At a hotel by the Nile, politicians and civil society representatives from oil producing regions are indignant about the activities of oil companies in their home areas.

Entire villages have been uprooted to make way for oil firms to dig sand out of the ground for the oil roads. Millions of trees have been cut, with their proceeds not seen anywhere. As well, hundreds of thousands of people, they say, have been displaced without compensation.

“What happened in Northern Upper Nile does not make sense,” said Gatkuoth Duop Kuich, a member of parliament from Jonglei and the chairperson of the Land and Natural Resources Committee in the Parliament of the autonomous Southern Sudan. “People were forced off their lands and everyone just watched.”

The Oil War, as Kuich refers to the 21-year civil war that ended with the Comprehensive Peace Agreement, taught the people that oil explorers value money more than human life.

To be fair, oil was just a factor, otherwise southern Sudanese would not have been fighting the Khartoum government as early as the 1950s. But oil was a major factor, and it kicked off more marginalization of the South.

In the late 1970s, the Sudanese central government dishonored a peace agreement signed with the rebels in 1972, rejected returning Abyei to the South after oil was discovered there, and murdered Abyei politicians who were visiting the area, touching off an uprising in 1981.

Three years after the Comprehensive Peace Agreement ended the war, the people in oil producing areas are still fighting on.

At the conference, the participants are from different areas. They came from Abyei, Southern Kordofan and Blue Nile provinces, which will determine through a referendum in 2011 whether to belong to the South or the North.

Oil companies to be reigned in

In Jonglei, upon the arrival of the White Nile Company, the mistrust by the local people nearly led to a community war. White Nile, which in Jonglei operates in partnership with the British Ascom, was seeing its hold on oil Block B challenged by rival Total and started to fan community sentiments against the French company. That was easy to do. During the course of the war, Total had annually paid $1.5 million to Khartoum to renew its rights to the oil block after it suspended operations because of the fighting. While a purely business decision, many in the South saw it as having gone to bed with the enemy.

A year after White Nile and Ascom were made to drop their challenge against Total, the anti-Total tempers have tapered off, but pockets within the community still feel short-changed.

“Total gave an undisclosed amount of money to Jonglei State for community development, but we advise them to come with proper legal documents and to respect the community,” Kuich said. “Ascom has done nothing.”

But it is not just Ascom. A whole host of drillers and prospectors are behaving unethically, as far as the European Commission (EC) on Oil in the Sudan (ECOS) sees.

“No single company has ever shown true compassion with the victims,” says the report ‘Whose oil?’ released in April 2008 by IKV Pax Christi and ECOS. “No company has made an effort even to assess the level of suffering and destruction that has been inflicted upon these people to secure its operations.”

Unity and Upper Nile provinces, where oil drilling has gone on for years, bore the brunt of the government actions at a time the world was not looking. In Unity, White Nile Petroleum Company (WNPOC), a Petronas-led consortium, arrived in 2006. The consortium went about building a low-sulphur crude oil venture. Two years later, the officials report at least two dozen people dead from contaminated water.

And according to ECOS, around Paloich, in northern Upper Nile, cases have been documented of entire villages being dug out to obtain sand for the oil roads. “Even the ancestral graves disappeared into the new roads,” says the report. “To secure the oil fields, tens of thousands of people were killed, maimed or wounded, women raped, boys and girls abducted.”

According to the report, many of the displaced still live in dire circumstances, some in the desolate slums of Khartoum, others in local centers like Bentiu.

“Security in Upper Nile State is not good because the community is angry about being displaced by oil communities without compensation,” Kuich said. “This is what we are seeking: We need our communities to be compensated in developmental ways — build schools and hospitals and engage in other projects.”

And because a history of an oil communities’ empowerment is nonexistent, communication between the communities, the oil firms, and government remains weak.

“Until recently, the issue of oil could not be talked about openly,” said Deng Chulol, another MP from Jonglei, referring to the fact that since oil firms started operating here they have ignored the communities. Politicians feared the oil firms and social workers did not want to be seen to oppose the all powerful oil firms, backed by the government machinery. The result? Oil firms got away without fulfilling obligations.

“They destroy the environment, grab land and other resources,” Kuich said of the oil firms.

But not for long, lawmakers from oil-rich areas are saying. They have formed an independent body that wants to regulate the activities of oil explorers in the country. The body, according to the MPs, would work according to international oil standards.

