Can Petroleum Aid development?

Nigeria is strategic to the global energy need, it is also crucial to the maintenance of security of the Gulf of Guinea region; the fear of the magnitude of the crisis and insecurity in that region forced the US to create the African Command.

On Dec. 1 last year, Nigeria’s cabinet approved the creation of a sovereign wealth fund that would invest any excess revenues generated from the sale of the country’s oil, which it exports at a rate of roughly two million barrels per day.

This isn’t the first time that the country has made such an effort. In 2003, under pressure from the International Monetary Fund, Nigeria set up the Excess Crude Oil Account, or ECA, to serve a similar purpose.

If Nigeria’s new fund succeeds in delivering tangible infrastructure improvements and other development outcomes from its oil profits, the country could become a role model for other poverty-stricken but resource-rich countries in West Africa.Ghana just began pumping oil in December, and significant reserves have recently been found off the coasts of Liberia and Sierra Leone. No doubt those countries will look to their larger neighbor to the east, the region’s economic heavyweight, in deciding how to manage their own oil revenues.

At a parliamentary hearing in the Netherlands last week, Amnesty International, Friends of the Earth, Nigerian and British activists, Dutch MPs and others accused the company of breaches of safety, human rights abuses, destroying lives and the environment, hiding information, gas flaring and blaming locals for oil pollution in Nigeria.

Shell Holland's president, Peter de Wit, denied all the charges and insisted that the company applied "global standards" to its operations around the world. He argued that Shell had provided thousands of well-paid jobs, brought know-how, education and technology and had launched numerous community projects in the west African nation.

The UN Environment Programme, using money from Shell, has spent four years investigating and assessing thousands of oil spills in Ogoniland, the small oil-rich region of the Niger Delta where the company was active until forced out over pollution by Ogoni leaders including Ken Saro-Wiwa, who was hanged by the Nigerian military regime in 1995.The UN report will not say who caused the spills but will confirm that large areas of land remain polluted, drinking water wells are still highly toxic and many of the fishing creeks are unproductive.

Another article, How Overpriced is Ghana’s Jubilee Field Expansion Project?, questions the projected cost of the Jubilee expansion. The higher the costs, the lower the revenues for Ghana. “It is important to note,” the article states, “that the more money that is spent on the project the longer it takes for the field to be profitable, the lower the taxes Ghana can collect, and the longer it takes for even those meagre taxes to show up.” Besides providing an important public service, the IMANI articles have also prompted a response from the Ghana National Petroleum Corporation.  You can read the lengthy GNPC press release on Ghana Oil Watch: Recent Media Discussions on GNPC and Jubilee Oil. The press release refutes IMANI’s allegations and IMANI has since issued a final statement backing up the think tank’s original estimates and statements.

Rather uncharacteristic of the secretive organisation, the Ghana National Petroleum Corporation (GNPC) finally issued a press statement to respond to concerns raised by civil society about Ghana’s underperforming oil industry. While the GNPC is to be commended for its increasing responsiveness and transparency … The truth is that the information the GNPC has now supplied to inform the public debate about Ghana’s oil sector would not have received broad coverage had IMANI not engaged in strong advocacy to demand such information.

On a somewhat related note, a U.S. law firm has announced it investigation of potential claims against KOSMOS Energy, one of the Jubilee partners: The investigation concerns allegations that the Registration Statement and Prospectus issued in connection with the Company’s initial public offering (the “IPO”) were materially false and misleading and misrepresented or failed to disclose that:

Kosmos Energy’s activity in a conservation area is not unique. A new report issued by the WWF, the Center for the Environment and Development and RELUFA (Reseau de lutte contre la faim au Cameroun), Emerging Trends in Land-use Conflicts in Cameroon, reveals that “a total of at least 33 oil and mining permits have been granted inside of 16 different protected areas in Cameroon.”

Campo Ma’an, one of the National Parks created as a mitigation measure when the Chad-Cameroon pipeline was constructed has about 2/3 of its surface licensed to mining operations. (See my documentary, Oil: A Pipeline to Prosperity? for more information on Campo Ma’an.) 

The Commissioner, who charged oil companies operating in the state and their host communities to see themselves as development partners, assured the host communities to OML 66 that government would ensure that a thorough environmental impact assessment (EIA) is carried out by the oil company before commencement of work in the area.

