Chad and Exxon

Yesterday, Chad’s Tribunal de Grand Instance (Major Pleas Court) rendered a judgment against a petroleum consortium directed by Exxon. Seeking to end a legal dispute (French) that began in 2014, the court ordered the consortium to pay around $74 billion (44 trillion CFA) in allegedly unpaid royalties and associated penalties. That figure has shocked the financial press, and Exxon plans to contest the ruling.

One court document has been uploaded by Jeune Afrique (French). One central issue in the dispute is the rate of royalties that the consortium must pay: Chadian authorities say it is 2%, but the consortium has reportedly been paying 0.2% for years.

The consortium has two other members: Malaysia’s state-owned Petronas, and Chadian firm SHT* (Société des Hydrocarbures du Tchad, or the Chad Hydrocarbons Firm). There has been some ambiguity in the press about whether Chevron is a member of the consortium; I believe that it is not, given Chevron’s sale of its Chadian interest to the government of Chad in June 2014.

Most international reports have contextualized the ruling with reference to Chad’s current economic difficulties; in recent posts I have been noting the impact of budgetary austerity (due to low oil prices) on different constituencies in Chad, especially students and civil servants. The implication, then, is that Chad’s government is merely trying to extract more from international oil companies during a trying time. Bloomberg, in fact, hints that the government may be throwing out a large figure in order to scare the companies into paying a smaller fine:

The president of the court, Brahim Abbo Abakar, confirmed the ruling by phone on Thursday. “It’s correct, however, the provisional enforcement is lower than the amount demanded by the tribunal,” he said, referring to the sum of $669 million also cited in the document. He didn’t elaborate.

Apparently the first round of this dispute, in 2014, ended with direct negotiations (French) between the oil companies and the administration. Perhaps that will happen again now.

I also think there is a broader context to mention. That is the pattern of Chad’s government acting as a tough negotiator vis-a-vis the oil companies and the international community as a whole. As I mentioned in a previous post on Chad, much of that story is told in Celeste Hicks’ Africa’s New Oil.

Finally, for what it’s worth, I found it interesting that one of the featured news items on the official site of the Chadian presidency was about President Idriss Deby’s recent meeting (French) with the Vice President of China National Petroleum Corporation (CNPC). The readout of the meeting mentioned the “rich and fruitful discussions” the two parties had, but also noted that Chadian authorities expect that it would be a “difficult year” due to low global oil prices. For further context, CNPC has also paid large fees to Chad in the recent past ($400 million in 2014, negotiated down from $1.2 billion), and agreed to a higher royalty rate in 2015. The lesson seems to be that some companies, at least, are willing to pay fees in order to maintain access to Chad’s oil.

*Some reports listed the firm as SNT, but I believe that’s a mistake in transcription from court documents.

More on Austerity in Chad

Last week I wrote about student protests against austerity in Chad. The austerity measures, implemented since President Idriss Deby was inaugurated for his fifth term in August, are also affecting civil servants (French):

The government announced Tuesday, September 27 that it was cutting civil servants’ bonuses for a period of 18 months, provoking the anger of unions. It is one of the 16 emergency measures announced by the state to cope with the economic crisis the country is going through.

The measures include an 80% reduction in allowances and bonuses for civil servants.

As Twitter user Tinea commented, the austerity measures are “hard to swallow given the oil money wastefully spent.” From the perspective of many Chadians (I imagine), Chad’s oil revenues have provided only limited tangible benefits – some new infrastructure, but sometimes a higher cost of living as well. Add to that the budgetary impact of lower global oil prices (which were prompting austerity measures in Chad by late last year), and some Chadians may feel that high oil prices enrich the few, but low oil prices hurt the many.

For more on oil in Chad, the place to start is Celeste Hicks’ book Africa’s New Oil, in which Chad is the central case study.

