GEO 302
ECONOMIC AND SOCIAL CHANGE IN DEVELOPING COUNTRIES
OIL COMPANIES IN DEVELOPING COUNTRIES
-FOR BETTER OR WORSE?
Marit Lothe
s012100
03.02.2002
1INTRODUCTION......
2IMPACTS ON THE SURROUNDING ENVIRONMENT......
2.1good for some, bad for others
2.2ENVIRONMENTAL RACISM
2.2.1Shell and Nigeria......
2.2.2Other companies......
2.2.3Other areas......
3THE POLITICAL DIMENSION......
3.1government support?......
3.2Local protests
4CONCLUSION AND RECOMMENDATIONS......
BIBLIOGRAPHY......
1INTRODUCTION
The petroleum industry[1] is one of the most important, far-reaching industries in the world. “Oil is King.”[2] Our world today depends on oil and it has been very important in (and sometimes the main cause of) several wars and other major events the last century, e.g. the Gulf War. The world needs energy and oil (+ gas) has taken a bigger and bigger part of this demand throughout the years. Peter Sutherland, non-executive chairman of BP PLC, predicts that by 2010, oil and gas will hold a two-thirds market share of global energy demand, and that share will increase.
"To be in denial of this fact is a major mistake."[3]
When a country discovers oil, this usually has a great impact on their economy and the country as a whole. As Ecuadorian activist Paulina Garzon describes it:
"Oil has changed the face of our land and the life of our people forever."[2]
This paper will take a look at what has happened in several developing countries when oil has been found underneath their land or sea, especially in relation to big, international oil companies from the developed countries. It is the big oil companies who most often get concessions from the respective governments to search for oil, and if found they can have a lot of influence on the country in question. The extent of this influence depends on the political situation in the country and how strong the government is. Several countries have a state owned oil company that controls most of the reserves and whose decisions and actions will have a great impact on the country. The international oil companies usually work together with these in the development and running of oil fields, for instance in the form of a joint venture. In some instances, the environmental impacts from the international oil companies have been more benign than the ones from the state owned company, although, as we will see, this does not mean it is all good.
The political situation in a country also has a great impact on how a petroleum company is able to operate there, if at all. For instance there was no oil production in Nigeria until the end of the civil war in 1970. This paper will also deal with these issues and end off with looking at what can be done to minimise the environmental impact of oil production in developing countries. Most of the examples given will be from either Nigeria or Ecuador, mainly for two reasons. First, it is good to have examples from two different continents and secondly, there has been a lot of trouble in these countries and there are thus written a lot about episodes here.
2IMPACTS ON THE SURROUNDING ENVIRONMENT
In the introduction it was mentioned that the big, international petroleum companies sometimes have a better impact on the country in question than the state owned company, which can be the case with other transnational companies (TNCs) as well. In many instances the environmental standards in the home countries of the international petroleum companies are much higher than the standards in the host countries. These higher standards lead companies from industrialised countries to generally have a better record in relation to environmental, health, and safety concerns than local or state-owned companies in host countries. They are also more likely to be aware of environmental management developments abroad and to have access to and the capacity to transfer modern environmental technology to their operations in developing countries.
The problem lies in the fact that even though TNCs outperform local and state-owned corporations, they are still accused of dumping obsolete environmental technologies in developing countries. This can be explained in part by the concerns over intellectual property rights with respect to new technology. TNCs are reluctant to utilise their most modern technology when operating in developing countries because intellectual property rights are often not as strongly protected as they are in most developed countries. Developing countries often believe that they have a right to access this new technology in order to develop. They believe that intellectual property rights only serve to keep developed countries in a powerful position in relation to developing countries. This creates a problem for the high-tech petroleum industry where having the best technology can be vital for a company’s competitive position. There have thus been instances where companies have used practically obsolete technology in the less developed parts of the world, in stead of the best and perhaps most environmentally friendly technology available.
2.1good for some, bad for others
Usually oil companies do a lot of good in the countries they operate in, at least for parts of the population. They can bring prosperity to the community and help build their infrastructure by funding schools, hospitals, housing, and other facilities to support their operations.