I was motivated by the conviction that parliaments are central to good governance—representing the voice of the people, making laws and holding the executive to account. I still believe that, but the complex challenges posed by oil wealth in today's Africa means parliaments across the continent struggle to fulfil these roles.

The message was clear: to be an MP representing the voice of your constituents against the interests of the elite can be dangerous. African MPs need not only to be wealthy, but also brave.

Tribalism is never far beneath the surface and is a major barrier to achieving a national consensus. For many Africans, tribal allegiances are strong, but there is weak identification with the nation. Crafting unity in a nation created by imposed colonial boundaries remains a distant concept—witness the imminent breakup in Sudan—and often impedes efforts to garner widespread support for a national oil or mining policy. Failed efforts to build national consensus around policy objectives can lead to situations like Ghana's, where the country has begun oil production without coming to agreement on a national oil policy, instead following an outdated law drafted in 1984 with few regulations to ensure the country derives the maximum benefit from its finite resources.

Chevron, the second largest U.S. oil major, said it did not receive requests to evacuate the KS Endeavour rig and that staff on board had the right to call a halt to work if they believed conditions were unsafe.

The accounts convey rising panic from some of those on the platform, who fearing a blowout, checked each morning the volume of smoke billowing from the drilling borehole. "Chevron knew for over a week that the well was unstable yet they refused to evacuate us," said one of the rig workers who gave his account to the RMT union.

"Our employees and contractor are fully empowered to exercise stop work authority (SWA) when they sense an unsafe work environment," Chevron said, explaining that an SWA gives anyone aboard a rig the power to order a stop to operations in the event safety guidelines are breached.

From $30 billion, the fund had trickled down to about $450 million by mid-2010, according to Veronica Kalema of Fitch Ratings, which late last year downgraded Nigeria’s outlook from “stable” to “negative” partly because of the vast and largely unaccounted outflow from the Excess Crude Account.

Some of the vast pile of cash, perhaps $5 billion to $8 billion, has been spent on so-far unfruitful efforts to upgrade Nigeria’s feeble power output, which remains no better than that of a mid-size American city for a nation of over 150 million people, Africa’s most populous. But the rest, some $22 billion or more, remains largely unaccounted for.

Forecast estimate that Jubilee oilfields can produce 55,000 barrels of light sweet oil per day. With further development of more oil wells, production could reach 120,000 barrels per day. At that rate, Ghana would soon be awash with petro-dollars, which if properly managed, would provide much-needed funds for the development of infrastructure and enhance the living conditions of the people. Before it struck oil, Ghana depended on cocoa and minerals like gold, diamond and bauxite as foreign exchange earners which it prudently utilized to build a fairly decent economy with a modest but steady four per cent yearly growth rate. With democracy now well into the third decade under a succession of enlightened and committed leadership, the country is now being touted as a model for the continent. With new-found oil wealth, the future promises to be rosier.

What a coincidence: the world’s first major oil well, Empire, was established in 1861, in Pennsylvania, the same year the American Civil War began. With black liquid slaves gushing from the ground, there was less of a need to enslave black (or any other) humans, at least not so overtly. The new black slaves are also much more powerful, flexible, storable, transportable and tradable. Cheaper to maintain, they also don’t revolt.

Concurrent with the increase in oil and the actual wealth that it brought, we’ve also witnessed an explosion of magical or illusory wealth, in the form of images. It began with the invention of photography in the mid-19th century, just before the Empire oil well and American Civil War. With photos, then moving images, now on television, desktop, laptop, cellphone and Ipad, any man can own so much with his eyes.

Though the US has made so much noise about Tibet, it never mentions Manipur, a sovereign land invaded by an ally. The state will rob and murder, then grant you symbolic victories, such as a Martin Luther King Boulevard slicing through each ghetto, but enough of token bones tossed under the table. It’s time to overturn that table.

They pointed at the Policy, Government and Public Affairs Department of Chevron as the ''dirty trick'' arm of the oil company in the Gbaramatu ''crisis project'', alleging that a similar scheme by the company had earlier claimed the lives of three community youths.

In the mean time, efforts to get Femi Odumabo, an engineer and the oil company's General Manager in-charge of the Policy, Government & Public Affairs Department, did not pay off, as he was said to be attending to some ''urgent matters''.