Insights on Niger’s Economy

Niger is by some measures the poorest country in the world, yet its economy is growing rapidly. Several recent analyses are worth a read. All of them highlight both possibilities and constraints for the economy over the coming years:

  • IMF, May 18: “Despite a deterioration of the security context in the region, real gross domestic product (GDP) in 2014 rebounded to 6.9 percent, from 4.6 percent in 2013. Growth was driven by agriculture and services. Average inflation receded to negative 0.9 percent in 2014 thanks in particular to an improved food supply in part due partly to the government’s food aid program, which helped to attenuate the increase of prices of food products. Weak revenue collections, unanticipated security expenditure and a shortfall in external budget assistance adversely impacted fiscal outcomes and, as a result, most of the program’s fiscal targets for end-2014 were missed. However, the economic outlook for 2015 and the medium-term remain favorable. Although real GDP growth is expected to recede to 4.3 percent in 2015, average growth is projected to average 7 percent during 2016-2018, mainly as a result of the expansion of the extractive industries sector and an increase in public investments.”
  • Facinet Sylla and Mansour Ndiaye, May 28: “Niger is very much a landlocked country, with two-thirds of its land mass desert. The population is concentrated in a narrow strip in the south, where its main activities are farming and herding. The population is doubling every 18 years, with a high birth rate entrenched in the culture. This is a real challenge for food security, education, healthcare, family planning, employment and social protection. The government has therefore made spatial inclusion one of its aims in its national development policy, the main tool of which is the creation of local development bodies. However, the policy’s impact is limited by challenges related to demographics and the transfer of resources, as well as by a relatively weak institutional capacity and regional bodies that are illequipped to bring about sustainable local growth.” The authors’ full paper is available in French here; it features additional discussion of different sectors (agriculture, extractive industries, and commerce), macroeconomic and fiscal policy, and other matters.
  • Adamou Louché Ibrahim (French), June 2, discusses three risks: climatic, physical insecurity, and energy insecurity. He argues that the high cost of energy constrains growth: “Even though Niger has been a net exporter of petroleum products since 2011, their high price (unleaded: 540 FCFA/liter; diesel: 538 FCFA/liter, more than half the daily salary of a salaried worker paid the minimum guaranteed salary of 30,047 FCFA monthly) makes them quasi-inaccessible for the majority of Nigeriens. So, contrary to what certain politicians in the country affirm, a drop in the price of energy would have a very significant positive impact on growth…boost[ing] internal demand, and our economy would enter a virtuous cycle. Thus the government would have everything to gain by renegotiating the contract that binds it to the China National Petroleum Corporation.”

 

Africa Blog Roundup: Muslim Protests in Ethiopia, Oil Contracts, Elections in Sierra Leone, Gold in South Sudan, and More

Chris Blattman recommends, and highlights some powerful quotations from, Robert Worth‘s “Can American Diplomacy Ever Come Out of Its Bunker?”

Alemayehu Fentaw on Muslim protests in Ethiopia:

There is little evidence to support the Ethiopian Government’s claim that its own Muslim community poses a legitimate threat to national and regional security.  It only seems to be driven by a shrewd strategic calculus. Since Ethiopia is a critical partner in the West’s ‘War on Terror’, the government thinks it helps to foment fear of the rise of radical Islam in Ethiopia that would lead to an improbable takeover of power by political Islam.  The current Ethiopian Government seeks to keep Western support and aid flowing into the country through characterizing the Muslim community as linked to Islamic radicals and thus a threat to national security.

Baobab on Sierra Leone’s elections.

Duncan Green/The World Bank: “What Have We Learned from Five Years of Research on African Power and Politics?”

Two on oil:

  • Loomnie: “Oil Contracts: How to Read and Understand Them.”
  • Laine Strutton: “A Very Brief Chronology of the Nigerian Oil Economy.”

Orlando Reade: “Revolutions and Dancing.”

Amb. John Campbell comments on “a new report by the Global Commission on Elections, Democracy and Security, ‘Deepening Democracy: A Strategy for Improving the Integrity of Elections Worldwide.’”

Roving Bandit on artisanal gold mining in South Sudan.

