Recent troubles at Niger’s only oil refinery in Zinder show importance of transparency

The recent troubles at Niger’s only oil refinery in Zinder have interesting parallels in neighbouring Chad, and show how important transparency in the extractives industry remains.

In summer 2015, Niger’s Soraz refinery closed down for 45 days. The supply of locally produced fuel on the market dwindled and prices shot up. Officially the closure was because of a technical fault, but there was much speculation in the press that disagreements between the government and the CNPC (Chinese National Petroleum Company) had broken out behind the scenes. At issue appeared to be the CNPC’s reluctance to reduce the price at which it was selling barrels of oil to the refinery, despite the dramatic falls in the world oil price over the last year.
The dispute highlighted the complexity of the original production deal struck between the Nigeriens and the CNPC in 2006. While the CNPC fully owns the Agadem oil fields in the country’s remote Diffa region which supply Soraz, it jointly owns the refinery 60%/40% with the Nigerien government. Oil produced at Agadem is sold to Soraz for refining, but even though the CNPC partly owns Soraz, the price was still around $70 a barrel when the world price was hovering around $50 a barrel. Much of what Niger earns from the refinery is needed to pay the CNPC back for large infrastructure loans which were used for the construction of the refinery and oil-fields. Given that local demand for refined oil is estimated at a paltry 7000 bpd and unlikely to increase in the short-term, and the CNPC has no immediately workable plans for export (an easier way to make a profit), it is hard to understand why one arm of the company (Agadem) was deliberately starving another arm (Soraz), particularly as the latter was expected to be repay the former.

Chad’s dispute with the CNPC was equally complex. It too started with a dispute over prices – shortly after the Djermaya refinery opened in late 2011 Chad claimed that the CNPC was selling locally-refined fuel at too high a price, and closed down the refinery in protest. In 2013, the row mushroomed when Chad claimed it had uncovered oil spills and environmental damage at the company’s Ronier production site. Before the dispute was finally settled, Chad had fined the CNPC an eye-watering $1.2bn, seen off the managing director of the company, held up exportation plans for more than a year and revoked five exploration licenses.

Charting these cases and others during the research for my recent book ‘Africa’s New Oil’ I found evidence to suggest that the traditional narrative of China as the ‘neo-coloniser’ and Africa as ‘the exploited’ is becoming outdated. As these stories show, African governments are able to stand up to China when investments don’t appear to be bearing fruit, although Niger has been less pugnacious in its approach than Chad.

However there are still many problems associated with the secrecy in which these deals are conducted. The row between Niger and the CNPC clearly highlights the complexity of the deals – in this case where the fundamental details about prices and tax obligations are either apparently missing or at least obfuscated. Although the CNPC does comply with the EITI teams in both countries to supply data on tax disbursements, the original contracts signed with the CNPC in Chad and Niger have never been made public. In Niger, where the constitution states that natural resource contracts should be published, this has become a major political issue; opposition politicians recently tried to get the president Mahamadou Issoufou charged with treason because he has not fully disclosed the details of a deal to run the country’s uranium mines with the French nuclear giant Areva. These two tales from Chad and Niger clearly show that this lack of transparency makes it almost impossible for citizens (and journalists!) to understand how the deals were ever intended to make financial sense for either party.

This blog was written by Celeste Hicks, freelance journalist and author of ‘Africa’s New Oil; Power, Pipelines and Future Fortunes’.

Towards transparency in Extractives in Chad – applying oil project modelling

Chad has the typical characteristics of a country affected by the “resource curse”, rich in natural resources, poor in development for the majority of the population. In other words, the benefits, mainly from oil, do not trickle down to communities that are, instead often negatively, impacted by extractive activities.

In Chad, the national Publish What You Pay coalition decided to strengthen its knowledge of oil project life-cycles to better work towards changing the adverse situation caused by oil extraction. A three day training was organised in February 2015 by Open Oil, a consultancy organization working mainly on transparency issues. They developed a model to predict the life cycle of an oil project, in terms of the benefits gained and how these are shared. Because some basic information on oil contracts are needed for this, it is therefore important that this data is available; which is why Open Oil has also worked on this by gathering and making many contracts public.

What does this model bring us and how can it help the work of PWYP? First of all, it is very hard to ‘know what you have’ – in this case in terms of revenues from natural resources – if it is not modeled. As soon as benefits for different stakeholders can be estimated, we also have an idea on the fairness of the deal and the timing of which revenue streams count at what moment. This gives a basis to lobby for more equal distribution and to reduce the vulnerability of the government as well as local communities.

Although the training was at times very technical, the participants were able to capture the importance of oil project modeling as a tool towards more transparency. The most interesting aspect is of course what happens after the training, or, in other words, what changes did the training bring about?

First of all, different parties showed interest in the financial model that has been presented during the workshop. The Chadian government, a Chadian auditing firm and a German development agency contacted Open Oil to explore opportunities. The last organisation is working on defining their exact needs whereas the propositions coming from Chad were not yet clear and transparent enough to further investigate collaboration at this moment.