More oil finds would help ease the burden on the cedi, which is slipping badly against the major currencies. The cedi was quoted at almost one to one with the dollar, when the nation went to the polls in December 2008. It dropped sharply against the major currencies when the then incoming Trade Minister, Ms. Hannah Tetteh, dropped her infamous 'Ghana is broke' bombshell. The cedi then rallied, according to an official pronouncement, "as a result of prudent" economic measures put in place by the government. It is beginning to look like the measures are no more holding. At the last count, the cedi was being exchanged for the dollar at GH ¢1.53, an indication that the national currency has depreciated by about 30 percent in recent times.

The case stems from oil pollution in the Ecuadorean rain forest, but Chevron does not operate there and has no significant assets in the country. It was Texaco, which Chevron acquired in a merger in 2001, that was accused of widespread environmental damage before pulling out of Ecuador in the early 1990s.

Chevron has much larger operations elsewhere in Latin America, and the plaintiffs’ strategy of pursuing the company across the region could open a contentious new phase in the case — one that would test Ecuador’s political ties with its neighbors and involve some of Washington’s most prominent lobbyists and lawyers.

Advisers to the plaintiffs said Brazil, Argentina and Venezuela would be obvious candidates to pursue Chevron assets, but they acknowledged it would not be easy. Venezuela, for instance, is a close Ecuadorean ally and its president, Hugo Chávez, is a frequent critic of the United States. But Chevron has extensive operations in Venezuela and enjoys warmer ties with Mr. Chávez’s government than just about any other American company.

Ben Amunwa from Platform said, “Every payment made by oil companies in Nigeria should be linked to a clearly and accurately recorded transaction. If there is a significant risk that payments and contracts could go to armed groups or worsen conflict, the transactions should stop.”

In February 2011, Donziger and his clients won the judgment after an eight-year trial in Ecuador marred by Chevron’s attempts to intimidate judges, offer bribes to Ecuador's government, fabricate scientific evidence, and sabotage the proceedings by filing dozens of frivolous motions and drowning the court in paper.  See here.

Chevron's legal team at Gibson Dunn openly markets a “template” to corporate defendants like Chevron facing large liabilities for environmental and human rights abuses.  The template, which the firm calls a “rescue operation” for clients in trouble, assumes that the wholesale intimidation of lawyers will allow clients to win via subterfuge what they can’t win on the merits. The Gibson Dunn “rescue” team – led by New York attorney Randy Mastro, Ted Boutrous, Andrea Neumann, Scott Edelman, and William Thomson – has used over 60 lawyers and billed Chevron hundreds of millions of dollars.  All their hard work has brought a fair amount of disrepute to their law firm as Chevron has suffered multiple courtroom setbacks around the world, dramatically increasing its liability and creating a shareholder rebellion against CEO Watson.  See here.

The Donziger suit explains that once Chevron realized it would lose the Ecuador trial based on the scientific evidence, the company turned to Gibson Dunn to try to render the Amazonian communities defenseless.

The thrust of Crude Continent is precisely (and often, not so precisely) this: oil, far from being a curse, could actually save Africa. It is oil that will modernise Africa and oil that will lead it out of what Clarke dubs – without ever defining – ‘African medievalism’. Clarke argues that those countries without oil are the ones that are truly cursed, for they will be left ‘largely backward’.

This intriguing notion is preached throughout Crude Continent, with Clarke seeking to expose as fools those who argue that Africa's oil-rich countries are being poisoned to the core by the so-called ‘resource curse’. Our candid author is particularly incensed by two experts' ‘scribblings on oil’, both released last year: Oil and Politics in the Gulf of Guinea by Ricardo Soares de Oliveira, an Oxford lecturer; and Poisoned Wells: The Dirty Politics of African Oil by Nicholas Shaxson, an associate fellow at Chatham House, London.

Clarke asks us to consider what he calls the long-term ‘multiplier effects’, the direct and indirect benefits of the oil and gas industry, including employment creation, foreign exchange inputs and capital inflow, technology transfers, fiscal funding and ‘indirect supply chain effects’. These are much more significant than the ‘palliative band-aid…of corporate social investment’ that Clarke clearly detests. He berates the fact that no one has ever ‘properly identified and measured’ the social and economic benefits of oil and gas projects in Africa.