Why Liberia Must Renegotiate, Revoke, or Cancel Disadvantageous – The Case of LB Oil BLOCK 13

I have a fine example of how corruption works in Liberia and how international businesses are in cahoots with the corruption. My example is the recent Production Sharing Contract (PSC) between the government of Liberia, and two oil exploration companies, U.S. petroleum giant, Exxon Mobil, and Canadian Oversea Petroleum Limited (COPL). A secret agreement was negotiated and signed between the government of Liberia and the oil exploration companies in New York, but very little was known about the contents of these negotiations, and actual terms of the agreements, due to opaque processes, and reasons of confidentiality often invoked in relation to the contracts. Fortunately, for the anti-corruption community, the agreement was leaked and analyzed on the internet. There is no doubt why it, like almost all agreements of this kind of, was kept secret from the Liberian people and signed in faraway New York. It is remarkably disadvantageous to the country of Liberia and its people. Liberian negotiators failed to understand that oil exploration is a long term investment, and contracts must establish how rents will be divided between governments and companies as well as how costs and risks will be shared. Unfortunately, the agreement awarded Exxon Mobil a whopping 80% of the oil shares discovered from Liberia’s block 13, while their Canadian neighbors, the Canadian Oversea Petroleum Limited (COPL) received 20%. According to Front Page Africa news, “the deal was approved by President Ellen Johnson Sirleaf who recently signed the appropriate paperwork related to the PSC that it could be sent to the Legislature for a ratification vote. The terms of the PSC will take effect once ratification has occurred and the PSC is enacted into law.” For their part the National Legislature (“You EAT; I EAT House”) ratified the deal within a week with speculations mounting that some US$2.5 million were spent to push the document during the ratification proceedings. How was the lopsided PSC made? How could Liberians negotiators give away so much to the oil exploration companies? Why the National legislature failed to critical analyze the agreement? The Environmental Protection Agency (EPA), despite the agency role in the formulation of the oil sector policy, was left out of the negotiation process of oil block 13, why? Why critical issue such as environmental pollution was not discussed and that certain environmental experts were not allowed to speak on the issue of pollution and the environment during the process leading to the ratification of block 13? Did the Liberian negotiators known that Exxon Mobil Corp. was found liable in a long-running lawsuit over groundwater contamination caused by the gasoline additive MTBE, and ordered the oil giant to pay $236 million to the state of New Hampshire to clean it up before awarding Exxon Mobile 80% of the oil block? Are our policymakers unaware that our national economy is not benefiting from these numerous concession agreements between the government of Liberia and foreign firms and to do so, it is important to have good policy in place and be more transparent by encouraging citizen and civil society participation in these concession negotiations? The contract includes the provision of only 5% Citizen Participation shares in LB-13 and 10% royalty on oil produced from wells drilled under water depths of 0 – 1500 meters without Liberian government putting in any capital. Isn’t this against the law? The latest deal falls short of our country’s current laws, which call for royalties of no less than 10 percent and a free stake for the state of 20 percent. This was an unknown provision before the agreement was exposed and to date no one in government has explained the methodology with regard to the 5% Citizen Participation Shares in LB-13. Is it only on paper? I hate to sound pessimistic, but I would presume its shares would remain in the hands of the two international oil exploration companies, Madam Sirleaf, her Son, Robert Sirleaf and bunch of their sycophants. Moreover, the agreement includes a signing bonus of USD$ 50 Million and upon ratification and printing into handbills. Where has this $50 Million dollars gone? No one knows, but please don’t tell me it went to repay Liberian debt. It definitely did not go into the accounts of the government of Liberia. Clearly these are bribes paid to the Liberian negotiators for giving away potentially billions of dollars. $50 million is insignificant compared to the huge revenues that these companies stand to reap should they discover huge oil deposits off our shores. These companies are not NAIVE; they know for sure that they will find good quantities of high quality oil in these blocks. They are going to reap so much and give Liberia so little. Considering the 10% royalties stipulated in this agreement, Liberia stands to get ten cents for every dollar earned, $10 for every $100 earned, and so forth. 50 USD million may sound a lot but I am afraid it is pea nut for a post conflict country that is so desperately needs of reconstruction, roads, schools and hospitals. For example, our annual disbursements for education and infrastructure are not stipulated in specific amounts in these agreements; this means that it could be a $75,000 , $150,000, or $200,000, etc. per year, even if these companies are reaping millions or billions per annum – government will have no control over how much these companies give in these regards. So we are selling our resource for “a penny to a dollar”. It is amazing how little money was needed to bride Liberians to negotiate this terrible agreement. This is a great betrayal of the Liberian people’s trust. So our oil is 100% Canadian and American property? The President says she wants what’s best for the nation, but how then can She and Her sycophants agreed to deal like such (Exxon Mobil a whopping 80% and the Canadian Oversea Petroleum Limited (COPL) received 20%)? What have these companies done for the Liberian people to take legal ownership of our most precious resource? Why? This agreement is very unbelievable, to say the least. I do not understand how any country will give 100% of its oil ownership away. It is only fair to say that Madam Sirleaf and her Sycophants are incapable of securing a profitable deal for our people judging from the numerous concession agreements signed between the government of Liberia and foreign firms. Another concern