The politics of petroleum

by Ken Silverstein
Los Angeles Times
May 1, 2004
Just past the misnamed Beautiful Rose Farm, a shantytown without running water or sewers, is a lush, gated compound with spacious houses, manicured gardens and tennis courts that ExxonMobil built for its employees.

Besides the foreigners, the development also has benefited a few well-connected Angolans: A local businessman close to President Jose Eduardo dos Santos was hired by the oil company to construct the complex, and a former army chief of staff collects rent on the land, according to an oil industry consultant’s report and a source familiar with the arrangement.

Picking them as partners won ExxonMobil “brownie points” with the ruling regime, the report said.

Courting Dos Santos and other leaders of oil-rich African countries has become increasingly important as Western oil companies and U.S. officials seek to feed growing demand and reduce dependence on the Middle East. But in the process, Washington may be repeating what critics say is a mistake it has made for decades in other corners of the world: cementing the power of a local elite at the expense of an impoverished and resentful majority – and ultimately, fomenting instability.

Oil companies have won favor with the Dos Santos regime by steering contracts to Angolan insiders and by giving millions of dollars to foundations controlled by the ruling family, internal oil company reports reviewed by The Times show.

The Bush administration has sought to strengthen ties to the Dos Santos regime despite allegations of widespread corruption. The two presidents met Wednesday in the Oval Office to discuss “issues of common interest.” And the administration recently declared Angola’s record on corruption and transparency sufficient to make it eligible for a trade program that eliminates duties on its oil and other exports.

Meanwhile, as much as $1 billion a year has disappeared from Angola’s national treasury, according to reports by the International Monetary Fund and two watchdog groups. International Monetary Fund figures show that Angola could not account for 15% of government expenditures it reported from 1997 through 2002. European judicial authorities say they have traced tens of millions of dollars in Angolan government funds to private bank accounts in Luxembourg, the Cayman Islands and Switzerland.

Evaristo Jose, a spokesman at the Angolan Embassy in Washington, said his country was making reforms to improve its accounting of oil revenue. He said allegations of official corruption were untrue. A senior Bush administration official said Angolan authorities had “acknowledged that corruption is a problem and they are addressing it.” He said the administration was not going easy on Angola’s record on human rights and corruption because of its status as a major energy exporter.

Angola and other sub-Saharan African countries provided the United States with 15% of its oil imports last year, and that figure is expected to grow to 25% over the next decade.

Yet the lives of many people along Africa’s Atlantic coast have only worsened: Jobs have not materialized, basic rights have eroded and corruption has spread.

“Global oil is a mixed picture, predominantly negative, and African oil is the most negative of all the stories,” David Gordon, head of the CIA’s Office of Transnational Issues, said at an energy conference last year in Washington.

A copy of a confidential report, written by an industry consultant in 2001 for Royal Dutch/Shell Group and obtained by The Times, provided an unusually frank assessment of oil’s role in Angola:

A charitable foundation set up in the president’s name uses the money it solicits from foreign businesses to “bolster the personality cult of President Dos Santos and to attempt to convince his compatriots that he cares about them.”

“Angola’s petroleum revenues, as they are currently used, are widely viewed as a curse,” the report said. “Those ordinary Angolans who are aware of Angola’s oil riches have grown to realize in recent years that this resource is managed for the immense profit of a very few, and the increasing misery of the many.”

Poverty Despite the Oil

The story is much the same elsewhere in the region.

Nigeria has exported more than $200 billion worth of oil during the last 15 years, but 70% of its 130 million people live on less than $1 a day. Former Marine Gen. Carlton W. Fulford Jr., who helped oversee U.S. military operations in most of Africa until 2003, said in April that widespread poverty had left the country “ripe for turmoil.”

Political instability there “could cause major disruption of the world’s production of crude oil,” he said at the American Enterprise Institute, a conservative Washington think tank. “If Nigeria explodes, we will feel it.”

American companies also have flocked to tiny Equatorial Guinea, investing $5 billion in a country where poverty is pervasive and the regime is notorious for torturing dissidents and suppressing civil liberties.