Niger, Resources, Budgets, and Security

I’ve been following Niger’s recently launched five-year, $2.5 billion Security and Development Strategy (SDS). The program aims to address economic grievances in the north and across the country while bolstering security, all in the hopes of avoiding the chaos that plague Mali currently and avoiding a repeat of rebellions Niger has faced in the past.

One of the key questions facing SDS is how to fund it. The European Union has pledged $118 and other foreign partners will presumably contribute. Yet much of the funding, it seems, is expected to come from the Nigerien government itself. Some of that funding, in turn, is expected to come from rents derived from oil production and uranium mining.

That’s why the headline “Niger Cuts Budget by 7% on Oil Revenue Shortfall” caught my eye:

Niger, one of the world’s newest oil-producing nations, has reduced its 2012 budget by nearly 7 percent to 1.35 trillion CFA francs in response to lower government income.

The revision is the third since the budget was adopted late last year and is due largely to projected shortfalls in customs duties and revenues from its energy sector.

The government increased spending by 10 percent in July to cope with drought and conflicts along its porous borders, including an Islamist occupation of northern Mali.

[…]

According to [a televised government] statement, state oil profits for the year were expected to reach 4 billion CFA francs, far short of an earlier projection of 33.5 billion CFA francs.

According to this converter, the revised budget comes out at around $2.7 billion. For comparison’s sake, a fifth of SDS’ projected budget (i.e., the rough amount the government would spend on the program each year for five years) is $0.5 billion. That’s a big expenditure in this context. And if oil revenues fall short of expectations, it may be hard for the government to fund SDS on the scale of its ambitions – great though the need for the program is – without making sacrifices in other areas or securing more outside assistance.

Africa News Roundup: The UNSC and Mali, HRW on Boko Haram, Abyei, Somali Oil, and More

The United Nations, from yesterday:

Citing the threat to regional peace from terrorists and Islamic militants in rebel-held northern Mali, the United Nations Security Council today held out the possibility of endorsing, within the next 45 days, an international military force to restore the unity of the West African country.

In a unanimously adopted resolution, the 15-member body called on Secretary-General Ban Ki-moon to provide, at once, military and security planners to the Economic Community of West African States (ECOWAS), the African Union (AU) and other partners to help frame a response to a request by Mali’s transitional authorities for such a force, and to report back within 45 days.

Upon receipt of the report, and acting under Chapter VII of the UN Charter, the Council said it was ready “to respond to the request of the Transitional authorities of Mali regarding an international military force assisting the Malian Armed Forces in recovering the occupied regions in the north of Mali.”

Human Rights Watch released a new report on Thursday entitled “Spiraling Violence: Boko Haram Attacks and Security Force Abuses in Nigeria.” From the summary:

This 98-page report catalogues atrocities for which Boko Haram has claimed responsibility. It also explores the role of Nigeria’s security forces, whose own alleged abuses contravene international human rights law and might also constitute crimes against humanity. The violence, which first erupted in 2009, has claimed more than 2,800 lives.

Governor Mu’azu Babangida Aliyu of Nigeria’s Niger State speaks about Boko Haram leader Abubakar Shekau.

VOA:

The long term success of an oil and security deal between Sudan and South Sudan could depend on the much disputed Abyei border region.

That’s why Princeton Lyman, the U.S. Special Envoy for Sudan and South Sudan, says Abyei’s exclusion from the agreement between presidents Omar al-Bashir and Salva Kiir is “a big, big loss.”

Abyei is a territory claimed by both Sudan and South Sudan. The residents of Abyei were supposed to hold a referendum in 2011 to determine which country they would join, but the referendum was postponed indefinitely due to disagreements over who was eligible to vote. Some are still proposing that Abyei hold a referendum, but Sudan’s government opposes the idea. More from VOA:

The Sudanese foreign ministry spokesman, Al-Obeid Ahmed Marawah, says his government prefers a political agreement over a plebiscite because “the referendum would end by attributing Abyei to one of the two countries.

“And this will not satisfy the other party. Therefore, this could cause a new conflict between the two people [ Messriyah and Ngok Dinkas] of Abyei and it might extend to between the two countries,” Marawah says.

