OpEd: Germany’s Shallow Remorse of Selling Big Guns

Report of major Leopard 2A7+ deal with Saudi Arabia splits German politicians

10:00 GMT, July 5, 2011 defpro.com | If you are a reader from any country outside of Germany, honestly, what was the last news you heard or read about regarding German defence policy? Whatever it was, I will willingly bet that it included at least one aspect that caused you to incredulously shake your head. Be it the German government’s decision to abstain from US Security Council Resolution 1973 on Libya (together with Russia and China), the never-ending reports about inadequate equipment for soldiers deployed to Afghanistan, the head-over-heels decision to end compulsory military service … the list is long and continues to grow day-by-day.

The latest national commotion, especially among politicians, was stirred by media reports about a possible export of 200 Krauss-Maffei Wegmann-built Leopard 2A7+ main battle tanks to the Kingdom of Saudi Arabia, after Germany has, reportedly, blocked the sale of weapon systems to the authoritarian desert kingdom for decades. According to the weekly news magazine “Der Spiegel”, the federal security council approved the sale last week. The report continued to explain that Saudi Arabia was negotiating to buy a version of the tank that was developed by the Spanish subsidiary of General Dynamics, yet, that the major portion of the order will land with Krauss-Maffei Wegmann and its partner Rheinmetall Defence. “Der Spiegel” also claims that 44 Leopard 2 tanks have already been sold to Saudi Arabia within the framework of the current agreement.

This report caused a familiar knee-jerk reaction by politicians from almost all political camps, but first and foremost by the socialist, green and left-wing opposition parties. Most critics of the possible multi-billion euro deal pointed to the volatile situation in North Africa and the Middle East and emphasised that Saudi Arabia recently deployed troops and heavy equipment to support its neighbour Bahrain in crushing demonstrations against the small Kingdom’s leadership. According to tagesschau.de, Jürgen Trittin of the Green party said that, as yet, German governments agreed not to sell weapons to countries in crises areas. He explained: “Saudi Arabia was recently involved in crushing the democratic movement in Bahrain. To deliver weapons to such a regime, and in such a manner, is unprecedented in recent years.”

Further, politicians who oppose the possible contract mentioned Saudi Arabia’s questionable human rights record, as well as the possible threat that such a large fleet of tanks could represent to Israel and the general balance of power in the region.

Interestingly, the ranks of those opposing or questioning the sale of tanks to Saudi Arabia have most recently been joined by members of the ruling parties, including Norbert Lammert, the President of the Bundestag and member of the conservative CDU, as well as Liberal-party member Elke Hoff of the Bundestag’s defence committee.

But what are the true motives of German politicians when suddenly crying out loud about such a contract? I will not question that some may have true pangs of conscience. But it is not the first time that German-built weapon systems are being sold to Saudi Arabia. In fact, the country is among the most important customers of German defence goods. According to tagesschau.de, the government approved defence contracts worth €168 million with the Saudi Kingdom in 2009; the same year also saw the export of 147 Leopard MBTs to Chile, Finland, Greece, Singapore, Turkey and Brazil. Furthermore, Saudi Arabia has been the first Eurofighter Typhoon export customer, having ordered 72 aircraft for an estimated €.6.5 billion (the first batch was also delivered in 2009).

But the protests among politicians were far more restrained when these contracts were publicly discussed. And Saudi Arabia’s human rights record is not only being questioned since the start of the spring uprisings in the Arab world.

There are a number of different factors that blend into the outraged statements that could be heard during past days.

First, there is a historical reluctance when it comes to selling ‘big guns’. The large 120mm smoothbore gun and massive impression made by its 60+ tons has often brought the Leopard main battle tanks to the centre of attention of politicians opposing German weapon exports in general, or to a particular country. Its heavy armour recalls difficult memories of those days when Germany was notorious for solid Krupp steel products. But this comprehensible remorse by many Germans can also be exploited to win over certain groups of voters; in particular, at times when the ‘popular parties’ are having difficulties in sustaining their popularity.

Secondly, the so-called “Arab spring movement” makes it a currently most opportune moment for politicians to jump onto the train of shining pro-democratic self-manifestations. But no German politician’s indignation could be heard as loud as today when, for instance, Eurofighter Typhoons were sold to Saudi Arabia or when the United States negotiated and signed multi-billion dollar arms deals last month. In mid-June, the US Defense Security Cooperation Agency (DSCA) announced possible foreign military sales (FMS) of a number of weapon systems, including 404 CBU-105D/B sensor-fuzed weapons or a variety of light armoured vehicles, for an estimated $263 million. In addition to a large number of different weapon systems, more than 370 US-built M1 Abrams main battle tanks have also been ploughing Saudi desert sands for years and provided the US defence industry with manufacturing, service and upgrade contracts worth several billion dollars.

If German politicians did not vividly criticise US defence exports to Saudi Arabia, it is also due to the fact that Germany has had its share of the cake in helping Saudi Arabia to build one of the region’s largest and most state-of-the-art armed forces – often legitimised by Western allies as a significant strategic counter-balance to Iran.

Thus, when a member of the opposition party directly accuses Chancellor Angela Merkel and Foreign Secretary Guido Westerwelle of having only paid a lip service to the democratic movement in the Arab world during the last few months, when so light-heartedly selling tanks to Saudi Arabia, it’s not all that strange when a bad feeling crops up in the gut.

The result of this hypocrisy for the German defence industry, providing work to some 80,000 people, is a very uncomfortable and damaging business environment (one that many foreign country’s industry representatives are observing with amused curiosity), as the same politicians who are eagerly shaking hands and excitedly watching during weapon system displays are far too willing to demonise this same industry, when the tide turns.

Oh, and by the way: According to the German business newspaper “Handelsblatt”, the German federal security council recently gave the green light for the export of German defence equipment worth an estimated €10 billion over the next 10 years to the autocratic military government of Algeria, including Fuchs armoured transport vehicles, trucks and off-road vehicles, as well as frigates. Has anybody heard a word about this from German politicians?
Source

Big banks: From Greek bailout to Hamlet's castle

Two years ago, German Chancellor Angela Merkel wanted something that sounded quite reasonable. Instead of having European taxpayers foot the bill of a Greek bailout, why not make the banks help pay for it?

The tribute lasted four hours (Photo: Valentina Pop)

They were after all equally to blame for the bankruptcy Athens was facing. Goldman Sachs, the US investment bank giant, had for years sold so-called credit default swaps to the Greek government. This allowed the Hellenic government to hide its real deficit.

So in October 2010, at a meeting in Deauville, Merkel and French President Nicolas Sarkozy decided that “Private Sector Involvement” (PSI) would be imperative for any further bailouts.

Athens had already received a €110 billion earlier that year via bilateral loans from the eurozone and the International Monetary Fund, but it became increasingly evident that more was needed.

Cue the bankers. Josef Ackermann, head of Germany’s biggest bank, Deutsche Bank, was at the time head of the International Institute of Finance (IIF), the powerful lobby group representing over 400 of the world’s biggest banks. Merkel had already dealt with him in the previous two years, when some German banks had to be bailed out.

Deutsche Bank itself had, under his leadership, taken up much more riskier activities and had been part of the investment frenzy speculating on the American real estate market and packaging the risk related to bad loans as top-rated products. These were then sold to regional banks in Germany.

Ackerman said he was “sceptical and reluctant” about accepting a deal with governments on a ‘voluntary’ debt restructuring for Greece as the German government envisaged.