In the meantime, Open Oil is now developing a “pedagogical model”. What the Chad workshop established was a clear appetite to use models to finally understand the whole financial system around oil and mining projects. But what was also clear was that to start training civil society using models of actual projects was too demanding. Each project has its own complexities and “artefacts” which have to be factored into the model to achieve good results on things like revenue forecasting, the investor return, and so on. But that means that it can be very hard for a beginner to start on a finished project model. It is better to start with a stylised and simplified model, which teaches the underlying principles and features of project economics, and gradually work up from there into the full complexity that happens in the real world.
These efforts towards a simplified model will help making the concept of financial modelling available on a broader scale among civil society, who can then distil the necessary information to the community level. That way, modeling can increase awareness on oil, gas and mining lifecycles and enables people impacted by the effects of extractive activities, to stand for their rights and ensure that ‘fair deals’ are made.

A tangible step forward is that Open Oil will be “premiering” the pedagogical model with the government of Mauritania during the last week of November 2015. All materials will be available in both English and French.

Our money is our responsibility

This blog is written by Lenneke Kono-Tange, Programme Officer Africa, Business Unit Extractives at Cordaid, and was originally posted on the Cordaid website.

Ten years ago no average citizen had an idea about the public budget in Chad, due to the work of our partner organization GRAMPTC, this situation has changed.

For the past ten years, Cordaid has worked with GRAMPTC, which is also the host organisation for PWYP Chad. Originally, they only focused on oil-monitoring but gradually expanded to also involve participatory budget-monitoring. The main steps taken were to 1) inform communities on what a budget is and its purpose 2) raise awareness about the importance of monitoring 3) establish local budget-monitoring committees 4) support and follow-up effective monitoring.

During a field visit in February/March 2015, the fourteen local budget-monitoring that have already been created over the period 2006-2014, came together for the first time. The aim was to share experiences, learn from each other and start thinking how to join forces in a network. It was a very rich gathering, where it became clear a lot of initiatives were taken on the ground and the budget committees effective functioning.

With a lot of dedication, testimonials where shared, and lessons learned discussed. Everybody agreed that budget-monitoring is essential to achieve sustainable local development. Before, many projects were not carried out or money disappeared in ‘someone’s pocket’, leaving local population disadvantaged. This could simply happen because citizens were not even aware of planned projects and did not hold the government and enterprises accountable. “Now”, as one participants explains, “it is not possible anymore that an enterprise gets away when delivering bad quality work, without being interpellated by the committee. We have booked several successes in pushing enterprises to retake or adapt their work, always in collaboration with local authorities and local population. In this way projects – mainly roads, health centers, water facilities and schools, really benefit to the locality.”

But their work is not without risks and requires perseverance. One committee member, Abdoulaye Mamout from Finga, explains that their efforts to end the violation of the contract of an enterprise exploiting a stone-pit, made them end up in jail. Luckily, because of established contacts with the local media, they were released after some days. This shows the high interests at stake, “enterprises often only think of their benefit and ignore community rights and needs, causing negative impacts instead of development.”

One of the many female committee members, Djimet Catherine from Logone Occidental, grasped the rationale behind budget-monitoring very witty by saying “Our money is our responsibility!” In other words, it is our duty to track how public budgets are spent. The next step is to actually have influence on budget allocation and assuring community priorities are taken into account. In one of the localities, they already achieved in doing this, by elaborating a local development plan with input from the local population. This is a practice to be encouraged!

At the end of the two-day meeting, issues to be addressed by common advocacy actions were identified. In this way, the successes on the local level can be brought to the national level. There is still a lot of work to do as it comes to putting appropriate regulations in place, their compliance and effective community involvement in decision-making. GRAMPTC will continue its work in this area and strives to establish three new budget committees in the coming two years and strengthen to network to have even more positive impact for communities. The current project will be prolonged until April 2016 2016 – financially supported by CCFD and AFD while Cordaid continues its support through technical assistance.

Jacques Saham

It was in September 2014, during the 10th anniversary of Chad’s Publish What You Pay coalition that my organisation, Action de Partenaires pour l’Appui au Développement – APAD decided to join this movement.

Although APAD (in English: Partnership Action for the Support of Development), of which I am the coordinator, is a new member, we have been working with PWYP-Chad for a long time. Active in 19 regions of Chad, APAD works with young people to give them opportunities for a brighter future. The arrival of oil in the early 2000s changed many things in Chad and it had a particularly significant impact on the younger generation. Lacking arable land – sacrificed for the exploitation of black gold – and full of illusions, many young people left rural areas to settle in urban areas. But once there they aren’t able to find jobs and instead contribute to the growing insecurity in urban areas, now overcrowded. With the coalition, we are working on raising awareness among young people on issues linked to oil extraction. We want them to understand both the possible benefits and the harm that oil can be cause in Chad. For me personally, it was a field trip in the Logone Oriental Region that made me aware of the disastrous impact that oil can have when poorly managed. I was horrified to see the carcasses of cattle that had been drinking water contaminated by an oil well… It was at this moment, when I saw how negligence can destroy valuable resources, that I decided to get more involved. You really need to spur the new generation so that the youth has a say on the use of oil revenues in Chad and so that it can challenge leaders on these fundamental issues.

