Multinationals and Community Development:
The Esso Consortium in Chad

 

Anthony Merhi

(ajm16@columbia.edu)

 

February 24, 2002

Executive Summary

 

Project Goals

·         For the consortium:  To increase revenues by developing petroleum reserves in southern Chad

·         For the local communities:  To create economic opportunity by building up local public-infrastructure capacity to support local-commerce participation in the consortium project

 

Project Statuses

·         Consortium project:  On schedule, now well into the early part of the three-year construction phase

·         Community projects:  Behind schedule, leaving public-infrastructure capacity at the same weak level while consortium project forges ahead.  Road-routes maintenance is also falling behind

 

Community-Project Obstacles

·         Start-up and operation of FACIL Local Initiatives Development Fund for community-projects

·         Inadequate technical planning knowledge-base

 

Impacts on Local Communities

·         Perpetuating public-infrastructure inadequacy and attendant public-health problems

·         Causing loss of some economic benefits through reduced participation in consortium project

·         Unintentionally and indirectly ‘preferencing’ outside competitors with strong public-infrastructures

·         Increasing residents’ and consortium-workers’ safety-risk and ease of movement due to deteriorating road-routes

·         Growing sentiments of disenfranchisement and the compromising of a rare economic opportunity

·         Increasing concern that the need for the community-projects will soon be obviated altogether

 

Impacts on Consortium

·         Eroding hard-earned goodwill, and needlessly generating resentment towards the consortium

·         Creating new risk-factors threatening long-term success of consortium project in later years

·         Depriving consortium of more local procurement, increasing outsourcing costs and lead-times

 

Recommendations for Consortium

·         Engage appropriate levels of Chad Government and World Bank to identify and address delays

·         Provide technical assistance and resources to help bring community-projects up to speed rapidly

·         View local residents and businesses as long-term strategic partners and integrate into business model

·         Leverage NGO presence as partners to help drive community-projects forward

·         Incorporate delays as formal risk-factors in risk-assessment profiles and long-term risk-management strategy

·         Commence risk-mitigation rapidly to ensure that intervention costs are kept low before risk-levels escalate and mitigation complexity and costs rise

Table of Contents

 

Executive Summary................................................................................................... 1

Introduction................................................................................................................. 3

Scope................................................................................................................................... 6

Approach............................................................................................................................. 6

Project Stakeholders and General Impacts......................................... 9

Local Residents, Existing and New...................................................................................... 9

FACIL Steering Committee.................................................................................................. 9

NGOs, Local and International........................................................................................... 10

Commercial Associations, Formal and Informal................................................................. 10

Subcontractors, Local, National, and International............................................................ 10

Government, Local and Regional...................................................................................... 10

National Government......................................................................................................... 11

Comité Technique National de Suivi et de Contrôle (CTNSC) [National (Government) Technical Committee for Monitoring and Control]..................................................................................................... 11

Ministère de l’Environnement et de l’Eau [Ministry for the Environment and Water Resources (MEWR)     11

Tchad Oil Transportation Company S.A. (TOTCO).............................................................. 11

Esso Exploration and Production Chad Inc., Unit of ExxonMobil Corp. (NYSE:XOM).......... 11

World Bank........................................................................................................................ 12

Lender Group..................................................................................................................... 12

Project-Status Assessments and Recommendations..................... 12

FACIL Local-Initiatives Development Fund........................................................................ 13

Rapid Intervention Measures.............................................................................................. 15

Roads-Maintenance Obligation.......................................................................................... 19

Towards The Future Project Model.......................................................... 21

Concluding Remarks............................................................................................. 24

 

 

 

 

Table of Figures

 

Figure 1 — Competitive Disequilibria Caused by FACIL Delays............................................... 4

Figure 2 — Risk Levels for Early vs Late Intervention.............................................................. 8

 

