EQUATORIAL GUINEA: Stripped of Its Wealth

British firms among those to profit from energy bonanza in Equatorial Guinea
Publisher Name: 
Guardian

  It
has got a sad record of disease, brutality and corruption, and fewer
inhabitants than Sheffield. But Equatorial Guinea is one of the key
targets of the west's new "scramble for Africa". So much so that a gang
of British businessmen, including Sir Mark Thatcher, were accused last
year of financing an armed coup to get their hands on its wealth.

This
mini country located under the armpit of the West African coast has
immense quantities of oil; it is currently exporting $4.5bn worth
(about £2.5bn) a year. Yet such an astonishing bonanza appears to have
done most of the country's citizens no good. The IMF reported bluntly
in May: "Unfortunately, this wealth has not yet led to measurable
improvements in living conditions."

Who then, is getting the benefit? One of the answers can be found in Equatorial Guinea's recent big British deal.

BG
Plc, formerly British Gas, takes full-page prestige advertisements in
New Statesman, the Labour magazine, to boast that it intends "to play
an important role in securing Britain's energy supply".

The
company says it hopes to make considerable profits on what is being
touted as the fuel of the future. It is buying up nearly 60m tonnes of
liquefied natural gas - the entire planned output for 17 years of
Equatorial Guinea's new LNG plant - an amount that is worth about $15bn
at today's prices.

The
company will not disclose what it will be paying for the gas, despite
having signed up to the Blair government's idealistic scheme, the
Extractive Industries Transparency Initiative, under which companies
and governments are urged to come clean about oil payments.

The firm provided a limited amount of information, however, from which some calculations can be made.

If
the price of LNG on the US market stays below $182 a tonne, the company
says it will buy it at source for up to $155, and make only a moderate
profit. But if the price soars over the coming years - and traders hope
it might in a world starved of clean energy - BG could make an
extraordinary windfall.

But
asked how much of that extra profit will go back to Equatorial Guinea
and the company pulls down the shutters. If the answer is "none", on
the information available, the government of Equatorial Guinea may see
little more than $65m a year from the LNG deal.

The
government has been allowed only a 25% share in the LNG plant itself.
The rest belongs to the Houston-based US oil giant Marathon. (In a
similar LNG deal in Nigeria, the Nigerian state oil company got twice
as big a shareholding.)

This
picture of Guinea's government getting a poor deal repeats itself upon
further investigations into the background to the contract.

The
gas, which will be refrigerated and liquefied in the new plant, comes
from the Alba Field, which Marathon also operates. Basic figures
published by the IMF this year reveal that royalties of only 10% were
due on the original Alba contract. There is a production sharing deal
as well, but under it Guinea's government receives a paltry 5%.

Altogether,
the IMF figures suggest that in recent years Guinea's overall "take" in
revenue has been only 15-30% of total oil and gas sales, while the norm
in sub-Saharan Africa is 45-90%.

It
is perhaps no wonder that Marathon boasted that "this project will be
one of the lowest-cost LNG operations in the Atlantic basin". But why
has Marathon got such good terms? Part of the answer may have been
uncovered in an extraordinary report by a US Senate committee last
year. In the course of investigating the corrupt behaviour of Riggs, a
Washington bank, the committee discovered a number of suspect goings-on
in Equatorial Guinea.

Teodoro
Obiang Nguema, the country's president, and his wife and son, were
apparently treating themselves to planes, big houses and shopping
sprees. Millions of dollars in cash were being lugged around Washington
in suitcases.

Royalties

To
get the go-ahead for the LNG plant, Marathon was proposing to tip more
than $2m the way of the president himself. He said he owned the land on
which the LNG plant was to be built, and that the oil company had
agreed on a price.

Many
of the Marathon oil royalties never reached Equatorial Guinea, but
stayed in a Washington account. There, on President Obiang's signature,
they were dipped into for mysterious transactions, including one where
$34m was transferred to two unknown entities, Kalunga and Apexside. The
British bank HSBC was involved in aiding the Apexside transactions, and
some of the money went through accounts it operated in the fiscal
"black holes" of both Luxembourg and Cyprus.

HSBC
refused to tell the Senate investigators who owned Apexside, pleading
local bank secrecy laws. HSBC's Luxembourg operation advertises itself
as a private banking service "to high-net worth individuals and their
families". The committee said: "The position taken by ... HSBC ...
presents a significant obstacle to US anti money-laundering efforts."

Another British firm was involved in questionable oil company payments.

Marathon
and other US companies handed over millions of dollars to the regime,
supposedly for educational purposes. But the Senate committee reported
that most of those people funded to study abroad "were the children or
relatives of wealthy or powerful EG officials".

Cash
was distributed for UK students via Lloyds Bank by ECL, a British
geophysical consultancy, which earns up to £2m a year advising Guinea's
ministry of mines and energy on oil reserves.

Asked
by the Guardian who got the money, Alan Soulsby, an ECL director said:
"It's all confidential." The dilemma, he said, was that "it's a small
country and everyone is related to everyone else".

Marathon
also paid $7.5m in fees to hire labourers through an agency part owned
by a former Guinea energy minister, the Senate committee reported.

Secret
signature bonuses are also paid out by the oil companies, at up to $5m
a time. Concerned bodies in the west are campaigning to get the firms
to "publish what you pay". But this is not happening. The IMF reported
this year that "the amount of the bonuses is confidential".

In
addition to its concerns over the behaviour of US firms, the Senate
committee was much exercised about GEPetrol, the state oil company that
holds the 25% share in Marathon's LNG plant. The members said: "Some
evidence obtained by the sub committee suggests that GEPetrol may have
one or more EG officials as part-owners."

The
IMF team which went to Malabo this year was equally unhappy about
GEPetrol. The team was unable to see audited accounts and said the
operations were "not transparent".

Yet
this is one of the key bodies which handles oil revenues. According to
the IMF, large sums are splashed out on big capital projects, while too
little goes on reducing the poverty of its inhabitants. Local people
are prey to dysentery and malaria, and infant mortality rates are at
least 18 times higher than in the UK, and half as high again as in
South Africa. The majority of the people do not have access to decent
water and 5% of the population is said to own 80% of the wealth.

However,
an £80m investment is planned for the expansion of the oil port of
Luba. GEPetrol calls itself an "active partner" with another British
company, Incat, which has got a 25-year concession to operate the port.

The
financial relationships are opaque. John Haden, from Worcestershire,
Incat's owner, said he would not reveal the extent of GEPetrol's
planned shareholding.

And
Incat's own finances are not transparent. Although it has got a trading
branch in Bristol, it is registered offshore via trusts in Jersey,
another fiscal "black hole" where accounts and beneficial ownerships
are not published and where there are no laws against overseas bribery.

Corruption

Asked about the problem of corruption in Equatorial Guinea, Mr Haden said: "Yes, but what about the rest of Africa?"

The
campaigning organisation Global Witness wants UK firms to take more
responsibility for the "oil curse" that Equatorial Guinea suffers.
Sarah Wykes, its specialist analyst, said: "American oil companies have
been accused of activities at best morally questionable and, at worst,
corrupt and illegal. Given the EG government's history of corruption,
and the controversial track record of other extractive sector companies
operating there, it is in the interests both of its citizens and of BG,
that the company break this pattern and disclose fully what it is
paying to the EG government for its gas."

BG
said: "We are founding signatories of the transparency initiative. But
in this case we are not dealing with the EG government. We are dealing
with a private entity, in a commercially confidential contract."

The
HSBC bank, asked for information about money it passed through
Luxembourg, said: "We fully cooperated with the Senate investigation."

AMP Section Name:Energy