The Sudan Oil Human Security Initiative (SOHSI) would work both as a pressure group and a community representative. It would have separate certificates for northern and southern Sudan. The plan is to make the initiative an affiliate of the National Petroleum Commission. Under the Comprehensive Peace Agreement, the NPC, with equal representations of the North and the South, has the final say on oil in the country. The government in Khartoum relented only last year to form the body, after refusing to do so for two years, for fear of losing control, according to analysts.

The new initiative by the lawmakers from the oil producing regions, Kuich said, is a realization that the NPC won’t do much unless the people rise up and demand their representation to the commission. The body would hold oil firms to international standards, and development commitments.

The communities would still need a lot of good luck. At the end of the day, the new venture would depend on government goodwill because a law must still be passed to empower the new body as an arbiter in disputes between the communities, government and the oil firms.

John Luk Jok, the Minister of Mining and Energy in Southern Sudan, has offered himself to spearhead the law. He has no choice. Luk comes from Unity State, which produces an estimated half of all the oil that Sudan exports. Plus, the peace agreement mandates that the communities have a say in all issues of oil management in their areas.

The energy ministers from the Southern Sudanese Government and the Khartoum-based national government have formed a high-level committee within the National Petroleum Commission.

Luk explained that the NPC has resolved to form another committee that would exclusively look into the issues of the environmental impact and whether oil firms are actually developing the community projects they are meant to when they win the oil concessions.

“The committee will look into the oil mathematics to see how to improve the areas where these companies are operating,” Luk said, adding that the new group would be incorporated into this committee.

Community empowerment

Sudan’s failure to reign in those oil firms that are behaving badly is caused less by a lack of laws and more by a failure to empower communities to hold the oil drillers, long backed by the Khartoum-based government, to some standard.

According to ECOS, some 150 laws exist to curb the destructive effects of oil development, but the government is reluctant to create the implementing mechanisms. Such laws derive their authority from the peace agreement and the constitution.

Luk pointed out that the Interim Constitution of Southern Sudan stipulates that each citizen has a right to a clean and healthy environment. “It is the duty of each and every citizen to monitor the environment,” he averred.

But can they? The new initiative will test that statement.

The founders of the body are full of optimism. Mohammed Osman works with Peace Direct-UK, an NGO that supports local peace-building in conflict areas. He sees the initiative as the door to peace in the sensitive oil areas of Blue Nile, Darfur, Jonglei, South Kordofan, Upper Nile, and Unity provinces.

Taban Kiston, program officer Southern Sudan Law Society, said “We are sure people are gong to receive the idea of SOHSI positively. Communities are always interested in what develops them.”

A participant from Jonglei State said that SOHSI is very much welcome but she believes it will work better after the CPA and the 2011 referendum, a time when, according to her, “proper laws will be in place.”

The global financial crisis is causing Maghrebi economists to rethink dependence on foreign sources of financing economic growth. As financing possibilities at the international level grow increasingly limited, Maghrebi economies must address the need to finance investment, without curbing the promising potential for a consumer society in the region. Algeria’s status as an oil exporting country is due to its relative independence from exterior financing. In 2009, Morocco and Tunisia could seek greater independent self-financing of their development by balancing investment with savings. Traditionally, these countries have had recourse to foreign liquidity via international loans, foreign direct investment and, increasingly, the remittances of workers living abroad. But a comparison between the investment and savings figures in the countries of the Maghreb reveals a significant gap between national savings and investment. If the difference is not yet a source of crisis, this is because FDI and remittances continue to fill the gap. The current crisis is already slowing down these flows and will continue to diminish them as the crisis continues.

As it is, FDI and remittances have certain intrinsic limits. FDI is designated to a specific country with a particular investment objective — it is therefore rarely adaptable to a change in situation and risks flight in the event of a significant transformation in the designated country. In the case of the countries of the Maghreb, businesses crowded to enter over the past several years to invest in textiles, call centers and other industries, as North Africa’s workforce proved it was ready to meet new challenges at lower costs. Remittances finance principally a growth in demand and imports of finished products. As for funds raised directly on the markets, these mainly concern large enterprises. These limits on foreign modes of financing pose no problems during a time of growth.

But in a time of crisis, Tunisia and Morocco should be shoring up savings as an alternative source of liquidity in order to carry out investments. Savings possess considerable advantages over other modes of financing. First, they reduce the risks of exposure to credits on the international level in the event of an exchange crisis. Second, saving protects the treasury and credit at the heart of an economy from global shocks. Third, spending savings reduces the power of foreign investors over the domestic economy.

