Dollars for Guinea: How palms were greased by oil

What a slippery mess the black stuff leaves. Paul Lashmar finds it has enriched not the people but the corrupt rulers of a West African state, while Rebecca John comes across conflict on the trail of the new pipeline from the Caspian to the Mediterranean

05 September 2004

In January of this year, US energy giant Marathon Oil began expanding its extraction infra- structure in the West African state of Equatorial Guinea. America's fourth-largest oil company, Marathon is a big player in exploiting the tiny country's oil and gas reserves.

As part of the expansion, in one private deal, Marathon delivered a cheque for more than $611,000 (£340,000) for the purchase of 50 hectares of convenient and virgin land located in Punta Europa. The cheque was made out personally to D Teodoro Obiang Nguema, who also happens to be the President and effective dictator of this oil-rich but poverty-stricken country.

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

In yet another deal, Marathon hired its local staff exclusively through APEGESA, a company that executives believe to be partly owned by Juan Olo, the country's former energy minister and a prominent businessman. APEGESA takes a 20 per cent cut of the salary of all locals who are lucky enough to be employed. The rake-off is a nice little earner for not doing too much.

These are just several of dozens of non-government deals - between US oil companies and President Obiang, his family and ministers - worth tens of millions of dollars that were revealed in the recently published Senate Sub Committee for Investigations report into the Washington-based Riggs Bank.

The report has created critical publicity for the major US oil companies which operate in the West African state - including Marathon Oil, Amerada Hess and ChevronTexaco, America's second-largest oil company.

As one oil analyst commented: "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 the 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 (the main one was once known as Fernando Po and that's where the capital Malabo is located) and a strip of jungle on the mainland, south of Cameroon.

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

Other notable 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 the burn-off flames of the offshore drilling platforms. The discovery of large reserves of oil and gas hasn't made many of the 460,000 population better off. But President 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 former SAS officer and old Etonian Simon Mann has shown.

Nearly all of the money in the Equatorial Guinea accounts came directly from royalty payments from US oil companies. The Senate report said that Riggs may have allowed Equatorial Guinea, its largest customer, and the country's ruler to siphon hundreds of millions of dollars in oil revenue into his personal accounts. At any one time, up to $700m was held in a complex web of 60 inter-related 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 these and other business dealings within the country."

The naked corruption of these once- secret arrangements has sparked a backlash against these American firms and will have ramifications for all Western companies operating in unstable Third World countries. The US Securities and Exchange Commission (SEC) is carrying out informal investigations into at least three of the oil companies - Marathon Oil, Amerada Hess and ChevronTexaco - to see whether they broke anti-bribery laws and whether they committed securities fraud by failing to properly disclose disbursements made to a foreign government or official.

But the geopolitical implications are far greater. The US is hoping that the oil-producing countries of West Africa will provide at least 15 per cent of its oil imports within 10 years, reducing the nation's dependency on Middle Eastern and Russian oil 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 facilities. Nigeria, Angola, Gabon and Equatorial Guinea are now the top four producers of oil on the continent, and each is a supplier to the United States."

But as the report also 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 President Obiang's corruption. Marathon Oil has reported a profit hike in the second quarter as a result of higher natural oil and gas prices "and a strong downstream performance". Income was up 48 per cent on the same quarter last year at $113m. Marathon also made the final investment decision on the Equatorial Guinea Liquid Natural Gas project, which chief executive Clarence Cazalot Jr described as a cornerstone of the company's gas strategy. Construction of the LNG plant - presumably on land previously owned by President Obiang - and the first LNG shipments are due in late 2007.

The Senate report detailed the extent to which some American companies were prepared to comply with President 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," the report stated, providing them with lucrative returns.

"How oil companies can and should respond to this situation raises a number of difficult policy issues," it added.

In just one case, it showed that Amerada Hess paid ministers and their relatives nearly $1m for building leases. Of the 28 leases Hess identified for rentals in the 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 Senate report recommended that oil companies operating in Equatorial Guinea should forthwith publicly disclose all payments made to, or business ventures entered into with, individual 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 actively the allegations in the Senate report "and bring those involved in looting the assets of the Equatoguinean people to justice".

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

They prayed for an end to poverty. So far all they have had is trouble

Nurullah opens the door of his tumbledown shed and shows us the dried cattle dung that he, and the rest of his village, uses for fuel. "We burn this dung to cook bread," he explains. "We have no alternative. We would like to live a modern life. What would you have us do?"

Soon, a million dollars' worth of oil will be pumping three feet below this farmland in north-eastern Turkey - every hour. Subsistence farmers like Nurullah hope a new pipeline, being built to transport oil from the Caspian Sea to the Mediterranean, might raise them out of poverty.

