As Exxon Pursues African Oil, Charity Becomes Political Issue
Angola Pushes Companies To Donate Amid Worries About Mismanagement
A Little-Used CT Scanner
By JEFFREY BALL
Staff Reporter of THE WALL STREET JOURNAL
January 10, 2006; Page A1
SOYO, Angola -- Donations from an oil consortium led by Exxon Mobil Corp. recently doubled the size of Miguel Alves António's one-story high school here. He thanked Exxon, and then he asked for more: an electricity generator, a bus, and laboratory supplies including microscopes and a centrifuge.
Exxon, says Mr. Alves António, is "like a father: A father who likes to give is a father we're going to ask a lot."
The world's largest publicly traded oil company submitted to the school director's request, but it drew one line: He would have to supply his own diesel fuel for the generator and bus. At some point, says William Cummings, Exxon's public-affairs manager in Angola, the company wants "an exit strategy."
The money Exxon and its partners are spending on the Soyo school is part of the price of entry in a country that holds some of the juiciest new oil fields on the planet. But as oil giants flock here, they're confronting a dilemma that executives didn't learn about in engineering school: how to fulfill their social duty in a nation that is rich in fossil fuels but poor in almost everything else.
Exxon's problem isn't primarily about money: It earned $33.8 billion in the 12 months ended Sept. 30. It's more an issue of politics and managerial focus. Oil companies must juggle the often-conflicting expectations of African governments with those of Western governments and antipoverty groups. They also struggle to apply the financial discipline of their core business to philanthropy in the developing world.
Oil companies often fear working too closely with governments of new oil powers such as Angola that ask for help in addressing social ills. Many of these nations, including Angola, have been criticized by Western nongovernmental organizations and international lending institutions for failing to explain sufficiently how they spend the billions of dollars they receive each year in oil revenue. Being seen as an arm of these governments, even in building hospitals or schools, invites criticism that an oil company is enabling financial mismanagement -- and the long-term dependency it creates.
Executives who are accustomed to building rigs and drilling fields within tight budgets say their goal is to help oil-rich developing countries learn to help themselves. "We are an oil company. We are not the Red Cross," says Andre Madec, who oversees Exxon's global community relations from the company's Irving, Texas, headquarters. "We don't want to be seen as the de facto administration."
Exxon isn't the only oil giant confronting this predicament in Angola, one of the planet's hottest new oil plays as fields elsewhere decline or remain shut to Western oil companies. BP PLC and the British government recently spent a total of about $250,000 installing a solar-energy system in a rural village north of Luanda that lacked electricity. Villagers rushed to buy television sets and blew out the system -- then asked BP to fix it.
An Annual Check
Chevron Corp. for years sent a $100,000 annual check to the public pediatric hospital in Luanda, the Angolan capital. Recently Chevron started asking the hospital to apply for funding for specific projects. "Our worry was they were just getting used to a $100,000 check from the company. There wasn't any end in sight," says Dennis Flemming, the California-based company's manager for corporate responsibility in Angola.
Exxon's biggest philanthropic beneficiaries traditionally have been blue-chip institutions in the U.S., a legacy of the days when the U.S. provided most of Exxon's oil and natural gas. Of the $107 million in cash, goods and services that Exxon and the Exxon Mobil Foundation donated in 2004, two-thirds went to activities in the U.S. Yet the U.S. no longer provides anywhere near the majority of Exxon's fossil fuel. By 2010, the company expects Africa will provide in excess of 30% of Exxon's oil, more than any other region in the world. Exxon plans to increase donations in developing countries without cutting U.S. giving, Mr. Madec says.
Some Western advocacy groups and local activists say oil companies are shirking a broader responsibility when they sprinkle a few million dollars a year in donations to a developing country. If the companies really wanted to improve lives in places like Angola, these critics say, they would use their clout to push governments to prove that they're spending oil money primarily on public needs.
Building classrooms or hospital labs is just "part of the propaganda of the oil companies," says Belmiro Cuica Chissengueti, a Catholic priest in Luanda who works with Western organizations critical of Angola's government. Given the amount of oil money flowing into Angolan government coffers, he says, "the government has the money to do these kinds of things."
Angolan officials say their country is managing its oil wealth prudently and point to new disclosure steps. On a trip to Washington in May 2004, President José Eduardo dos Santos disclosed how much Chevron had paid as a "signing bonus" to get access to an offshore oil-producing area, the type of number the government used to keep secret. "There is a lot of improvement in my country with transparency," says Syanga Abilio, a vice president at Sonangol, the state oil company.
Exxon officials and Western diplomats also say transparency in Angola is improving. Pushing the government further isn't Exxon's role, says Terry McPhail, Exxon's top official in Angola. "It's not up to us to go into a sovereign country and tell them how they ought to be governing their people," he says. "We obviously want to be a good corporate citizen. But we're a guest in this country, and as a guest we've got to show respect."
Political Risk
Even small spending decisions can be fraught with political risk for Western oil companies in Angola. Last year, several companies were invited to buy seats at a gala dinner of the Lwini Fund, an organization that helps victims of land mines in Angola. The group is headed by the wife of Angola's president. Seats at the head table cost $10,000 apiece.
Exxon declined the invitation. A person familiar with Exxon's thinking says the company wasn't comfortable giving money to the group given the prominent role of the president's wife.
Other Western oil companies did attend the dinner. Chevron sent representatives, although their seats were paid for by other companies, Chevron's Mr. Flemming says. Chevron regularly donates wheelchairs that Lwini distributes. "They do good work, and that's why we continue to work with them," he says.
A Lwini Fund official says by email that the fund hasn't heard of any oil company declining to attend the dinner because of concerns about the fund's ties to the president's family. The official says any concerns about the fund's financial controls are baseless.
