What kind of world?—3
What kind of improved world is the oil and gas industry willing to envision and to help make real? It’s best to answer questions like this to the fullest extent possible before turning to questions about how to make the vision real. Nothing compromises strategy faster than worry about tactics.
Yet “how” is important-as important, ultimately, as “what.” And lessons about how are beginning to emerge from a model project in impoverished, war-ravaged, and historically corrupt Chad.
Since July 2003, when oil from three Doba basin fields in southern Chad began moving through a 663-mile pipeline to the Cameroon port of Kribi, Chad has been an oil exporter. Its experience with this new status tests whether wealth generated by oil development can improve the lives of poor inhabitants of a country where it occurs. In too many countries, it has not done so.
Addressing the curse
To address the corruption and system deficiencies that give rise to what is known as the resource curse, the World Bank imposed an extraordinary set of conditions for its financing of the Chad-Cameroon project. The government of Chad agreed to dispersal terms specified by the bank for project earnings, set up an oversight committee to monitor money transfers, and submitted to other controls. In general, Chad’s government is supposed to disclose its petroleum earnings directly related to the development and pipeline project and spend most of the money on social needs such as health, education, and environmental protection.
In impoverished countries like Chad, that’s easier said than done. Income surges at the start-up of petroleum projects can overwhelm government accounting and fiscal systems. Corruption tends to sluice wealth away from constructive purposes. The resulting injustice can foster political instability. Where this occurs, petroleum development hurts social progress more than it helps.
During its first 10 years in operation, the Chad-Cameroon development and pipeline project will generate an estimated $3.5 billion for Chad’s government, the annual revenue of which will increase by more than 50%. The potential is great. So is the challenge.
According to a recent assessment by Catholic Relief Services and Bank Information Center, performance so far has been rocky. While pointing out that it’s too early to call the project a success or failure, the report is ominous: “Important building blocks for transparent and effective oil revenue management are being developed and need to be nurtured, but limited progress on this front is tempered by worrying trends in the political environment, weaknesses and loopholes in the revenue management system, problems with corruption, transparency deficits, and severe government capacity constraints. The oil experiment hangs by a thread.”
A lesson from the project, the report says, is that transparency isn’t enough. While the reporting of government receipts and dispersals is essential, the information has limited value to citizens who can’t act on it in the absence of responsive political systems. The report also worries about limits on disclosure requirements, assignment to the oversight committee of “trusted allies” of the government, and other deficiencies. It offers long lists of recommendations for all parties involved in the project.
The oil and gas industry should pay special attention to this finding: “One of the most fundamental lessons that Chad offers today is the importance of ensuring that minimum conditions of respect for human rights, fiscal transparency, and demonstrated government capacity to implement propoor programs are in place prior to promoting investment in the extractive industries.”
High standard
That’s a high standard. It would preclude investment in many countries where international oil and gas companies now work. Most companies probably prefer to think their investments and operations make possible and therefore should precede the stipulated conditions. They prefer to think the wealth created by their operations improves life for poor people in the countries where they work. Indeed, it can and should. Yet it too many places it does not.
The Chad experiment is vitally important because it represents an attempt by the oil and gas industry, the World Bank, and governments to improve the record. And it’s a reminder to the industry that meeting a growing world’s energy needs-important as that is-isn’t enough. The real job is to make the world better tomorrow than it was yesterday.✦