Talking to his peers at his farewell party in June, Ackermann said he only agreed to start negotiation with the Greeks because his American deputy Charles Dallara, “convinced me that it’s a fantastic platform in order to strengthen the IIF contribution to the most urgent, most complex and most challenging task in Europe.”

Another of his deputies, Hung Tran, told this website that the initial work after the Merkel-Sarkozy decision was for the IIF to try and convince EU leaders to drop it.

“We went to Paris, to Brussels, to Berlin to explain that it was not a very good decision. However, since they already took that decision, they should do it in a cooperative way, abiding by the IIF principles: to have good faith negotiations with the sovereign debtor on a transparent basis, sharing enough information and equal treatment of creditors.”

It took another year until PSI talks on Greece actually started.

“Negotiations took a long time and the economic conditions of the country continued to worsen. Therefore when the agreement came and the exchange was done, it involved a very significant haircut. But in the end, 83 percent of bondholders accepted the government’s offer,” Tran recalls.

As for public disappointment in Greece that the PSI deal and the €130 billion bailout focus too much on the banks and too little on the real economy, where hospitals have run out of money to pay for medicines, the IIF deputy said:

“The debt restructuring is a sacrifice on the part of investors, with bondholders losing more than half of the face value of the bond. I don’t think any debtor country should complain about that.”
No more losses for banks

Meanwhile, the other Merkel-Sarkozy decision – to establish a permanent bailout fund, the European Stability Mechanism – was subsequently heavily influenced by the IIF.

Greece, it was decided, would be a one-off. EU leaders in December 2011 stated that private creditors would never again take a loss in any future bailouts.

The ultimate bill for the banks’ losses in Greece – passed on from the banks, insurance companies and pension funds that held Greek bonds – is paid by the average citizen, in higher interest rates on their loans and mortgages.

“At the end of the day, the citizens in Europe are the ones paying,” Tran admits.

“The idea of subjecting the sovereign debt of a European country to credit risk is really not a good idea. The fallout of that will continue to be with us for many years to come. Particularly in this case of Greece, given the circumstances, I think it was worth it and a positive contribution to eventually a resolution of the crisis,” he argues.

But Kenneth Haar from Corporate Europe Observatory, a transparency watchdog following IIF’s dealings in Greece, thinks differently. “If the banks had gone to the markets and sold off the Greek bonds, they would have received much less. In the end it was very much a deal in their favour.”

As for burying the PSI idea after the Greek experiment, Haar argues it sends the wrong signal. “What it all comes down to is the irresponsibility of banks. Now they are guaranteed that governments will come to their rescue if they engage in speculation. It is a bad thing to say no to haircuts.”
Party in Hamlet’s castle

The farewell party the IIF threw in June to honour its outgoing chief, Josef Ackermann, served to underline how well the banks are doing. Some 500 guests were shuttled in buses from Copenhagen, where the IIF spring meeting was being held, to Elsinore castle – an hour’s drive up north.

Just renting the Hamlet castle cost some €40,000. Catering, transport and the fees for Alyson Cambridge, a soprano from the Metropolitan opera in New York – Ackermann being a big opera fan – as well as for a painter to have made his portrait – added several more tens of thousands of euros to the bill.

“This was a special event, paying tribute to an outgoing chairman. It is not extravagant,” Abdessatar Ouanes, IIF’s event manager told this website. He added that being state-owned property, the Hamlet castle was “not particularly exorbitant.”

Part of the four-hour long dinner were video testimonials from high level politicians praising Ackermann’s work. EU economics commissioner Olli Rehn said he had been “instrumental in restoring the confidence of the financial sector.”

International Monetary Fund chief Christine Lagarde said he was a “great friend and a great dancer” whom she always respected, “even if not always of the same opinion.”

And the head of the Paris-based OECD – a club of the most developed economies – said Ackermann was a “statesman, politician and banker.”

Pictures showing him talking to Angela Merkel, to Russian President Vladimir Putin or to Saudi royals were projected onto the walls of the castle rooms where the guests were dining.

“We need weavers like Joe between politics and economics,” said Charles Dallara, the outgoing IIF managing director. He recalled that the Swiss banker had been “always available,” even when in Moscow and having to pick up the phone at 3am when Dallara and EU politicians were cobbling together the last details of the Greek bailout.

Josef Ackermann being an opera fan, the IIF rented a Met soprano for his party.
Influencing politics

As for Ackermann, he said it was perhaps a good time to step down. He also left Deutsche Bank to return to a Swiss outfit, Zurich insurance company. His successor at the helm of the IIF is British banker Douglas Flint, the boss of HSBC, the world’s second largest bank.

Speaking from a podium displaying his own portrait, Ackermann said he was proud to have boosted the profile of the IIF. “We have seized the opportunity of the crisis. The IIF became a body between the public and private sector.”

Democratic legitimacy was never mentioned. Neither the fact that when seeking the banks’ advice, governments were mostly betraying the public interest.

But in an ARD documentary produced in November 2011, Ackermann admitted that he had “told Merkel several times that I could not give advice against the interests of my shareholders.” He also said it was “out of the question” that banks put the public interest first.

“What we need to think about are our global customers and shareholders. Politicians have to think first and foremost about their voters in their constituency. That is the clear difference between political and economic thinking,” he told the German TV crew.

And that same interest prevails when it comes to regulation aimed at making banks more solid and deterring them from the ‘casino mentality’ that led to the 2008 financial crisis.

Banks in continental Europe, including Deutsche Bank, continue to hold very few real assets – cash, buildings – and take on risky bets. In their balance sheets, these appear as solid because they are secured via so-called credit default swaps, a form of privately-traded insurances.

Yet as was the case before the Lehman Brothers bankruptcy, EU regulators still have no clear picture on the amount of these insurances and whether they are worth what they promise.

In 2008, America’s insurance giant AIG had to be bailed out with €144 billion worth of taxpayers’ money to cover for insurances linked to real estate mortgages gone bad. Deutsche Bank received over €9 billion, and so did France’s Societe Generale.

“At the moment banking legislation goes very much along the lines of what banks are saying. There is no real political will there to change things fundamentally. And this is because of the strong tight relationships between people in power and bank lobby groups,” Kenneth Haar from Corporate Europe Observatory concludes.Source

Finnish Defence Forces to sell or scrap 100,000 surplus assault rifles

The Finnish Defence Forces will have to sell or scrap up to 100,000 assault rifles that are in mint condition. The current stockpile of weaponry is bigger than what would be needed for a diminishing wartime reserve.
“An assault rifle is available for everyone in the wartime configuration”, says Commander Taneli Uosukainen of the staff of the Army Materiel Command.
At present the troop strength of the wartime forces is 350,000 soldiers. After changes that are to be implemented soon, the reserve is to be reduced to 250,000 or less.

Plans for what to do with the superfluous assault rifles as soon as the reforms for the defence forces are passed.
The easiest solution would be to have the rifles crushed and sold for scrap, as has been done before in the decommissioning of obsolete weapons.
However, there is some resistance to the idea that functioning weapons should be scrapped simply because of storage and maintenance problems.

The Defence Forces have denied rumours according to which tens of thousands of assault rifles would have already been destroyed in secret.
Active reservists have been especially unhappy with the prospect of the premature destruction of useable materiel.

