Into Africa

The insecurity of natural gas supplies to Europe leads European companies into far away locations and unsavoury regimes. Here is one competitor of PNG…

Into Africa

By Matthew Green

Published: May 24 2009 19:35 | Last updated: May 24 2009 19:35

A young girl leaning out of the doorway of her house in a slum neighbourhood of Malabo, capital of Equatorial Guinea
Equatorial Guinea, under President Obiang (below), has been among the world’s fastest growing countries but many still live in poverty (above)

Before the oil came, Equatorial Guinea’s phone book boasted only a few pages. Subscribers were listed by their first names. Cars were a novelty and the tallest buildings in Malabo, the island capital, were gracefully ageing villas dating back to Spanish colonial rule. The airport consisted of a tin shack.

Today, a new city is rising on the doorstep of the old. Immaculate tower blocks march past a six-lane highway stretching into the jungle. Smart blue lamp-posts line the pavements. The facade of a bank glows gold in the tropical sun. There are no people yet, but soon “Malabo Two” will be open for business.

Teodoro Obiang Nguema Mbasogo, the president who seized power 30 years ago, is spending billions of petrodollars on a construction bonanza aimed at turning his tiny country into a Dubai-style economic hub for the Gulf of Guinea, one of the world’s fastest-growing oil and gas frontiers.

Such a feat would be a big turnround for a government that has a reputation as one of Africa’s most flagrant kleptocracies, dominated by a ruling clan that has used arbitrary arrests, beatings and torture to stifle dissent.

The outcome will have implications not just for Equatorial Guinea’s 700,000 people, many of whom live in pastel-painted slums without power or running water, but also for a vanguard of European energy companies banking on the country to supply a commodity they desperately need: natural gas.

Russia’s invasion of Georgia and its willingness to turn off gas supplies to Ukraine have struck fear into European Union governments dependent on Moscow for a quarter of the bloc’s consumption. As their own gas fields begin to decline, European companies are venturing into increasingly risky territory to diversify their supplies.

Equatorial Guinea is a perfect example. In the past few months, Eon, the giant German utility, and Union Fenosa of Spain have signed agreements to back the government’s plan to convert Bioko, the main island and home of the capital, into a significant gas export hub. Equatorial Guinea wants to exploit its own modest deposits and tap vast resources in neighbouring Nigeria, whose 182,000bn cu ft of proven gas reserves are the seventh largest in the world.

The experience of US companies that led the development of the oil industry suggests the Europeans will have to tread warily. A Senate investigation into Equatorial Guinea’s dealings with a Washington bank shone a spotlight on payments by oil companies to government officials. Global Witness, the anti-corruption watchdog, has highlighted damaging evidence of high-rolling lifestyles enjoyed by certain members of Mr Obiang’s family. In November, a UN investigator accused the police of systematic use of torture.

Such reports alone might be enough to rattle European executives, even without coup plots reminiscent of The Dogs of War, a thriller that Frederick Forsyth, the British writer, set in a fictional version of Equatorial Guinea. Security fears have imbued the government with a sense of paranoia as thick as the mist shrouding the volcano brooding over Malabo.

Simon Mann, the former UK special forces officer and an old Etonian, is serving a 34-year sentence in the city for his part in a failed attempt to seize power in 2004. The escapade involved a shadowy cast of financiers, mercenaries and members of the British upper class who believed using force to grab the energy reserves of such a minute country was a viable proposition.

As European companies embrace Mr Obiang and his powerful family, they can only hope the rise of Malabo Two is the harbinger of a more benign form of rule that will make it easier to keep their consciences – and reputations – clean. Not everyone is convinced.

These companies are taking a huge reputational risk by coming to Equatorial Guinea,” said Tutu Alicante, executive-director of Equatorial Guinea Justice, a US-based group campaigning for better governance. “The newcomers must make their engagement conditional on greater transparency.”

The only former Spanish colony in Sub-Saharan Africa, Equatorial Guinea once counted its wealth in cocoa pods. Following huge offshore finds in the early 1990s, it rapidly evolved into the region’s largest oil exporter after Nigeria and Angola. The economy – on paper at least – recorded some of the fastest growth in the world.

Equatorial Guinea already exports up to 3.7m tonnes of liquefied natural gas (gas supercooled for shipping) from a facility opened by Houston-based Marathon Oil in 2007. The government wants to at least double or triple the amount by raising domestic production and striking agreements to export gas from fields in Nigeria and Cameroon.

Teodoro Obiang Nguema Mbasogo
Construction bonanza: President Obiang

After years of favouring US companies, Mr Obiang (right) has turned to the Europeans to realise this vision, confident they will guarantee a market.

Eon has taken a 25 per cent stake in a new “3-G” consortium set up by Sonagas, the state gas company, to build the necessary infrastructure. Galp Energia of Portugal and Gasol, listed on London’s Alternative Investment Market, are also involved. Gas Natural of Spain, which recently upped its stake in Union Fenosa to 95 per cent, is another participant.