Introduction

The Chad portion of the Chad-Cameroon Petroleum Project consists of two separately financed and managed yet closely related projects, both currently underway in the impoverished oil-producing region of Doba, which is situated in remote southern Chad.  The private-sector project (the ‘consortium project’), for which the multinational consortium led by a unit of ExxonMobil Corp. is primarily responsible, includes oil-field and pipeline construction, and is designed to bring online a new oil-flow to world markets to create wealth for shareowners of equity in consortium members.  The public-sector projects (the ‘community projects’), for which the Government of Chad, in conjunction with local government and communities, is primarily responsible, are designed to improve local living conditions in and around impoverished Doba by protecting and building up the capacity of the very weak local public infrastructure there.  The infrastructure-capacity expansion, sponsored by World Bank participation, is also intended to provide an essential economic platform needed to enable Doba-region residents and small businesses to participate more in the consortium project by competing more efficiently with non-local businesses for small works and supply contracts.

There are three community projects in particular which are critical to building local public-infrastructure capacity.

 

            These three community projects, which form the core of the local infrastructure-capacity protection and expansion programme, are also delayed and running well behind the consortium project that they were intended to support.  The general impacts of these delays are that local residents and small-businesses are unable to compete efficiently with their non-local counterparts having stronger infrastructures, and this competitive disability is engendering local-community frustration and disenfranchisement sentiments, which are being unnecessarily directed at the consortium.  The following diagram provides a conceptual depiction of these three community projects, their relationships with each other, their relationships with consortium project, and the local competitive disadvantage caused by the persisting weaknesses in local infrastructure in the face of outside competitors with the advantage of stronger non-local infrastructures.

Figure 1 — Competitive Disequilibria Caused by FACIL Delays

As the diagram shows, the persisting competitive-disadvantage in the weak local infrastructure can be traced back to the delays in the proper start-up and operation of the FACIL Local-Initiatives Development Fund, which is responsible for funding the Rapid Intervention Measures as well as community micro-projects.  As the lynchpin of local progress, the FACIL and its delays are creating a rippling effect impacting a number of stakeholders critically dependent on it.  The delay in new infrastructure capacity from the Rapid Intervention Measures is also tying the hands of local businesses and future micro-projects sorely needing the increased capacity to be able to participate in the consortium project more competitively.  Less efficient local businesses are now being forced to compete with more efficient subcontractors whose markedly stronger public-infrastructure capacity provides them with a markedly more competitive advantage.  In effect, the cascading impact of the FACIL delays are inadvertently serving to hand non-local competitors a free competitive advantage or unintended preference in the consortium project by perpetuating the denial of required infrastructure that local competitors need to compete effectively.

            These community-project delays, as well as their many impacts on a broad range of stakeholders, are the focus of this study.  Not only do the delays deny the local communities the basic public services that they sorely need to pull themselves up and support themselves adequately; they also deny the them the collective efficiencies and the competitive industrial edge needed by these rural communities to compete fairly and efficiently in the consortium project.  It is the avoidance of these consequences, and therefore their causal delays, which is repeatedly stressed in the World Bank planning documents in which all-round local opportunity-creation was meant to be based on an expanded public infrastructure which would enable Doba-region residents to provide the consortium project with more of their own local goods and services.

World Bank planners of the community projects also emphasised that the overall success of the consortium project would depend critically on the early success of its supporting community projects, particularly the three noted above.  The planners designed these three core projects to be preparatory in nature, such that they would expand local public-infrastructure capacity ahead of the consortium project to ensure that rural communities in the Doba oil-producing region were ready in time to support the consortium project and to participate competitively in it.  These timing requirements, which were built-in to the World Bank planning documents, are not being met as a result of the current delays.

            While the consortium project forges ahead more or less on schedule, the supporting community projects have languished because of various political and procedural delays.  This has left the local communities feeling left behind and disenfranchised from the only significant economic hope they now have in this remote and impoverished part of the world.  Informed community leaders of the Doba region are wondering how their rural communities are to compete with outsiders in providing even basic industrial goods and services without having the sorely needed basic public infrastructure platform called for in World Bank agreements.  They also fear that the consortium will not need their local goods and services once the three-year oil-field and pipeline-construction phase has ended, thereby obviating the immediate need and pressure for the community projects altogether.

As local prices rise due to the increased regional industrial activity, and as the new faces of outsiders and newcomers become more visible in these communities, long-time residents are growing impatient with what they perceive as both a failure to follow through on specific pledges and a gradual evaporation of their only significant economic opportunity.  Elder residents are echoing old stories of les fils de Doba (the Sons of Doba) who, having returned home to Doba after working in the petroleum projects of the nearby Niger Delta, had little or less to show for it.  Folkloric or factual, such recollections nonetheless form a part of the collective psyche and only fuel negative perceptions of the consortium.  Despite the underlying causes of these perceptions stemming largely from a resource-starved government trying hard to implement the public-infrastructure projects with weak institutional capacity of its own, disappointed residents nonetheless perceive the owner of these delays to be the visibly resource-rich consortium, omnipresent around the Doba region with new vehicles, new machines, and new buildings.  If enough residents adopt this perception, then the collective perception eventually fuses to become the new reality that the consortium will be forced to face.  This fact points to the increasing need for the consortium to treat growing perceptions—and their underlying causes—as real risk-factors which must be formally assessed and properly addressed as a normal part of necessary risk-management to protect its vital investment and community interests.

Today, the Consortium might well believe that the overall petroleum project will still succeed, even if the community projects, for which it is not directly responsible, continue to falter and do eventually fail.  But continuing to ignore such faltering and failure will only fuel the nascent discontent directed at the consortium, a discontent which already risks threatening the long-term success of the still-new petroleum project, unless the consortium acts now, for solid business reasons, to protect overall project success by helping to link the progress rates of both consortium and community projects, and to ensure their equal and timely success during the many years that the consortium intends to operate in these communities.

Scope

The geographical scope of the Chad-Cameroon Petroleum Project is very large, with the span of the pipeline itself stretching across two countries.  This study focuses on only the Chad portion of the project, specifically within the oil-producing region where the actual oil-fields are located around the towns of Doba, Bébédjia, and Komé in southern Chad.

The scope of the subject-matter is focused on the interdependencies between the main pipeline and oil-field construction project run by the consortium and the community-infrastructure projects run by local and national agencies of the Chad Government.  The analysis explores the causes of the delays in the community projects in relation to the progress of the consortium project, and the impacts that these delays are having on the communities and various stakeholders as well as the potential effects on the long-term success of the consortium project.  The study outlines a set of cost-controlled recommendations for the consortium to consider in helping to address the community-project delays, and a set of recommendations for future project planners to reduce the risk of such delays in future multinational projects in developing countries.

Approach

This work is based on observations and informal interviews with a broad cross-section of the project community conducted during a three-week visit in August, 2001 to N’Djamena, the capitol of Chad, and to Doba, the main township in the oil-producing region.  The field visit was funded independently to fulfil the requirements of a year-long Columbia University research seminar exploring new cooperation strategies amongst multinational companies with projects in developing countries, the national and local governments of developing countries, and local and international NGOs and civil society in such project regions.

Business Dialectic.  Rather than relying on the more debatable forms of rationale for undertaking corporate action, this work instead grounds its arguments and recommendations more in business-logic and economic reasoning to produce more a compelling motivation for the private sector to explore new ways of improving such cooperation mechanisms.  The choice of using the more business-like dialectic was not only based on the need to communicate better with the business and investor community.  It was selected also to facilitate developing more familiar arguments which demonstrate more clearly how such improved cooperation models will bring tangible benefits to both investors and local communities mutually, not only through increased local operational efficiencies in the field, but especially through better long-term risk-management strategies.