In Ecuador the oil has meant money and jobs for the people working for the petroleum industry, the government and many people other places in Ecuador. But for the Indians in the Amazon-territory it has been a catastrophe. When the roads are built and heavy machinery are brought in it scares off the wild animals and pollutes the rivers. With the roads new settlers follow, who cut down the forest and create small towns in the middle of the rainforest. The Indians soon had nowhere to escape and in 1994 two of the communities were completely extinct, while the remaining tribes were severely diminished. The Indians have protested against this, e.g. by going to the respective home countries of the oil companies to try to make them stop their operations. And to some extent it has worked as well. Several oil companies have withdrawn from Ecuador and the EU Parliament put pressure on Ecuador’s government to improve the situation. But very much damage has already been done. Oil exploration and production has led to, amongst other things, the spillage of seventeen million gallons of oil from the Trans-Ecuadorian pipeline between 1982 and 1990, and to the dumping of 4.3 million gallons of hazardous waste into waterways.[4]
2.2ENVIRONMENTAL RACISM
Even though an international company has stricter environmental regulations in its home country, doesn’t always mean that they use an equally strict conduct in less stringent countries they operate in. Often it can be rather costly to do things in the most environmentally benign way and companies thus choose to not do anything more than what is absolutely required. Some might also think they can get away with doing even less in developing countries where the control is poor and government officials can be influenced. At least Shell has been accused of this in the scandal in Nigeria where the citizens of Erovie, a community in the Niger Delta, were poisoned by toxic waste from Shell Oil's operations. This is a graphic example of what the World Conference Against Racism’s NGO Forum refers to as environmental racism: the disproportionate impacts of pollution borne by communities of colour around the world[5].
2.2.1Shell and Nigeria
In Erovie local residents began to experience health problems soon after Shell Oil Company injected a million litres of a waste into an abandoned oil well in 1999. Many who consumed crops or drank water from swamps in the area complained of vomiting, dizziness, stomachache and cough. Within two months 93 people had died from this mysterious illness. Independent tests indicated that the substance was toxic. Many residents fled the community to avoid illness from the waste contamination. But Shell has refused to respond to the community's appeal to clean up the toxic mess. Rather, the oil company and the Nigerian government claim the substance is harmless. The Nigerian government even ran a newspaper ad saying its own test showed that
"the substance had no obvious significant harmful impact on human and the immediate environment"[5].
Reparations are a crucial issue in the struggle for environmental justice in Nigeria. Many of the ethnic groups in the Niger Delta, amongst them the people of Erovie, have drawn up various demands. But the Nigerian government refuses to compensate for damages made to the surroundings. In the nineties, the playwright and activist Ken Saro-Wiwa succeeds in drawing international attention to this issue. Shell takes measures to clean up the environment and compensate for damages, but the local population regularly damages the pipelines to obtain more compensation. Ken Saro-Wiwa is arrested and sentenced to death in 1995. Although Shell publicly requests for amnesty just before the execution, Saro-Wiwa and eight companions are executed. The international public is furious and criticizes Shell. Shell denies the charges of human rights and environmental abuses. Ebert Imomoh, the company's Deputy Managing Director in Nigeria, asserted when he appeared before a government panel investigating human rights abuses that:
"Shell has always conducted its business as a responsible corporate member of society which observes the laws of Nigeria and respect the fundamental human rights in line with the United Nations declaration of human rights."[5]
2.2.2Other companies
Shell is not the only villain, however. In one instance, six youths engaged to clear an oil spill from a pipeline belonging to the Italian oil company Agip, were burnt to death while eleven others sustained serious burns. In another case, documented by foreign journalists in 1998, Chevron flew in troops with helicopter during a peaceful protest on one of their oil platforms in the remote Ilaje community. Those troops shot dead two youths and wounded several others. Terisa Turner, co-ordinator of the non-governmental International Oil Working Group, described multinational oil companies conduct in the Niger Delta over decades as an expression of environmental racism.
"These practices are not, and could not, be pursued in Western Europe or North America, nor should they be practised anywhere."[5]
Michaela Braun of Greenpeace-Germany was of the same opinion after examining a foreign-financed pipeline project that would transport oil from the Ecuadorian Amazon to the Pacific.
"All along the route, we saw extensive destruction of primary forests. In Germany, a project with such destructive environmental and social impacts could never be implemented."[6]
There are some hopes, however. Prompted by the media attention to allegations of oil pollution in the Niger Delta area, oil companies are trying to improve their image. Shell led an environmental assessment of the Niger Delta area to show that oil pollution is less of a problem than poverty and unsanitary water supplies. Oil companies are planning to clean up oil spills too. Richard Genochio, managing director of Oil Cleaning Bio-Products Ltd., U.K., went on a trade mission to Nigeria. As a result, his company is to provide materials for field trials by "a major oil company" for clean-up of contaminated land in Nigeria and Genochio stated that:
"It was made clear to us that environmental protection is a key objective of the Nigerian government and of the oil companies.”[7]
It is however uncertain how much of this is really happening and how much of it is greenwashing[8]. Self-proclaimed corporate environmentalist leaders like Shell and BP have been said to take credit for voluntary initiatives that do not harm their bottom line, while allowing others to do the dirty work of making sure international agreements do nothing to restrict their activities. For instance, according to one group of BP shareholders, BP spent more on their new eco-friendly logo in 1999 than on renewable energy.