The weapons that would be scrapped are unused. They are Kalashnikov-type assault rifles which Finland bought in the 1990s from China, and from Germany, which unloaded surplus equipment from the stockpiles of the National People’s Army of East Germany.
Finland acquired a total of 200,000 of the bargain assault rifles. They have not been used in the training of conscripts because they are of lower quality than Finnish-made assault rifles.
Commander Taneli Uosukainen says that they are good battlefield weapons, but they are not as durable in military training as Finnish-made guns are.

Another issue involves the East German ammunition that Finland has in its stockpiles, which the Defence Forces do not want to use in Finnish guns because of a corrosive effect.
The ammunition can be used in the East German weapons, which have a different type of finishing.

“Another way to act is to sell the weapons, mainly to big buyers abroad”, Uosukainen says.
However, selling the guns is difficult, as there is little demand for Chinese and East German assault rifles in the West. The buyers would be mainly from Third World countries.
Over four years ago the US asked Finland to donate 100,000 assault rifles to Afghanistan. The initiative foundered because of Finnish policy of not selling weapons to conflict zones.

Meanwhile, the Defence Forces are upgrading Finnish-made assault rifles, installing mounts for night-vision telescopic sights, for instance.
The present Rk 62 assault rifle is to remain in the use of the Finnish Defence Forces through the 2020s.
Source

The black gold and its curse

In recent years, gas and oil discoveries have been made on the African continent in countries such as Mozambique,(2) Ghana, Tanzania and Uganda and on prospected fields in Kenya, Mali and Sierra Leone. Today, 19 African countries are important oil and/or gas producers, with six of these, namely Nigeria, Libya, Algeria, Angola (oil), Sudan (oil) and Egypt (gas), accounting for the majority of the production.(3) However, for many countries the resource discoveries have been a curse rather than a blessing.

On the African continent there are numerous cases of the infamous resource curse and the so-called Dutch disease. Companies getting involved in resource-rich areas of Africa, many of which are ravaged by conflicts and poverty, face a series of obstacles. Some of these obstacles are connected to companies’ responsibilities under the Universal Declaration of Human Rights, which states that all individuals and organs of society, including companies and business enterprises, must protect and promote human rights.(4) Oil companies are often accused of hampering developing countries’ progress and violating human rights. Such accusations beg the questions: what can be expected from oil companies and what problems are they facing?

This paper discusses the human cost of oil by grouping human rights into two categories: direct and indirect human rights atrocities. The direct human rights atrocities are defined in this paper as those caused by oil companies because of their presence and activities in a country. The indirect human rights abuses are the ones in which revenues from oil and gas do not reach the people to whom the natural resources belong. Instead, the revenues encourage authoritarian Governments, or simply reach a small elite, hampering development and thus, indirectly violating peoples’ rights.
The black gold and its curse

A high number of human rights abuses related to fossil fuel operations have been perpetrated by Governments and corporations around the world. These include, for example, forced relocation and deadly suppression of critics.(5) In addition to human rights violations, the relationship among corruption, authoritarian governments, governance, conflicts and extractive industries tends to have a ‘repression effect’ in which resource wealth hinders democratisation by making it possible for governments to fund tools of repression.

Furthermore, World Bank analyst, Paul Collier, has declared that countries relying on revenues from resource exports run a 40 times higher risk of civil war, thus demonstrating a link between dependency on oil and serious armed conflict.(6) The two most recent African examples where tensions have increased and may continue to escalate due to disagreements surrounding oil are the border conflict between South Sudan and Sudan and the recent dispute between Kenya and Somalia. The latter is a result of newly identified oil exploration blocks in an area of the Indian Ocean being claimed by both countries.(7)

Simultaneously clashes between the global oil industry and a transnational human rights advocacy network are becoming increasingly evident.(8) So, what is it that makes natural resources, the oil business in particular, so prone to human rights abuses?
The direct effects of hydrocarbon industries on human rights

Direct effects, as defined above, include the mistreatment and forced relocation of indigenous peoples and unfair treatment of company employees.

As indicated in an ‘Economies of Violence’ report by Michael Watts,(9) the most common human rights violation by oil companies is connected to the fact that their activities are often located within the areas where indigenous peoples live or work. The governments in most petro-states have set up constitutional monopolies over national resources such as oil, while the indigenous or ethnic minorities in many countries have incorporated, within constitutions or customary law, essential rights to their land. Thus controversy is frequently caused by claims over access to and control over oil revenues and access to the oil companies as stakeholders. The companies often simply pay lip-service to local communities and submit unequal and minimal payments for use of their land and the resources removed from this land. Frequently, there is no rigorous and accountable set of governance structures that connect capital and community.(10) The displacement of indigenous people’s also constitutes a violation of the rights of people in oil-rich regions. Former Sudan is one example where the Government, since 1999, has been involved in human rights violations by moving people from the oil producing areas, causing displacement of 175,000 people.(11)

Direct implications on human rights also include the unequal treatment of locally employed people and international employees. Other issues evolve in the areas of the oil compounds where boomtowns have grown and with them prostitution and sex trade. The oil industry has made no efforts to regulate these developments.(12)

One of the most notorious and high profile examples of gross human rights abuses comes from Nigeria where Ken Saro-Wiwa and eight other men experienced the price of oil in 1995. The men were hanged in Nigeria’s Port Harcourt prison after launching a non-violent movement for social and ecological justice for the Ogoni people in the Niger Delta, challenging the conduct of the oil companies and the Nigerian Government.(13) The oil company, Royal Dutch Shell, had their reputation severely damaged. Global campaigns of disinvestment were launched by many different organisations.(14) In the end Shell was forced to pay US$ 15.5 million in a court settlement due to their atrocities against the Ogoni people in the 1990s.(15) The event triggered the social investment movement and led to Shell’s launch of the Statement of General Business Principles, which included the company actively seeking out non-governmental organisations (NGOs) for policy “dialogue”, as well as BP’s “What we stand for…” statement in 1998.(16)

By the late 1990s most of the oil companies had implemented codes of conduct, as an emerging movement on cooperate social responsibility led to a number of voluntary codes of conduct, including their approach towards community development, labour and payment and environmental accountability. However, these codes of conduct are most often weak on the important issues, such as monitoring, disclosure and enforcement.(17)

Welcomed by many advocacy groups, the United Nations (UN) Draft Norms, launched in 2003, address the importance of protecting civilians, worker rights, non-discrimination, security and war laws, social and economic cultural rights and indigenous people’s rights. They also include enforcement and compliance instruments.(18) The framework was released due to the assumption that self-regulation or civic regulation cannot provide a sufficient framework for regulating global businesses.(19) Mandatory regulation is necessary where states are key players. The regulatory effort also includes the transparency and monitoring efforts of multilateral agencies such as the International Bank for Reconstruction and Development (IBRD) and the International Monetary Fund (IMF), such as the IMF’s oil diagnostics programme in Angola. The Norms also imply that the World Bank will take a more critical approach towards the market of oil and gas.(20)

In addition to the steps taken by bodies such as the UN, there are society groups, watchdog agencies and NGOs which engage in monitoring corporate activities. New forms of global regulations are thus, continuously being developed.(21)
The indirect effects of hydrocarbon industries on human rights

The indirect human rights abuses include the encouragement of the development of Dutch disease, as well as patronage and rent seeking and keeping oppressive African leaders in government.

