/** headlines: 191.0 **/
** Topic: Report Discusses World Bank Funding Of Chad/Cameroon Oil Project **
** Written 4:02 PM Mar 20, 1997 by econet in cdp:headlines **
/* Written 5:28 AM Mar 18, 1997 by Kenneth_Walsh@edf.org in env.oil */
/* ---------- "WB Chad/Cammeroon Oil&Pipeline Proj" ---------- */
Should international development assistance for two of the poorest countries in Africa be used to support big oil companies? An international consortium consisting of Exxon, Shell and ELF is planning a multi-billion dollar oil exploitation project with serious environmental and social risks that many fear may create another Ogoniland, Nigeria's oil-producing region marked by environmental devastation and brutal human rights violations.
The project consists of the development of the Doba oil-fields in southern Chad, a landlocked nation, and a 600 mile pipeline through Cameroon to transport the oil to an Atlantic port from where it is exported. But there is a hitch. The project won't go forward unless it is supported by public funding from international development agencies, mainly the World Bank. The World Bank intends to fund the project both with IDA credits intended to help the poorest countries and through its arm that supports private sector companies directly, the International Finance Corporation (IFC). A final decision by the World Bank's Board of Directors is expected later this year and the first oil is scheduled to flow in the year 2000.
Exxon, the leader of the consortium, refers in project documents to the World Bank as the foundation of the financing structure for the entire project. World Bank officials confirm that the project hinges on the participation of their institution because the consortium looks to World Bank participation as the center piece of its risk reduction strategy in a politically volatile part of Africa and as necessary to attract funding from export-credit agencies and commercial banks. The international standing of governments of poor countries depends on their relationship with the World Bank. When this relationship turns sour, foreign aid and commercial lending are likely to be cut-off. The resulting political leverage of the World Bank reduces the risk of other public and private investment with which it is associated.
The World Bank claims that the project will alleviate poverty because revenue from the oil for the Government of Chad and royalties for the Government of Cameroon for the use of the pipeline would be invested in poverty programs. However, this strategy has little credibility in view of the demonstrated lack of commitment to poverty alleviation by both governments.
The Doba region in southern Chad has long been the seat of an ethnic and regional struggle against Chad's central government which is closely associated with the government of neighboring Sudan, a country that the U.S. accuses of supporting terrorism. The promise of oil wealth in the south risks reigniting the smoldering tensions with fresh demands for a federalist state and renewed violence. On the financial side of things, foreign donors have not trusted the President of Chad to handle the country's finances. At their insistence, the Chad Treasury was under the control of a Swiss firm for several years.
The Government of Cameroon is also known for the lack of transparency in its financial transactions, with the whereabouts of the revenues from the country's own offshore oil production largely unknown. A 1995 World Bank report found the government's will to address poverty very weak and complained of financial mismanagement.
The 600-mile underground pipeline through Cameroon will pass through ecologically fragile rainforest areas, including an area that is the home of a Pygmy minority of traditional hunters and gatherers. An uncontrollable influx of people in search of work will gather at the construction sites. As a result, deforestation, wildlife poaching, and the loss of farm land of local villages to the construction activities will create a destructive environmental legacy. The pipeline itself, even with state-of-the art equipment, poses the danger of groundwater contamination and pollution of important regional river systems as crude oil containing heavy metals leaks into the environment.
An environmental impact assessment is being carried out and an Environmental Panel was put in place to mitigate these problems. But the best environmental reports are of little help when there is no government commitment to carry out its recommendations. This lack of commitment is especially in evidence in Cameroon, a country with one of the highest rates of deforestation in the world. Once the money is flowing, the unholy trinity of oil, power and corruption will make corrective action difficult.
Those in the countries that dare complain will do so at their own risk. According to the U.S. State Department's Report on Human Rights both the Governments of Cameroon and Chad are responsible for severe violations of human rights, the lack of freedom of expression, and their citizens' very limited capacity to change their government.
People in Chad and in Cameroon are often desperately poor and outside aid that addresses their own priorities could do a lot to help. But the allocation of aid dollars for each country is limited and World Bank support for the oil project will divert scarce resources away from investments in health, education, environmental protection, and infra-structure that provides clean drinking water and sanitation. Ironically, World Bank studies demonstrate that these are exactly the projects that yield the best results in helping people out of poverty.
