly frequent allegations of coup plots being foiled. A number of confident editorials over the years have prematurely predicted his demise, and many believe he suffers from constant bouts of ill-health and even alcoholism. But even after the terrible rebel crises of the mid-2000s, which many thought he would never survive, in 2014 he entered his twenty-third year in power. He is often referred to, even with a touch of respect by some Chadians, as 'Le Grand Survivant' (The Great Survivor).
The CCDP was devised at a time when global awareness of climate change was increasing and campaign groups were beginning to question the inequities of international trade. The resource curse theory was beginning to gain traction as an explanation for the chaos caused by oil in countries such as Nigeria and Angola. Any projects involving big IOCs wishing to extract natural resources in poor African states would surely run into some vocal opposition. In the early 2000s, oil companies were becoming the favoured targets of environmental protest movements for their apparent refusal to engage on the issue of the role that fossil fuels were playing in climate change. In his book Private Empire, journalist Steve Coll reveals fascinating details of the campaigns that were launched by groups such as Greenpeace against Exxon Mobil – the main IOC protagonist in Chad – and the lengths to which the company went to fight back:
Under [ex-chairman] Lee Raymond, ExxonMobil had persistently funded a public policy campaign in Washington and elsewhere that was transparently designed to raise public scepticism about the science that identified fossil fuels as a cause of global warming (Coll 2013: 184).
As the negotiations over the CCDP heated up, a number of high-profile protest stunts were carried out by campaign groups, such as people dressing up as gorillas to hand out leaflets and releasing a giant helium balloon in the central atrium of the World Bank's headquarters in Washington, to draw attention to the dangers of the proposed Chad project. Robert Calderisi acknowledged that the 'cast of characters' originally involved in the Chad project was 'simply combustible': Shell, which had been responsible for much of the environmental destruction in the Niger Delta; Elf, which had been associated with a number of corruption scandals across French-speaking Africa; ExxonMobil, which had been responsible for the Valdez spill in 1989; and not least Chad's own government and the country's shaky politics (Calderisi 2006: 178).
A law with flaws
Chad's Law 001 was intricately constructed with a view to tackling many of the issues identified by the development of the resource curse theory. However, even in contemporary analyses its inadequacies were identified by civil society and rigorously laid out in a number of reports, including the 2004 report by the NGO Catholic Relief Services entitled Miracle or Mirage (Gary and Reisch 2004).
Firstly, the new law that established the escrow account covered only the direct revenues from the oil sales. Direct revenues included royalties of 12.5 per cent on the sale of oil exports – a concessionary deal that Esso had negotiated in 1988 well before there was a realistic proposition of exploiting the oil, complete with a 'stabilisation clause' that prevented the terms of the revenue share ever being altered, even if the global oil price changed significantly (Coll 2013: 159) – as well as dividends on the Chadian government's shares in the two companies set up to run the pipeline: TOTCO and COTCO (the Tchad and Cameroon Oil Transportation Companies). The law would not cover the hefty tax payments or other indirect revenues that would come further down the line once Esso's operations became profitable. Secondly, the law applied only to the initial three wells brought into production by Esso. Even in 2003, with the sector in its infancy, it was clear that there was huge potential for expansion, with several other companies including Taiwan's OPIC and Canada's EnCana already present. Today, the transparency agreement does not cover the payments made by Esso on its four newer well sites, and nor does it cover all the signature bonuses and general taxes paid by IOCs that arrived after the World Bank pulled out, such as Griffiths/Caracal and the China National Petroleum Company in Chad (CNPCIC). Based on figures taken from the 2007–11 Chad EITI reports, some 75 per cent of everything Chad earns today is missed by the law and passes instead into the annual budget, where it is much more difficult to scrutinise.
Furthermore, Law 001 was vague about the exact definition of a 'priority sector': for example, it did not stipulate whether education spending should be targeted at infrastructure development such as building schools, or invested in new teachers or better training. The temptation for governments to splash cash windfalls on quick-fix building projects that might not make economic sense was already well known in the late 1990s. A final flaw was that the Collège and the committee set up to monitor the spending of the regional funds in Doba (Comité de 5% or 5% Committee) were to be nominated bodies and would include at least three representatives of government. Although provisions were made to eventually create an entirely elected body, that has never happened, and the Collège and the 5% Committee continue to be influenced by political pressures.
(Continues...)
Excerpted from Africa's New Oil by Celeste Hicks. Copyright © 2015 Celeste Hicks. Excerpted by permission of Zed Books Ltd.
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Table of Contents
Introduction1. Chad: a model project
2. The aftermath
3. Lessons learned for China?
4. Resource nationalism in Niger
5. Civil society power in Ghana
6. The East African miracle?
Conclusion