And that, in turn, threatens the new deal over the sharing of oil-revenue, which Ambassador Lyman says “holds tremendous potential benefits for the people of both countries, particularly in South Sudan where there has been serious rises in food prices, shortages of fuel, and insecurity on the border.”

In addition to French President Francois Hollande’s trip to Senegal yesterday and his stop in the Democratic Republic of the Congo today, two other noteworthy visits to the Sahel by foreign officials: Canadian Prime Minister Stephen Harper was in Senegal for Thursday and Friday, while Under Secretary of State for Civilian Security, Democracy, and Human Rights María Otero will be in Mauritania from October 15-17 and France from October 18-19.

In Mauritania, Under Secretary Otero will meet with government officials, including President Mohamed Ould Abdel Aziz, representatives from civil society, UN agencies and youth groups to discuss political and democratic developments in the country, electoral processes, refugees and humanitarian assistance and combating trafficking in persons. This is the most senior-level U.S. State Department visit to Mauritania in five years.

Somalia’s new government “does not plan to nullify oil and gas exploration contracts made in recent years in favour of those that were signed prior to the toppling of the government in 1991, a senior state official said on Friday.”

Fatal flooding continues in Niger.

What else is happening?

Sudan-South Sudan: After Tentative Oil Agreement, Focus of Talks Turns to Security

On Saturday, two days after the expiration of a United Nations Security Council deadline, Sudan and South Sudan reached a provisional deal on oil revenue sharing. Oil has been one of the main sources of tension between the two sides after South Sudan became independent in July 2011: South Sudan holds most of the oil reserves, but Sudan controls key pipeline and port infrastructure. Both sides have suffered economically due to the absence of a revenue sharing framework, and South Sudan’s shutdown of oil production in January contributed to the pain on both sides. Yesterday, South Sudan announced it will restart production in September.

The oil agreement has generated substantial international enthusiasm – see statements from the UN, the US, and China – but it does not mean that the two sides’ disputes are over. The countries are scheduled to return to the negotiating table on August 26, and the focus turns now to security.

Details of the oil agreement:

[AU mediator Thabo] Mbeki gave no financial details of the deal, but South Sudan’s delegation said Juba would pay a weighted average of under $10 per barrel. It has also offered a $3.2 billion package to compensate Sudan for the loss of most of its oil reserves to the South. It had previously offered $2.6 billion.

Sudan itself lowered its transit fee demand to around $22 a barrel, from an initial $36, according to a position paper published by SUNA. It also wants compensation of $3.02 billion, among other demands, Suna added.

“The parties understand very well that it would be important that by the time this oil starts flowing again, the necessary security arrangements should be in place,” Mbeki said.

Sudan said the oil deal would be implemented only after a security arrangement had been reached, after the Muslim fasting month of Ramadan ended at the end of August, the state news agency SUNA reported.

I was not able to find the position paper at SUNA, but here are English and Arabic statements on the deal from the site. In an indication of how keenly focused on security Khartoum is, the Arabic statement stresses that South Sudan must “cut its link with the [rebel] movements in Darfur, Blue Nile, and South Kordofan.” As I’ve written before, the regime in Khartoum strongly prioritizes security issues, perhaps out of a need to placate hardliners within its own camp.

Finally, a reaction from Darfur:

Rebels in Sudan’s Darfur region will become victims of improved relations between Khartoum and Juba as South Sudan reduces its support for the insurgency, Darfur’s top official said on Tuesday.

In an interview with AFP, Eltigani Seisi also said security forces used excessive force last week against “innocent civilians” protesting high prices in Darfur. At least eight people were shot dead.

Seisi heads the Darfur Regional Authority set up to implement a peace deal last year between the Khartoum regime and an alliance of rebel splinter factions.

He said that although security has improved “very much” since the Doha Document for Peace in Darfur, over the past two or three months rebels outside the peace process crossed into Darfur from South Sudan to launch attacks.

My sense is that security issues could prove even harder to resolve than oil fees. What do you think?