The risk that the financial market crisis poses to Maghrebi economies proves that there are inherent risks in dependence on international liquidity. While international liquidity may support a country’s development, it should not be considered a principal vector of growth. In the framework of the current crisis, reliance on foreign liquidity must be reduced. Already, the crisis is limiting credit lines at the international level as large financial markets, in need of fresh money, seek to refinance. Analysts point to the case of the Eastern European countries, which have seen a portion of their private credit lines slow down, a trend expected to spread to other regions this year. Analysts also foresee a slowdown in FDI, while remittances and tourism already show signs of slowing down in the Maghreb region. These trends will persist until the global economic system recovers.

Tunisia and Morocco should therefore turn towards their existing savings and towards increasing their weak rates of banking penetration. Certain moves could be made to attract a higher number of deposits. Creating special accounts for small savings at reduced prices would be effective, for instance. Changing the status of microfinance institutions (MFIs) to allow them to collect savings may also be helpful. States could step up their national campaigns for the use of monetary instruments, by only accepting payments in checks or bankcards. Supplementing savings is indeed possible in Tunisia and even more so in Morocco. Close to 20 percent of Tunisia’s GDP circulates in fiduciary currency and this ratio is as high as 60 percent in Morocco. These liquidities could be brought to play a crucial role in the development processes of these two countries. A strong reaction by the Tunisian and Moroccan governments would enable them to avoid the pitfalls of the current crisis for 2009. Moreover, such long-term solutions could allow for the acquisition of savings, which could accomplish substantial projects without needing to rely on external financing. This would reinforce these countries’ international position, as well as their governing power. In other words, why turn to neighboring countries, with the risks and limitations in terms of political economy that this brings, if the country can find in its own borders what it needs to feed the economic machine?

Higher world oil prices in recent years — which apexed in mid-2008 — as well as advances in technology and reforms easing foreign investment have renewed interest in hydrocarbon production in the North African countries of Algeria, Tunisia and Morocco. For Morocco, an almost complete dependence on foreign sources of oil and gas, which account for 90 percent of the country’s energy needs, has become a source of growing discomfort. In resource-rich Algeria, skyrocketing prices generated a sizeable wealth in foreign exchange reserves. Tunisia moved ahead with exploration and production of its own modest upstream industry. The hydrocarbons sector is of varying significance to each country’s economy: Morocco and Tunisia are encouraging growth in the sector, while Algeria benefited immensely from the sector’s profitability, as global oil prices soared to $150 a barrel in mid-2008. But even as North African countries race to find and produce new sources of hydrocarbons, the global economic downturn is already leading many countries, including the OPEC cartel, to seek vast cuts in production, as waning demand and inflated summer prices created a dangerous surplus of supply.

Morocco

Morocco’s dependence on foreign sources of oil and gas has made the country highly vulnerable to market fluctuations and steep rises in the costs of energy on the global market, especially since 2005. Domestic energy resources fall far below local demand, leading Morocco to import as much as 90 percent of its energy needs. According to the National Office of Hydrocarbons and Mines (ONHYM), the country’s 2007 energy bill reached $6 billion. The 2008 energy bill is expected to soar to $7.8 billion and the government was granted $800 million from the UAE and Saudi Arabia to offset rising costs. In spite of higher prices on the international market, domestic prices remained unchanged all year, since government subsidies on gasoline and butane are considered essential to the country’s functioning. The country’s energy sector is locked in a difficult situation, squeezed by rising domestic consumption, social pressure to keep prices low and unstable world prices for hydrocarbon imports.

As for domestic oil exploration and production, hopes endure. Seeking some degree of energy self-sufficiency, Morocco is laying the foundations for a stronger domestic upstream industry. To fortify domestic oil exploration, Morocco modernized its hydrocarbons code in 2000, making royalties, exploration and drilling rights more attractive to foreign investors. Since then, the number of exploration permits accorded to international oil companies has shot up. Though the upstream oil industry remains quite modest, analysts point out that many sedimentary basins are unexplored and offshore drilling has potential.

In 2005, Moroccan Minister of Mines and Energy Amina Belkhadra expressed the country’s renewed optimism for discovering domestic oil, thanks to new technologies, like the introduction of seismic 3D studies. New drilling and production technologies have also made it possible to drill as far down as 3000m. The massive investment in oil exploration in Morocco since 2005 has yet to pay off. But advances in offshore and deep-water offshore drilling could pave the way for a discovery in the near future. Out of the 76 permits for oil exploration Morocco has awarded since 2005, 61 of these are for offshore.

