US embassy cable - 05LAGOS433

C O N F I D E N T I A L SECTION 01 OF 04 LAGOS 000433 
 
SIPDIS 
 
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STATE FOR CA/OCS/FROBINSON 
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STATE PASS DOE FOR DAS JBRODMAN AND CGAY 
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STATE PASS USAID FOR GWEYNAND AND SLAWAETZ 
 
E.O. 12958: DECL: 03/17/2015 
TAGS: EPET, EINV, CASC, PGOV, ASEC, MOPS, NI 
SUBJECT: CHEVRON LOOKS TO ETHNIC COUNCIL MODEL FOR DELTA 
REGION COMMUNITY DEVELOPMENT 
 
REF: A. 2004 LAGOS 2446 
 
     B. LAGOS 171 
     C. LAGOS 276 
 
Classified By: Classified By: Consul General Brian L. Browne Reasons 
1.4 (D & E) 
 
Summary 
------- 
 
1.  (C)  Chevron Texaco is moving away from the 'host 
community' paradigm for implementing its community relations 
and development programs in the Delta region, and instead is 
embracing state-level 'ethnic councils.'  These councils 
would disburse Chevron community development funds, and be 
responsible for ensuring incident-free production.  However, 
difficulties in implementing the new model appear to have 
triggered the February 4 invasion and occupation of Chevron's 
Escravos facility by the neighboring Ugborodo community. 
Chevron management believes violence at Escravos could resume 
at any moment, and the facility remains on essential 
personnel only status.  A consultant to Chevron also 
requested USG assistance in forming a diplomatic/industry 
working group to address sectoral policy and security.  End 
Summary 
 
Chevron Considers Host Community Paradigm a Failure 
--------------------------------------------- ------ 
 
2.  (C)  Given one-third of Chevron's Nigerian production 
(140,000 bpd) has remained shut-in in the swamp near Escravos 
since March 2003, and given a series of invasions of the 
Escravos facility -- the latest on February 4 -- Chevron 
management considers its past community development efforts 
neither successful nor sustainable.  As a result, Chevron 
management is moving away from a strict reading of the 'host 
community' paradigm the oil industry has traditionally used 
as the basis for their community relations.  Typically, firms 
sign Memorandums of Understanding (MOUs) with various 
individual communities where they operate.  In exchange for 
the right to operate in the community, the MOU lays out the 
benefits the company provides to the local community, such as 
schools or health clinics.  While the host community model 
has enjoyed some success, broadly it has delivered neither 
the development demanded by communities, nor the peaceful 
environment regained by the majors and their service 
companies to maintain production.  Firms operating in Nigeria 
-- not only Chevron -- are casting around for a new way to do 
business. 
 
Competition for Host Status Can Enflame Ethic Tensions 
--------------------------------------------- --------- 
 
3.  (C)  The crowning of one community as the 'host,' to the 
exclusion of near-by communities, often creates a 
'winner-take-all' scenario, engendering local jealousy and 
violence.  Competition between competing ethnic groups for 
territory hosting oil installations, and hence access to host 
community status (and lucrative MOUs) has erupted into 
outright warfare on several occasions in Escravos.  There 
have been recurrent battles in Escravos between their host 
community, the Itsekiri, and their numerically predominant 
neighbors and rivals, the Ijaw, as disputes over land hosting 
Chevron facilities.  In 2003, during one of several such 
clashes, the Ijaw swept in to attack the Itsekiri.  Several 
thousand Itsekiri fled to Chevron's Escravos facility to seek 
the military's protection. Chevron ended up airlifting around 
5000 Itsekiri to safety in Warri, where many still remain. 
Chevron management now recognizes their failure to formulate 
a regional (rather than local) community relations strategy, 
incorporating the predominant Ijaw, has made their operating 
environment more dangerous. 
 
4.  (C) Chevron is not alone is having its activities trigger 
violent competition for territory and host community status; 
Shell activities triggered a similar incident in February in 
Bayelsa State.  As per reftel c, Shell states it contracted 
an MOU with the Obioku community in 1998 to carry out 
operations in their area.  When a survey crew recently 
entered the land, a territorial dispute ensued with the 
nearby Odioma community.  A delegation of twelve local 
government officials and citizens were killed attempting to 
mediate the dispute.  Shell has been forced to withdraw its 
team, and has turned to the state and local government to 
determine which group has rightful claim to the land. 
 