of mine pertaining to the LB block 13 agreement is that the agreement was signed when the prices of oil continue to sky rocket per day and the agreements has no provision if the price of oil continues to climb up when oil exportation start in Liberia. Right now oil is around $94 per barrel and if the price would reach $100 per barrels, then the oil exploration companies would reap the amount of the increase which would equal almost millions or billions of dollars per year when oil drilling in Liberia start. These types of contracts normally have a windfall tax to cover this eventuality. Unfortunately, those that negotiated the agreement were unaware of this possibility due to the lack of in-depth inquisition or should I say greed. Liberia under a Harvard trained Economist leadership continue to signed bad contracts that give a disproportionate share of the resources’ value to private foreign companies. Moreover, Liberia under Madam Sirleaf stewardship had not pursued sustainable growth strategies despites billions of debt cancellation from the International Financial Institutions (IFIS) as well as foreign aid in the tune of billions of dollars. The present regime failed to recognize that if we do not reinvest Liberia resource wealth into productive investments above ground, Liberia is actually becoming poorer. Our leader including member of the national legislature continue to use their access to financial resources from extractive industries to advance their own personal agendas, instead of using them in the best interest of the nation as a whole. Natural resources are public resource and the negotiations between Liberia and foreign companies should be transparent, accessible and easily understandable by citizens, unfortunately, this is not the case in Liberia. Communities are not given the opportunity to review contracts, and find out how much revenue has been generated and what development projects the revenues has being spent on. Sadly, the Darling of the West (Madam Sirleaf), and her Sycophants had re-introduce the failed policies of plantation economy which afford investors to loot Liberia’s resources while She and Her surrogates ripped the benefits at the expense of ordinary Liberians, but there is a simple answer after the Madam exit the national stage: renegotiate; if that is impossible, impose a windfall-profit tax. All over the world, countries have been renegotiating or imposing windfall-profit tax if renegotiation is impossible. According to Former World Bank Chief Economist and a Nobel laureate in economics; and University Professor at Columbia University, Joseph E. Stiglitz, “natural-resource foreign companies will push back, emphasizing the sanctity of contracts, and threaten to leave. But the outcome is typically otherwise. A fair renegotiation can be the basis of a better long-term relationship.” I tend agreed with Professor Stiglitz argument and Botswana is a prime example. Botswana’s renegotiations of such contracts laid the foundations of its remarkable growth for the last four decades which led to immense reduction of poverty. Moreover, it is not only developing countries, such as Ghana. Botswana, Bolivia and Venezuela, that renegotiate bad contracts; developed countries such as Israel and Australia have done so as well. Even the United States has imposed a windfall-profits tax. South Africa, home to the greatest mineral wealth in the world, estimated to be worth $2.5 trillion, is considering imposing a swinging 50% windfall tax on mining “super profits” and a 50% capital-gains tax on the sale of prospecting rights. Those are among the proposals put forward by an independent panel of experts, set up by the ruling African National Congress (ANC) to study the possibility of greater state intervention in the mining sector. Ghana, Africa’s second-biggest gold producer, recently announced a review and possible renegotiation of all mining contracts to ensure that mining profits are “maximized… [for] the good of the country”. It plans to raise taxes on mining companies, from 25% to 35%, and a windfall tax of 10% on “super profits” in addition to existing royalties on output metal, to 6%. Guinea, home to the world’s largest bauxite reserves as well as one of the world’s biggest iron-ore deposits, is helping itself to a 15% stake in all mining projects and an option to buy a further 20%. In Guinea, mining companies are legally obliged to pay a tax to the owners of the land on which they mine. They are also required to support local development projects. Namibia has decided to transfer all new mining and exploration to a state-owned company. Algeria has become the latest African country to consider slapping windfall profit taxes on foreign oil companies. According to report, Algerian government says the tax will be applied in months when the price of Brent crude averages above $30 a barrel and will vary from 5% to 50%, depending on the company’s total production. As we speak Brent Crude Oil is averaging $107 per barrel. The same can be said of Ivory Coast’s government which recently adopted a 19% tax on gold profits, seeking to capitalize on current high gold prices to help fund reconstruction following a decade-long political crisis. The new 19% windfall tax would yield some 40 billion CFA francs ($79.1 million) in additional income to the state annually. Zambia, for example, had hoped to impose windfall profit taxes on copper mining to finance an infrastructure fund. A few principles emerge from the experience of the past from other developing countries, including ensuring a truly competitive award of concessions, reducing opportunities for opportunistic renegotiations, promoting transparency and full disclosure of contract information, creating opportunities for participation as well as involving civil society in the negotiation and implementation process. The World Bank Institute has documented more than 1,000 experiences of negotiation and renegotiation of contracts throughout the world and Liberia can learn from those experiences (Please see:). Although mainly focusing on infrastructure concessions, most of the lessons learnt from the review of these documents can be applied to the other sector such as oil. Aside from the direct negative effects of potential misappropriated rents, contract renegotiation imposes substantial additional costs when handling renegotiation petitions and cases. The report emphasizes the crucial importance of designing an optimal concession contract that carefully limits the