| BUSINESSWEEK ONLINE : NOVEMBER 6, 2000 ISSUE | ||||||||
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| COVER STORY
A Gusher for Everyone? Chad's pipeline could help investors and the poor The villages, farms, and scrub-covered fields of southern Chad do not inspire visions of great wealth. The villagers, mostly farmers, live in small one-room huts with brown thatched roofs and walls of yellow, sun-baked brick. The tallest objects in the landscape are the mango trees, standing like church steeples over clearings that serve as village squares. It's a pre-industrial economy, with few cars, telephones, electric lights, televisions, or refrigerators. Only a few Chadians can afford a metal pushcart or a cow to pull the plow through their fields of corn, millet, and manioc. Indeed, with annual per-capita income of $230, Chad is one of the poorest countries on earth. On the U.N.'s human development index, which includes measures of health, education, and income, Chad ranks 167th out of 174 countries. Babies born in Chad today have a life expectancy of 47.5 years, a little more than half that of babies born in the U.S. In the capital city, N'Djamena, many drivers buy their gasoline from roadside entrepreneurs, who set up wooden tables and sell the fuel in cast-off one- and two-liter bottles. Now, however, Chad is about to enter the 21st century. Or, more properly, the 21st century is about to enter Chad. Roughly a kilometer and a half below farmers' fields lies at least 1 billion barrels of what oilmen call sweet, heavy crude--viscous, low-sulfur oil worth more than $30 billion at today's prices. In mid-October, ExxonMobil Corp. ( XOM) launched an ambitious plan to build a 1070-kilometer-long pipeline that will carry 225,000 barrels of oil per day from landlocked Chad, near the geographic center of Africa, across Cameroon to an offshore export terminal. Soon, the humming of great clouds of insects will give way to the shouts of construction crews, the clang of well casing, and the growl of big yellow earthmovers. WINDFALL. The $3.5 billion project could bring Chad about $200 million per year for the next 25 years, roughly doubling the government's annual budget. If used wisely, it could help rescue Chadians from their crushing poverty. ''There is no alternative,'' says Abderahman Dadi, secretary general of the presidency of Chad. ''To develop a country, you need revenue.'' The question is whether the windfall will be used for good or ill. In recent decades, revenues from oil, natural gas, gold, and diamonds have often done little for developing countries. Indeed, such revenues often turn out to be a curse, fattening the Swiss accounts of corrupt leaders or fueling civil wars. It's impossible to predict whether Chad's experience with oil will turn out any better. But there is reason to be optimistic. In part to defuse criticism from Western activists, who have made the Chad-Cameroon pipeline a centerpiece of their war against global capitalism, ExxonMobil invited the World Bank to participate in the project. The aim was to prove that Big Oil projects can both make money for corporate investors and improve the lot of the poor. If the project succeeds, other multinational corporations might decide that they, too, can profit from incorporating humanitarian goals into their plans. And success in Chad and Cameroon could influence whether the World Bank will again stake its reputation on such contentious projects. With so much at risk, the bank has gone to unprecedented lengths to make sure the project succeeds. To address environmentalists' concerns, the bank insisted on many changes on the pipeline's route in Cameroon. Originally, it was routed through the ecologically pristine Mbere Valley, near the Chad-Cameroon border. Now, it follows a route on the less-sensitive escarpment above the valley. Elsewhere, the pipeline was rerouted so that it now mostly follows existing roads, minimizing damage to virgin rainforests and endangered wildlife. The bank also insisted on equitable distribution of the oil money. In a bid to ensure that the oil proceeds are equitably distributed, the bank made the Chad government cede a remarkable degree of control over its share of the revenue. Under a law passed by Chad's parliament two years ago, 10% of the revenues will be held in trust for future generations. Eighty percent of the funds are to be used for education, health, and rural developments. Five percent of the portion not held in trust is earmarked for development in the oil-producing region. For World Bank President James D. Wolfensohn, the project is a test case of a revolutionary approach to corporate investment--one that is profitable but also good for society. Many at the bank saw it as an obligation. ''When one of the poorest countries in the world gets a windfall like this, you can't walk away,'' says Frederick E. Brusberg, a social scientist and environmental expert with the International Finance Corp., the bank's private investment arm. GUARANTEES. What ExxonMobil hopes to get out of the arrangement is protection against the project's political risks. Chad and Cameroon were brought in as investors in the project. And the money for their stakes came from $700 million in loans and loan guarantees from the World Bank and the U.S. and French governments. ''If the project is not able to repay those loans because we are nationalized, for example, or there is a major civil war, we would be excused from repayment,'' explains Andre Madec, a senior ExxonMobil executive on the project, in his room at the Novotel in N'Djamena. And because the World Bank provides aid to the two African nations, it's in a position to make sure the loans are repaid. Chad and Cameroon ''are living on assistance from the World Bank, the IMF, the European Union, France, and the U.S.,'' Madec says. ''If they do something contrary to those interests, they would lose the assistance,'' and their economies would collapse. Some critics say the World Bank's agreements are not strong enough to ensure the project's success. Activist Soumaine Adoum, coordinator of Swissaid Chad in N'Djamena, is among the most knowledgeable skeptics. ''We hope the government doesn't use the money for arms or bombs,'' he says, ''but we can't be sure.'' He also worries that an oil spill could contaminate the region's waterways and possibly reach Lake Chad, the country's most important source of fresh water. And he says villagers whose land has been taken for the pipeline are not being adequately compensated. ''The road goes right through some villages and will cut through cemeteries,'' he says. ''Villagers believe these are special places that should never be touched.'' Unlike many critics in the West, Adoum does not want to stop the project; he wants it to be fixed. ''We support the project because we think the money will help the country,'' he says. TROUBLED HISTORY. Chad occupies a ragged rectangle of land extending 1,300 km from Libya and the Sahara Desert to the tropical forests of the Central African Republic. It is roughly the size of California, Nevada, Arizona, and New Mexico combined and has only 7 million people. Muslim herdsmen roam the country's fiery northern deserts, but most Chadians cluster in the south, where an annual rainy season makes farming possible. Even there, temperatures reach 46C. As is true of most of sub-Saharan Africa, Chad has a troubled history. The country was under French control for 50 years, until 1960, when it won its independence. For 30 years, it was ravaged by civil war, until its current President, Idriss Deby, seized power in 1990 in a coup. Five years later, he won an election widely believed to be fraudulent. But rebel activity has declined, continuing only in the north, where, according to U.S. diplomats, desert sands conceal anywhere from 100,000 to 1 million land mines. The origins of the Chad-Cameroon pipeline project go back to the late 1960s, but plans to develop the reserves were stymied by the armed conflicts that regularly swept the region. The conflicts largely disappeared under the Deby government, and ExxonMobil, the leader of a consortium that included Elf-TotalFina and the Royal Dutch Shell Group, made plans to move ahead. (In 1999, Elf and Shell pulled out, citing other commitments. They were replaced by Chevron ( CHV) and Petronas, Malaysia's state-owned oil company.) In the mid-1990s, ExxonMobil approached the World Bank, which provided $300 million in loan guarantees. ExxonMobil wanted those guarantees in large part because it was dealing with two countries, both of which are controlled by corrupt governments with dismal human-rights records. According to the U.S. State Dept.'s latest report on human rights, Chad's state security forces have been guilty of killings, torture, beatings, and rape--and are rarely prosecuted for these offenses. Urbain Moyombaye, a farmer in the oil region and the spokesman for a local farmers' rights organization, says killings are common there. He estimates that from 1993 to 1998, more than 100 people were killed, ''and it's still going on,'' he says. ''I'm not sure who is killing whom. But soldiers use the excuse of rebel activity to fire on the population.'' One Western human-rights group in N'Djamena reported that armed soldiers came to its offices and intimidated its staff the day after a visit from an American journalist. Secretary General Abderahman Dadi, the government's spokesman for the oil project, said he could not comment on such charges. Some Chadians would like to see stiffer environmental and revenue-sharing commitments, fearing the government will renege. But whether or not that happens, this experiment in global capitalism is now under way. In September, factories in Germany and France began fabricating pipe for the project. Next year, work will begin on a 3,200-meter airstrip near the oilfields to accommodate a steady stream of cargo planes hauling machinery and supplies. By the end of 2003, ExxonMobil hopes to be pumping its first oil, and revenues will begin flowing into the treasuries of Chad and Cameroon. That's when the project's backers, and its critics, will find out whether the people of Chad and Cameroon will truly benefit--and whether multinationals can change their way of doing business in the developing world. By Paul Raeburn in Chad _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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