The Caspian may contain the largest untapped oil reserves on the planet. Estimates go as high as 200 billion barrels. But this new pipeline travels through some of the most geographically challenging and politically dangerous places on earth, skirting no less than seven conflict areas on its 1,100-mile journey.

Owned by a BP-led consortium, the BTC pipeline (so-called because it connects the cities of Baku in Azerbaijan, Tbilisi in Georgia and Ceyhan in Turkey) could be up and running by the beginning of next year. A romantic venture in the grand tradition of industrial revolution, it's also a vast engineering challenge that aims to reduce North American and European dependence on Middle Eastern oil. And that's not all: for the people who live alongside the pipeline route, its construction brings great hopes for wealth and democracy.

The pipeline begins its journey in Baku, where, in the late 1980s, a heady cocktail of post-Soviet bargain-hunters, top-level diplomats, wheeler-dealers, mafiosi, spies and (often corrupt) officials fought to secure access to the Caspian's precious oil reserves.

At the time, local politicians saw oil as a ticket to Azerbaijan's independence from Russia. They still do. In the offices of his opposition party, former Azeri prime minister Panakh Gusseinov underlined the geopolitical significance of oil and the pipeline that links Azerbaijan to the West: "In Soviet times, Western companies were viewed as 'gigantic, imperialistic sharks'. But we were politicians of a new age, and we saw the signing of the oil contracts as a guarantee of our independence."

Oil has certainly been good for Azeri independence but, so far, the same cannot be said of Azeri democracy. Since he was interviewed a year ago, Mr Gusseinov has been arrested and imprisoned on charges of inciting violent protest.

According to a report published earlier this year by the campaign group Human Rights Watch, more than 100 opposition leaders are in detention in Azerbaijan, facing jail terms of up to 12 years. As for corruption, a recent survey published by Transparency International ranks Azerbaijan as the sixth-most corrupt country in the world - up two places from last year's number eight. Mirvarie Gahramanile, a union leader who was sacked when she started collecting evidence of corruption in the state oil company Socar, explained: "Nobody speaks openly about corruption. There are no independent courts. All this creates conditions for corruption to flourish."

Leaving Baku, the pipeline route itself heads north through Azerbaijan. Great stacks of steel pipes, 15 feet high, span the horizon. It will take 150 thousand pipes to reach the Mediterranean - enough steel for half a million cars or a hundred super-tankers.

Every petrol station one passes belongs to Jalas, brother of Azeri President Ilham Aliev. But there is little evidence that oil revenues are reaching the local people.

Leaving Azerbaijan, the pipeline enters Georgia, one of the most lawless and unstable countries in the Caucasus region. Foreign businesses face many threats here, which may be why the only people BTC allows to speak to journalists are some local hard hats building one of the pipeline's pump stations. One of them explained: "We are already getting on in life so we probably will not live to see the benefits. If it is beneficial to our grandchildren, then that will be good enough. But if the state uses the money wisely, it will benefit everyone."

Another was less optimistic about what will happen when construction is finished: "It's like Pandora's box. When Zeus opened it, everything flew out. What was left? Just hope."

The alleged presence of Islamic militants in Georgia's Pankisi Gorge has made the area an important battleground in Washington's war on terror, and the US army is running a "Train and Equip" programme for the Georgian military. US Ambassador Richard Miles has described the pipeline as a "strategic asset" and spoke about how the pipeline's safety was a priority for Washington.

Beyond the Caucasus, the pipeline travels through the Taurus mountains of eastern Turkey, before it makes its way to the coast. This ancient landscape, containing numerous sites of immense archaeological value, is vulnerable to earthquakes - another engineering challenge. Its politics are equally volatile: the region's Kurdish population has long dreamt of a separate state.

Gungor Alp, a member of the Kurdish separatist party Dehap, explained that the BTC pipeline is bypassing Kurdish-dominated areas because the company sees the Kurds as a potential danger. "We have no democratic rights. We have a separate language and traditions, yet we are barred from writing and reading the Kurdish language." He believes there is a growing danger of war in the region and that, if violence erupts, the pipeline corridor will be one of the first targets to be struck.

His words resonate at BTC's Ceyhan terminal, where the pipeline gently slopes towards a glittering Mediterranean sea. It is here that the hopes and dreams of those we met will come together.

The pipeline is many things to many people. But only one thing is certain: in centuries to come, when the Caspian's oil has been exhausted, it will pass into the history of this ancient region.

Oil pipelines are the aqueducts and amphitheatres of our age. They speak volumes about who we are and the way we live. When future historians come looking for clues of our era, this is what they'll find.

Rebecca John is one of the producers of a three part series, 'The Curse of Oil', which starts on BBC4 on 13 September. The programme featuring the BTC pipeline appears on 20 September.

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