The Dutch disease is the most well known economic mechanism for anti-developmental outcomes. Dutch disease is a macroeconomic dynamic where a boom in the resource sector harms the non-resource sectors of the economy.(22) Countries tend to become dependent on their resource sector and do not diversify their economies. While oil prices remain high, Governments spend money through credit expansion and augmentation of the public sector. Thereafter, when the prices fall as a result of the volatility of the international oil market, these economies fall into debt.(23) The resource curse has therefore become widely used to describe the risk petro-states face. The oil industry is also, to a large extent, a closed society with limited employment effects, which creates few non-state multiplier effects.(24)

Oil has a tendency to encourage patronage and rent seeking instead of statecraft, transparency and state-institutional capacity. However, it is the level of corruption, fraud and total pillage of the public cashier that represent the core of the rights violations perpetrated by both companies and governments.(25)

It must be noted that as these effects are indirect, oil companies cannot be held directly responsible for them. Indeed, the presence of oil companies may also have beneficial outcomes for the countries in which they operate. China’s involvement in the oil business in African countries has been widely criticised from a human rights perspective. However, on the other hand, China is simultaneously investing in Africa’s governmental sectors, particularly infrastructure sectors in many countries, evident in China’s investment in Angola.(26)

Despite the investments in countries made by oil companies, if citizen’s rights are to be respected, it remains essential to address the economic and political issues described. In this effort, the World Bank, for example, started a Chad-Cameroon Oil Pipeline project, which finished in September 2008 after a fourteen-year engagement with the Government of Chad. The effort was aimed at setting a new standard for engagement of international donors in resource-rich but democracy-poor nations. The ambition was to establish institutions that would keep Chad from facing the typical political and economic issues related to oil booms in poor nations. The institutions were to direct oil revenues towards reducing poverty and certify fiscally sound and transparent Government spending. However, according to ‘Betting on oil: the World Bank’s attempt to promote accountability in Chad produced results that were far from positive. Moreover, the oil revenues might even have fuelled the consolidation of authoritarian power by, for example, arming rebellions.(27)

Oil revenues have also contributed to keeping oppressive African leaders in government, which makes transparency in oil deals of significant importance. Increasing transparency has been identified as the main factor in the struggle against the resource curse, for example, through the Extractive Industries Transparency Initiative (EITI), which is a global organisation of governments, companies, civil society groups and investors. Its aim is to strengthen governance by improving transparency in the sector of natural resources. The promotion of public reporting of revenue flows is reinforced through legislation such as Section 1504 of the United States Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), which requires companies to report on tax payments from each country. Similar sets of rules have also been proposed by the European Commission. This development is one step towards breaking the pattern of the resource curse and exploitation as oil, gas and mining companies pay what they should and governments manage revenues in a socially beneficial way.(28)

However, whether these control measures will be observed and have their desired effect, remains to be seen. Kenya recently discovered the country’s first oil deposit in its northwest territory of Turkana. Kenya’s oil findings are being compared to the ones made in Uganda in 2006. The oil is considered high-quality. Tullow oil, an oil exploration company in the territory, declared the site Ngamia-1 in Kenya’s Turkana County.(29) However, the discovery raises both hope, due to the investment that may enter the impoverished region, but also fear for the exploitation and abuse of Turkana province’s indigenous peoples.(30) Kenya has relatively stable democratic institutions, but struggles with corrupt elite. With this said, the oil discovery in Kenya is yet to be determined as a curse or a blessing.(31)
Concluding remarks

This paper concludes that it is only the direct human rights atrocities for which an oil company can be solely accountable. It also shows that the increasing global social movements of society groups, NGOs and watchdog agencies, as well as legislation and the monitoring efforts of multilateral agencies, play an essential role in preventing these atrocities. Their presence increases the price for human rights violations, which in turn increases the company’s incentives to remain lawful.

The issue of the indirect human rights abuses are more complex. These atrocities are usually a result of corruption, lack of transparency and authoritarian governments. The oil companies can not be given full blame for these situations which may incite a blame game between the companies and the state. However, with a legal framework of transparency these abuses could be regulated more efficiently. This would be beneficial for the oil companies operating in countries with a weak democratic apparatus since that would keep them from bad publicity. This paper encourages this development as an increasing number of African countries are being subject to natural resources discoveries and international attention.

NOTES:

(1) Contact Christine Petré through Consultancy Africa Intelligence’s Rights in Focus unit ( rights.focus@consultancyafrica.com).
(2) ‘Statoil says finds partner for Mozambican blocks’, Reuters, 25 April 2012, http://www.reuters.com.
(3) ‘Africa oil and gas: a continent on the move’. Ernst & Young Oil and Gas Center report, 2011, http://www.ey.com.
(4) ‘The Universal Declaration of Human Rights’, United Nations, http://www.un.org.
(5) ‘Human Rights’ Oil Change International website, http://priceofoil.org.
(6) Ibid.
(7) Gillblom, K., ‘Kenya, Somalia border row threatens oil exploration’, Reuters, 20 April 2012, http://www.reuters.com.
(8) Watts, M., ‘Human rights violence and the oil complex’, Niger Delta: Economies of violence, working paper no. 2, 2004, http://oldweb.geog.berkeley.edu.
(9) Ibid.
(10) Ibid.
(11) Ibid.
(12) Ibid.
(13) Wheeler, D., Fabig, H. and Boele, R., 2002. Paradoxes and dilemmas for stakeholder responsive firms in the extractive sector: lessons from the case of Shell and the Ogoni. Journal of Business Ethics, 39(3), pp. 297-318.
(14) Ibid.
(15) ‘Human Rights’ Oil Change International website, http://priceofoil.org.
(16) Watts, M., ‘Human rights violence and the oil complex’, Niger Delta: Economies of violence, working paper no. 2, 2004, http://oldweb.geog.berkeley.edu.
(17) Human rights & oil in Nigeria’ Amnesty International, August 2004, http://www.amnesty.org.
(18) Watts, M., ‘Human rights violence and the oil complex’, Niger Delta: Economies of violence, working paper no. 2, 2004, http://oldweb.geog.berkeley.edu.
(19) Ibid.
(20) Ibid.
(21) Ibid.
(22) Gould, A. and Winters, M., 2011. Betting on oil: the World Bank’s attempt to promote accountability in Chad. Global Governance 17(2), pp. 229-245.
(23) Bantekas, I., 2005. Natural resource revenue sharing schemes (trust funds) in international law. Netherlands International Law Review, 52, pp. 31-56.
(24) Ross, M., 2001. Does oil hinder democracy?’ World Politics, 53, pp. 325-61.
(25) Watts, M., ‘Human rights violence and the oil complex’, Niger Delta: Economies of violence, working paper no. 2, 2004, http://oldweb.geog.berkeley.edu.
(26) Taylor, I., 2006. China’s oil diplomacy in Africa. International Affairs, 82, p. 937-959.
(27) Gould, A. and Winters, M., Betting on oil: the World Bank’s attempt to promote accountability in Chad. Global Governance, 17, pp. 229-245.
(28) ‘Rigged? The scramble for Africa’s oil, gas and minerals,’ Global Witness report, January 2012, http://www.globalwitness.org.
(29) ‘Kenya discovers first ‘major’ oil deposit’ Al Jazeera, 26 March 2012, http://www.aljazeera.com.
(30) Alpert, E., ‘Newly discovered oil fuels hope and fear in Kenya’. Los Angeles Times, 27 March 2012 http://latimesblogs.latimes.com.
(31) Wanyonyi, T., ‘Will it be a curse or blessing for Kenya?’ Daily Nation, 26 March 2012, http://www.nation.co.ke.

