Liberia’s Oil Discovery: A curse or blessing?

President Ellen Johnson Sirleaf announced in the last year that the Liberian Government had entered into an agreement with the Chevron Corporation to explore and drill oil in the Liberian waters. Under the agreement, the company will conduct a three-year exploratory program that is expected to begin in the fourth quarter of 2010, she said in a government statement. “Energy is one of my top priorities, and with Chevron?  technical skills, we will be able to build our own capacity in the sector, making a meaningful contribution to economic growth and job creation. This is a crucial partnership for Liberia,” Sirleaf said.

In a press release from Chevron Corporation, the company said “We are very pleased to participate in Liberia’s emerging energy sector,” said Chevron Vice Chairman George Kirkland.  “Entry into this large prospective offshore area allows us to advance our growth strategy for the region.”  According to the company press release, the deepwater blocks, LB-11, LB-12 and LB-14 are located between 12 to 110 miles (20 to 180 km) south of the capital of Monrovia and cover a combined area of 3,700 square miles (9,600 square km). According to the press release, the Liberian government granted approval Chevron Corporation was granted approval by the Liberian government to acquire a 70 percent interest. Dr. Fodee Kromah, than president of the National Company of Liberia said Chevron is required to pay the government a 5 percent royalty fee and 30 percent yearly income tax. According to Dr. Kromah, Chevron will give Liberia more than $3 million per block as a signing bonus and another $10 million for community work. A Nigeria oil firm was granted 30 percent interest in the deal. The U.S Embassy in a release said that the three year exploration has a potential worth of US$10billion.

As a representative aspirant for Montserrado County, I am highly disappointed with the agreement granting Chevron 70% ownership of right to drill oil in Liberia and a Nigerian firm 30% and while Liberia get royalty.  In similar oil deals in other African countries, Chevron received 39% from Nigeria; 40% from Angola; and 50% from the Democratic Republic of Congo. Oil discovery in Liberia is going to draw new interest from major powers around the globe. They will see Liberia as the most promising place in the world for new production. Even though Liberia do not have the huge deposits like other African countries like Nigeria, Equatorial Guinea, Sudan and Gabon, Angola but what it does have is accessible and largely unexploited. And the oil’s high quality makes it relatively inexpensive to refine.

Since 1990 alone, the petroleum industry has invested more than $20 billion in exploration and production activity in Africa. A further $50 billion will be spent between now and the end of the decade, the largest investment in the continent’s history. But most Africans in these countries where oil are been produced are seeing little benefit from this influx of oil drillers and investment. In fact, because of an economic paradox known as the Resource Curse, they are often hurt by exports of their countries’ oil. Between 1970 and 1993, countries without oil saw their economies grow four times faster than those of countries with oil. Oil exports inflate the value of a country’s currency, making its other exports uncompetitive.

At the same time, workers flock to booming petroleum businesses, which saps other sectors of the economy. Liberia may become import-dependent with the discovery and drilling of such a huge barrel of oil. Oil decimates a country’s agriculture and traditional industries. Experience in Africa with discoveries of oil can be very dangerous for national economies, technical, social and infrastructural development. Consider Gabon, which produces about 300,000 barrels of oil a day. It’s covered with tropical rainforest, but it’s hard to find bananas that are grown there. They are mostly imported from Cameroon. At one point, Gabon was the world’s largest per-capita importer of champagne. The oil — and the champagne — will eventually run dry. Gabon, with relatively small reserves, is already coming to terms with that possibility. By then, much of the rest of the country’s economy may have atrophied. Economists also call this phenomenon the Dutch Disease because it was observed in the Netherlands after natural gas was discovered in the 1960s in that country’s portion of the North Sea. The Dutch manufacturing sector withered as the gas industry grew.
In addition, oil money tends to corrupt politicians. They end up vying to pocket a share of the finite petroleum riches, rather than looking for ways to invest in their country’s long-term prosperity. In Liberia, corruption is the norm and though the current government is trying to curtail the spread of such anti-development phenomenon the practice is widespread. According to Transparency International 2010 Corruption Perception Index, Liberia is ranked among the top corrupt countries in the world (13th place out of 47 countries). Oil producing African’s governments aren’t dependent on income taxes and therefore don’t have to do what the citizens want. The state isn’t an engineer of economic growth, but a gravy train. None of the money gets down to the people.

A 2007 French police investigation found three Presidents from Africa in the person of the late Omar Bongo of Gabon, Denis Sassou-Nguesso of Republic of Congo and Teodoro Obiang Nguema of Equatorial Guinea and their relatives owned homes in up market areas of Paris and on the Riviera along with luxury cars, including Bugattis, Ferraris and Maseratis. The French arm of anti-corruption group, Transparency International corroborated the evidences against those three leaders. Gabon, Republic of Congo and Equatorial Guinea are all oil producing African countries.

