webmaster
© Copyright DEHAI-Eritrea OnLine, 1993-2010
All rights reserved
From: wolda002@umn.edu
Date: Tue May 04 2010 - 23:38:18 EDT
Monday, May. 03, 2010
Africa's New Oil Riddle
By Alex Perry / Accra and Abuja
Correction Appended Apr 23, 2010
It's hard to imagine a starker illustration of getting it wrong than an oil
shortage in one of the world's biggest oil producers. But that's exactly
what regularly happens in Nigeria, as gas stations run dry and thousands of
motorists and truckers jam driveways and spill out onto freeways. Partly
this is a question of how Nigeria messes up its oil industry — rotting
refineries, poor distribution, price-hiking hoarders — and partly it's a
sign of how oil messes up Africa. Auwal Musa Ibrahim is an anticorruption
campaigner who heads the Civil Society Legislative Advocacy Centre in
Nigeria's capital Abuja. Stranded for days at his office during a fuel
drought last December, he fumed, "Our oil powers the world. But in Africa,
it creates places [in which] no longer do people think about how to build a
nation, only how they can steal from it."
Oil should be a boon. In Norway, it has been. The discovery of North Sea
oil in the 1960s took a European backwater with an economy based on fish,
trees and ships, and gave it one of the world's highest standards of living
and an economic diversity spanning green energy and cancer research. But in
the Gulf of Guinea, where most of Africa's discovered oil lies, the
combination of an industry built by barons and roughnecks and a region
marked by weak and ineffective governance has been a disaster, hurting the
environment, human rights and development. Angola, Equatorial Guinea and
Gabon are all scarred by despots, corruption and inequality. Nigeria, with
close to 3% of global oil deposits, is Africa's Great Shame. The World Bank
estimates the country's generals and gangster politicians stole $300
billion in the three decades to 2006. Trampled in the scramble for riches
have been human and political rights, the environment and development.
Corruption and anger, not wealth, have trickled down. Fury at the crooked
elite fuels two low-level civil wars, one in the oil-rich southern Delta
region, where militias fight for a share of revenues; the second in the
Muslim north, where a youthful, Taliban-style movement aims to purify the
country of its fathers' sins. (See pictures of the two sides of Nigeria.)
It comes as no surprise, then, that the recent discovery of lakes of crude
under two more African nations — Ghana and Uganda — has met a mixed
reaction. Will Ghana and Uganda fail too? Or can they escape Africa's oil
curse?
Search for Transparency
On the wall of Brian Glover's office in Kampala, Uganda's capital, hangs a
framed map of the East African nation on which is written the word
zindangire. Glover, country manager for U.K.-based Tullow Oil, explains the
word means "dung fly" in Swahili, and that Uganda's President Yoweri
Museveni signed the map with his favorite euphemism for corrupt officials
as a reminder and perhaps even a warning. "He's the one telling me this is
the way we're going to do it," says Glover. "Transparency should win the
day." (See pictures of oil fires.)
Tullow drilled its first test wells in Uganda's Lake Albert in 2006. Out of
27 wells, it found oil in 26. In January 2009, Tullow's partner, Heritage
Oil, a Canadian firm, announced it had found one of the biggest onshore
deposits of crude in Africa, running up to 2 billion bbl. and stretching
into the Democratic Republic of Congo. Tullow has now partnered with Total
and the Chinese state giant CNOOC to develop the fields and expects the oil
to start flowing later this year.
World Bank officials in Kampala tell TIME they are impressed with
Museveni's preparations for handling the money, estimated to peak at
billions of dollars a year in the next decade. The Ugandan President
dispatched officials across the world — to Cuba, Malaysia, Nigeria,
Norway and Trinidad and Tobago — to study where oil was handled well and
where it was not, and promulgated a new law to regulate the oil industry.
"We shall enshrine good management practices in our new law," says Peter
Lokeris, Ugandan Minister of State for Mineral Development, sitting in his
cavernous office in the dingy, labyrinthine ministry building. "We would
like to make sure people in the communities where the oil is coming from
... don't get dissatisfied." (Read: "Is East Africa the Next Frontier for
Oil?")
That's precisely the aim of Tullow's $1 million–a-year social-development
program around Lake Albert, which funds health clinics, water boreholes,
tree-planting, life preservers and swimming lessons. Tullow likes to style
itself as an oil company with a difference, with corporate social
responsibility at its core rather than tacked on as an afterthought, and it
is true that Tullow's Block 2 facility on Lake Albert does not feel like
the average oil platform. A doctor greets arrivals with a safety-release
form and warnings to watch out for snakes and scorpions, to wash hands and
to avoid littering, driving through dust clouds or engaging in "horseplay."