Industry lobbying won U.S. support for a controversial World Bank-backed pipeline in Chad, a country that has been racked by warfare for decades and that the World Economic Forum, a Geneva-based business organization, ranked as the most corrupt of 21 African countries it surveyed last year. ExxonMobil and ChevronTexaco are lead companies in the consortium that built and operates the pipeline, which opened last summer.

Most of Central and West Africa’s oil is offshore, which can insulate oil companies from political turmoil. For example, oil was pumped without interruption during the 27-year Angolan civil war.

Dozens of former senior U.S. officials use their experience and connections to promote the oil industry’s interests in these countries and advocate closer ties to the U.S.

Members of the U.S.-Angola Chamber of Commerce, which receives financial support from American oil companies, include five former State Department officials, two former U.S. ambassadors to the U.N., a former deputy U.S. trade representative, a former Defense Department official and a former U.S. ambassador to Angola. Their memberships are personal or through their company affiliations.

The chamber led the successful lobbying push to include Angola in the U.S. trade program. “I firmly believe in engagement with Angola,” Executive Director Paul Hare told The Times. “Transparency and accountability are part of the dialogue. You can never say what the results will be, but the trend line is positive.”

The Angolan government has paid more than $6 million to lobbyist Robert Cabelly, a former State Department and National Security Council official, according to his foreign agent disclosure filings with the Justice Department. Cabelly declined to comment on his work for Angola.

During his three-day stay in Washington, Dos Santos is to be honored at a reception at the Ritz-Carlton hotel co-hosted by Andrew Young, a former U.S. ambassador to the United Nations who has lobbied for Angola in the effort to strengthen ties to the U.S.

Eugenio Ngolo Manuvakola, an Angolan opposition leader, says the former officials play a significant role in shaping U.S.-Angolan ties.

“It’s offensive that these old diplomats are now making money off their former positions,” he said. “They want American companies to invest here, and to help that happen they try to say that everything here is fine. That has political consequences.”

A Turnaround in Ties

There is little dispute that oil has fortified Angola’s ties with the United States for the foreseeable future. At a construction site in Luanda’s Miramar section, offering a sweeping view of the Atlantic Ocean, work is proceeding on a huge, expanded U.S. Embassy.

Yet until a decade ago, the United States and Angola were ideological enemies.

After gaining independence from Portugal in 1975, Angola declared itself a Marxist state and allied itself with the Soviet Union. Dos Santos, 61, took power four years later and has held it ever since. The CIA supported an insurgency by rebels known as UNITA until the early 1990s.

In mid-1993, after the collapse of the Soviet Union and Angola’s embrace of capitalism, the Clinton administration recognized the government and cut military aid to UNITA. But the civil war ended only after rebel leader Jonas Savimbi was killed in combat in 2002.

The fighting left an estimated 1 million people dead. At the height of the conflict, 4 million people were driven from their homes. In some provinces, most of the infrastructure – from roads and bridges to houses and schools – was destroyed.

Dos Santos swapped the uniform he often wore for portraits during the socialist era for tailored suits. He and the ruling party dominate the parliament, other political institutions and the media.

Angola is sub-Saharan Africa’s second-largest oil producer after Nigeria, with oil accounting for about 90% of its export earnings. ChevronTexaco produces about two-thirds of Angola’s daily output of about 900,000 barrels, and approximately one-third of the total is sold to the United States. The country’s output is expected to double by 2008.

Despite billions of dollars from oil revenue, the country ranks 164th among 175 nations on a United Nations index that measures citizens’ quality of life.

“Most of the country’s wealth remained concentrated in a few hands,” the State Department said in a report this year.

The ExxonMobil housing estate is one example of how the benefits of oil development have enriched Angola’s wealthiest citizens. ExxonMobil declined to comment on who built the compound. The company said the property was “leased from a private corporation in compliance with all applicable laws” but would not identify the corporation’s owner.

Oil companies routinely employ politically connected Angolans for important posts. BP hired as a top executive Jose Goncalves Martins Patricio, a former Dos Santos press secretary. When asked about hiring the former official, BP – formerly British Petroleum – responded with a copy of a press release listing his credentials for the job.

