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Africa: Whose Energy Future?

AfricaFocus Bulletin
Oct 3, 2005 (051003)
(Reposted from sources cited below)

Editor's Note

With oil prices rising worldwide, African oil-producing countries are expecting windfall earnings. Global oil companies and consuming countries are giving even greater attention to Africa's oil. The World Petroleum Congress, held last month in Africa for the first time, in Sandton, South Africa, celebrated the potential. But a new report from South Africa's groundWork questions the fundamental structure of the oil industry on the continent.

The new report by the South African environmental group, which has a long record of research and protests against the environmental damage from the refining industry in South Africa, goes beyond the common critique that corruption and bad governance block the productive use of oil income. Analyzing both "upstream" production and "downstream" processing on the continent, the report charges that "the oil industry is providing the context for bad governance and corruption," in the words of Nnimmo Bassey of Nigeria's Environmental Rights Action. It also lays out a detailed analysis of the "value subtracted" by the oil industry -- costs to communities and society not included in the balance sheets of company and government accounts.

This AfricaFocus Bulletin contains brief excerpts from the introduction and chapter 2 of the groundWork Report, focusing on oil production in Africa and in particular on the negative "externalities" suffered by affected communities. The full report, including graphics and references, is available at http://www.groundwork.org.za

For additional background and links on oil in Africa, see previous AfricaFocus Bulletins:

Chad: Oil Transparency Loopholes
http://www.africafocus.org/docs05/oil0502.php

USA/Africa: Oil and Transparency
http://www.africafocus.org/docs04/eq0407.php

Africa: World Bank Industry Review
http://www.africafocus.org/docs04/wb0404b.php

Angola: Oil and Accountability
http://www.africafocus.org/docs04/ang0401.php

Africa: Oil and Transparency
http://www.africafocus.org/docs04/oil0401.php

Nigeria: Oil and Violence
http://www.africafocus.org/docs03/nig0312.php

++++++++++++++++++++++end editor's note+++++++++++++++++++++++

Whose energy future? Big oil against people in Africa

the groundWork Report 2005

September 2005

groundWork http://www.groundwork.org.za

This year's report goes beyond the borders of South Africa, and ventures into Africa, examining the ravages of the oil industry and civil society responses to these environmental injustices. Much has been written on the environmental and social ills of oil in Africa. ... ...

An oil-based future is questioned in the concluding sections of the report. It is not only unsustainable because it is so polluting and the oil will run out, but because it is an energy future principally for the elite. Ordinary people living next to oil wells and oil refineries are most certainly not getting the benefits promised to mankind . In fact they are the scapegoat for the elite of mankind, for they not only have to live with the pollution of oil production processes but they also do not have access to the very energy for which they are made to sacrifice their health and wealth.

Chapter 2 is on Africa's 'upstream' industry - extracting the crude oil. It opens with an overview to locate oil in Africa in the global scene. It then looks at the making of environmental injustice all along the crude production chain, focusing on Nigeria and Chad which are the oldest and the newest Sub-Saharan producers. Chapter 3 carries on down the petrochemicals production chain to the 'downstream' industry which is about refining and markets. It focuses on refining in South Africa and concludes with a brief discussion of how African markets are being shaped.


2. Upstream in Africa

Africa's oil rush

The Gulf War has both pushed up the price of oil and reinforced anxieties about security of access to crude supplies both for countries and corporations. It has added impetus to Africa's oil rush but did not initiate it. Corporations have always been anxious to be in on the next big thing lest they should find themselves excluded later. This is particularly so as the number and size of new discoveries globally is falling while demand is rising. The Gulf of Guinea off west and central Africa is viewed by the oil industry as the world's premier 'hotspot', soon to become the leading offshore oil production centre [Gary and Karl 2003: 9]. ...

Security and the cost of crude supplies is also top of the agenda for consuming countries. The US in particular has stepped up diplomatic and military activity in the region, edging in on the regional hegemonies of the former colonial powers of Britain and France. ...

The international financial institutions - the IMF and the World Bank - are key actors in support of the northern agenda. The World Bank itself has a direct financial interest in oil and gas. The bulk of lending by its private sector financing arm, the International Finance Corporation (IFC), is for resource extraction and the IFC makes its best profits from these loans. The Bank also acts to leverage capital from private financial institutions who are, of course, concerned with the profits of oil debt. Its presence as a lender provides political cover. It reassures both oil and finance corporations that they will get their profits out from projects in unstable countries. Thus, the financial arrangements for the Chad-Cameroon pipeline ensure that the interest owed by these countries is paid before they see the money.