The new dialectic also comprehends the increasingly vital role of local and international NGOs, which are currently under-utilised as potential partners in all aspects of community development related to multinational investment in such regions.  With a rich knowledge-base and broad experience-domain in specific project regions, NGOs are a natural and optimal choice for a strategic partner in community development related to multinational projects in developing countries.

Sustainability.  Other key features of the study approach include an emphasis on sustainable solutions for eager communities actively seeking to capture rare self-help opportunities, which, like Haley’s Comet, often present themselves for only limited windows of time before disappearing forever without being fully utilized.  This is a particularly important feature of large industrial projects taking place in small rural communities of developing countries where rural infrastructure capacity hinders industrial-productivity levels and quality standards needed to be industrially competitive.  The temptation is to accept willingly that this rural-industrial misalignment is an unchangeable and embedded reality.  But the negative effect of this unsound justification is that it hides the true long-term potential of an eager local community as a strategic partner in a long-term investment project, needlessly allowing a rare opportunity to slip away ostensibly well justified.  A long-term sustainable approach mutually beneficial to both investment consortium and local community leverages the local communities as a business-model asset and a strategic long-term partner.

Long-Term Risk-Management Strategy.  Particular attention is also paid to the rise in negative public sentiment towards the consortium.  While difficult to measure and frequently underestimated, public sentiment is nonetheless not only a perception-based reality that an investment consortium must inevitably face, but also a concrete risk-management factor that a consortium can readily address early on and cost-effectively by implementing such recommendations as those outlined below, which are designed to enhance community cooperation and prosperity.  The following diagram, which is purely illustrative and not based on empirical data, underscores the benefits of early risk-mitigation intervention versus the higher costs and compounded risks of late intervention.

Figure 2 — Risk Levels for Early vs Late Intervention

 

As the diagram suggests, risk levels will begin to rise even more rapidly towards the end of the three-year construction phase, a climactic point when local residents come to evaluate what real benefits the completed construction phase has brought to the region.  At this point of reckoning, any culminating sense of an opportunity lost forever will likely be the most acute here.  This is also the critical point in time at which the cumulative sunk fixed-costs (thick curve) of the consortium are at their peak, and the point at which the petroleum project is just on the verge of beginning to produce revenues to offset sunk fixed costs. Therefore, the transition point from construction to production phases is critical precisely because of the coincidence of these two events.  If local residents feel that the consortium project has not delivered the expected benefits at the point when the construction phase is wound down and demand for construction goods and services evaporates, then risk-levels will begin to rise even more quickly just when the first revenues are set to being flowing.

However, as the early-intervention (dotted) curve shows, the trajectory of such risk-levels will be much milder for the consortium only if (i) delays in community-projects are addressed quickly, (ii) the new local-infrastructure capacity is applied to enable more competitive local participation in the consortium project, and (iii) local residents, at the close of the construction phase, feel that the consortium project has in fact brought tangible and sustainable benefits to the community.  On the other hand, as the late-mitigation curve shows, if the infrastructure capacity is left as it is and the community is not satisfied with the benefits of the consortium project at the end of the construction phase, not only will risk-levels eventually multiply, but mitigation complexity and costs will also rise.  The accelerating rise shown in the late-intervention curve reflects the fact that latent intervention is inherently risk-prone itself precisely because it must often be undertaken in a reactive or crisis mode, which creates its own secondary risks compounding the original risks.  Fortunately, since the consortium project is still in its early stages, the strongest positive point to be made here is that there is now a window of time left to address the community-project delays, and to help the local community rapidly increase its participation in the consortium project before the end of the construction phase arrives.

The study is organized first by an identification of the stakeholders in the oil-producing region, followed by an analysis of each of the three core community projects underway there, including a project-status assessment for each one and a set of business-justified recommendations for the consortium to consider in helping to move each of these projects forward with the help of local and international NGOs.  The work concludes with analysis and recommendations for planners of future investment projects to ensure that the design of such projects better integrates the implementation of it into the economics and interests of the local community.