Exxon has been wrestling with such dilemmas in Africa for more than a decade. In the mid-1990s, an Exxon-led consortium of oil companies wanted to build a pipeline from a massive oil field in landlocked Chad to the African coast in neighboring Cameroon. The consortium and Chad agreed to bring in the World Bank, a main lender to Chad, to help manage the project's revenue. The bank demanded that the consortium make environmental and social improvements along the pipeline's route, and it required Chad to agree to put the majority of the revenue from the oil project into poverty-reduction programs like schools, medicine and roads.
At one point along the pipeline route, Exxon built a health clinic in Kome, Chad. But the government demanded that Exxon also provide a nurse and medicine and equipment. Exxon refused, saying it was the government's responsibility to operate the clinic. The company kept the clinic padlocked more than a year, until the government hired its own health-care workers to run the facility.
Late last month, Chad's national legislature passed an amendment to its oil-revenue law that would allow the government to spend more of the oil money as it sees fit. In response, the World Bank announced last Friday that it is suspending $124 million in loans to Chad. Exxon's Mr. Madec doesn't criticize Chad but says, "We like the format we had."
Vast Stores of Oil
Angola was known for political instability long before it was known for oil. A Portuguese colony for most of the 20th century, Angola won independence in 1975 but a civil war lasted until 2002. In the mid-1990s, as the fighting continued on land, Exxon and other Western oil giants began to discover vast stores of oil in underwater fields far off Angola's coast.
Over the past few years, the deep-water wells have begun pumping hard. From 100,000 barrels per day in the early 1970s, Angola's production has shot up to 1.2 million barrels per day today, making the country the No. 2 producer among nations along Africa's western coast behind Nigeria. PFC Energy, a consultant based in Washington, predicts deep-water West Africa will provide more new oil over the next decade than any other region outside the Organization of Petroleum Exporting Countries.
In November, officials of Sonangol, the national oil company, held a road show at an upscale Houston hotel to solicit oil-company bids for licenses to explore additional offshore areas. Representatives of about 40 oil companies, including Exxon, packed the room. As Alexandre Pessoa Vaz, head of Sonangol's hydrocarbon-concessions department, ticked off the elements Sonangol expected oil companies to include in their bids, he noted that philanthropic contributions "are something that Sonangol also appreciates that the companies offer."
In talks with oil executives, Sonangol has been more specific, says Gerald McElvy, president of the Exxon Mobil Foundation. Over the past year, he says, Sonangol has told Exxon it expects the company to spend $1 million per year on social projects for every 100,000 barrels of oil per day the company pumps out of Angolan fields. Currently Exxon's share of oil from two consortiums in Angola is about 270,000 barrels a day.
Mr. Abilio, the Sonangol vice president, denied in an interview that Sonangol laid out such a specific number. But he said it does make clear to oil companies operating in Angola that it expects them to invest in social projects. "The country really needs development," he said. "The money is never sufficient in terms of the needs of the country."
Exxon officials say the company will spend about $2.7 million this year on social projects in Angola in its effort to meet Sonangol's expectations. Its partners also make donations. The money is considered a "recoverable" expense under an agreement between the Exxon-led consortium and Sonangol. Though Exxon officials won't discuss the details, typically such arrangements mean the national oil company repays the Western firm's spending in the form of oil from the fields. Exxon also spends about $4 million annually on philanthropy in Angola for which it isn't reimbursed, mainly for a program fighting malaria.
Fearing cash will be misspent, Exxon donates mostly material goods, like new buildings or medicine, in Angola. But even that brings complications. Last year Exxon considered paying for the $10 million renovation of a landmark high school near the company's Angolan headquarters in Luanda. But Angolan officials said they couldn't guarantee money to keep up the school after Exxon fixed it. The company ended up declining to take on the project.
Pediatric Hospital
Not far from the school sits Luanda's public pediatric hospital, where wall plaques commemorate years of oil-company donations. Most of the children treated at the hospital have maladies pervasive in Africa, including malaria and malnutrition.
In 2004, the Exxon-led consortium constructed a $200,000 building to house a pathology laboratory and a CT-scan machine. The machine itself was donated by Chevron. It hasn't been used yet because the hospital's doctors don't have training on it, says Luis Bernardino, the hospital's director. One doctor is expected to start administering a couple of CT scans a week starting this month. But the hospital still needs training for more, he says.
A few steps away is the Exxon-led group's latest gift to the hospital: a $300,000 center to treat patients with sickle-cell anemia. Though the hospital dedicated the building last month, the center still lacks one of its key pieces of equipment: an echocardiography machine. Dr. Bernardino hopes Exxon or another oil company will buy it. Mr. Cummings, the Exxon public-affairs manager in Angola, says the company might consider it.
Exxon faces a similar pattern in Soyo, a coastal outpost on Angola's northern border that's connected to the capital by a dirt road. Exxon has a sprawling base there from which it serves its offshore oil operations.
Over the past three years, the Exxon-led group of oil companies has spent about $300,000 at Soyo's high school, adding four classrooms, the chemistry lab and a library. But on a recent day, the lab was empty. The school hadn't been able to put the lab to full use because it was short of equipment, explained Mr. Alves António, the school director. That's why he gave Exxon officials the list of the supplies he wanted. In addition, because power outages are a common problem, he had asked Exxon a few months earlier to donate a generator. While he was at it, he asked for a bus too.
In recent weeks, Exxon gave the school the generator and the bus, both used. Mr. Alves António says finding his own fuel will be "very difficult, but what can we do?" Mr. Cummings thinks the director may end up asking Exxon for the fuel. "If he does," Mr. Cummings mused, "we're going to have to put on our thinking caps." |
