Africa

Grease is the word for oil in Equatorial Guinea

Paul Lashmar
Business Report
September 7, 2004
In January the US’s fourth-largest oil company, Marathon Oil, began expanding its extraction infrastructure in the west African state of Equatorial Guinea.

In one private deal Marathon delivered a cheque for more than $611 000 (R4 million) for the purchase of 50ha of convenient and virgin land in Punta Europa.

The cheque was made out to Teodoro Obiang Nguema, who happens to be the president and effective dictator of the oil-rich but poverty-stricken country.

Shortly afterwards, Houston-based Marathon agreed to buy an additional 208ha of Punta Europa land for a proposed liquefied natural gas plant. The price is $1.4 million and the deal is also being conducted through Abayak, a company controlled privately by Obiang, who seems to own huge tranches of key property in the country.

In another deal, Marathon hired its local staff exclusively through Apegesa, a company executives believe is partly owned by Juan Olo, the country’s former energy minister and a prominent businessman.

Apegesa takes a 20 percent cut of the salaries of all locals lucky enough to be employed. That rake-off is a nice little earner for not doing too much.

These are just a few of dozens of non-governmental deals – between US oil firms and Obiang, his family and ministers – worth tens of millions of dollars that were revealed in a recently published senate subcommittee for investigations report into the Washington-based Riggs Bank.

The report has created critical publicity for the major US oil companies that operate in Equatorial Guinea, including Marathon, Amerada Hess and ChevronTexaco, the US’s second-largest oil company.

As one analyst said: “What the report revealed is corporate behaviour by these oil companies more in tune with the buccaneering days of the early 20th century rather than the 21st century. Have no lessons been learned by corporate America?”

Campaign group Global Witness said the report painted “a damning portrait of financial impropriety and sleaze” in Equatorial Guinea and condemned the role of oil companies.

In 1990, Equatorial Guinea was one of the poorest nations on earth. A remnant of the Spanish African empire, it comprises a handful of islands and a strip of jungle on the mainland, south of Cameroon. The capital, Malabo, is on the main island.

Until the mid 1990s, the country was better known for its gorilla population and the presence of the deadly 3m green mamba snake than for any economic activity, with the exception of some hardwood logging from the rainforest. It did not even have its own brewery, importing beer from neighbouring Cameroon.

Sights that greeted the rare visitor included rotting cocoa plantations, derelict hotels and rusting hulks in the harbours.

Now, the view from Malabo harbour at night reveals the distant twinkle of burn-off flames on offshore drilling platforms.

The discovery of large reserves of oil and gas has not made many of its 460 000 population better off.

But Obiang, the country’s ruler for the past 30 years, and his circle are now immensely wealthy and had, until the senate investigation, channelled their booty into Riggs accounts.

However, the sudden wealth has made the president a prime target for regime change, as the failed, financially driven coup led by Simon Mann has shown.

Nearly all of the money in the Equatorial Guinea accounts came directly from royalty payments from US oil companies.

The report said that Riggs might have allowed its largest customer, Equatorial Guinea, and its ruler to siphon hundreds of millions of dollars in oil revenue into his personal accounts. At any one time, up to $700 million was held in a complex web of 60 accounts.

“Oil companies operating in Equatorial Guinea may have contributed to corrupt practices in that country by making substantial payments to, or entering into business ventures with, individual Equatorial Guinea officials, their family members, or entities they control, with minimal public disclosure of their actions,” the report concluded.

“The nature of these transactions and the amount of money involved raise legitimate questions about business dealings within the country.”

The naked corruption of these once-secret arrangements has sparked a backlash against these US firms and will have ramifications for all western companies operating in unstable Third World countries.

The US Securities and Exchange Commission is carrying out informal investigations into at least three of the companies – Marathon Oil, Amerada Hess and ChevronTexaco – to see whether they broke anti-bribery laws and committed securities fraud by failing to properly disclose disbursements made to foreign governments or officials.

But the geopolitical implications are far greater. The US is hoping that the countries of west Africa will provide at least 15 percent of its oil imports within 10 years, reducing its dependency on Middle Eastern and Russian supplies.

West Africa is clearly identified by the US as an area that merits significant attention as an oil source, given its many large, untapped reserves, proximity to the US refining system and generally light-grade crudes.

The report said as much: “US oil companies have dedicated increasing resources to the discovery and development of African reserves and production. Nigeria, Angola, Gabon and Equatorial Guinea are now the top four producers of oil on the continent, and each is a supplier to the US.”

But, as the report pointed out, “each is also known to have major problems with corruption, poverty and violence”.

Not that the oil groups concerned seem to have suffered yet for their compliance with Obiang’s corruption.

Marathon Oil reported a profit hike in the second quarter as a result of higher natural oil and gas prices “and a strong downstream performance”.

Income rose 48 percent to $113 million from the same quarter last year. Marathon made the final investment decision on the Equatorial Guinea liquid natural gas project, which chief executive Clarence Cazalot described as a cornerstone of the company’s gas strategy.

Construction of the gas plant – presumably on land previously owned by Obiang – will go ahead and the first shipments are due in late 2007.

The report detailed the extent to which some US companies were prepared to comply with Obiang’s demands.

“Some Equatorial Guinea ministers and their families had come to dominate certain sectors of the economy and, in some cases, had become virtual economic gatekeepers for foreign companies wishing to do business in the country,” it said.

“How oil companies can and should respond to this situation raises a number of difficult policy issues,” the report added.

In just one case, it showed that Amerada Hess paid ministers and their relatives nearly $1 million for building leases. Of the 28 leases Hess identified for rentals in Malabo, 18 were from persons connected to the government or the Obiang family.

One of these was negotiated in 2000 by Triton Energy (which later sold out to Hess) and involved leasing property from a 14-year-old relative of the president who was represented by his mother. Under this lease, Hess and Triton have paid $445 800 to the boy and his mother.

The report recommended that oil companies operating in Equatorial Guinea should immediately publicly disclose all payments made to individual officials or their families, and to disclose all business ventures entered into with officials or their families.

These companies “should prohibit future business ventures in which senior government officials or their family members have a direct or beneficial interest”.

Sarah Wykes of Global Witness said: “Although Equatorial Guinea has the world’s fastest-growing economy on paper, its human development is actually going backwards. Now we know why: the money is offshore, out of sight and out of control.

“Allegations in the senate report imply that, far from being a force for development, some oil companies are making this problem worse.”

Global Witness has called on the US justice department to investigate the report’s allegations “and bring those involved in looting the assets of the Equatoguinean people to justice”.

At a time when the oil majors are trying to present themselves as ethical organisations, the senate report has shown that where there is oil, palms are often greased.

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