Henry Thompson, a London-based energy consultant who once worked for BP in Angola, says that when multinational companies need a local security firm to guard their facilities or handle construction work, Sonangol, the state-owned oil company, directs them to one owned by a government official or favored businessman. Foreign executives even receive recommendations on whom to rent their villas from.

“The list is endless, but no one wants to sit down and demand transparency from the [government],” Thompson said. “The money you’re paying out is very small compared to the benefits you receive. It’s not worth making noise about.”

Angola’s elite lives in walled estates and weekend beach houses. Its members employ private guards, have backyard generators and water tanks to deal with frequent utility breakdowns, and dine at clubs such as Miami Beach, which is owned by the president’s daughter, Isabel. A mixed grill of meats there costs about $40 – almost a month’s pay for workers earning the minimum wage.

“We have leaders who are foreigners in their own country,” said Rafael Marques, a journalist who once was jailed for calling Dos Santos a dictator.

Eighty percent of Angola’s 10.8 million people live in poverty. At Beautiful Rose Farm, about 120 families live in tin-and-brick shacks between ExxonMobil’s compound and Dos Santos’ sprawling presidential retreat. Aside from one woman who works as a maid for ExxonMobil expatriates, residents say, none of the squatters has benefited from Angola’s oil wealth.

A muscled man who gave his first name as Mateus said he fought as a government soldier during the civil war and now makes about $50 a month working six days a week at a construction job. He recounted how his 4-year-old son had died recently, probably of malaria, which is common here. All he knew was that the boy fell ill and was dead within 24 hours.

“The oil companies haven’t helped us,” he said. “To get a good job with them, you need a godfather.”

Civil War Gets the Blame

The Dos Santos regime puts the blame for Angola’s poverty on the civil war.

“The government can’t rebuild all at once everything that was destroyed during so many years of war,” Prime Minister Fernando da Piedade Dias dos Santos, who is not related to the president, told the local press last year.

But others say Angola’s development has been crippled by the disappearance of vast sums of money.

About $4.2 billion – more than the $3.6 billion the government spent on social programs – disappeared from the Angolan treasury from 1997 through 2002, according to a report this year from Human Rights Watch, a New York-based nonprofit.

The figures were taken from two International Monetary Fund reports on Angola, including one that the Dos Santos government barred the IMF from releasing, but which was obtained by Human Rights Watch. The fund is a quasi-governmental organization, made up of 184 member countries, that lends money to developing nations and monitors their finances.

In the leaked report, the IMF said Angola filtered its oil revenue through “a web of opaque offshore accounts.” There has been a series of allegations that Dos Santos – who is paid the equivalent of about $2,000 a month as president – and other Angolan officials have stashed government funds and bribes in foreign banks.

A Swiss judge in 2002 froze millions of dollars in bank accounts that allegedly were used by a foreign businessman to pay off Angolan officials. The Dos Santos government denied the allegation and filed a formal protest, but most of the accounts remained blocked.

Related investigations by Swiss and French authorities uncovered two private accounts held by Dos Santos in Luxembourg and the Cayman Islands, according to banking and court documents shown to The Times by London-based Global Witness, which campaigns for greater transparency in the oil industry. Global Witness released a report two months ago that alleged that Dos Santos’ offshore accounts held tens of millions of dollars, including funds diverted from the state treasury.

The U.S. Embassy in Luanda in 2002 looked into an attempt by Aguinaldo Jaime, then head of Angola’s central bank and now deputy prime minister, to transfer $50 million in Angolan oil revenue from a Citibank account in London to a private account at a Bank of America branch in San Diego, The Times has learned from three people familiar with the transaction. The Bank of America account had been opened several weeks earlier by a West African businessman who knew Jaime, the sources said.

The transfer order alarmed the two banks and the U.S. Embassy in Angola. “We had questions about the origin and nature of the money, and the Angolan government could not provide an explanation,” recalled Shawn Sullivan, who was the embassy’s political and economic counselor at the time. To prevent seizure of the $50 million, Jaime withdrew the transfer order, Sullivan said.