The wells are surrounded by pristine fields of tall grass and scattered
trees where antelope and buffalo graze. Green groups say Tullow's seismic
tests inside Murchison Falls National Park, the fabled nature reserve
bisected by the Nile, have caused elephants to flee. It is to reduce this
"ecological footprint," as Tullow calls it, that the company will truck out
the oil rather than build a pipeline.
See TIME's Pictures of the Week.
See the Cartoons of the Week.
But $1 million a year is peanuts to a $17.8 billion company. Nor are
President Museveni's fine words always matched by action. On seizing power
in 1986, he lambasted other African leaders for clinging onto office, but
in 2005, his party abolished presidential term limits, allowing him to
stand in 2006 and 2011. The opposition fears Museveni will use oil money to
further tighten his grip. "Oil [can] give the government the freedom to
operate without the encumbrances imposed by donors," says opposition leader
Kizza Besigye, who spent two months in jail in 2005 on treason charges (he
was later acquitted). "It will take democratization miles backwards."
Corruption is another looming problem. Uganda already ranks as one of the
world's worst countries on that score, placing 130th, equal with Nigeria,
on Transparency International's 2009 Corruption Perceptions Index. And
despite Minister Lokeris' assurances of best practice, the government is
showing a marked preference for secrecy over transparency. Dickens
Kamugisha, CEO of the Africa Institute for Energy Governance in Kampala,
says the government tries to stop him educating villagers about oil. "They
follow us. They know each and every thing we do," he says. "You have to
make sure you don't say anything they may not like." In 2007, two
journalists from the Daily Monitor newspaper filed a lawsuit demanding the
government publish the agreements it signed with Tullow and others. Angelo
Izama, one of the two journalists, says the more secrecy, the more likely
what he calls "the Nigeria playbook" will come into effect. Maybe it
already has. On Feb. 16, Platform, a London-based pressure group, and the
Uganda-based Civil Society Coalition on Oil released a report that leaked
details of the agreements and added that $500,000 received in signature
bonuses by the government cannot be traced in Uganda's public accounts.
"While the sum is comparatively small ... it generates concern that future
bonuses ... will likewise disappear [and] raises questions over [Uganda's]
intention and ability to manage the larger oil revenues to come," reads the
report. (See pictures of Chinese workers in Africa.)
Last Opportunity
Ghana counts Barack Obama among its fans. The U.S. President chose the
country for his inaugural presidential visit to Africa last July, praising
it for showing "a face of Africa that is too often overlooked by a world
that sees only tragedy or a need for charity." There are reasons for such
optimism. Ghana held elections in 2009 in which power peacefully changed
hands. Media and civil society, particularly the traditional chief
structure, are strong.
Ghana also has lots of oil. Discovered in 2007, estimated reserves
currently run to 800 million bbl., expected to earn Ghana at least $1
billion a year between 2011 and 2029. That will add more than 25% to
government revenues, which were just $3.7 billion in 2008. These numbers
will all rise if, as expected, more oil is found. (Read: "Obama in Ghana
Preaches Unity and Action.")
And there is hope that Ghana can handle its new riches well — or at least
much better than West African neighbor Nigeria. Tullow is once again the
lead producer, while Norway is advising the government on how to handle its
new riches. New laws on extractive industries and freedom of information
are being readied to ensure transactions are transparent. The government is
also taking pains to consult communities affected by drilling, like
fishermen. Gas, an inevitable by-product of extraction, will not be flared
(as it is in Nigeria) but pumped ashore for power generation. Most
importantly, Ghana's government is candid about how Africa abounds with
examples of how not to handle natural resources, not least inside Ghana
itself. The country's original big extractive industry, gold, has a history
of pollution and exclusion of the local community. "We dare not fail," says
the then Deputy Minister of Energy, Kwabena Donkor. "We have had other
opportunities to develop and we have blown them. Oil represents a last
opportunity for this country to break out of poverty." Dai Jones, Tullow's
country manager, says proof that the government is sincere comes in the
numbers of expatriate Ghanaians his company is recruiting. "That's the
magic of Ghana," he says. "The diaspora actually wants to come home."