Producing countries, and would-be producers, are no less enthusiastic. Their economic interest is primarily in oil revenues as well as balance of payments, although much lip service is also paid to technology and skills transfer. ...

Most have expanded production to cash in on current high prices while new exploration concessions have been awarded in almost all African countries, even where the hopes of finding oil seem slim. Everyone, it seems, is doing well by the escalation of prices - except ordinary people in oil producing countries. While the fabulous wealth of oil is paraded before them, they have been driven ever deeper into poverty. The very common association of oil wealth with the impoverishment of people and the failure of national economies has given rise to the notion of the 'resource curse'

...

The biggest producer, Nigeria, was also the first producer in Sub-Saharan Africa....

Nigeria and Gabon were already major producers by the time of the first oil shock and both joined OPEC in the early 1970s and established national oil companies as part of their the assertion of national sovereignty rights. At the time of the second oil shock in 1979, Nigeria felt confident enough to nationalise BP's holdings on the grounds that it was breaking the oil embargo against apartheid South Africa. BP's assets were turned over to the Nigerian National Petroleum Company (NNPC), giving it a 50% holding in the Nigerian industry. Both countries also learnt to drive better bargains with the corporations and, in formal terms, ...

Nigeria was racking up debts on the security of oil during the 1970s. It was thus exposed to the debt trap when commodity prices collapsed in the 1980s and it was one of the first OPEC nations to break ranks on oil prices as the northern powers reasserted their grip on producers. ...

These global scale manipulations were replicated in the activities of oil corporations at the national scale. The best evidence for this came to light in a French trial which resulted in the conviction of 30 senior Elf executives in 2003 for defrauding the corporation. Elf was the largest corporate producer in Sub-Saharan Africa with a dominant position in the Francophone countries and major interests in Nigeria and Angola. ...

The 'Elf system' revealed at the trial is described in detail by Global Witness [2004]. It involved the systematic corruption of African leaders through a variety of kick-backs, under-invoicing on crude bought from Elf's subsidiaries to skim the revenues owed to African countries, and the peddling of oil backed debts with the specific intention of creating a perpetual dependency on Elf. The debt system was purposely obscure so that Africans were only aware of the official lending bank [20] while Elf itself profited from the debt. It also profited from facilitating arms deals financed by the debt. ...

Elf's activities in Nigeria during the 1990s are also under investigation. But it is certainly not the only corporation to have instigated corruption. The French investigations have in turn led to investigations into allegations that US corporation Halliburton was implicated in bribery in Nigeria. Allegations of corrupt dealing, price manipulation, political string pulling, and complicity with state brutality have also haunted Shell's operations in Nigeria.

Working for the Americans

While Chevron has been active in Africa for some time, the US corporations are prominent in the new oil fields - off-shore of Nigeria as well as in the new petro-states. Nigeria's take of oil revenues contrasts with the very poor deals done by late comers. Equatorial Guinea gets 10 to 20% and Chad only 10%. ... The oil project in Chad, however, would not have gone ahead but for World Bank participation because of the level 'political risk'. Chad initially negotiated its deal in 1988 and subsequently tried to revise it in 2004. Despite approximately $1.6 million in World Bank-financed legal assistance, the Chadian government was able to negotiate only a marginally better deal in the new convention [Gary and Reisch 2005: 39]. ...

The World Bank justified its participation in the project on the grounds that there was no other developmental option in Chad, that its participation would ensure that Chad would escape the 'resource curse' and the project would thus contribute to poverty alleviation, and that poor Chadians need access to modern energy. Critics argued that Chad's governance and human rights record made it a dead ringer for the resource curse and that a project focused entirely on exports was scarcely conceived to access energy for poor people. Thus far, the experience of the project confirms the critics' view ...

Producing environmental injustice

The industry likes to talk of the production chain as a value chain. The 'value added' at each link in the chain includes salaries and wages, taxes and other payments to governments, debt repayments and interest and, finally, what is taken as profits by the corporations and either paid out to shareholders or reinvested. It excludes the costs of raw materials and services provided by other businesses. Value added is thus the difference in value between what comes in and what goes out.