A consortium composed of Exxon, Shell and Elf, three of the world's largest oil multinationals, plans to develop three oil fields in the Doba Basin in southern Chad. Approximately 300 wells would be drilled and production is estimated at about 225,000 barrels of oil per day. Exporting the oil will require the building of a 1,100 kilometer (600 mile) long pipeline through neighboring Cameroon, as well as related infrastructure such as pump and storage stations, about 500 km of road upgrades, and the building of a floating storage and off-loading facility on Cameroon's Atlantic coast at Kribi. Total project costs are estimated at about U.S. $ 3.5 billion. The project will not go forward without significant backing by the World Bank (please see below) and a decision by the World Bank's Board of Directors may be scheduled for as early as the summer of 1997.
Given the scale of investments and the nature of risks, the project raises serious questions. Furthermore, it appears that alternative investment programs and a more balanced pattern of development which are more appropriate to alleviating poverty and promoting sustainable development must receive more attention.
A brief project report by Exxon, the lead operator of the project, states that the World Bank and the International Finance Corporation (IFC), the World Bank's arm which directly supports the private sector, will represent the foundation of the project financing structure. 1/ The reasons for this prerequisite are that World Bank involvement provides political risk insurance and serves to attract funding from other sources, especially export- credit-agencies.
World Bank Group direct participation involves IDA support of about U.S. $ 120 million and IFC investments of an estimated U.S. $ 250 million directly for the private sector companies to be established by the consortium, which is made up of Exxon (40%), Shell (40%) and Elf (20%). 2/
But more importantly, building on IDA's commitment to the project and its relationship with the governments, the IFC will play a key role in raising project funds on international capital markets. The IFC plans to mobilize at least an additional $ U.S. 1 billion in limited recourse debt. Limited resource debit is debt for which the responsibility of the parent oil companies is limited.
The Project Information Document (PID) of April 4, 1995, 3/ the only publicly available World Bank document on the project, does not specify if there will be separate credits to Cameroon and Chad. It does, however, state that World Bank Group financing will be only for downstream facilities, e.g. the pipeline and marine facilities, whose total cost is estimated to be U.S. $ 1.8 billion.
According to the PID, the project will reduce poverty by promoting the economic growth of Chad and Cameroon through the private sector-led development of Chad's petroleum reserves and the royalties Cameroon will receive for allowing Chad's oil to pass through for export.
World Bank investments in large-scale infra-structure are a "blunt instrument" for intervening directly on behalf of the poor as stated in the Bank's 1994 Development Report on Infrastructure. 4/ But worse, this type of investment crowds out programs that would directly benefit the social sectors, health, education, and environmental protection. The argument has been made eloquently by a former World Bank official, Martin Karcher, who decided to leave the World Bank when the Bank's planned involvement in the Arun dam in Nepal threatened to wipe out long-standing efforts to improve basic health care and education in the country.
According to interviews with World Bank staff, the poverty impacts of the Chad/Cameroon oil and pipeline project will be different for Chad and Cameroon. In the case of Cameroon, the royalties, which may amount to as much as U.S. $ 60 million per year, will provide general budgetary support to the government and be used to meet the country's external debt burden. In the case of Chad, on the other hand, there will be a technical assistance project to strengthen the country's management of oil revenues, which are to be paid into a special Development Fund. The Development Fund is to be used by the government for poverty alleviation programs, but for sovereignty reasons the Government of Chad alone decides how to use the funds.
In principle, a development fund can be a critical resource for social development programs in a poor country that has limited access to outside assistance. In practice, however, the situation is complicated by the entire political and socio-economic situation of a country. In a case far simpler than Chad, the Development Fund established under the Lesotho Highlands Water Project, which receives royalties from the export of water from the Highlands of Lesotho to South Africa, has so far failed to benefit the people directly affected by the project and has become an instrument of the politically powerful.
In both Chad and Cameroon, civil society organizations struggling for greater democratization and defending human rights and the environment are taking root. These organizations whose presence and growth is a source of hope for more equitable and environmentally sound development, face difficulties and threats from the existing power structures. They are in need of strengthening and support, but the oil project may undermine hopes for a greater democratic opening.
