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EQUATORIAL GUINEA: Stripped of Its Wealth

British firms among those to profit from energy bonanza in Equatorial Guinea

by David LeighGuardian
June 2nd, 2005

 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."





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