Let it be known that I am not an anti-corporate crusader or an anti oil-industry campaigner in Liberia. Rather, this article is out to portray a continent that, thanks to its oil riches and its debilitating poverty, is increasingly occupying a place in economic and political debates in developed nations. Africa’s oil belt lies mainly along its Western coast in the countries abutting the Gulf of Guinea.  One third of the world’s new discoveries of oil since 2000 have taken place in Africa. The world’s two most energy-hungry economies, the United States and China, are vying to stake out spheres of influence in the oil-producing areas. Chinese oil firms, which typically don’t face the same quarterly earnings pressure that Western ones do, are pouring billions into all sorts of infrastructure projects across the continent. In the case of Liberia, Chevron Corporation, an American Oil Giant was granted approval by the Liberian government to acquire a 70% interest while a Nigeria company was granted 30%

Liberia can learn from African countries that discovered oil and try not to replicate their failures in administering the new found wealth for long-term prosperity. Norway can be use as a possible example of the way in which Liberia might conduct herself with the new found wealth. Norway, the world’s third largest oil exporter behind Saudi Arabia and Russia, salts away a large share of its wealth in a national pension fund, now worth more than $300 billion. The fund is expected to grow to about $900 billion in the next decade and invests only passively, in non-Norwegian stocks and bonds. That limits the temptation of politicians to use the money for pork-barrel projects. It has been nick named the future-generations fund. However, I am doubtful whether a comparable vehicle would work in post-conflict society like Liberia. Norway is a small, homogeneous country of about five million people that was relatively advanced when its oil began to gush while Liberia is a country emerging from 14 years old senseless conflict. Norway already had the sorts of public institutions that enabled it to prudently manage its newly found wealth. I’m not too sure that a future-generations fund can be airlifted to Liberia. You would need a lot of healthy, functioning civil institutions before you could do that and currently in Liberia we lacking strong institutions that suppose to lead to effective state capacity. Liberia is one of the world’s poorest countries, with 80% of its citizens living below the poverty line.
Even Nigeria, where the oil industry has operated for decades, probably wouldn’t be able to adapt the Norwegian model. While its oil wealth is vast — it has the world’s 10th largest reserves — so are its problems. It’s both an enormous country, with about 135 million people, and an ethnically diverse one, with hundreds of distinct ethnic groups. And its reserves lie in the poor, rural Niger Delta.  People in the Niger Delta live almost as if it’s the Stone Age. They live in stick huts on little islands in the mangrove swamps. Many of the villages are accessible only by boat. Nearby, multibillion oil facilities, with executives being dropped in by helicopter. Little of the oil wealth gets invested back into the delta and few of the companies in the Niger Delta employ local people. That has contributed to civil unrest and lawlessness in Niger Delta.  Thousands of people are killed in small-scale guerrilla warfare in the delta every year. Boys drill holes in the pipelines at night and suck out the oil: 100,000 to 200,000 barrels a day were disappearing like this at one point. The money is siphoned off to arm the guerrilla groups.

The situation in other African oil-producing countries is just as difficult. Equatorial Guinea is a family business masquerading as a country. It’s one of the most closed societies on earth. The sizzling oil sector is enriching a clique of politically connected people and creating boomtowns catering to the industry but seldom providing much wider economic benefit or even employing many local people. It’s a capital-intensive industry, not a labor-intensive one. So they don’t need to hire a lot of people, and the ones they do hire are petroleum engineers. You have local people hired to be security guards, but that’s about it.  President President Teodoro Obiang Nguema has ruled since overthrowing his uncle in a coup in 1979.  Yet the discovery of oil several years ago has meant huge wealth and massive investment flowing into this poor country of about 670,000 people. Not much of this has trickled down to ordinary people.  His government is regularly accused of brutality and rights abuses – it holds political prisoners and allegations of torture are rife. 

In March 2004, police in Zimbabwe’s capital Harare impounded a plane which had flown in from South Africa. Simon Mann and more than 60 others were arrested, amid suspicions they were mercenaries. They said they were providing security for a mine in Democratic Republic of Congo. But a couple of days later 15 men were detained in Equatorial Guinea – among them Nick du Toit, a South African business associate of Mann. Officials in Equatorial Guinea said the du Toit group was an advance party for Mann’s group. During the trial, Mann said he was the “manager, not the architect” of the plot. Both Mann and his co-conspirators have been quoted as saying they were attempting to install exiled opposition leader Severo Moto in the place of Mr Obiang. Mr Moto has denied involvement in the plot, but was found guilty in absentia by a court in Equatorial Guinea. Simon Mann also said both Spain and South Africa had “given the green light” to the coup. He implicated Sir Mark Thatcher, son of former UK Prime Minister Baroness Thatcher.  And there was a string of tycoons and politicians linked with the financing of the plot. He accused London-based oil billionaire Ely Calil of being the “boss”.