At present, the situation in both Chad and Cameroon does not augur well for wide-spread benefits from the proposed project for its struggling populations. The lack of respect for human rights, as documented by Amnesty International, is pervasive in both countries. According to the U.S. State Department's Annual Report on Human Rights, both the Governments of Chad and Cameroon are responsible for severe violations of human rights, the lack of freedom of expression and association, and their citizens' very limited (Cameroon) or non-existent (Chad) capacity to change their government. 5/ The World Bank's claims of development benefits for both countries cannot be evaluated without considering the political economy of each country.
Both governments have been successful at obliterating the distinction between public and private assets. In Chad, the national treasury has been controlled by the Swiss company COTECNA for several years on the advice of donors who wanted to prevent the President of Chad from having direct access to cash in the Treasury. 6/ Cameroon's oil revenues are largely unaccounted for, a situation which a respected British publication describes as one of a "historic lack of transparency in its recording of trade figures, especially for crude oil exports."7/ Foreign donors, especially France, and the multilateral development banks have abetted-if not promoted-the wide-spread corruption in Cameroon by continuing to make loans turning it into a severely indebted country, while its natural resources are disappearing without benefiting the country's citizens.
A confidential report of June 1995 to the French Ministry of Foreign Affairs warns of a "the process of Criminalization" in the way many economies in Sub-Saharan Africa are being run. 8/ According to the report as quoted in the magazine Novel Observateur, this "criminalization" is the result of the combined effect of economic crisis, neo-liberal structural adjustment programs and the lack of legitimacy of political institutions. The report makes explicit mention of the role played by French oil companies (i.e., Elf, a partner in the Consortium) in the lack of accountability and transparency (i.e., corruption) in the oil business on the continent.
For more than thirty years Chad, a vast country two-and-a half times the size of France in the center of Africa, has suffered an intense civil war. The reasons are complex, but put simply, the war pits the largely Muslim North of the country against the South, the country's main agricultural region which is home to mainly Christians and Animists.
There are several politico-military groups around the country, but Doba is the main center of the southern rebellion against President Idriss Dby who rules from the capital of N'Djamena which lies 350 miles to the north. Much of the army is recruited from the President's ethnic group and is regarded by Chadians as the principal source of insecurity. 9/ The oil wealth in the south is likely to increase southern demands for greater autonomy. During Chad's 1996 Presidential elections, which were staged with the help of France and which are reported to have been largely fraudulent, the candidate who campaigned on a federalist platform was put in jail. 10/
The fragile truce at present is at great risk as acts of sabotage and the secessionist movement are fueled by resentment of northern control over the oil income. Ironically, the main ally of the Chadian Government is the fundamentalist Islamic Government of Sudan, which the U.S. accuses of sponsoring terrorism. It is also the widening civil war in Sudan itself, which has much to do with control over oil resources, that worries many well- informed Chadians as a harbinger of things to come.
With a per capita income of U.S. $ 210 in 1993, most Chadians are very poor. Low health indicators due to malnutrition, lack of clean water, and sanitation are the central problems. Will the oil change that? According to recent reports, the feeling by many in the capital that the country will soon enter a golden age of oil wealth is tempered by the views of local human rights workers, journalists and others who fear becoming the next Ogonis. 11/
Two worlds are clashing in the oil region, traditional peasant culture and the expatriate oil business way of life with its sophisticated technologies and base camp offering all of western amenities. Tragedy already has been visited on local people. One case is that of the peasant who took his two children to see the landing of an airplane, something that had not been seen in his area for a long time, and was killed by Exxon security guards. Notwithstanding the fact that the villagers testified that the peasant was one of them, had never left the village, and had just wanted to see the plane, the military chief prepared a report stating that the man was a rebel, thereby officially justifying the killing, and closed the case. Exxon hid behind the military chief and no compensation was paid to the family of the victim. 12/
Recent visitors to the area found that local people who have already lost houses and fields to the prospecting work, construction of the base camp and other project-related activities are angry about the compensation they are receiving. Even a small patch of land can be a question of family survival in poor rural areas. Interestingly, the question of compensation seems not to have received much attention from the Chadian Government. At a press conference following the signing of the pipeline agreement between the Oil Consortium and the Governments of Chad and Cameroon in February 1995, the General Secretary of Chad's Presidency responded to a question on compensation by saying "we have not thought about it yet." 13/
There are myriad examples of how poor rural people's livelihoods suffer when infrastructure and other projects intrude on their survival economy and the levels of repression and violence increase. This situation can easily be repeated in southern Chad.