The Global Competitiveness Report 2011-2012: the Documentation the IMF and the LIES

The Global Competitiveness Index 2011–2012: Setting the Foundations for Strong Productivity
XAVIER SALA-I-MARTINBEÑ AT BILBAO-OSORIO JENNIFER  BLANKE MARGARETA DRZENIEK  HANOUZTHIERRY GEIGER
World Economic Forum
The Global Competitiveness Report 2011–2012
is coming out at a time of re-emerging uncertainty in the global economy. At the beginning of the year, worldwide recovery appeared fairly certain, with economic growth for 2011 and 2012 projected by the International Monetary Fund (IMF) at 4.3 percent and 4.5 percent,respectively. However, the middle of the year saw uncertainties regarding the future economic outlook-emerge, as growth figures for many economies had to be adjusted downward and the political wrangling inthe United States and Europe undermined confidence in the ability of governments to take the necessary steps to restore growth.Recent developments reinforce the observation that economic growth is unequally distributed and highlight the shift of balance of economic activity. Onthe one hand, emerging markets and developing econo-mies, particularly in Asia, have seen relatively strong economic growth—estimated at 6.6 and 6.4 percent for 2011 and 2012, respectively, and attracting increasing financial flows. On the other hand, the United States, Japan, and Europe are experiencing slow and deceler-ating growth with persistent high unemployment and continued financial vulnerability, particularly in some European economies. GDP growth rates for advanced e conomies in 2011 are expected to remain at levels that,for most countries, are not strong enough to reduce the unemployment built up during the recession.In this context, policymakers across all regions are facing difficult economic management challenges. After closing the output gap and reducing the excess capacity generated during the crisis, emerging and developing countries are benefitting from buoyant internal demand,although they are now facing inflationary pressures caused by rising commodity prices. In advanced economies,the devastating earthquake in Japan and doubts about the sustainability of public debt in Europe, the United States, and Japan—issues that could further burden the still-fragile banking sectors in these countries—are undermining investor and business confidence and casting a shadow of uncertainty over the short-term economic outlook. Particularly worrisome is the situ-ation in some peripheral economies of the euro zone,where—in spite of the adoption of recovery plans— high public deficit and debt levels, coupled with anemic growth, have led to an increased vulnerability of the economy and much distress in financial markets, as fear sof default continue to spread. This complex situation in turn encumbers the fiscal consolidation that will reduce debt burdens to the more manageable levels necessary to support longer-term economic performance.

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Uganda: Guns in Oil Region

In less than a month, the UPDF top brass and top spies have held two unusual security meetings in the oil region. During one of the meetings, on May 23 Gen. Aronda Nyakairima, the Chief of Defence Forces (CDF) of the UPDF in Fort Portal announced that the army was keeping an eye on the oil region in order to guard the country’s natural resources, particularly against the Allied Democratic Forces (ADF).

Hardly two weeks later, the military top brass held another meeting in Hoima District in the heart of Uganda’s oil region. Army spokesman Felix Kulayigye said the closed meeting was meant to appraise the security situation in the region.

“Leaders both political and security in Bunyoro sub-region ought to be aware that there is a threat of ADF across in Congo which has grown in numbers, capacity because in eastern Congo, there a gap in terms of state control,” Kulayigye said, adding, “indeed this region has experienced the coming of refugees as a result of the war in DRC, which has had its own security problems in terms of crime, land conflicts that are also challenges to stability within the districts in this region.”

It is not clear if the security agencies have information about a new threat but the likelihood of a resurgence of attacks from the ADF, a rebel group that as recent as 2008 attacked a school–Kicwamba Technical Institute–and burnt 80 students to death may explain the army’s heavy presence here.

UPDF has hundreds of men at detaches in Kyangwali in Hoima district, which the force plans to expand into a fully-fledged barracks, and another one in Butiaba in neighbouring Buliisa District–which sources say also works as a training ground.

In recent years, President YoweriMuseveni’s government has increased its military budget in what is said to be a need to secure the country’s nascent oil industry – quite logical given that it is located in a politically unstable region bordering DR Congo and Sudan.

According to a diplomatic cable leaked by WikiLeaks on March 13, 2008, Uganda is said to have requested the US government for assistance to train and equip a lake security force, which could enforce Uganda’s territorial waters, protect Uganda’s oil assets, and reduce violent incidents.

The President has justified the purchase of the six Sukhoi Su-30 fighter jets at a whopping $740m with suggestions that they will shield Ugandans from external aggression. “The jets are the minvuli [ambrellas] for Uganda,” President Museveni told opposition MPs who were complaining about the cost of the jets at his State-of-the-nation address, recently “When it is raining you need minvuri to protect you.”

Family control

As if to close any security breaches, the Special Forces Group — an elite force headed by the First Son, Col. Muhoozi Kainerugaba, has been deployed to be in-charge of overall security in the oil region. Locals say there have been increased boat patrols on Lake Albert, an increase in plain-clothed intelligence operatives and that access restrictions on ordinary people to the oil region have also increased.

The oil installations and several check-points like the one at Biiso, are manned by the UPDF, a clear indication that the army is in charge of security in the oil region.

However, while most people would see the tight security as justifiable given the need to guard investments worth millions of dollars and of course the 2.5 billion barrels of oil that have potential to transform Uganda’s economy, the debate is on whether military presence and army activity here are commensurate to the threat of the ADF or if it is sheer intimidation in a bid to suffocate popular demands.

UK-based anti-corruption watchdog, Global Witness, in a 2010 report described the President’s son control of the forces guarding the oil area and his brother General Saleh’s private security company guarding some of the sites as “personalised militarisation of the oil industry”, which it said was one of the “red-flag warning signals” in the country’s oil sector that should seriously worry its donors and its citizens.

“The responsibility for guarding the oil areas should be removed from the army’s Special Forces unit,” the report notes, “The control of the Unit by the son of the President represents a fundamental conflict of interests and deviation of democratic standards.”

In April, the Inspector General of Police, Lt Gen. Kale Kayihura, while appearing before the Parliamentary Ahoc committee investigating the oil sector, revealed that following President Museveni’s directive, a special police unit–the Directorate of Oil and Gas Protection–was established to cater for the security of the Albertine Region. His boss, State Minister of Internal Affairs, James Baba also announced that the government would withdraw the soldiers and have them replaced by the oil unit.

However, months after the police unit was established and deployed to the oil region, critics wonder why the army is still present and taking charge of security in the oil region. As a result, there is a cocktail of various forces–police, military, intelligence and private security groups in the oil region–something many players are unhappy about.

Unhappy Banyoro

At the beginning of this year, religious leaders from Bunyoro, Acholi and Rwenzori sub-regions during a meeting under the Inter Religious Council of Uganda in Hoima Town, demanded the army’s exit from the region–claiming it was limiting their access to oil installations and thereby hampering their advocacy role. They wanted the army replaced by the police unit on oil and gas.

But Kulayigye, the Army spokesman, could not take any of that. “If anybody is well-intentioned, why should they demand the removal of security from the Albertan area where there is oil?” Kulayigye asked in a recent interview with a local newspaper. “Do they want to preach to the oil?”

Abbas Byakagaba, the police chief in charge of the oil and gas unit, told The Independent in a recent interview that he did not see any problem with the army being in the region.

“This is the Uganda army, where do they want it to be?” he asks. “It is a matter of collaboration and there are many roles to be played.”

Micheal Werikhe, the chairman of the Natural Resources Committee of Parliament who also heads the Adhoc Committee on Oil, also said he did not see any problem with the army presence because they are there for general security purposes.