opportunities for “opportunistic” renegotiations. Weaknesses in the original concession design can result from hurried processes, vested interests (as evidence in Liberia) and limited resources of governments in the concession design. The report stresses: “the importance of granting negotiation/renegotiation in the strongest possible legal grounding; the potential impact of financial advisors and investment banks in influencing the concession transaction that should be taken into account; the need to strengthen institutions and credibility of regulatory frameworks prior to the negotiation/renegotiation process to ensure appropriate regulatory oversight and enforcement; the growing awareness of the need to establish a separate, autonomous and effective body or regulatory institution that oversees the allocation, renegotiation and implementation of concession contracts. (This institution should be granted adequate resources and capacity, including well trained and compensated staff); the need to ensure that all processes, procedures and decisions are made in the most transparent and participatory manner.” Most of the concession agreements between foreign firms and the government of Liberian were negotiated from 2006 and still on going. Madam Sirleaf and her surrogates enticed investors by granting incentives such as extensive tax and royalty exemptions. They are building a highly centralized state through kleptocracy and amassing large personal fortune through economic exploitation and corruption. Madam Sirleaf regime is notorious for corruption, nepotism, and the embezzlement of millions of dollars. Consequently, our country earned very little from such contracts. That is why it is necessary to renegotiate some of them. The challenge of negotiation/renegotiation is to ensure open, efficient and transparent access to Liberian natural resources. We should use our best endeavors to re- negotiate fair deals with multinationals in Liberia; ALSO reviewing our disadvantageous concession agreements is important for more than earning greater revenues. Governments should respond to pressures from civil society groups and communities to ensure that contracts address environmental protection, adequate compensation to affected communities as well but I don’t see this happening under this failed regime. Only in Liberia do they worship killers and crooks masquerading as politicians. In civilized countries they remain behind bars. Liberian society is sickening. Instant gratification and greed is what this is about. Most Liberians by crook or hook wants their share of the national pie and their behavior is a frightening show of disrespect for our undeveloped country. They are self-serving greedy mindless thieves with no inkling about morals and principles. What these crooks don’t realized is the government of Liberia don’t rely heavily on income tax for revenue, our country’s revenue is derived from profits accruing mainly from carried interests and corporate taxes and royalties based on certain percentage fixed rate on volume and value of our natural resources and the low interests, royalties, corporate taxes and ground rents been awarded to foreign companies on the numerous concession agreements signed by the present regime limit the potential of Liberia, and the Sirleaf Government’s inability to renegotiate better rates on royalties and higher percentage of state shares in particular, account for Liberia reliance on foreign aid to supplement its gimmick budget. Today, probably more than 90% of our GDP is generated from natural resources proceeds. Poor management of our natural resources results to No Economic Growth and No Growth, No Reduction in Poverty. It is that Simple. This is why after Madam Sirleaf and her surrogates exit the stage, the new regime should start a new beginning by the imposition of wind fall profit tax on profit on all natural resources concession agreement in Liberia if renegotiation is impossible!! A tax levied by governments against certain industries when economic conditions allow those industries to experience above-average profits is highly needed in Liberia. Windfall taxes are “primarily levied on the companies in the targeted industry that have benefited the most from the economic windfall, most often commodity-based businesses.” The benefits of a windfall tax include proceeds being directly used by governments to bolster funding. Equally important, the money gained through natural resources must be used to promote development. Stiglitz argues that “ real development requires exploring all possible linkages: training local workers, developing small and medium-size enterprises to provide inputs for mining operations and oil and gas companies, domestic processing, and integrating the natural resources into the country’s economic structure.” Our government position should show its seriousness about mobilizing resources which can help improve schools, build roads, improve mother to child health, etc. Foreign investors are welcome in Liberia, and should be seen to pay a fair share for using (renting) these resources which belonging to Liberia . Therefore, so long as the sharing is fair, there should be no problem. Oil exploration is exhaustible, unless we use it prudently now when commodity prices are good, we’ll regret later. And so, while the going is promising, we must make sufficient revenue from it and we can diversify to other areas in our economy. Liberians are sitting on huge natural resources and we ought to find a way of rewarding ourselves something from that ownership. It is up to Liberians to know what it is entitled to and claim it accordingly. If they don’t, they will have nobody to blame. Information and economic methodologies exist which Liberia can use for bargaining. If Ghana, Ivory Coast, Guinea, Algeria, and others African countries can do it, I am sure Liberia can do it as well. It’s time we get the right remittances from our natural resources. Therefore, it is no longer wise to allow investors to invade Liberia, and let them exploit its resources at will. We must do something about the exploitation of our natural resources by the selected few at the expense of the majority. Poverty in Liberia cannot possible be eliminated unless the poor themselves say we insist on justice with regard to equal distribution of wealth not CHARITY. One example of that justice is to end privatization of natural resources or obtain the right remittances from our natural resources. Shine your eyes my people!!