Cameroon, an oil-exporting country, used to be classified as one of Africa's middle-income countries. This status was changed to "low-income country" by the World Bank following the devaluation of the FCFA in January 1994. The devaluation led to a 25 to 30% decline in purchasing power in the capital city of Yaound alone. 14/ This came following a decade of severe economic crisis and growing pervasive poverty in both rural and urban areas. The revenues from the country's oil exports (please see below) have never been accounted for and the country's rich tropical rainforest is being raided by timber companies and their friends in government without consideration of the ecological and social consequences. The country's natural resources are being used for private benefit with little accountability in the system. Not surprisingly, a 1995 World Bank report concluded that Cameroon government commitment to poverty alleviation is weak. 15/
Today, Cameroon is a severely indebted country, which according to World Bank figures has only paid about 30% of its debt service due since 1991. The pipeline project, according to the already mentioned World Bank officials, will bring in hard currency royalty payments to help service the foreign debt. The project plans to create about 600 jobs in Cameroon for the duration of the pipeline construction. This is not much for a large investment, including several hundred million dollars from the World Bank Group, and hardly a contribution to sustainable development given the considerable social and ecological risks of the project.
Information on the project has been very tightly managed and the out-dated World Bank Project Information Document has been the only publicly available document. Foreign journalists, including a German TV team, have not been allowed to film or photograph the Exxon base camp in southern Chad. Martin Zint, one of the journalists who recently visited the project area, thinks that Exxon seems to count on the "No Picture, No Story" strategy.
An Environmental Impact Assessment (EIA) and an Environmental Panel are intended to mitigate the social and ecological risks of the project. A summary of the EIA, which is being prepared by the U.S. consulting firm Dames and Moore, will be made available to the executive directors of the World Bank 120 days in advance of the Board vote on the project (a requirement spurred by U.S. Law 17/). The three member Environmental Panel is sworn to confidentiality and has not released a report.
It is striking that throughout the EIA process, there seems to have been no involvement of affected people contrary to the Bank's instructions in its October 1991 Operational Directive 4.01 on Environmental Assessment. It is worth quoting the relevant paragraph since a conversation with members of the Environmental Panel indicated that they were not aware of it:
"Involvement of Affected Groups and Non-Governmental Organizations 19.Instead, Exxon seems to plan to hold public meetings in Cameroon in each locality through which the pipeline will pass with lectures and videos to explain the pipeline and its impact to lay people. 19/ This hardly seems to be the consultative process called for in OD 4.01.
The Bank expects the borrower to take the views of affected groups and local NGOs fully into account in project design and implementation, and in particular in the preparation of EAs. This process is important in order to understand both the nature and extent of any social or environmental impact and the acceptability of proposed mitigatory measures, particularly to affected groups." 18/
Even if we assume that the environmental impact assessment is very good and that the Environmental Panel has the resources and influence it needs, the socio-economic and political context will make effective environmental mitigation and compensation for affected people extremely difficult. Other World Bank-funded mega projects, for example, the Lesotho Highlands Water Development Project in Southern Africa which is also being monitored by an Environmental Panel, show how limited institutional capacity and political will on the part of governments prevent the implementation of mitigation plans.
Despite the fundamental lack of detailed information, an outline of the over- all ecological and social risks of the project can be drawn.
Rural people will be affected as their land is being occupied by oil wells and other infrastructure. Southern Chad is the most fertile part of Chad, producing most of the country's food and cotton for export. How will the project affect food production? Even if the number of people to be resettled is not high, lack of institutional capacity by government-as demonstrated by the Lesotho project-is a formidable obstacle to adequate resettlement. But in addition to physical resettlement, there is the more prevalent problem of loss of livelihoods when productive assets, land, trees, access to water are taken away from rural people and compensation is inadequate. The basic requirement of the World Bank's policy on Involuntary Resettlement is to ensure that affected people are at least able to maintain the standard of living they had before resettlement. But there are numerous examples in Africa and throughout the world, where the Bank has not been able to implement this provision and where poor and vulnerable groups, which are the ones who usually have to be forcibly resettled, suffer greatly as a result of resettlement and are unable to re-establish their livelihoods.