The notion of value added serves a vital ideological function. It proclaims that what it counts as value amounts to a general social good. And this proclamation is then turned into an assumption. Thus, a country's Gross National Product (GNP) is, put simply, the aggregate of value added from all economic activity. The basic assumption of mainstream economic thought is that the growth of GNP is in everybody's best interests even if some people benefit more than others. ...

Yet value added conceals more than it reveals. The calculation of value excludes major costs which are also produced at each link in the chain and imposed on other people, on society in general or on the environment. These costs could be called 'value subtracted' although they are more conventionally known as 'externalities'. Those who pay these costs - those from whom this value is subtracted - are those who are made poor by the process of wealth creation. ...

Enclosure

Enclosure involves the appropriation of a common resource and the dispossession of those who previous had rights to the resource.

Nigeria's Land Use Act, promulgated in 1978 by the then military regime under President Obasanjo, gives the state control of all land and allows it to evict people where land is required in the 'over-riding public interest'. The public interest specifically includes the requirement of the land for mining purposes or oil pipelines or for any purpose connected therewith" [quoted in HRW 1999:59]. The Petroleum Act makes oil and natural gas the property of the federal state. It provides for compensation for loss of use but any rent on the land goes to the state.

The practical effect of these two acts is that oil corporations can and do take what they want from the people within their areas of operation. The corporations themselves call this the 'land take'. They also decide what they will pay in compensation. The land take is enforced by the state security forces. ...

The elite of the Mobile Police are deployed within the oil installations and paid by the corporations themselves at well above normal rates. They are commonly known as the 'Shell police' or the 'Chevron police' etc. On at least one occasion Shell made a deal to supply arms to security forces. It denied doing so until confronted with evidence and then claimed that the deal had fallen through. Various gangs recruited from the ranks of unemployed youth and armed with anything from machetes to sub-machine guns have also been deployed to intimidate and terrorise people.

This is the pattern for the oil industry throughout Africa: the corporations are given the right to take what they want while all rents, royalties and other monies received in exchange for this right are taken by the state. Consultation with communities in Chad is touted by the World Bank as a model of best practice. Consultation, however, comes after the negotiation between the state and the corporations has already expunged people's rights in land and made them over to the corporations. That the oil project will go ahead and that the land required by the project will be appropriated is not up for negotiation in the course of consultation. Even the parameters of compensation are pre-defined. What is left to consultation amounts to little more than a public relations exercise.

Externalisation

Externalisation is about excluding the costs of pollution from the value chain so that these costs do not appear in the market price of the commodity. Externalised costs are thus made to constitute free benefits to the corporate producer. They are an unacknowledged subsidy. But these costs do not in fact disappear Rather, they are imposed on others: they reappear as uncompensated costs to communities and workers who suffer the loss of resources and health damaged by pollution and other forms of environmental degradation.

In the Niger Delta, externalisation is an extension of dispossession as polluted water sources, fields and fisheries are simply lost to their owners. But the effects are not restricted to this. The health impacts of air pollution spread across a wide area, and all who rely on locally produced food - whether from their own production or bought at market - risk contamination. At the global scale, the emissions of carbon dioxide and methane from Nigeria's flares make a substantial contribution to climate change and the costs will, again, fall heaviest on the poor.

Nigeria does have environmental laws that should notionally ensure that these costs are internalised - that they are actually paid by the corporations. The state does not, however, have the capacity or the inclination to enforce the law. This contrasts starkly with the political will and resources devoted to enforcing dispossession. Consequently, corporations have been almost entirely self-regulating in respect of their environmental practices in Nigeria and have externalised costs without inhibition. This began to change in the 1990s when the actions of local people's movements combined with international civil society organisations to expose corporate practices. The corporations, notably Shell, perceived this primarily as a public relations disaster and responded mostly with PR 'spin'. Such caution as they now exercise is proportional to the national, and particularly the international, visibility of their practice.

Chad is Africa's newest oil state and the externalised costs to date have been mainly those associated with exploration, drilling and construction. It has also been subject to unusual scrutiny as the political price that the World Bank paid for insisting that here it would demonstrate how oil extraction can contribute to alleviating poverty - even against the odds. The oil started to flow in 2003 and the flares are burning above the villages of southern Chad. The impacts will be felt in time and will most likely escalate over time. They will be mitigated only in so far as it is possible for local and international civil society to maintain present levels of scrutiny.

