Oil and gas production climbs, but where does the money go?

A few years ago, Equatorial Guinea was an international pariah state, a dictatorship accused of corruption, mismanagement, repression and torture on a scale unparalleled in Africa. But the discovery of abundant offshore oil and gas over the past decade has started to change official attitudes in Washington towards this former Spanish colony of just over 500,000 people. The United States closed its embassy in the capital Malabo in 1995, when the small West African state still relied on modest exports of cocoa, coffee and timber to keep its despotic government in power. But Washington decided to reopen the diplomatic mission last year, given that three American oil giants, ExxonMobil, Amerada Hess and Marathon Oil had come to control most of Equatorial Guinea's rapidly increasing oil and gas production. Oil companies from Spain, Switzerland, South Africa, Australia and Malaysia have joined the Americans in getting a slice of the oil and gas bonanza in this densely forested country. It consists of Bioko island and a square box of territory on the African continent, 150 km to the southeast. Since the discovery of offshore oil near Bioko in 1995, production has shot up to 350,000 barrels per day, most of which is exported to the United States according to a new report by the US Department of Energy. www.eia.doe.gov According to the Bank Central of African States (BEAC), which administers the country's currency, rising oil exports should give Equatorial Guinea a per capita national income of US $4,472 this year, one of the highest in Africa. That compares with just $210 per capita for Guinea-Bissau, a former Portuguese colony of similar size further round the coast of West Africa, which has no oil or gas. Equatorial Guinea's economy grew by a massive 16.5 percent last year thanks to rising oil revenues which now account for 90 percent of all wealth generated in the country. The BEAC expects Equatorial Guinea to register further strong growth of 14.1 percent in 2003. But within the country itself, very little has changed. President Teodoro Obiang Nguema, who overthrew his uncle in 1979, remains head of state at the head of a government dominated by his own family. And very little of the country's new found oil wealth has found its way into the pockets of ordinary people. The US Department of Energy report says: "The failure of the government to inject oil revenues into the country's economy, especially to fund much-needed improvements in the country's infrastructure, has meant little improvement in the economic and social welfare of most Ecuatoguineans. While real per capita GDP has doubled over the last five years, there has been little positive change in social indicators." So while Equatorial Guinea exports ever greater quantities of oil and natural gas, its poorly managed state electricity company still depends on aging generators that are unable to meet the country's power needs. Electricity cuts are still common, forcing those who can afford it, to rely on private generators. With world crude prices currently hovering around $25 a barrel, Equatorial Guinea's oil exports should be worth about $3.2 billion this year. The US Department of Energy report says the government receives 20 percent of all oil export revenues in royalties and taxes - less than usual for an oil producing country. A back-of-the-envelope calculation shows that upwards of $600 million of oil revenues should pour into its coffers from oil exports this year - quite a fortune for a small African nation. But very little of this is accounted for. The US Department of Energy report notes: "There is strong evidence of government misappropriation of oil revenues, in particular for lavish personal expenditures." The International Monetary Fund pulled out of Equatorial Guinea six years ago and warned in 2001 that any renewed assistance would depend on the government's ability to demonstrate better governance and produce more transparent and reliable statistics. All the same, the politics of oil and America's desire to reduce its dependence on supplies from the Middle East have put Equatorial Guinea firmly into Washington's spotlight. According to the Department of Energy report, it is now the fouth largest recipient of US investment in Sub-Saharan Africa after South Africa, Nigeria and Angola. And more money is on its way. In May, the Equatorial Guinea government approved plans by Marathon to build a liquified natural gas plant on Bioko island that will supply 3.4 million tonnes of liquified natural gas (LNG) per year to the United States once it is completed in 2007. The gas will be deep-cooled until it becomes liquid and shipped across the Atlantic in special tankers. The country began to its exploit its natural gas for the first time two years ago when a consortium of oil companies led by Noble Energy of Texas and CMS Energy of Michigan commissioned a $450 million plant that converts gas into methanol for export. Most of the gas had previously been flared. According to the US Department of Energy, Equatorial Guinea has estimated oil reserves of 1.1 billion barrels - which are rising all the time as a result of new discoveries - and gas reserves of more than four trillion cubic feet. Significantly, the country lies snuggled into the armpit of Africa in the Gulf of Guinea, a region whose offshore waters are thought to contain about 10 percent of the world's oil. Nearby Nigeria and Gabon are also major producers and the island state of Sao Tome and Principe, just to the south of Equatorial Guinea, is gearing up for large-scale production in two or three years time. Landlocked Chad has just built a pipeline to export oil via Cameroon and further down the coast, Congo-Brazzaville and Angola are also big oil exporters.