In Cameroon, the problem is not limited to the clearing of land for project infra-structure during pipeline construction. In addition, there will be an uncontrolled influx of people seeking construction jobs or searching to provide services to the migrant work force along the pipeline route and around the port of Kribi. In addition, public health problems, especially in the form of AIDS, are likely to spread rapidly along the pipeline route as the work force and its entertainment industry of bars and prostitution moves through the rural areas.
World Bank officials claim that the pipeline will only move alongside existing road and railway lines and therefore only pass through already degraded areas. This, however, may not be the whole picture. Stretches of the proposed pipeline route will pass through or close to still largely undisturbed rainforest areas, including areas inhabited by indigenous people. The large influx of people will lead to the clearing of forest and poaching near the construction sites as people try to grow food and hunt. In addition, project- related infrastructure such as roads, construction camps, housing for workers, pump stations, etc. represent a serious threat to the survival of these forest areas and their unique wealth in plant and animal species.
Kribi, the Atlantic port from which the oil is to be exported, lies sandwiched between two national reserves, Campo and Douala Edea, which are known for the threatened fauna that they shelter. Protection of the Campo reserve is part of the Cameroon Biodiversity Conservation and Management Project funded by the Global Environment Facility (GEF) and implemented by the World Bank. Poaching of large mammals already is a problem and is likely to increase manifold with the expected arrival of new migrants to the area.
The off-shore oil facility itself will be located outside of Kribi in front of the Lob waterfalls, which are one of the rare cases in the world where waterfalls flow directly into the ocean. It is a unique area with potential for revenue generation such as eco-tourism, that will be undermined by project infrastructure and the constant threat of oil spills.
Oil pipelines are an environmental hazard anywhere in the world. Even with the latest state of the art technology, oil leaks in pipelines can go undetected until a huge amount of damage has been done. The most sophisticated technology has a detection capacity of a leakage of 0.002% of the oil passing through. With an estimated daily volume of 9,450,000 gallons of crude oil a day (i.e., the equivalent of 225,000 barrels/ day), this means that under the best of circumstances 2,000 gallons could leak a day without being detected. Crude oil contains many heavy metals and the dangers for groundwater contamination and stream pollution, especially given the several river crossings of the pipeline and its proximity to the Sanaga, one of West Africa's most important river systems, should not be underestimated.
The fact that the ca. 80 centimeter (30 inch) wide pipeline is underground will make repairs more difficult. The oil from Chad's Doba fields is low quality, high sulfur and very thick. In addition to pumps, this will require heating of the pipeline to move the oil. Both the heating and high sulfur content increase the risk of pipe corrosion.
ELF has long been a major French foreign policy instrument in Francophone Africa. The former head of ELF, Mr. Le Floch-Prigent, who now stands accused of corruption in France, recently confirmed what many outside observers have long suspected: Elf put in place the Government of President Bongo in Gabon, ELF maintained control over the Government of Congo, even when it was Marxist, and the Government of President Biya in Cameroon has only survived with ELF support. 21/
According to Mr. Le Floch-Prigent, his role in preparation for the Chad/ Cameroon oil pipeline was to "convince the Americans discreetly that the pipeline had to traverse the Francophone part of Cameroon." 22/ The Francophone part of Cameroon is where the country's President and his allies are in control, while the Anglophone part of Cameroon is an opposition stronghold. Incidentally, Cameroon's own oil is exported from the Anglophone area and it would appear to have been ecologically preferable to make use of the same area instead of exposing a new-and as of now- pristine Atlantic coast area to oil pollution.
But there may be more than the political considerations of the Biya Government at stake. According to the French publication "La Lettre du Continent" the French military see this pipeline route and the road that goes along it as providing easy access to southern Chad in case of crisis. Had the route gone through the Anglophone area to the port of Limbe, along the Nigerian border, French military movements would be more difficult. 23/
Interviews conducted with officials at both the International Development Association (IDA), the World Bank's concessional lending window for the poorest countries, and at the International Financial Corporation (IFC), the World Bank's arm for the private sector, reveal the following:
The oil companies have stated clearly that the project will not proceed unless there is substantial World Bank Group involvement in the project. There are two primary reasons for this prerequisite:-- It provides political risk insurance -- It serves as a catalyst for export-credit agency funding
Political risk insurance in this case will not be provided through the Bank's regular branches providing this type of service, e.g. IBRD guarantees or MIGA (Multilateral Investment Guarantee Agency). These institutional mechanisms cannot be used because both Chad and Cameroon are qualified as too poor for regular World Bank IBRD loans and Chad is not a member of MIGA. Instead the political risk insurance will be provided through the relationship (and leverage, one should say) of IDA with both the Chadian and Cameroonian governments. For most African countries, access to foreign aid and finance depends on their relationship with the World Bank. When this relationship deteriorates, countries face the risk that all foreign aid from multilateral as well as bilateral aid programs might be cut-off. Under such circumstances private foreign investment would also stay away. The resulting political leverage of the World Bank reduces the risk of other public and private investments with which it is associated.
Exxon representatives representing the consortium have paid regular visits to World Bank headquarters to promote the project. There have been special briefings to World Bank Executive Directors' offices and the U.S. Treasury Department and possibly the Finance Ministries of other countries. More recently, Exxon representatives have also visited the African Development Bank in Abidjan, Cte d'Ivoire, which is still in the process of overcoming years of deep-seated mismanagement. As a result of this visit the AfDB may now consider a special "enclave" loan to support the Oil Consortium project. An "enclave" loan at the AfDB means that poor countries that usually only qualify for concessional loans from the AfDB's soft loan window, will receive high-interest loans from the Bank's regular lending window. As a result of this special "enclave" provision, Chad and Cameroon are likely to further add to their already high foreign debt burden, by contracting high interest loans to pay for their participation in the project-such as state participation in the pipeline.
On the basis of the World Bank's involvement, the oil consortium is able to spread the remaining risk more widely. World Bank presence provides the "level of comfort" necessary to attract additional funding from a whole host of other sources, such as the African Development Bank, but most importantly, the export-credit agencies of the major industrial countries. Once the export-credit agencies support the project, then the commercial banks feel safe enough to provide loans. What we have is a financial structure where private sector risk is comfortably cushioned by public funds intended to help the poor in a politically unstable area of Sub-Saharan Africa.
What emerges is a case of corporate welfare: The private sector-the oil companies and the commercial banks-are taking cover behind publicly funded or guaranteed institutions, be they the World Bank group or the export-credit agencies of individual countries. The mixing of public costs and private benefits does not match with the private sector's image as one of self-reliant, risk-taking initiative and enterprise in an unfettered free market system. The financial risks in this particular case are shared with-if not shouldered by- public funds and guarantees from both multilateral and bilateral sources. To whose benefit?
There are clear trade-offs, funding from the World Bank (and the African Development Bank) for each country is limited, what ever is allocated to the Exxon/Shell/Elf project will not be available for investments in other sectors with direct positive impacts on people's lives.
Even those convinced that governmental reform in Chad and Cameroon will wipe away long-standing problems overnight and make a trickle-down effect from the oil and pipeline investments possible cannot claim that this project provides the best alternative for poverty alleviation. The World Bank itself recognizes-at least rhetorically-that it is investments in the social and environmental sectors, health, education, and in infrastructure that provides clean water and sanitation, that bring about the best result in helping people out of poverty. 24/
Oil projects, especially in countries with politically repressive regimes, hardly point the way to sustainable development. Nor does it in the oil-importing countries, where the continued availability of cheap oil (e.g. at a price that manages to externalize the environmental costs of its extraction, production and transport) crushes incentives to provide energy from alternative and sustainable sources and threatens the Earth's atmosphere.
Copyright: 1997 The Environmental Defense Fund
The Environmental Defense Fund is a leading national, New York- based, non-profit, research and advocacy organization with over 250,000 members nationwide. EDF's staff includes scientists, attorneys, economists, and engineers who seek practical solutions to a broad range of environmental and human health problems.
Contact Korinna Horta, Environmental Defense Fund, 1875 Connecticut Avenue, N.W., Suite 1016, Washington, D.C. 20009; Tel.: 202 387 3500; Fax: 202 234 6049; Email: email@example.com
Special thanks for input and encouragement to Hlne Ballande (Les Amis de la Terre), Lois Epstein (EDF), Irne Mandeau (Amnesty International), Bruce Rich, Ken Walsh (both EDF), Martin Zint and several other knowledgeable persons who wish to remain unnamed. KH.