Cash Payments Often Squandered; 
Energy Firms Vow to Cease Practice 
------------------------------------ 
 
5.  (C)  Cash payments to the community have also been a 
source of dispute.  The host community -- usually, more 
specifically, the local chief --  often receives cash 
payments, ostensibly to support local development activities. 
 Energy executives now acknowledge that payments have in the 
past been captured by influential members of the community, 
and squandered on private luxuries.  However, stopping cash 
payments endangers the income stream of a politically 
powerful group, and the majors' current efforts to stop these 
payments faces stiff opposition.  Chevron is attempting to 
replace cash payments and donations of "hard" items such as 
roads, with "soft" programs they consider more sustainable, 
such as training programs.  Chevron is also attempting to 
gradually move out of provision of basic governmental 
services, such as roads, health, and education, and put the 
onus to deliver these goods back on the GON. 
 
Firms Find Managing MOUs is Confusing, Time-consuming 
--------------------------------------------- --------- 
 
6.  (C)  With high-stakes competition between communities to 
be selected as host, and further competition to obtain the 
best possible MOU, firms find managing the MOU process 
confusing and time-consuming. Firms contend with multiple 
splinter groups staking claims to represent the "true 
community." Martin Hutchison, Managing Director of Brass 
Liquefied Natural Gas, notes community groups sometimes take 
a firm to court to force it to exclude competing groups and 
deal only with it.  Communities compare MOUs, with frequent 
and acrimonious charges that "they got more than we did." 
Companies with operations in numerous areas also report 
managing the sheer number of separate MOUs - often twenty or 
more - is a complex and onerous task, dominating their senior 
managers' time.  Dr. Itsueli, MD of Nigerian firm Dubri Oil, 
has to negotiate with 65 communities to barge his product to 
Escravos for processing.  Senior managers are increasingly 
asking themselves if they can continue to spend more time 
negotiating MOUs than running their operations. 
 
State-wide Ethic Councils to Replace Host Communities; 
Chevron Hopes for Greater Accountability, Less Violence 
--------------------------------------------- ----------- 
 
7.  (C)  Disenchanted with the host community model, Chevron 
management is formulating a new approach, a radical expansion 
of the host community model, based on statewide 'ethnic 
councils.'  Hamish Macdonald, a Chevron consultant from the 
British firm MarsOmega explained the ethnic councils would be 
elected on a statewide basis, with one council representing 
each major ethnic group in a given state.  Chevron would stop 
negotiating individual MOUs with each host community, and 
instead negotiate comprehensive agreements with the councils. 
 Chevron General Manager for Asset Management, Chuck Taylor, 
explained they hope to break the link between possession of 
land and access to money, and so halt territorial warfare. 
Instead, all major ethnic groups in a state would have funds 
to be disbursed by their group's council, regardless of the 
land they occupy.  The councils would be responsible for 
carrying out the Chevron community development program, and 
accountable for program results to their constituency.  The 
model introduces a stronger element of community 
responsibility for controlling violence.  Security incidents 
which halt production will render Chevron assistance 
agreements void; Chevron management hopes that this will give 
the community a stake in the company's success and an 
incentive to self-police. 
 
Disputes Over Interim MOU 
Triggered February Escravos Invasion 
---------------------------------------- 
 
8.  (C)  Taylor and Macdonald noted crafting a new, more 
comprehensive MOU has taken Chevron substantially longer than 
anticipated.  As the Itsekiri community in Ugborodo, near 
Escravos, has been without an MOU since the 2002 'womens' 
invasion', Chevron proposed a temporary 'bridging agreement.' 
 GM Taylor believes there was a positive reaction from the 
community at large, for the temporary MOU, which provided for 
a mobile riverine medical clinic, contracts for purchases of 
fish from the local community, employment for local youth, 
among other benefits.  However, not everyone was satisfied; 
some members of the Ugborodo community continue call on 
Chevron to fulfill the 2002 MOUs, and have demanded the 
recall of Chevron MD Jay Pryor. Finally, conflict over the 
failed 2002 MOUs and the proposed "bridging MOU" appears to 
have culminated in the February 4 invasion of the Escravos 
facility by some members of the Ugborodo community, which 
esulted in the deaths of at least one community   member (ref 
B). 
 