But civil society activists see it as a big problem. The accumulation of guns in the oil region, they argue, is not a good sign but a harbinger of conflict like has been the case in Southern Sudan and other countries.

The activists also say that Uganda needs to avoid situations like in DR Congo, Nigeria, Liberia where the military has aided oil companies to violate human rights, distort the environment in the pursuit of their business interests.

“It is very dangerous when you have people who are trained for direct combat doing policing work,” says Henry Bazilla, the chairman of the Civil Society Coalition for Oil and Gas (CSCO), “they are making it hard to access the area and hinder the public’s oversight function.”

Deadly mix

Analysts say the region could see an escalation in migration, land disputes and social disruption leave alone border tensions with neighbouring countries, which the security build up won’t address. More guns in the area means more instability, not less, they say.

The thorny issues in the oil region in recent times have been sharing oil royalties, land grabbing, lost livelihoods, and environmental degradation due to oil waste – issues that the government has so far not been able to engage politically and which activists fear, it would want to deal with using military might.

Dickens Kamugisha, who heads the Africa Institute for Energy Governance (AFIEGO), says it is creating anxiety. “There would be no problem with the government policy of providing security but such a presence of the army is militarization, it creates uncertainty and raises questions as to what is there that cannot be protected by the police.”

Kamugisha says that the militarization points to politicization of the sector. “Oil has been turned into a security issue that can only be handled by only top government officials,” he says. “This can only be justified if the government assures people that the Albertine has gone beyond what can be handled by police.”

But the UPDF hierarchy is adamant that the reinforcement in security is meant to deal with the rebel outfit ADF, which has been said to be “regrouping with intensions of attacking the country and thus the need to be ready for any eventualities.”

However, analysts say if they consider the oil region to be dangerous then they must begin answering some of the questions Ugandans are now asking – because that is where the most insecurity lies.

A report titled, “Oil Extraction and the Potential for Domestic Instability in Uganda,” which was released last year by American professors, Jacob Kathman and Megan Shanon, indicated that President Museveni’s strategy of looking at insecurity from across the borders is mistaken because the biggest danger could be internal. The report notes that the primary security threat posed to Uganda lies in the domestic effects of large-scale oil exploitation – not far-fetched given that the majority of people in Bunyoro believe that barring the recent oil activities, their region has suffered historical abuses and has been marginalized by the government for decades.

Those claims could have credence. Earlier this month, the Omukama of Bunyoro Solomon GafabusaIguru, stormed Parliament demanding a share of 12.5% of all revenue that will accrue from the oil industry in the region as royalties payable to the Kingdom. He said the Bills being discussed in Parliament were silent about the royalties.

Naturally, such talk is what President Museveni does not want to hear from the Bunyoro kingdom leadership for fear that it could arouse resentment among locals, which could eventually pose a security threat. And he has intelligence people on the ground to listen out for any such negative voices. For instance, the office of the Resident District Commissioner (RDC) in Hoima has warned Bunyoro Local Oil Advocacy Group (BLOAG)–a pressure group on oil over alleged incitement. Officials at the office believe that BLOAG is being used as a platform to incite the community to sabotage the ongoing oil exploration.

Civil society restless

Analysts say the government is worried that the ADF could take advantage of the public discontent over the oil activities in the region to recruit disgruntled locals into the rebel outfit. This, it is feared, could plunge the region into perpetual insecurity, which could send the country several decades backwards.

AFIEGO’s Kamugisha suggests that the government should guard against human rights violations and maginalising the communities in the oil region because these can be a source of reinforcements for the ADF or create own militias.

Bazilla agrees. He says militias emerge mainly when citizens feel cheated. “It is people who will have acquired skills and feel that they can cause trouble if they do not benefit and feel cheated, that is why the government needs to be transparent,” he says. He adds that the extractive companies are not angelic–they have in some countries like Congo and Liberia financed conflict because they like going about their business without scrutiny.

Indeed, Bazilla’s fears are not far-fetched. In a recent report titled, ‘Righting Resource-curse wrong in Uganda: The case of oil Discovery and the Management of Popular Expectations, the Economic Policy Research Centre at Makerere University, alluded to unrest and conflict, noting that oil abundance in developing economies typically generates valuable rents that tend to trigger violent forms of ‘greed-based’ insurgencies and secessionist wars.

Earlier studies elsewhere also showed that the discovery of giant oil fields is likely to fuel internal conflicts in countries with recent histories of political violence. For instance, internal conflict has continued in the oil regions of Nigeria, fuelled by a sense of grievance among the local population, who feel deprived of their ‘fair share’ of the oil revenue.

But it is also a fact that investors expect that their personnel and property must be secure if they are to carry out the exploration and production successfully.

Jimmy Kiberu, the Tullow Oil Uganda, Corporate Affairs manager, says they are working with the government to ensure that security is guaranteed. “We co-operate with the Government of Uganda over security requirements and we also have our own, locally-sourced, security arrangements but overall responsibility for this sensitive and volatile border area must be for the GoU,” he says.

Rights violations

Civil society activists point to an incident in 2007 to illustrate the fears of the community. Last month, Corporate Watch, a research firm based in the UK, released findings of a two year investigation (carried out by Lay) indicating that Heritage Oil, a British company, was to blame for the shootout in which the UPDF killed six Congolese civilians on a passenger boat sailing to Congo.

Uganda authorities however; deny anything to do with the deaths insisting that they just exchanged fire with Congolese troops.

But the report quotes a senior UN source saying that Uganda’s claims that the passenger ferry was in fact a Congolese army boat are “complete nonsense” and that it was Heritage’s mistaken panic call to the UPDF that triggered the indiscriminate killing of the civilians.

The investigation unearthed photos – which were published for the first time – showing the bodies of the civilians including a 3-year old child. The investigation is corroborated by a UN report, a Wikileaks cable and a UK Foreign Office email, which were obtained by the international oil watch dog Platform.

“Residents of Rukwanzi reportedly told Corporate Watch on a visit to the island in 2009 that the families of the dead had been promised $100 (about Shs 250,000) in compensation by the Congolese authorities but that the money never arrived. Attitudes towards Uganda have hardened, while many are concerned offshore oil drilling will affect the fishing industry,” says the report.

Following two incidents–one in which a Heritage oil employee was shot dead reportedly by Congolese soldiers and another in which the UPDF is accused of shooting dead six Congolese, coupled with disagreements over who owns Rukwanzi island and the possibility of rebel attacks, the oil region remains a tense zone. But questions will persist as to whether the solution to this tension is such heavy military deployment.

It adds that security agreements for the production of oil by Tullow, China National Offshore Oil Corporation and Total have not been made public but the UPDF has announced plans to build a military base overlooking the lake to provide security for the companies.

Whether or not the army deployments and the avalanche of military hardware would succeed in quelling the public agitation in the region remains to be seen but analysts suggest that transparency, dialogue and involving the people in the oil sector is what will offer better long term security to the region and the country at large

 

Source

The ”Cursed contracts": Uganda’s oil agreements place profit before people” The evidence

‘With production due to start within the next 12 months,the clear lack of environmental protection provisions,accountability of oil security forces and the weak economic terms are highly worrying.’

