THE REGULATION OF MULTINATIONAL COMPANIES OPERATING IN DEVELOPING COUNTRIES: A CASE STUDY OF THE CHAD–CAMEROON PIPELINE PROJECT
| Pages | 83-99 |
| DOI | 10.3366/E0954889008000078 |
| Published date | 01 March 2008 |
| Date | 01 March 2008 |
| Author | EDWIN MUJIH |
Multinational companies (MNCs) present specific regulatory problems to ensure socially responsible conduct, particularly when they operate in developing countries where the regulatory mechanisms are relatively weaker. This is more apparent with MNCs in the extractive industry where their activities usually have a harmful effect on the environment and the local community. The host country usually lacks the capacity or the political will to effectively regulate the huge MNC in order to protect the environment and the local population. But are there other regulatory mechanisms such as public international law rules or the laws of the home state which can be relied upon? The object of this article is to use the Chad-Cameroon Oil and Pipeline project as a platform to examine the state of regulatory framework for projects involving MNCs (in the extractive industry) operating in developing countries and their host countries.
Although there may be some variations with similar projects in the extractive industry in developing countries and the project cannot be said to represent all projects involving MNCs and developing countries, it is hoped that this discussion will demonstrate that the regulatory problems emerging from the project is a reflection of some of the problems faced in respect of similar projects in developing countries in general and in Africa in particular. The project is an instructive empirical example of the state of regulatory framework for projects of this kind involving MNCs in developing countries. Firstly, the project demonstrates the ability of the giant oil companies involved to contract out of practically all responsibility for environmental damage, placing such responsibility on the host states. This underlines the inability of developing host countries with relatively weak legal mechanisms to impose high levels of social responsibility on powerful MNCs, whom they seek to attract. Secondly, the project is, according to the World Bank and Amnesty International, the largest project of its kind in Africa.
The aim of the Chad-Cameroon oil and pipeline project is to develop oil resources that were discovered in the Doba region of southern Chad. The project includes the construction of an approximately 1070 km underground pipeline to carry the crude oil from landlocked Chad across Cameroon to a proposed marine terminal near Kribi – a coastal town on the Atlantic coast of Cameroon for delivery to the world markets. The project is to be realised in two phases. The first phase – the extraction of oil – includes the development of oilfields in the Doba region of southern Chad, the drilling of about 300 wells and the construction of associated transport and storage facilities and infrastructure including the 1070 km pipeline which was completed in mid-2003. The second phase is the exportation phase, which includes the transportation of oil along the pipeline onto offshore floating storage for delivery to the world markets.
The project is being executed by two joint-venture companies established by a consortium of multinational oil companies with the government of Chad and Cameroon respectively. They are; the Tchad Oil Transportation Company (TOTCO), which is responsible for operations from the oil fields in Chad up to the border with Cameroon, and the Cameroon Oil Transportation Company (COTCO), which is responsible for operations from the Chad border right up to the marine terminal off the coast of Cameroon. TOTCO is owned by a consortium of three multinational oil companies (which owns 80%) and the government of Chad which owns 20% of its equity shares. The consortium comprises ExxonMobil, the project leader who own 32% of TOTCO, Petronas 32% and Chevron 16%.
ExxonMobil, the project leader owns 40% of the private equity, Petronas 35% and Chevron 25%. See World Bank, Chad-Cameroon Petroleum Development and Pipeline Project, Project Overview webpage:
The consortium were to provide 97% of the investment capital needed for the project, while Chad and Cameroon were to provide the remaining 3%. The two countries approached foreign financial institutions for loans to finance their respective equity participation in the project. Both countries applied for a total of approximately US £115 million (67 billion francs CFA) from the World Bank as well as from the European Investment Bank.
The involvement of the World Bank was necessary in order to provide political risk assurance and to mitigate the financial risk of the companies. In fact, ExxonMobil, the project leader said that the approval of the project by the World Bank was a pre-requisite for going ahead. The World Bank estimated that both countries would benefit significantly from the project during its 25-year life. Chad would receive an estimated $1.5 billion in direct revenue during the life of the project, while Cameroon would receive an estimated $500 million in revenue from the project over the 25-year operational period. In addition, both countries would benefit from substantial improvements to their infrastructure, increased employment, etc. The Bank claims that
the objectives of the project are to increase government expenditure in Chad on poverty alleviation activities and to promote the economic growth of Chad and Cameroon. The project which is expected to substantially increase public revenues for Chad, would provide additional resources to alleviate poverty.
Supra, n. 4.
Despite the estimated benefits to be derived by both countries from the project, it has been plagued with criticisms from the early stages by organisations, institutions and individuals that are concerned about the adverse social, environmental and political effects of the project. The involvement of the World Bank and its pivotal role in the project offered the concerned groups and individuals a focal point for their lobbying against the project. The World Bank in turn made its involvement conditional on the oil companies carrying out a comprehensive environmental impact assessment studies detailing the negative social and environmental impact of the project and measures taken to remedy them. These concerns are now examined belowConcerns about the negative impact of the project were expressed by local and international NGOs, foreign governments and individuals.
Critics of the project pointed out that both Chad and Cameroon are some of the poorest countries in the world with horrific human rights records.
See Environmental Defense Fund website:
In the case of Cameroon, the claim by the World Bank that the project will alleviate poverty is doubtful as Cameroon’s revenue from the project is not expected to be reinvested in poverty alleviation programmes, but to repay foreign debts. This quite contradicts the Bank’s claim that the project is a poverty alleviation project. According to critics, the Bank’s involvement in the project contradicts its stated poverty alleviation mission and is seen as an act that would benefit the already rich giant companies involved in the project and bring additional debt burden on the countries as they had to contract high interest loans to finance their participation in the project. Critics argued that the project would...
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