Congo and Oil

Black Gold in the Congo: Threat to Stability or Development Opportunity?

Africa Report N°18811 Jul 2012

Oil inCongo

EXECUTIVE SUMMARY AND RECOMMENDATIONS

Although it should provide development opportunities, renewed oil interest in the Democratic Republic of the Congo (DRC) represents a real threat to stability in a still vulnerable post-conflict country. Exploration has begun, but oil prospecting is nurturing old resentments among local communities and contributing to border tensions with neighbouring countries. If oil reserves are confirmed in the east, this would exacerbate deep-rooted conflict dynamics in the Kivus. An upsurge in fighting since the start of 2012, including the emergence of a new rebellion in North Kivu and the resumption of armed groups’ territorial expansion, has further complicated stability in the east, which is the new focus for oil exploration. New oil reserves could also create new centres of power and question Katanga’s (DRC’s traditional economic hub) political influence. Preventive action is needed to turn a real threat to stability into a genuine development opportunity.

Potential oil reserves straddle the country’s borders with Uganda, Angola and possibly other countries and could rekindle old sensitivities once exploration commences. In the context of a general oil rush in Central and East Africa, the lack of clearly defined borders, especially in the Great Lakes region, poses significant risk for maintaining regional stability.

Clashes between the Congolese and Ugandan armies in 2007 led to the Ngurdoto Accords establishing a system for regulating border oil problems, but Kinshasa’s reluctance to implement this agreement and the collapse of the Ugandan-Congolese dialogue threaten future relations between the two countries. In the west, failure to find an amicable solution to an Angolan-Congolese dispute about offshore concessions has worsened relations between the two countries and led to the violent expulsion from Angola of Congolese nationals. Instead of investing in the resolution of border conflicts with its neighbours before beginning oil exploration, the Congolese government is ignoring the problem, failing to dialogue with Uganda and officially claiming an extension of its maritime borders with Angola.

The abduction in 2011 of an oil employee in the Virunga Park, in the Kivus, is a reminder that exploration is taking place in disputed areas where ethnic groups are competing for territorial control and the army and militias are engaged in years of illegally exploiting natural resources. Given that the Kivus are high-risk areas, oil discovery could aggravate the conflict. Moreover, confirmation of oil reserves in the Central Basin and the east could feed secessionist tendencies in a context of failed decentralisation and financial discontent between the central government and the provinces.

Poor governance has been the hallmark of the oil sector since exploration resumed in the east and west of the country. Even with only one producing oil company, the black gold is the main source of government revenue and yet, with exploration in full swing, oil sector reform is very slow. Instead of creating clear procedures, a transparent legal framework and robust institutions, previous governments have behaved like speculators, in a way that is reminiscent of practices in the mining sector. Reflecting the very degraded business climate, they have allocated and reallocated concessions and often acted without considering the needs of the local people and international commitments, especially regarding environmental protection.

The official division of exploration blocks includes natural parks, some of which are World Heritage Sites. It also directly threatens the resources of local populations in some areas. Initiatives to promote financial and contractual transparency are contradicted by the lack of transparency in allocating concessions. The state’s failure to adequately regulate the diverging and potentially conflicting interests of companies and poor communities is clearly causing local resentment, which could easily flare up into local violence that could be manipulated.

In a context of massive poverty, weak state, poor governance and regional insecurity, an oil rush will have a strong destabilising effect unless the government adopts several significant steps regionally and nationally to avert such a devastating scenario. Regionally, it should draw on the close support of the African Union (AU) and the World Bank Group to design a management model for cross-border reserves and help facilitate a border demarcation program. Nationally, the government should implement oil sector reform, declare a moratorium on the exploration of insecure areas, especially in the east where the situation is again deteriorating, until these territories are made secure, and involve the provinces in the main management decisions concerning this resource.

RECOMMENDATIONS

To the countries of the sub-region:

1.  Negotiate a framework agreement for the exploration and development of cross-border reserves, with the support of the AU and the World Bank Group, to provide for the involvement of one or more companies, revenue-sharing and dispute resolution mechanisms.

To the Government of the Democratic Republic of the Congo and neighbouring countries:

2.  Begin a border demarcation program, with support from the AU Border Programme, before allocating any more exploration blocks in disputed areas, to clarify the situation on various borders; implement the Ngurdoto Accords with Uganda; and seek a comprehensive and amicable agreement to end disputes with Angola.

To the Government of the Democratic Republic of the Congo:

3.  Declare a moratorium on exploration in insecure areas of eastern Congo and enforce the ban on exploration in World Heritage Sites.

4.  Reform oil governance, including by:

a) defining a policy for the sector and setting up an hydrocarbons code;

b) ensuring contractual and financial transparency;

c) democratising the decision-making process for the awarding of oil rights and the assessment of the implementation of the production sharing contracts signed with the companies;

d) granting exploration and production rights following an open and transparent competition and banning mutual agreements and allocation of exploration and production rights to companies whose beneficial ownership information is not publicly available; and

e) determining clearly the fiscal, social and environmental obligations of companies according to international good practice and making information and consultation of local communities compulsory, as well as a participatory approach for local development.

5. Involve affected provinces in main oil management decisions and, if oil reserves are confirmed, ensure the provinces and local communities benefit from revenues.

To the African Union, the World Bank Group and donors:

6.  Provide technical and financial assistance to the Congolese authorities for the border demarcation, the frame­work agreement for the exploration and development of cross-border reserves and oil governance reform.

7.  Support the Congolese civil society efforts to build a monitoring capacity in the oil sector.

To the oil companies:

8.  Disclose contracts and payments made to the Congolese government.

9.  Respect international laws and agreements and Congolese laws.

10. Include a human rights assessment in their preliminary studies.

Kinshasa/Nairobi/Brussels, 11 July 2012