Citibank, Bank of America and Jaime declined to comment on the transfer order.

French oil giant Elf (now part of TotalFinaElf) pumped money into offshore accounts held by African officials, prosecutors charged in a trial last year in Paris. A former top official at Elf told investigators he had moved millions of dollars in payoffs to “ruling families” in Angola and two other African countries where the company operated. The trial concluded with the conviction on corruption charges and jailing of three former senior Elf executives, including Andre Tarallo, who had been known as “Mr. Africa” because of his role in overseeing the company’s operations on the continent.

The Dos Santos government denied the allegations, saying the charges were “dubious and irresponsible” and part of “defamation campaigns” against Angola’s president.

Some Angolan officials acknowledge that corruption has been a problem. Manuel Neto da Costa, director of studies at Angola’s Ministry of Finance, points to the creation of an Accounting Court to monitor government expenditures and prosecute corrupt officials.

“We understand that more needs to be done,” he said in an interview last year.

But Sullivan, the former U.S. diplomat, said Angola has no genuine interest in greater transparency. “They have created a system that is based on corruption and patronage, and they are unwilling to change it because it is the source of their wealth.”

A Foundation’s Backers

Oil companies in Angola say they create thousands of jobs and billions of dollars in revenue for the country.

“If well managed, [oil] revenues can make a huge contribution to economic and social development,” said Simon Buerk, a Shell spokesman. “If poorly managed, they can exacerbate poverty, corruption and poor governance.”

The companies also say they spend heavily on social endeavors, from a ChevronTexaco initiative to fight AIDS to an ExxonMobil-backed plan to combat malaria. Yet they privately acknowledge that some of their donations are aimed more at winning support from high-ranking authorities than at helping average people.

Oil companies are among the biggest backers of FESA, the Portuguese acronym for the Eduardo dos Santos Foundation, whose stated aim is to fight poverty in Angola.

FESA’s glossy annual reports include numerous photographs of Dos Santos, as well as stories about schools and health clinics the organization has built or refurbished, and about food and medicine it has distributed to the poor. One Christmas, FESA arranged to have a Santa Claus land by helicopter on a soccer field and hand out toys to hundreds of kids.

“The foundation is doing a great job of supplementing the state’s efforts, because the state lacks funds,” said Jaime, the deputy prime minister.

FESA also nominated Dos Santos for the Nobel Peace Prize in 1997.

A copy of a 2001 BP memorandum obtained by The Times said that FESA was “increasingly seen as a political apparatus that supports the presidential agenda.” It said that the company’s donations to the foundation “could be seen as ‘contributions to political parties,’ thus contravening our ethics.” Spokesman Toby Odone said the company contributed $1.2 million, mostly given by Amoco before its merger with BP six years ago.

Odone said the company adopted a formal policy of stopping all corporate political donations in April 2002, and made no contributions to FESA beyond that point. “Therefore we were not breaking our ethical policies” when the company previously donated to the foundation, he said.

The BP memo offered similar warnings about contributions to the Lwini Foundation, which is headed by Dos Santos’ wife and says its goal is to help Angolans injured by land mines during the civil war.

The foundation rejected requests for copies of an annual report or accounting of expenditures. Its website lists only a few activities, including an event to honor Princess Diana, who had visited Angola in 1997.

Odone said Amoco had contributed to Lwini but BP has halted donations. ChevronTexaco, which is a contributor to Lwini, said in a statement that the foundation had an auditing committee “that provides an annual opinion of [its] accounts.”

FESA and Lwini did not respond to interview requests.

In 1998, Royal Dutch/Shell Group donated $400,000 to another organization, the Kissama Foundation, which was set up by senior generals to rehabilitate a national park near Luanda.

The confidential report from the company’s outside consulting firm said that Kissama had been “utterly mismanaged” and that “Shell’s donation now looks like little more than an ill-advised attempt to curry favor with some well-placed generals.”