But good intentions and good practice may not be enough. A November 2009
World Bank simulation of the progress of Ghana's economy projects that
income per capita could be as much as 14% lower in 2029. Why? Dutch
disease: the phenomenon first observed in 1960s and '70s Netherlands in
which oil crowds out other sectors of the economy, pushing up costs —
prices, wages and exchange rates — for all other businesses and making
them less competitive. The Bank says farming will be particularly badly
hit. Incomes in rural areas, where more than half of Ghanaians live, will
stagnate. Export farmers, mainly cocoa growers, will be 7.4% poorer. (See
pictures: "Transforming a Coal Refinery in South Africa.")
To head off such blowback, the Bank advises more public investment in
agriculture and business start-ups, greater transparency and a balanced
budget. But even with such reforms, it calculates incomes will not reach
levels attainable without oil. It also warns that with an overly dominant
President, weak oversight and highly factional, patronage-based politics,
Ghana could yet begin to resemble Nigeria. Sowing further doubt, Ghana has
not said how or where it will spend its oil cash; has spooked foreign
investors with an attempt to stop Texan oil explorer Kosmos Energy selling
its $4 billion stake in an offshore field to ExxonMobil; and has worried
industry insiders with the breakneck speed at which it is moving, pushing
Tullow to have oil flowing by November 2010. Tom Crowards, senior economic
adviser for Britain's Department for International Development, understands
the state's impatience to deliver on Ghanaians' expectations. Still, he
warns, "Ghana is a pretty good place to invest, an island of stability in
Africa. But unless it's careful, oil and gas could screw all that up."
See TIME's Pictures of the Week.
See the Cartoons of the Week.
New Hope, Old Fears
How Africa handles its oil is of ever greater concern to the world. The
continent is no longer a story of exotic dictators and obscure wars. As
petronationalism rises from Russia to Venezuela to Iran; as appetite for
oil grows from Asia to Latin America; and as ever more high-quality
offshore discoveries are made in the Gulf of Guinea, African oil is fast
becoming the global fuel of choice. The U.S. already relies on Africa for a
fifth of its imports, according to the U.S.-based Energy Information
Association, and wants to raise that to 25%.
Ghana and Uganda have two things in their favor. First, their reserves are
small compared to, say, Nigeria's, and the effect of their discovery will
be less overwhelming. Second, they have discovered oil now. The resource
curse is well known and understood and the days when the oil industry
thought it O.K. to pay millions of dollars into the Swiss bank accounts of
African autocrats are gone. (See pictures of black gold in Canada.)
That's good for all Africa. There are signs that even Nigeria may be
cleaning up its act. A new central bank governor, Lamido Sanusi, is
aggressively pursuing corruption and fraud, so far dismissing the heads of
eight banks, who deny the charges. Last August, President Umaru Musa
Yar'Adua secured a cease-fire and mass disarmament from Delta militants in
return for an amnesty, a promise of development and a 10% stake in the
Nigerian state oil company. The government is readying a new oil-industry
bill that promises to shine a light on government contracts and foreign oil
majors. As elsewhere on the continent, there is recognition that change is
necessary. "The Delta militants are not asking for anything unusual or
extraordinary," Defense Minister Major General Godwin Abbe told TIME last
year. "That kind of exploitation of the people [as happened in the past] is
no longer acceptable."
But the new hope is tempered by disunity among the rebels and a power
struggle in Abuja, between the ailing but still official President Yar'Adua
and acting President Goodluck Jonathan, his former deputy. Jonathan seems
to have gained the upper hand, appointing his own Cabinet last month, but
the drawn-out changeover has stymied any progress on oil — or any
government at all — since November 2009. Amid the instability, the rebels
have called off, then reinstated, their cease-fire several times over the
past five months. Ineptitude and persistent corruption, including the
involvement of army and local government in "bunkering" — the theft of
millions of barrels of oil each year — may also wreck the state's ability
to deliver.(Read: "What Aid Can't Buy in Africa.")
The rising global interest in African oil can only strengthen the position
of ordinary Africans. As one Niger Delta militant leader describes, his
discovery that a small band of men with guns cruising the creeks of
southern Nigeria could hike the world price of crude merely by threatening
an attack on a pipeline or kidnapping a Western oil worker initially
shocked him, then encouraged him to do it again. Outlining plans "to turn
the Delta into something like Iraq" should talks with the government fail,
he chuckles: "The world has no idea how much trouble it's in."
The days when ordinary Africans stood by as their continent's riches were
plundered, by foreigners or by their own rulers, are drawing to a close.
But a time when Africa's oil is nothing but a blessing still seems a long
way off.
— With reporting by Nicholas Wadhams / Kampala
The original version of this story said that Kwabena Donkor is the Ghanian
Deputy Minister of Energy. Since this story was reported, Donkor has lost
his job. His replacement is Inusah Fuseini.