Chad

Since forming in 2004, PWYP Chad has focused on monitoring transparency in public funds and oil revenues, tracking government spending and setting up regional budget monitoring committees. The coalition instigated the country’s EITI membership in 2010 and is actively involved in implementing the initiative. It has also worked on monitoring the social and environmental impacts of the extractive industries on Chad’s people. The major challenge it faces is promoting the transparent management of oil revenues to help fund development projects that combat poverty.

Just model it! How PWYP members can develop a presentation of any oil project in 30 minutes

How much money will Chad see from its oil production and when? How sensitive is that to the wild fluctuations of market prices? And how does the money the government gets compare to what the oil companies get? These are some of the questions PWYP member GRAMPTC and the Berlin-based publisher OpenOil will address in an innovative workshop next week to launch financial modeling of extractives projects for civil society.

Up to 30 participants will learn how to use a model developed by OpenOil of Glencore’s project in the Badila and Mangara fields. Any and all statements about how much money the project can earn Chad can be tested using the model, providing civil society for the first time with an easy-access tool which is completely editorially independent.

The workshop will also be a key place to refine the methodologies used in the model (which has been developed using standard oil industry techniques), to ensure that they meet local need: is there, for instance, a need to break out a separate calculation for the 5% of funds owed to the communities in the Doba Basin where the fields are located? Do Chadian activists need more investor metrics, to be ready if there are company claims that falling oil prices mean the contracts must now be sweetened?

But above all, the participants will provide invaluable help to “beat the model up” – to ensure it does what it is supposed to: allow the presentation of the major financial flows and features of a project in just 30 minutes to non-industry specialists. The last session of the workshop will involve participants presenting the model to each other.

The Glencore contract is just one of four in Chad discovered by OpenOil and their partners PWYP Canada late last year by “text mining” corporate disclosures. That search tripled the number of oil contracts collected in one place for easy access to over 500 contracts. A third edition of the repository is due out in the coming weeks which will add another 200, providing the raw material for the global transparency community to take on the next stage: developing open financial models to make sense of it all.

All contracts are available at a click on the website. For those with low Internet bandwidth, a free USB stick is available and has already been delivered to 24 countries, including India, Mozambique, Uganda, Nigeria, Mexico, Russia, Indonesia, Libya, Tunisia and Kenya. There have been over 150,000 contract-downloads in the three months since the repository was launched.

There has been keen interest from PWYP members in several countries and any member is encouraged to ask about modeling possibilities for projects of special interest to them, such as the “Fair Deal” question, or the “Decision to Extract” in PWYP’s Chain for Change.

Testing the PWYP coalition model

The Overseas Development Institute carried out a study testing PWYP’s coalition model. Below is the introduction, click here to read the full report.

Introduction

Since its inception in June 2002, the PWYP campaign coalition has grown from a few UK-based organisations to become a global network of more than 700 organisations in almost 60 countries organised into a fairly loose alliance of affiliated national coalitions. Some of these coalitions share the same PWYP brand and logo, while others have distinct and independent identities. All, however, share the same status of affiliation, without differentiation.

With the growth and evolution of the global campaign has come two particular challenges. Firstly increasing demands on the international secretariat for coordination and support to national coalitions far outstrip its current capacities. Secondly, despite the important achievements of the campaign at the international level, national coalitions continue to face numerous operational challenges, which undermine their effectiveness to advance the advocacy agenda at national level. These problems are to be found at different levels and to differing degrees, though they are present in almost all coalitions in the resource-rich countries.

With this in mind, this study has two primary objectives:

1.     To test the organisational theory of change (“the coordinated, collective actions of a diverse coalition of organisations will be most effective in driving policy change for greater extractive industry transparency”) and assess the extent (and where, why and how) to which this theory has been proven at national level (or not).

2.     To assess the operational difficulties of coalitions and to recommend good practices for how coalitions can best be managed and supported.

The study began with a review of 10 country coalitions, selected in consultation with the International Secretariat: Ghana, Niger, Mongolia, Kyrgyzstan, Nigeria, Chad, Indonesia, Australia, US and UK. Of the ten countries, field trips were conducted in first four while the remaining six were studied remotely through telephone interviews. 

After preliminary analysis of the country reviews, a number of common themes were identified.  These were tested across a wider sample of opinion through a Delphic consultation conducted through two mechanisms at the PWYP conference in Amsterdam in 2012 – an instant vote system of up to 100 delegates within a session at the conference, and distribution of a paper questionnaire to all participants who were then able to answer on paper or online. The survey received 54 responses.

Read the rest of the report.