Project Stakeholders and General Impacts

The scale of the Chad portion of the Chad-Cameroon Petroleum Project, the largest foreign direct-investment project ever to be undertaken in Chad, involves a cast of many stakeholders.  This section identifies key interested parties who have a role and a stake in the three core community projects in and around the oil-producing region of Doba, and the very different impacts that the community-project delays are having on each stakeholder.

Local Residents, Existing and New

Roles:  –Participate in consultation process to identify community needs; –Provide at least 20% sponsorship in kind, labour, or cash for funding for their community micro-projects applied for through the Local-Initiatives Development Fund; –Participate in the design and implementation of micro-projects and community projects; –Also participate in implementation of the consortium project by leveraging the new capacity of new infrastructure created by the community projects and micro-projects; –Integrate into the economics of the consortium project efficiently and competitively.

            Impacts:  –Residents are losing some of a golden opportunity to energise the local economy by not being able to participate more in the main petroleum project; –With respect to local road-routes, residents are, at best, being inconvenienced, and, at worst, are having to foot the costs of various roads-related problems, and are exposed to even poorer road-safety conditions; –Residents’ frustration is needlessly building towards consortium, which should be considered as a strategic community-development partner.

FACIL Steering Committee

Roles: –Administer Rapid Intervention Measures approval and funding process in accordance with the FACIL Manual; –Perform project-implementation monitoring; –Receive and review eligible community micro-project proposals submitted in accordance with the FACIL Manual, determine appropriate funding level for each one, and authorise incremental appropriations linked to demonstrable progress and performance; –Provide technical assistance to micro-project leaders.

            Impacts:   –Funding held up in FACIL delays is perpetuating the current shortfall in public infrastructure capacity projects, and consequently, residents’ competitive edge and economic integration into the main project;  –Work backlog is increasing, and cooperative atmosphere is being diminished;  –Credibility of the FACIL as a neutral and reliable credit facility is being compromised.

NGOs, Local and International

Roles:  –Provide community vision, leadership, and organisation; –Prepare community-project proposals on behalf of community with very poor literacy rates;  –Assist in managing implementations;  –Capture and leverage synergies across various NGO projects; –Liase with the consortium and government.

            Impacts:  –NGOs do not view FACIL as a reliable funding source for their local projects, with neutrality concerns also sometimes cited, resulting in under-utilization of NGOs as local consortium partners in community-development; –NGO workload burden also increased due to population influx drawn to oil-fields construction project; –Duration of original NGO burden of dealing with original effects of weak infrastructure (e.g., public health, sanitation, water, etc.) is being drawn out by the consortium project while community projects intended specifically to reduce these infrastructure-based problems are delayed.

Commercial Associations, Formal and Informal

Roles:  –Provide business and artisan leadership and coordination for local entrepreneurs and aspiring micro-project entrepreneurs; –Prepare project proposals and assist in their technical implementations; –Liase collectively with the consortium.

            Impacts:  –Local informal associations (e.g., womens’ food-growers and preparers collectives) are often unaware of FACIL facility, and would not have a chance to leverage it until FACIL delays are resolved; –Inadequate public-infrastructure capacity deprives local collectives from ramping up stocks and productive capacity to meet needs of consortium demand; –Performance and efficiency of local commerce is impacted by deteriorating sections of road-routes.

Subcontractors, Local, National, and International

Roles:  –Bid competitively and transparently, following fairness, equity, and priority guidelines, for works contracts in consortium and community projects; –Deliver works on time, on specification, and within expected budget variances; –Liase with the consortium and government monitoring agencies.

Impacts:  –Worker-safety is impacted by unsafe sections of road-routes, especially workers who make long-haul commutes each day to oil-field sites; –Higher operational and logistics costs caused by more outsourcing outside of oil-producing region.

Government, Local and Regional

Roles:  –Coordinate residents, NGOs, and commercial associations;  –Prepare proposals for and operate the larger public-works projects;  –Ensure compliance with Regional Development Plan and Urban Reference Plan;  –Liase with the consortium.