2.2.3Other areas
It is not only in Nigeria that the environment is damaged. Local communities are organising to protect their human and environmental rights in almost every single place where the petroleum industry operates. For instance, Rainforest Indians of Ecuador and Peru urged a U.S. appeals court less than a month ago[9] to reinstate nine-year-old litigation against Texaco, alleging that toxic dumping devastated their environment and exposed residents to cancer-causing pollutants.
Unfortunately, the protestors are often met with government coercion carried out in co-operation with the giant oil companies. The government will have a lot to lose if the corporations withdraw from their country, especially since in many instances the government's share of the money end up in the private bank accounts of government officials. They thus tend to side with the oil companies, and this is one of the main reasons why the Indians of Ecuador and Peru want their case to be heard in the country where Texaco is based in stead of the countries where it happened. It also leads us to the next issue.
3THE POLITICAL DIMENSION
Several of the world’s oil and gas reservoirs are in countries tormented by political unrest, corruption, dictatorship and/or civil wars. The political situation is often also very volatile and governments can change overnight. This can make it very difficult for an international oil company to operate there and it is important not to align with a particular political party or faction. That group could be out tomorrow, and the company could be alienated from its successors.
Civil unrest or war can disrupt the company’s plans. Texaco found that out in Angola, where its has been producing oil offshore since 1981. But even though a civil war has waxed and waned throughout that period, the company says it has managed to maintain production by anticipating events and adapting to them quickly.
It can also be wise to have the national oil company as a financial partner in order to assure a commonality of interests.There can be some problems with such a joint venture, however. A common one has been budget shortfall, where the state owned company says it is unable to pay its part of the planned investment, but there have also been episodes where the state has suddenly decided to increase their share in the joint venture without compensating the other parties. There is not always much to do about these events. The companies either have to put up with it or get out of the country completely, which some critics think they should.
3.1government support?
Oil companies operating in developing countries without a proper democracy have been highly criticised for being present in such countries. Critics argue that their operations provide the corrupt government/dictator with the means to stay in power and to easier fight against any existing opposition within the country. Most oil companies response to this is that them being there improves the lives of the inhabitants in the country. For instance the Canadian oil company Talisman says that:
“If we withdrew, oil would continue to flow, but our influence and community development would end. Economic development leads to the promise of a better life and can be the catalyst for peace, while isolation has the most harmful impact on the poorest members of society.”[10]
The petroleum industry leads to increased prosperity, which can become a significant incentive to peace and hence to further development. Business can be an effective tool for opening countries to new ideas, values, and influences and can help to promote ethical business practices and respect for human rights. As long as the businesses operating there are ethical, at least. Talisman has at least done some good things in Sudan. For instance in 2000 it completed a well maintenance and repair program that restored 28 wells and brought fresh water to thousands of people. The provision of water and medical facilities, construction of roads, and introduction of electricity have resulted in significant population growth at the main villages within the area it is operating.
When petroleum is very important for a country, the big oil companies can have a relatively great influence over the political situation in the country. In Ecuador, the foreign petroleum companies, with Texaco in the lead, threatened to boycott the country. Their objective was to make General Rodriguez Laras give up the control he had taken in a military coup in 1972. Their pressure was one of the main reasons why the general finally abdicated in 1976 and democracy was soon reinstated.
3.2Local protests
Nigeria is a good example of what happens when the government doesn’t meet promises to fund local community welfare programs. Inhabitants frustrated by their situation often take it out on Shell and other oil companies, especially since some of this funding is supposed to come through the oil joint ventures. While the oil companies appear to be starting work on solving some of Nigeria's problems, a number of recent protest actions show how difficult it is to operate in a volatile political climate. Protests have taken the form of damage to oil installations, deliberate spillage of oil, and even attacks on Shell staff and contractors. According to Mr. Ron M. Van Den Berg, Managing Director of The Shell Petroleum Development Company of Nigeria Limited, the actions are so bad that: