Theater of Cruelty

The curse of natural resources

Norwegian oil company refuses to disclose how much they pay to drill in Equatorial Guinea.


The Norwegian oil company, DNO, owns five per cent in block P offshore in the West African country Equatorial Guinea. The company's ownership interest is five percent. The deal with the country's authorities was signed last April along with US Ocean Energy (now Devon), which is the operator, Malaysian Petronas Carigali Eq. Guinea and Nigerian Atlas Petroleum (Int) Ltd. The state oil company GEPetrol has 20 percent in the block.

An investigation by the U.S. Senate last year revealed that the country's president, Teodoro Obiang Nguema and his family, has steered away from at least $ 35 million over the last ten years. The money comes from the country's petroleum industry. Much of the money has never been outside the United States, but has been transferred directly from the oil companies to the president's own accounts. In one case, $ 11,5 million was paid into the president's accounts, in the form of cash, according to UN news service Irin.

Up to the authorities

DNO announced at the end of August that sample drilling in the block has given indications that the well may contain oil. The Director of Information at DNO, Helge Eide, does not want to say much about the financial aspects of DNO's efforts in the country.

- What has DNO paid to participate in block P in Equatorial Guinea?

- In general, we do not comment on individual transactions, and therefore do not want to comment on this specifically. The license with the authorities in the country means that DNO, together with the other partners, has committed to purchase available seismic and drill two wells. It was in the other of these two wells that we reported this summer on results from the drilling that may indicate a possible oil discovery, Eide states.

- What tax rate does the country operate with towards petroleum companies?

- I can also not quite accurately estimate the tax rate in this case, but the conditions are quite typical when it comes to production sharing vats, such as our licenses in Yemen. A common scheme is then that after the companies have been reimbursed their investment costs, 65 – 70 percent goes to the authorities and 30 – 35 percent to the oil companies, Eide points out.

- According to the International Monetary Fund, IMF, only 15 – 30 percent goes to the authorities in Equatorial Guinea?

- This is possibly part of the total tax rate on income from oil production, which as a whole will be at the same level as for other production sharing agreements, says Eide.

- The country's authorities will not disclose how large the country's oil revenues are; is this okay for DNO, with regard to the requirements for transparency in the petroleum industry?

- It is up to the authorities what they want to publish, Eide concludes.

"This is a great opportunity to develop our country, to ensure a better standard of living and to provide our citizens with housing and hospitals," the country's Minister of Petroleum and Minerals, Cristobal Manana Ela, told the BBC in 2002.

Right in your pocket

The International Monetary Fund's latest report on the situation in Equatorial Guinea came in May this year. Despite $ 4,5 billion in annual oil exports, this "unfortunately does not lead to measurable improvements in living conditions," according to the fund. According to the fund, this is partly due to the fact that the country's tax rate is only 15-30 percent, while the usual in sub-Saharan Africa is 45-90 percent. Oil production has risen rapidly since its inception in 1991 and is currently at 360.000 barrels per day and reserves are estimated at 1,3 billion barrels. The Monetary Fund has previously estimated that of the country's $ 130 million in oil revenues in 1998, as much as $ 96 million ended up in the president's pockets.

Although the authorities have signaled that they want to join the Extractive Industries Transparency Initiative (EITI), an initiative where oil and mining companies, governments and NGOs work together to gain insight into the revenue streams from companies in the extractive industries to the host countries, the country's oil revenues remain state secrets. When the Money Fund visited the country earlier this year, they were denied access to the state-owned oil company GEPetrol's accounts.

Transparency in investing in developing countries is fundamental if one is to fight what is often called the resource curse, “The curse of natural resources”; corruption, unfair distribution and power. Jan Borgen in Transparancy sees no reason for DNO to keep its financial involvement in Equatorial Guinea a secret.

- Statoil has now begun to publish some of its figures, and Norsk Hydro will certainly follow suit. Then there is no reason why other companies should not do the same. My advice to DNO would be that they follow their big brother and publish the figures about their activities in Equatorial Guinea. The companies from the north that have been invited into Equatorial Guinea's oil sector must lead by example, Borgen points out.

oil Dependent

According to authorities, several coups have been planned against President Teodoro Obiang Nguema, which is used as an excuse to suppress the country's population. According to Amnesty International, a number of people have been arrested and sentenced to very long prison sentences, many of them without any evidence. Political opposition has been randomly arrested, tortured and abused. There have also been reports of rape, imprisonment without judgment, prisoners who have died in prisons, accidental executions, disappearances and sentencing. The authorities have strict control over the media and carry out extensive surveillance of journalists.

Equatorial Guinea separated from Spain in 1968 and until 1979 was ruled by the ruthless dictator Francisco Macías Nguema. He was overthrown by his brother-in-law Teodoro Obiang Nguema, who, despite promises to introduce multi-party systems, still has the undemocratic rule. The population counts half a million people, struggling with dysentery, malaria and a high infant mortality rate. Half of the population does not have access to clean water, while five percent of the population controls 80 percent of the country's assets, according to the Monetary Fund. Despite half of the population suffering from malnutrition, only one percent of the country's state budget, or whatever is public, goes to the health care system. Oil revenues account for more than 60 per cent of the national budget and 90 per cent of the country's export revenue.

Jan Borgen does not want to place the responsibility for poverty in the country directly on the shoulders of the companies.

- I do not want to say that they have a responsibility for the country's authorities abusing the oil revenues, but they have a shared responsibility to change the situation. They must insist that the authorities publish their accounts. This is certainly not easy, there are always other companies that are willing to be part of a secret. But someone must take the lead, Borgen points out.

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