Impacts:  –Community views local government as out of touch with project, and failing to represent them effectively in petroleum project;  –Future community-development project-sponsors could assess past performance of government leadership unfavourably.

National Government

Roles:  –Coordinate local governments;  –Elaborate Regional Development Plan to ensure consistency across the regions, and adjudicate controversies arising therein;  –Construct and operate pipeline (see TOTCO below);  –Liase with and monitor the consortium.

Impacts:  –Stagnant public-infrastructure development in oil-producing region is unnecessarily leading to local perceptions focusing more closely on the nature of relationship between the national government and the consortium;  –Perceptions also inadvertently focusing more on ideas of regional favouritism;  –Local confidence in national government as the people’s advocate-of-last-resort is diminished.

Comité Technique National de Suivi et de Contrôle (CTNSC) [National (Government) Technical Committee for Monitoring and Control]

Roles:  –Oversee community projects, and the FACIL Steering Committee and its institutions;  –Liase with and monitor consortium.

Impacts:   –CTNSC seen as not monitoring FACIL start-up and operation adequately as chartered, although this view would not necessarily be pervasive among residents of the oil-producing region where the work of the national-level CTNSC is not very visible.  –Reflects national-government institutional and technical capacity limitations in seizing development opportunities and maximizing their benefits.

Ministère de l’Environnement et de l’Eau [Ministry for the Environment and Water Resources (MEWR)

Roles:  –Monitor all projects for compliance with the provisions of the Environmental Management Plan and adjudicate controversies arising therein.

            Impacts:  –Delays in community-infrastructure projects designed to improve local water and sanitation are preventing MEWR from fulfilling its mandate in the oil-producing region.

Tchad Oil Transportation Company S.A. (TOTCO)

Roles:  –Construct and operate oil-delivery pipeline to the Chad-Cameroon border;  –Liase with the consortium and the Government of Chad, its participants-in-equity.

            Impacts:  –Similar to impacts on sub-contractors (worker-safety in relation to road-routes, higher non-local outsourcing costs, etc.)

Esso Exploration and Production Chad Inc., Unit of ExxonMobil Corp. (NYSE:XOM)

Roles:  –As the multinational consortium operator, construct oil-field petroleum-production facilities during the three-year construction phase; –Operate oil-production plants thereafter;  –Provide focused political advocacy and support for community projects and micro-projects only where appropriate and only to address specific issues currently related directly to the consortium project (the consortium operator periodically undertakes this extra role only on an ‘as-needed’ basis).

Impacts:  –Delays related to FACIL and dependent micro-projects are needlessly nourishing public sentiments of impatience and mistrust for consortium, which, when extrapolated over the years that the consortium intends to operate in the regions, risks multiplying to a level requiring serious outlays and secondary risks for security;  –Deteriorating road-route surfaces expose consortium and sub-contractor workers to more road hazards unnecessarily;  –Project delays in public-infrastructure capacity expansion deny field managers more local sources of goods and services, especially during the construction phase when raw materials and such other local goods are in higher demand, all leading to more outsourcing, which drives operational costs higher and draws out delivery lead-times;  –Unforeseen eventualities in the Chad project will also reflect poorly on consortium members, particularly the operator, during competitive negotiations for future multinational projects with governments of developing countries.

World Bank

Roles:  –Plan financial structure and controls of petroleum project in conjunction with Chad Government and consortium; –Provide stewardship for community-development agenda; –Provide strategic advocacy for the community-development interests of local residents; –Participate in petroleum-project and community-projects funding;  –Audit consortium project and oversee consortium activity in the field.

            Impacts:  –Stated community-development goals are not being adequately met in the Doba region, creating in many quarters around the world perceptions relating the compromised effectiveness of the World Bank as the motor of development that its charter mandates;  –Claims that the design of the Chad-Cameroon Petroleum Project should become the model for future multinational investment-plus-development projects are being undermined as the development component of the Doba region is slipping behi