This report aims to provide an in-depth analysis of Uganda’s Production Sharing Agreements (PSAs) covering oil development in the Albertine Graben. PLATFORM has investigated the contract terms relating to economics, sovereignty, human rights and the environment. We examine relevant paragraphs in the Ugandan context, in relation to current oil company practice in Uganda and in comparison to contract terms in other countries. It explores the balance of rights and responsibilities between the Ugandan government and the oil companies, and who carries which risks.Until November 2009, the content of the Production Sharing Agreements remained a closely guarded secret, with both the Ugandan government and the oil companies opportunistically only releasing decontextualised snippets. PLATFORM obtained and released draft copies of Heritage’s2004 Block 3A PSA (containing a comparison with PSA terms for Block1 and Block 2), Dominion’s 2007 Block 4B PSA, and a draft of the Tullow Block 2 PSA. A number of sources, including off-the-record  , a signed statement from the Ministry of Energy, condential audit reports and investment bank analyses, have conrmed that these draft versions of the contracts are indeed very close, if not identical, tothe signed PSAs. This report is based primarily on clauses from the Block3A contract.New and larger oil companies are trying to buy into Ugandan oil in 2010.Heritage Oil has invited Italian company ENI to buy its stake, while Tullow is apparently supporting a rival bid by US giant Exxon. These oil majors are aiming to buy out Heritage’s holdings directly, which means they would avoid any renegotiations or the need to go through the Ugandan government. However, this acquisition presents an opportunity to raise new concerns about the existing terms of the contracts that are being bought into. It is in that context that the analysis and urgent recommendations made in this report need to be campaigned upon.Civil society organisations in Uganda continue to bring legal challenges to ensure that the full PSAs are made public. There are currently three suits outstanding against the government, from the African Institute for Energy Governance, Greenwatch and the Daily Monitor newspaper, all using the Access to Information Act.Apart from revealing those parts of the oil agreements that are not yet in the public domain, particularly with regard to security provisions, these law suits have the potential to create an important legal precedent.At the same time, it is important that the information that is currently available – however incomplete – is used now to create the conditionsfor renegotiation and a more informed critique of both the government and the companies involved. With production due to start within thenext 12 months, the weak economic terms and the clear lack of both environmental protection provisions and accountability of oil securityforces are all highly worrying

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Leaked documents & PLATFORM report reveal extent of RBS-financed oil threat to Uganda

Impacts of British oil corporations’ secret contracts in Uganda finally revealed. Leaked company audits confirm concerns over revenues & environmental damage in project backed by bailed-out RBS
Protester with megaphone outside RBS HQ in London

“Roll up to vote for climate chaos!”

 

Late last month, 84% publicly-owned Royal Bank of Scotland led a deal to provide Tullow Oil with around $1 billion of new finance to support a controversial oil project on the border between Uganda and the Democratic Republic of Congo which has long been struck by a resource war. Today, People & Planet’s campaign partners PLATFORM can reveal how damaging this project really is.

Confidential oil contracts and audit reports for British/Irish companies Tullow Oil and Heritage Oil’s operations in Uganda on the Lake Albert border with Congo have been revealed today. These are accompanied by a legal analysis published by PLATFORM in partnership with the Civil Society Coalition for Oil in Uganda.
Uganda is heading towards oil production in 2010/11 with no oil legislation yet in place, no revenue management system, and is locked into contracts that undermine the country’s sovereign control over its own natural resource.

The report ”Cursed contracts: Uganda’s oil agreements place profit before people” raises serious economic and environmental concerns about how oil will be extracted at Lake Albert.

The terms of Uganda’s Production Sharing Agreements, which the oil companies and Ugandan government continue to refuse to release, are now available online. Two confidential audit reports carried out by Ernst &Young in 2009 have also been made publically available. These confirm a number of PSA clauses, raise concerns over environmental damage and warn of the companies inflating their costs.

In the report released today, PLATFORM has investigated the contract terms relating to economics, sovereignty, human rights and the environment, examining relevant paragraphs in the Ugandan context, in relation to current oil company practice in Uganda and in comparison to contract terms in other countries.

The analysis works article-by-article through the Production Sharing Agreement and, in particular, raising questions about:

How the structure of the deals guarantees huge profits for the companies while placing risks and responsibilities on the Ugandan government (p.6)
The lack of transparency over bonus payments to the Ugandan government (p.7)
The complete absence of penalties for environmental damage caused by the companies (p.22),
The legal rights granted to the companies to flare natural gas (p.19)
The ‘stabilisation clause’, whose breadth has been confirmed by access to a confidential Ernst&Young audit report (see note 3), which will restrict Uganda’s ability to improve its environmental protection and human rights standards in the future (p.27)

The report recommends that: ”Urgent changes should be made to the contracts, legislation and regulatory regime covering oil, to achieve some level of environmental protection, to ensure accountability for military forces enforcing security, to protect a degree of Ugandan sovereignty, to minimize economic distortion through revenue flows, to capture a more appropriate share of the revenues and to re-apportion the economic risks.”

Tullow has repeatedly stated that they are committed to ensuring they operate according to ”good international and industry practice” – but PLATFORM’s report (pdf) reveals how this is meaningless when there is no such agreed standard and no contractual enforcement mechanisms for the host country.

PLATFORM campaigner Mika Minio said:

”The reality is that extracting Ugandan crude is most likely to exacerbate poverty, distort the Ugandan economy, exacerbate human rights violations, entrench the power of military forces, escalate tensions across the border with Congo, create new health problems for local communities, increase both intentional corruption and revenue mismanagement, reduce Uganda’s wildlife stocks and pollute the land, water and air.”

PLATFORM researcher Taimour Lay in Uganda said:

“Tullow’s statements demonstrate strength in corporate responsibility rhetoric. Yet their practice here on Lake Albert tells a different story – one of arrogance, environmental damage, collusion in secrecy and indifference to human rights abuses.”

Taimour Lay added

“The confidential documents we have published make clear that the corporations and the government cannot be trusted to protect the Ugandan people from the negative impacts of oil extraction. It is up to social movements and civil society to create the pressure to defend rights, livelihoods and Uganda’s rich environment.”
Source

Iyabo’s firm benefits in secret oil block deals

A company owned by a daughter of former President Olusegun Obasanjo is among the beneficiaries of the Federal Government’s recent secret allocations of prize oil blocks, Daily Trust investigations show.
Findings reveal that All Grace Energy, in which Senator Iyabo Obasanjo-Bello has majority stake, got the oil block Ubima Creek field OML 17 in a discretional process without competitive bidding.

Some oil companies and industry experts said the secret allocations are against international best practices.

Daily Trust learnt that the secret allocations were done over the past one year, even though government had said the process of awarding oil licences were to be executed publicly through competitive bidding.

A newspaper report recently said All Grace Energy is among companies that benefitted from the deals.

Records made available to Daily Trust by the Corporate Affairs Commission (CAC) revealed that Iyabo Obasanjo-Bello is the major shareholder of All Grace Energy, which was registered on July 12, 2006 with N30 million share capital.

Mrs Obasanjo-Bello has six million shares, followed by other directors/shareholders: Abe Magnus Ngei (2 million), Mrs Abiri Dorcas (3 million), Dr. Adenikinju Adeola (3 million), Ugbeya Donatus (1 million), Alabi Yekini (1 million) and Alhaji Abubakar Abdullahi (1 million).

The company was registered “to operate marginal fields for the purpose of producing petroleum, natural gas, liquefied petroleum gas etc,” and has filed annual returns only up to 2007, according to CAC records.

Apparently reacting to the recent report that oil blocks were awarded illegally, Director of the Department of Petroleum Resources, Mr. Osten Olorunsola, said at a conference in Houston, United States, that the president is empowered by law to make such allocations.