Exclusion

Exclusion relates to decision-making power in the market and in society. Given the weight of economic forces in shaping broader social institutions and relations, these two aspects of exclusion frequently reinforce each other. The institutions of the market are specifically designed to remove decision making from the public sphere and so exclude all who do not have an interest in profit. Thus, those who are dispossessed or who carry the externalised costs of production are prevented from contesting the theft or contamination of their resources.

Niger Delta communities have a long history of resisting the enclosure of their land. The Movement for the Survival of the Ogoni People (MOSOP) became the best known organisation of resistance and an inspiration for communities across the Delta. In 1993, it organised mass protests throughout Ogoniland and forced Shell to close down its Ogoni production wells although active pipelines still cross the territory.

Resistance was met with brutal repression. It started with security force attacks thinly disguised as inter-ethnic violence. At the same time, Shell was trying to buy off MOSOP leaders. Then, in 1994, four 'moderate' Ogoni chiefs were murdered at Giokoo. The circumstances indicate that they were killed by security operatives acting under cover. Prominent MOSOP leaders were immediately accused of the murders and arrested - without allowing time even for the pretence of an investigation. In 1995, Ken Saro-Wiwa and eight others were executed on the order of a rigged court. ...

The use of brutal security force violence did not begin or end in Ogoni. From the early 1990s protest across the Delta became more organised and numerous ethnic groups adopted charters loosely modelled on the Ogoni Bill of Rights. They commonly claimed the right to control land and natural resources, including oil, and demanded a meaningful political voice within a restructured Nigerian federation. ...

The savagery of the security force response also intensified throughout the decade. Ijaw youth greeted the new year of 1999 by mobilising in support of the Ijaw Youth Council's Kaiama Declaration [see Box 11]. In response, security forces killed over 100 people and burned down ten or twenty homes. In many similar incidents around the Delta, corporate helicopters and boats were seen carrying security forces. The corporations routinely deny involvement. However, new evidence brought to light in preparation for a court case against Chevron indicates that soldiers not only used Chevron's helicopters in a 1999 attack on the villages of Opia and Ikenyan, but that Chevron paid them for the operation.

The death of military dictator Sani Abacha in 1998 opened the way to a restoration of civilian rule and the election of Olusegun Obasanjo, himself a former military ruler, as president. The occupation of Ogoni was lifted but the Delta is still saturated with security forces and abuse of people is routine. On the other side, people have occupied oil facilities and forced temporary shut-downs across the Delta. In 2002, several hundred women occupied ChevronTexaco's Escravos terminal in Delta State for 10 days, one example of the growing assertiveness of women in resistance.

In this period, gun trafficking in the Delta has escalated and armed youth groups, sometimes known as 'cults' or 'area boys', have emerged. Mostly, it appears that they have been armed by politicians to intimidate opposition party supporters, by local elites to secure their control over oil sub-contracts and pay-offs against rival factions, or through 'illegal bunkering' networks responsible fo r the wholesale theft of oil. Cult leaders have also been used to infiltrate and subvert resistance movements. ...

Chad's president, Idriss Deby, took power when his rebel troops captured the capital N'Djamena in 1990 but subsequently gave his regime a veneer of democratic legitimacy through rigged elections. Friends of the Earth report that, In 1997 and 1998, hundreds of civilians were massacred in the project area by national troops, for the sake of 'pacifying' the region to make way for oil development" [Nguiffo and Breitkopf 2001: 8]. Community consultations were conducted in the presence of security forces at least until 1997" and thereafter in the presence of government officials [Djiraibe and Horta 2004].

Chad ranks at the bottom of international league tables on most indicators of good governance including corruption and 'voice and accountability'. Government officials are increasingly appointed from a narrow clique around the president and arbitrary arrests, torture and summary executions by security forces are routine. Independent radio stations are regularly closed down and journalists arrested in response to critical broadcasts. In 2003, a station run by local human rights groups was closed down less than two weeks after international VIPs had been in the country for the October 2003 pipeline inauguration" [Gary and Reisch 2005: 21].

These then are the means by which the value subtraction chain is made to work. Below, we look at each link in the upstream chain, focusing on Nigeria, Africa's oldest oil state, and Chad, the newest oil state. This is not a complete description. A detailed documentation of every incident of abuse would be a very long book indeed. Rather, our intention is to show the oil industry at work and the stories told here are only a very small selection of the stories that could be told.


AfricaFocus Bulletin is an independent electronic publication providing reposted commentary and analysis on African issues, with a particular focus on U.S. and international policies. AfricaFocus Bulletin is edited by William Minter.

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