Motives for Latest Escravos Invasion Debated - 
but Facility Remains Under Threat 
--------------------------------------------- --- 
 
9.  (C)  Even within senior Chevron management, there is no 
one interpretation regarding why the debate over the interim 
MOU resulted in the February 4 invasion.  GM Taylor states 
the leadership in Warri did not see the benefits in the MOU 
to which they felt entitled, and so fomented the assault on 
the Escravos compound.  Taylor describes the leaders' stance 
towards the MOUs as "what's in it for me?," and believes 
Chevron is witnessing armed resistance to its abandonment of 
direct cash payments.  He describes the Itsekiri leaders as 
isolated from the community in Ogborodo, and preferring to 
reside in Warri.  However, Chevron Health, Safety, and 
Environment (HSE) Manager Cheryl Robnett believes the driving 
force behind the invasion was the return of a critical mass 
of Itsekiri from Warri to Escravos, subsequent to 2003 Ijaw 
war.  As increasing numbers of Itsekiri return, they have 
been agitating about Chevron's failure to implement the 2002 
MOUs.  She notes, however, a succession of conflicts 
prevented the implementation of the 2002 MOUs.  (Chevron now 
regards the 2002 MOUs as void, due to repeated invasions of 
their facilities in 2002, 2003, and 2005.  Additionally, the 
2004 killings of 7 personnel occurred when Chevron was 
conducting an exploratory visit to consider returning to the 
swamp areas.  Nonetheless, Chevron is considering 
re-activating some projects stipulated in the 2002 MOUs, on a 
case-by-case basis.)   Finally, Robnett made clear Chevron 
management believes the violence in Escravos could resume at 
any moment.  The facility remains on essential personnel 
status, all non-essential personnel having been evacuated 
soon after the February 4 invasion. 
 
USG Assistance Requested 
------------------------- 
10.  (C)  Finally, Macdonald solicited USG assistance in 
forming a diplomatic/industry working group to address energy 
sector policy and security issues with the GON.  Macdonald 
believes it is important to recruit the British High 
Commission and Shell to this effort.  Due to Nigerian 
sensitivities regarding American influence, he stated that 
the British should be seen as taking the lead in this effort. 
 He requested USG assistance in recruiting Shell and 
ExxonMobil to such an effort.  He stated that Chevron MD 
Pryor was in full support of efforts to form such an industry 
group. 
 
Comment 
-------- 
 
11.  (C)  Changes in Chevron's community development policies 
coupled with Nigeria's eventual passage of an Extractive 
Industries Transparency Initiative (EITI) bill, will likely 
foster  similar change among other major energy operations 
and service providers.  As termination of cash payments 
becomes an industry standard and eventually law, backlash 
from local leaders and communities could spread.  While 
prohibiting cash payments supports a host of anti-corruption 
goals in the long term, it may well prove destabilizing in 
the short to medium term, as community leaders fight to 
maintain their incomes.  Delta communities with little 
confidence in oil revenues trickling down from Abuja may also 
decide a cash payment in the hand (or whatever small portion 
their leaders pass down), is worth literally fighting for. 
 
12.  (C)  We would concur with Chevron management's 
assessment that the host community model has largely failed 
to provide a framework for energy firms and communities to 
interact successfully.  The February 4 occupation of 
Chevron's Escravos facility, and recent month-long production 
halts at both Chevron and Shell - including Shell's 
declaration of force majeure - underscores the broken 
condition of the current model.  Yet, Chevron is in the early 
stages of defining an unripe strategy.  The state 
governments' ability to play the role of honest broker 
between 'ethnic councils' and the energy majors remains 
dubious.  Chevron's proposal for privately financed ethnic 
councils is a formula which has been tried nowhere else in 
the world.  It is unclear who would administer the electoral 
process to seat these council members.  Also unclear is who 
will broker the almost inevitable charges of election fraud. 
Yet, if successful, this ambitious strategy could radically 
alter the form of relationships between extractive industries 
and indigenous peoples of Nigeria. 
 
13.  (C)  Finally, with the current funding environment, it 
remains doubtful whether energy firms can ever supply what 
people in the Delta actually want - functioning, responsive 
local government; good roads; good schools; and clean water. 
Community development funds cannot finance these large scale 
public services. Without tackling this basic public finance 
challenge, tactical changes by an energy firm are not likely 
to have much long-term impact. 
BROWNE