This development flies in the face of the Federal Government’s consistent pledges to conduct fresh oil bid round. The last public oil bid was conducted during President Olusegun Obasanjo’s regime.

In 2010, for instance, Petroleum Minister Diezani Alison-Madueke said government was trying to “sort out some issues” surrounding the previous bid rounds before it starts fresh ones.

Instead, the government apparently resorted to secret allocation of choice oil blocks to companies belonging to cronies, family members and associates, industry analysts say.

A player in the oil industry, who craved for anonymity, told Daily Trust the government’s action would discourage competition among indigenous oil operators and also send wrong signals to international investors.

A source at DPR said that the process of awarding the oil blocks to Iyabo actually started during Obasanjo’s administration but “a disagreement between Shell and DPR over the area to farm-out couldn’t be reached until recently when the Malabu oil block deal was sealed between the Federal Government and the multinationals.”

Oil block deal conditions not met

When our reporter contacted the spokesperson for the DPR, Mrs Belema Osibodu, she did not confirm or deny that Iyabo’s company was given the oil block but said the marginal fields were awarded based on some conditions.

She said the conditions included the development/execution of a public private partnership (PPP) model for three pilot projects under the small scale gas utilisation scheme.

Under this arrangement, Osibodu said, a gas-fired power plant of not less than 5mw shall be dedicated to supply electricity to Ubima community of Rivers State; an LPG extraction plant shall be installed as part of gas processing facility; and a part of the produced liquefied petroleum gas shall be designated for domestic use and support of small scale industry in the community.

But when a Daily Trust reporter visited Ubima community in Ikwerre local government area, there was no indication that such project was being executed. The community happens to be the country home of Governor Rotimi Amaechi.

The chairman of Ubima community, Elder Daniel Anwuzurike, told Daily Trust that the community has been living without electricity supply for the past three months.

Anwuzurike said he was not aware of any power project going on in the Ubima community.

‘Secret oil block deals going on for long’

The controversial oil field is considered under “marginal oil fields” which the Petroleum Act (Amended) 1996 defines as “such field as the President may, from time to time, identify as a marginal field.”

The law provides that the holder of an OML can farm out (lease out) any marginal field which lies within the Oil Mining Lease (OML).

Also, the president may cause the farm-out of a marginal field which has been left unattended for a period of not less than 10 years from the date of the first discovery of the marginal field.

Reverend David Ugolor, Executive Director, African Network for Environment and Economic Justice (ANEEJ), said this was not the first time such secret allocation of oil blocks was done by a president.

“In any case, the development contravenes global best practice of open competitive bidding and as such should be discouraged,” Ugolor said. “Nigerians are also kept in the dark as to how much accrued to the country from the exercise. The unresolved regulatory issues has not allowed potential investors, both local and international, to make huge financial commitment in the sector. Nigeria is losing huge resources from the dwindling investment in the sector and there is also loss of potential revenue from royalties,” he added.

Ifeayi Izeze, an Abuja-based consultant on strategy and communication, said the controversies surrounding the delay in passage of the Petroleum Industry Reform Bill (PIB) could be blamed for the delay/shifting date for the 2012 oil bloc bid round.

When Daily Trust contacted the spokesman for the Nigerian Extractive Industry Transparency Initiative (NEITI), Mr Orji Ogbonnaya Orji, he said it is not the responsibility of NEITI to decide how oil bid rounds will be conducted.

He however added that NEITI expects to be invited to observe the process in line with provisions of the law.Source

Uganda Government finally discloses secret oil deals

Uganda has disclosed the details in the oil deals it entered with international oil companies to Parliamentarians, underscoring commitment to good transparency and good governance in the nascent petroleum industry.

Five active production sharing agreements have been signed with five multinational corporations namely Tullow Uganda, China’s National Oil Corporation (CNOOC Uganda), Total E&P Uganda Dominion Petroleum and Neptune Petroleum.

The details of the agreements, however, remained confidential due to “commercial interests” sparking speculation that Uganda may have got raw deal.

But on Thursday during a seminar for members of the 9th parliament convened at Speke Resort Munyonyo in Kampala, it emerged that Uganda will share 74% of oil benefits even after the oil companies recover their costs.

Robert Kasande, the assistant commission in the petroleum exploration and production department, told Parliamentarians that the high shares arise from signature bonuses, royalty fees, state participation, cost recovery limit, profit oil and taxation.

“Uganda terms are very well placed among African exporters such as Cong Brazzavile and Gabon and are better than other African countries which are in the process of becoming important new producers,” Kasande said.

He named such countries like Sierra Leone, Liberia, Ghana, Mauritania and Mozambique adding that Uganda’s contracts are only good as enforcement.

Documents circulated to lawmakers indicate that government will get royalty fees on monthly basis/quarterly basis in kind or cash and the percentage will be based on the size of the producing oil field.

For instance, a field that produces 2,500 will attract 5% of royalty fees. When production doubles to 5,000 barrels then 7.5% as royalty fees will be levied.

An oil field that produces 7,500 barrels will be subject to 10% of royalty fees and a field producing above 7,500 barrels is subjected to 12.5%.

However, lawmakers were interested in understanding how government monitors recoverable costs to ensure that oil companies do not inflate them.

Kasande explained that exploration, development and production costs are ring fenced around the each contracted area and that the annual recovery limits is between 50 and 60% of gross oil production.

He added that unrecovered costs carried forward to subsequent years until full recovery is completed.

The advisory committee reviews and approves any proposed exploration, appraisal and development and production operations contained in the annual work and budgets.

“All institutions of government that are responsible for various aspects in these contracts need to do their monitoring and enforcement very diligently,” Kasande advised.

Speaker of Parliament, Rebecca Kadaga, said the information was important because it provided background for lawmakers to understand the draft petroleum laws awaiting parliamentary debate.

“Our mandate as Parliament is to make laws on any matter for the peace, order, development and good governance of Uganda and to protect the Constitution and promote democratic governance in Uganda,” she said in her opening remarks.

“We expect that key aspects of the sector that have for long caused concern such as stabilization, confidentiality and arbitration will be addressed.”

Eng Irene Muloni, the minister of energy and mineral development said specific objectives was to the status of the oil and gas sector in Uganda, appraise parliament on the implementation of Uganda’s national oil and gas policy.

The other objective, according to the minister, was to give an international perspective on petroleum industry best practice and to highlight the principles embodied in the petroleum bills.

“We hope the process of passing these bills into law will go on smoothly and expeditiously,” she said.

At the end of it all we will have admirable legislation for the sector that can be implemented to support the achievement of using the country’s oil and gas resources to contribute to early achievement of poverty eradication and create lasting value to society.”

Fred Kabagambe-Kaliisa, the permanent secretary in the ministry of energy and mineral development, said there is a need for the public to appreciate the long-term, capital intensive, high technology and internatonal nature of the oil and gas industry.

“Projects take long to mature and yet stakeholdes expect products yesterday. The communication strategy is implemented to manage expectations,” he said.

“(And) there is a need to finalise the various legislation before Parliament to stimulate activities like attracting more investments.”

Ernest Rubond, the commissioner in the petroleum and exploration department, revealed that investments in the oil and gas sector was over $1.3b at the end of last year and the resources discovered to date are in excess of 2.5 billion barrels of oil in place.

“Investment in the sector is expected to increase especially as preparation of the infrastructure required for oil production is put in place,” he said.

“Employment opportunities for Ugandans in the oil and gas sector will increase as the country progresses the field development and production.” Source