Algeria

Algeria, the only North African country to belong to OPEC, is the world’s 14th-largest oil exporter and one of the largest producers of natural gas, which it exports by pipeline or in the form of LNG (liquefied natural gas). The hydrocarbon industry is a mainstay of the country’s economy and is playing an important role in the economic upturn that has followed decades of civil unrest and political turmoil. Hydrocarbons accounted for 98 percent of export earnings in 2006 and the country’s foreign exchange reserves rose to an astounding $137 billion at the end of July of 2008. The country has used this wealth to repay most of its foreign debt and plans to invest heavily in developing the national economy and massive public works.

In spite of the steep downward trend for oil prices that set in several months ago, Chakib Khalil, Algerian minister of energy and mines, predicted record high oil revenues for Algeria in 2008, estimated at $76 billion, up from $59.3 billion in 2007. Ninety percent of the country’s crude oil exports go to Western Europe, with Italy as the main recipient, followed by Germany and France. Algeria’s Saharan Blend oil is considered one of the highest quality blends in the world; EU countries are subject to tight restrictions on fuel content and have come to rely on the purity of Saharan Blend.

Algeria’s rich supply of natural resources may be the envy of neighboring countries, but the country’s flip-flopping on regulations continues to damage its investment environment. Foreign operators have increased their share in Algeria’s oil production, but at the risk of fickle mood-changing on the part of the government. Bouteflika’s administration passed a long-awaited hydrocarbons law in 2005 to liberalize the sector. This seemed promising, until parliament passed a measure the following year demanding that the national oil company, Sonatrach, hold at least a 51 percent stake in all oil and gas projects. Foreign companies considering investment face the strong probability that the government will renegotiate their projects, and a 15 percent tax was recently added to all oil profits sent abroad. 

Tunisia

Compared to Algeria, Tunisia has a modest upstream oil industry. Its fields are concentrated in the eastern and southern regions, particularly around the border with Algeria. The country produced 0.11 percent of the world total in 2007, and had proven reserves of 400 million barrels at end-2007. Tunisia’s state energy company, ETAP, is considered one of Africa’s most progressive and Tunisia’s geographical proximity to important markets in Europe is complemented by a long-standing political stability and close ties to neighboring countries in Africa and the EU. Oil production, which peaked in the 1980s and has since been declining, shot up 50 percent in 2006 thanks to the development of the Oudna offshore field. This progress is not expected to last, however, as the Oudna field will not sustain high production levels for long. Like Morocco, Tunisia is investing in more offshore exploration and hopes to discover and put new fields online in the coming years.

Sector outlook

A global recession is unfurling. For the moment, North Africa is protected from the direct fallout of the credit crisis and failing financial markets. But plummeting oil prices and contracting demand are already prompting the region to rethink its approach to the energy sector. On December 17, OPEC announced the largest across the board production cuts in the organization’s history at 2.2 million barrels a day. OPEC’s pledge to readjust supply to meet waning demand will be supported by production cuts made by countries outside the 13-member cartel, like Russia, the world’s largest producer outside OPEC. The organization has predicted that the troubled market’s recovery will be delayed at least until the second half of 2009.

North Africa’s awareness of environmental concerns lags far behind Europe, but there is a growing interest in reducing emissions and exploring renewable sources of energy. Analysts expect massive investments in renewable energy sources over the coming years and the sun-drenched Maghreb has great potential for developing solar power and wind power. Alternative sources of energy like solar and wind power would be of great benefit to the Maghreb’s domestic energy market, where consumption is growing rapidly  — at eight to nine percent annually in Morocco — and carbon dioxide emissions are accompanying this growth.

Maghrebi governments are encouraging investments in renewable energy, both nationally and in partnership with other countries and organizations. The World Bank loaned $100 million to Morocco to diversify its energy supply sources, including an increase in the share of renewable sources in the country’s energy consumption from around four percent to 10 percent in 2012. The projects include the 1000-megawatt plan for wind energy and the Program Chourouk, to install 500-megawatts of solar energy before 2015, by promoting solar photovoltaics in urban areas and by conceding energy production from solar power stations. Algeria’s renewable energy agency, New Energy Algeria (NEAL), has its sights set on exporting solar energy to Europe and is planning solar energy plants in its eastern and western regions. NEAL has said that Algeria aims to produce five percent of all electricity from renewable sources by 2010. Tunisia will look to wind power to provide four percent of electricity production and it is also considered to have great potential for renewable energy. North Africa need not wait for an Obama administration to bring renewable energy sources to the forefront of the quest for energy reform. In these troubled times, renewable energy is one of the rare investments that can be considered ‘safe.’

Analysts expect massive investments in renewable energy sources in the sun-drenched Maghreb