On top of that, the flow of oil riches can create bizarre contrasts. Luanda, the capital of Angola and also the center of its oil industry, is just one example. Luxury high-rises are being built there despite the country’s extreme poverty, and oil companies are paying $15,000 a month to rent apartments for their employees. For expatriates, it’s one of the most expensive cities in the world. The disparity between rich and poor there is like nowhere else in the world. Oil companies such as Cabinda Gulf Oil Company Limited, Chevron’s wholly owned operating unit in Angola, is a major presence in Angola’s energy market. In fact, Cabinda is one of Angola’s top petroleum producers and the largest foreign oil-industry employer and other are flocking to the country because its reserves lie offshore as in the case of Liberia, allowing for safer drilling than in the Niger Delta.

Oil companies like Chevron often argues that their role in Africa is simply getting oil out, maximizing profits and paying taxes. Politicians, they contend, are responsible for investing the tax revenues in education and infrastructure. It is a shame that Chevron is required to pay the government a 5 percent royalty fee and 30 percent yearly income tax. I read that Chevron Corporation is constructing water wells and latrine facilities in more than 40 communities in Monrovia and even donated generator to Redemption and also expected to furnish a computer lab for vocational training purposes at the Booker Washington Institute in Kakata, Margibi County. These projects are laughable and a strategy designed by certain individuals in government and Chevron to convince certain segment of our population that the oil discovery and drilling mean well for Liberia. Chevron Corporation is making billions and the company just reported 3.77 billion in the third quarter last year. So why are we mortgaging our new found wealth to them? Why the rush?

Let be realistic after all we are talking about Liberia where corruption is the norm. Arguably irregularities and flaws were in the process which granted Chevron the right to explore and drill oil in Liberia. Was the Liberian government in compliance with international best practice as well as the PPC regulation of Liberia? President Sirleaf said in 2010 and I quote “I met also with the people of Chevron Oil Corporation because we have been encouraging them to come and do business. We think a big US Oil Company like Chevron coming into Liberia will send a big signal. Though, they had meeting with me to conclude and we are working with the National Oil Company of Liberia (NOCAL) to see how they can conclude for Chevron to come.” President Sirleaf statement is a clear indication that Chevron coming to Liberia is the product of one her numerous trips to the USA.

Bid or no bid, Chevron was the only significant company to take charge of Liberia’s oil exploration because “it will send a big signal.” In my opinion, this is a clear violation of the PPCA law based on President’s utterances. From what I have gather there were some international bids but it was only published abroad. The PPCA law is clear on the issue. The bid advertisement must be done in Liberia. Did Chevron participated in the bidding process? From what I gather Chevron didn’t even bid but rather a small and less capable company initially won the bid, but as it because clear the winner lack the capacity, Chevron bought the smaller company winner right. That is how the Chevron came into the picture.  Why Chevron and why the second winner of the bid didn’t take the place of the proven incapable winner instead of Chevron? Was there any due diligence in the entire process?

According to the Liberia Extractive Industries Transparency Initiative (LEITI) recent report, Liberia received a mere $35 million in remittance from our natural resources in 2009. Chevron and the Nigeria Company agreement with the Liberian government explain why our natural resources contributed to only 10 % of our country $347 million dollar budget in 2009. Imagined Botswana in Southern Africa primary commodity export is diamond but diamond remittances alone financed 50% of its $2.6 billion dollar budget in 2009.  It is time that civil society body and political parties in Liberia demand that the Legislative and the Executive branches of government renegotiate the oil agreement which gave Chevron Corporation 70% and a Nigerian Company 30% interests leaving Liberia with royalty.

We need to challenge these foreign oil companies by telling them that the Liberian people lived without oil since 1847 and we can live without it again for a few years in order to attain our legitimate rights and benefits. We are in a prime position to reap the benefit of the oil discovery in Liberia and be among the few African countries to secure share of the revenues. We as a people need to be aware that the discovery of oil in our country can be a curse judging from oil producing African countries experiences or can be a blessing if mechanisms are put in place in making use of the new found wealth for the sake of developing the country and investing in Liberia’s long-term prosperity and preserving our environment for future generations. We are watching!

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The writer holds BA in Criminal Justice minor in Political Science from Metropolitan States University in Minnesota, USA; M.S in Development studies and M.S in Politics and International studies from Uppsala University in Uppsala, Sweden. He is currently contesting for the Representative slot of Montserrado County and can be contacted through Seltue.Karweaye.4687@student.uu.se or karwease@go.metrostate.edu