Uncertainties abound. Nigeria and Cameroon have proved reluctant to augment Equatorial Guinea’s modest gas reserves, estimated to be at least 4,400bn cu ft by the Oil and Gas Journal. Speedboat-riding gunmen operating out of Nigeria’s delta region attacked the presidential palace in Malabo in February, proving that the country’s energy facilities are well within reach of militants who have visited havoc on Nigeria’s oil industry. At Equatorial Guinea’s first gas conference in March, an armoured car – its turret pointed out to sea – guarded the Sofitel where delegates slept. Dietrich Gerstein, Eon’s chief executive officer of LNG, nevertheless told the gathering that Equatorial Guinea was a “cornerstone” of the company’s plans to secure long-term supply.

Seated next to him, Gabriel Obiang Lima, the vice-minister of mines, industry and energy – one of the president’s sons – played down allegations of human rights abuses. “I think many times the information that is published about Equatorial Guinea is not founded,” he said. “I don’t want to point out the individuals who are in charge of doing this.”

However, a glance at recent history shows how deep the roots of the authoritarian system run. After colonial rule under General Francisco Franco, the Spanish dictator, ended in 1968, the country plunged into one of the most miserable – if little known – episodes of modern African history.

Life under Francisco Macías Nguema, who took over as president, was as terrifying as it was bizarre. Calling himself the “The Great Sorcerer”, on several documented occasions he ordered the executions of all his mistresses’ former lovers. Catholic priests were forced to recite: “There is no God other than Macías.” Being a journalist was a capital offence. As his administration collapsed, Macías built up a huge collection of human skulls and declaimed lengthy monologues to colleagues he had murdered. Before Mr Obiang staged a coup in 1979 and had him killed, a third of the population is estimated to have died or fled.

“As a colony, and under Macías, we had some of the worst dictators in the world,” says Alfredo Okenve of the CEID network, one of the country’s few civil society organisations. “Whatever changes is progress, but the progress has been very slow.”

Allegations of graft have proliferated during the oil era. The US Senate investigation into the handling of Equatorial Guinea’s deposits in Riggs Bank in Washington said in 2004 that oil companies may have contributed to corruption by making payments to officials with minimal disclosure. The sums included more than $4m for training students abroad, most of them children or relatives of government figures. The companies argued they had little choice but to do business with the government of the day.

Not all investors concurred. In 2005, the Swedish national pension fund said it would not invest in ExxonMobil, Amerada Hess or Marathon because of reported cases of corruption in Equatorial Guinea. Reports abounded of mansions in Malibu and Maryland purchased by Mr Obiang or his circle. The president has always denied any impropriety, saying he personally supervised state accounts to prevent theft.

The government points to its vision for transforming Bioko into a gas and maritime centre as evidence it is putting its income to good use. In spite of the drop in oil prices, Chinese labourers dressed in blue overalls and hard hats packed in the back of trucks rumble daily towards construction sites in Malabo Two. The port echoes with the clanking of cranes working on a $4.5bn (€3.2bn, £2.8bn) deepwater project designed to serve the whole Gulf of Guinea. Strolling on the new quay as a freighter unloads cement, Alberto Ndong Obiang Lima, director of ports and another of the president’s sons, says the planned transport hub will generate income even when the oil runs out. “Many people, especially foreigners, say Equatorial Guinea is becoming the Dubai of Central Africa,” he says. “I think it’s true – look at the investments and construction.”

Mr Obiang’s familial style of rule certainly gives Equatorial Guinea the feel of an African emirate. Effective opposition is virtually non-existent: in the last elections in 2002 the president won more than 97 per cent of the vote. Little wealth has trickled down. In spite of an average gross domestic product of more than $31,000 a head, almost 80 per cent of people live in poverty. The International Monetary Fund warned in March that spending plans would not meet social needs, a reminder that prestige projects have not always helped Africa’s poor.

Perhaps the most critical test will be whether Mr Obiang will tolerate more openness. He has in the past described oil revenues as a “state secret” but has since authorised the government to apply to join the Extractive Industries Transparency Initiative, a global programme that would subject public accounts to much greater scrutiny.

Francisca Tatchouop Belobe, a vice-minister who is co-ordinating the bid for EITI membership, says Equatorial Guinea’s slow progress is a result of a shortage of capacity rather than a lack of political will. “When talking about the country that apparently has so many secrets, you realise we have nothing to hide,” she says.

Equatorial Guinea has less than a year before its March deadline to qualify. Success would allow European newcomers to breathe more easily. Should Mr Obiang’s government fail, then they could start facing the kinds of awkward questions that have dogged their American rivals.

Equatorial Guinae

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We have to say, we had to suppress a smile when reading this: “The president has always denied any impropriety, saying he personally supervised state accounts to prevent theft.” And needless to say we know less unsavoury places with a lot of gas..

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