Buerk, the Shell spokesman, said the company disagreed with the consultant’s assessment. “The donation was made with the best of intentions,” he said. FESA officials provided several past annual reports and financial summaries. The 2001 summary of fundraising and expenditures, the latest made available, said that $9.6 million had been raised for the year, but it itemized only $417,000 in contributions.

In addition to oil industry donors, an Israeli arms broker, a South African diamond firm and a Brazilian construction company contributed to the foundation, according to its annual reports.

Thompson, the energy industry consultant, said Angolan officials, usually from Sonangol, the state-owned oil company, were designated to solicit contributions to FESA from oil companies and other foreign firms.

A typical contribution is $100,000, he said.

“If you say no, they will pester you,” Thompson said. “They can make life pretty difficult, so you look at the pros and the cons, and you decide what to do.”

ChevronTexaco said that the company and its partners in Block 0, a huge Angolan oil field, contribute a combined $50,000 annually to FESA. “This funding goes towards projects supporting education, sports, maintaining national heritage and providing medical aid,” ChevronTexaco said in a statement.

A former Mobil official in Angola said the company had made several small contributions before its merger with Exxon in 1998. ExxonMobil said it could find no record of payments to FESA.

Marques, the journalist, offered a Times reporter a tour of some FESA projects, including the renovation of a public garden near the foundation’s headquarters.

This is FESA’s second restoration of the garden. After the first renovation, completed in 2002, residents from a nearby slum without running water used the fountain as a water source, and kids bathed in it. Someone finally walked off with the water pipes.

Three years ago, FESA renovated the Imperial Santana School in the poor Rangel district. The pink-and-cream building has colorful painted figures of Donald Duck, Pluto and other Disney characters on the walls, as well as a sign: “FESA, with us now and in the future.”

But Angola’s schools are badly funded. Joao Castro Lemos, an Imperial Santana administrator, said many of his students didn’t have basic supplies such as pencils.

A clinic FESA built for residents of the dirt-poor Pentrangol neighborhood of Luanda had similar problems. The pharmacy’s shelves held only a few medications, mostly antibiotics. There was an X-ray room, but FESA hadn’t supplied an X-ray machine. The only ambulance, pictured in FESA’s 2002 annual report, broke down long ago.

In a treatment room for malnourished kids, about 30 women and children sat on mattresses on the floor while a nurse made a thin meat broth. The storeroom was empty save for a few sacks of cornmeal, four onions, powdered milk and a powder to make soybean porridge. Much of the clinic’s paltry supplies were provided by European charities and the Japanese government.

Leader’s Birthday Party

Every August, FESA sponsors a week of festivities in honor of Dos Santos’ birthday, from concerts to soccer tournaments. Last year, state TV, radio and newspapers featured extensive coverage of “FESA Week” events. TV announcers read numerous tributes to Dos Santos from Angolan political figures. One sports radio station even featured a lengthy special report on the president’s soccer prowess as a teenager.

A group of the president’s business allies flew in Spanish crooner Julio Iglesias for two concerts. One was a private affair; the other was a “Social Gala for All of Society,” but the $200 admission price limited the audience to Angola’s elite.

The high point of the week is a party on Aug. 28, Dos Santos’ birthday. On that morning last year, hundreds of people converged on a soccer stadium, many of them bused or trucked in by FESA. They wore foundation T-shirts and waved little flags with its insignia.

“Let’s make a celebration for our president,” an emcee shouted. Children representing Angola’s provinces sang and danced. A contingent from Cabinda, where ChevronTexaco’s operations are based, had their hair arranged in long, spiky cornrows and wore white fringed skirts. Another group representing peasants from northern Uige province carried hoes on their shoulders.

After the performance, Dos Santos cut a huge, three-tier cake as the audience sang “Happy Birthday.”

In parting remarks to state TV, he said: “I’m happy because it’s my birthday. But I’d be happier if our country was different, if there weren’t children on the street, if there was less misery.”

Times staff writer Warren Vieth and researcher Mark Madden in Washington contributed to this report.

Categories: Africa, Angola, Odious Debts

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