DEVELOPMENT: How Europe Could Help Plug Oil Spills in Africa

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By Jaya Ramachandran

A new study is asking the European Parliament, European Union member states and European civil society organizations to push for regulatory measures targeted at Europe-based companies engaged in oil exploration in sub-Saharan Africa (SSA).

The study follows on the heels of landmark UN findings reported on August 4, highlighting the devastating impact of oil spills in the Niger delta over the past five decades, which will take up to 30 years to clean up.

The SSA oil industry, which comprises 13% of global oil production, and accounts for some 7% of the oil imports of the 27-nation European Union, is not only causing severe damage to environment and health but also adversely impacting livelihoods of local communities which largely depend on natural resources for agriculture and fisheries, says the study completed on August 8, 2011.

Titled 'The Effects of Oil Companies' Activities on the Environment, Health and Development in Africa', the study was requested by European Parliament's Committee on Development. It is authored by Heike Baumüller, Elizabeth Donnelly, Alex Vines and Markus, Weimer on behalf of the Chatham House, a British Institute based in London.

The authors gently remind the European Union (EU), which is a major importer of SSA oil and hosts international oil companies operating in the region, that it has "both the responsibility and the opportunity to promote greater sustainability and equity in the sector, in particular through engagement with 'new' producers".

"Engagement with 'new' producers will be particularly important to learn from past experiences in other countries and lay the foundation for oil to contribute to national development," says the Chatham House study, adding: "Current efforts to promote greater revenue transparency are an important step that needs to go hand in hand with a push for revenue management and a greater emphasis on preventing trade in oil sourced illegally or from conflict areas."

In 2010, the EU relied on SSA for about 7% of its oil imports, amounting to 314 million barrels worth $65 billion. Nigeria is the largest source of EU oil imports among the SSA countries, accounting for just over half of their imports, according to the International Energy Agency (IEA).

Nigeria is known to have the seventh largest gas reserves in the world, and is therefore also considered a potentially strategically important supplier to Europe if the industry can be developed. Destinations in the EU include Spain, Germany, France, the UK, Portugal, the Netherlands and Italy. However, for Angola, the EU market is less important – compared with the U.S. and China – though still sizeable. The main importer of Angolan oil is France.

In 2010, Africa accounted for 13% of global oil production, of which sub-Saharan Africa – the focus of the study – contributed 7.25%. The U.S. Energy Information Agency forecasts highest growth potential to 2035 in SSA Organization of the Petroleum Exporting Countries (OPEC) members (Nigeria and Angola) and non-OPEC African producers.

SSA OPEC members are expected to increase their oil production most in absolute terms, from 4.2 to 5.3 million barrels per day. The highest relative expansion in oil production is predicted to occur in non-OPEC African producers with an annual average growth rate of 1.2%, above the global average of 0.8%. In North Africa, expansion is expected to be minor.

CHALLENGING

While oil companies are implementing some measures to address the adverse impacts on environment and health, efforts remain "insufficient", says the report, adding: "CSR (corporate social responsibility) activities are piecemeal and short-term, EIAs (Environmental Impacts Assessment) are insufficiently robust and requirements for accountability and transparency are either not available or not enforced."

Community engagement also remains challenging, giving rise to social tensions and even unrest. "Nigeria can provide useful lessons in this regard and current engagement strategies through the GMOUs (Global Memorandum of Understanding) are worth monitoring to see whether they can also provide a model for other producers," the report adds.

In oil-producing countries, the study says, the main limitation is often not the absence of regulations, but the lack of political will and capacity to implement and enforce them. "Thus, any solution will ultimately have to deal with issues of governance, including increased revenue transparency, more equitable and effective revenue sharing and use, a better balance of power between ministries, and greater citizens' participation."

The study puts forward a number of recommendations that include promoting technology solutions, targeting EU development assistance, enhancing transparency of oil operations, strengthening producer country measures, and building partnerships between the stakeholders.

In particular the study calls for EU-level discussion on disclosure of non-financial information to propose a review of existing non-financial reporting standards to assess how they could best be adapted to the European context and be made compulsory for European companies; and the development of a monitoring standard for CSR activities, including measurement criteria and tools, to ensure positive social and environmental impacts.

INFLUENCING

It pleads for Influencing oil companies through the banks and funds that finance them by supporting better monitoring and reporting of compliance with existing sustainable lending standards, such as the Equator Principles – the framework by which banks can manage environmental and social issues in project financing – and the Principles of Responsible Investment, which aim to help integrate consideration of environmental, social and governance (ESG) issues by institutional investors into investment decision-making.

The study also calls for encouraging pension funds in EU member states to apply social and environmental screening of their investments in oil companies, modelled on the Council on Ethics of the Norwegian pension fund.

The European Investment Bank is asked to provide loans to African oil-producing countries to enhance economic diversification and development, for example, to - develop modern refineries, LNG (liquefied natural gas) projects and distribution networks for petrol and gas to improve domestic energy supply; and set up health and education projects in oil-producing countries.

The loans should also guarantee micro-lending initiatives in enable local communities to better cope with the negative impacts of oil companies and to benefit from economic opportunities, such as the supply of food to oil operations, as piloted by BP and Chevron in Angola, says the report.

TECHNOLOGY DEVELOPMENT

The study further asks the EU and European companies to promote the development and diffusion of cost-effective, locally usable technologies for encouraging European oil companies, government agencies and higher education and research institutions to develop effective technologies in oil fingerprinting to help reduce oil theft, trace the source of pollution and stop imports of certain oil products, for example, that originates from areas with a poor human rights or environmental record.

The technology, it adds, may be developed with a view to exploring regulatory measures to ensure legality of oil imports that build on EU timber regulations. The report also pleads for monitoring and cleaning up oil spills, including mobile phone-based technology to report oil spills and technology that can be used by local communities to deal with minor but numerous spills.

DEVELOPMENT ASSISTANCE

The study asks the EU to direct European development assistance to set up independent oil spill response teams and clean up mechanisms in oil producing countries in order to delink the problem and its remediation from the political context and financial constraints.

The EU education funding should be channelled in support of skills and capacity building with a view to economic diversification, in addition to enabling members of oil-producing communities to benefit from direct and indirect employment opportunities provided by the oil sector, to the extent that they are available.

The EU development assistance, say the report, should strengthen local governance through improved administration and by promoting appropriate local elections and decentralisation, as well as by building capacity of local communities to understand and promote their rights.

Further, it should undertake independent scientific surveys of oil-producing regions to establish baseline data, engaging national and local governments, international and national researchers and national civil society groups in the research process.

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