Congo’s Oil Quagmire
Have French oil-backed loans been stunting Congo’s progress and fostering corruption?
April 19, 2008
Le Floch-Prigent was chief executive of Elf Aquitaine from 1989 to 1993. In July 1996, he went to prison for bribery. He and 30 others were found guilty of having stolen and mismanaged about $350 million of the then state-owned company’s funds.
He acknowledged that he had stolen money and paid huge commissions to politicians at home and abroad, but he complained that his predecessors and successors were being let off the hook, as were the politicians who were at the heart of the affair.
He said that the Elf scandal was a national scandal and that the scale of the implications for France had been overlooked. But the Elf scandal was not only a national scandal — it was an international scandal, and one that caused decades of suffering, dictatorship and corruption in Congo-Brazzaville, Gabon and Angola. Elf was the major oil operator in Congo from the drilling of the first offshore oil rig in 1972.
In the early 1980s Congo received over a billion dollars a year in oil revenue. And yet there was no corresponding economic development during the same period.
The oil earnings were used to fund a huge expansion in imports to meet the ever-increasing demand for wheat and cheap rice, maize and frozen meat.
The civil service swelled beyond all recognition, increasing from 3,300 employees in 1960 to 80,000 employees in the 1990s. The payment of salaries took up a significant proportion of the budget, while the expenditure on rural development dropped.
The rural population resorted to hunting wild animals and subsistence production of manioc, while the percent age of land under cultivation fell to only 2%.
In the cities the price of food rose, and demand was met by increased imports. Today it is impossible to buy fresh chicken in the market in Brazzaville — it comes in imported boxes of frozen chunks. Even the eggs sold by street hawkers are imported from Holland.
While the politicians got rich, the budget suffered from deficits, and Elf was approached to lend money to sort out the mess. Naturally, the company obliged, but at high rates of interest that only added to Congo’s problems in the long term. The debts were (and still are) repaid at source, in the oil that Elf was extracting, which was valued at a fraction of its real worth.
The oil-backed loans caught Congo in a trap of inescapable poverty. The more the politicians borrowed, the more oil was taken by the multinationals at source in exchange for debt repayment.
But the terms of the oil-backed loans set the price of the oil at a fraction of its market value, so debts were low to be repaid and oil companies made fat profits. Congo’s oil wealth never touched the state treasury. The nation’s resources were auctioned off decades in advance for pitiful sums, making the government more dependent on future loans and the politicians more eager for immediate gains.
The politicians kept signing up for more loans, and with each one came valuable personal benefits. On a loan worth $100 million, $3 million would be held back as ‘syndication rights.’
The African head of state, minister for oil or finance or his advisors would generally keep around $700,000 from the $3 million syndication. The rest was transferred into an Elf-controlled account in Switzerland or Liechtenstein.
After the boom years of the early 1980s the price of oil collapsed in 1985, and by 1990 Congo’s debt was US $4.76 billion, nearly twice the size of its annual GDP. Oil brought poverty, not wealth, to the Republic of Congo.
As well as encouraging Congo to become indebted to Elf, Elf paid commissions, which it called “opaque operations”. These commissions were “paid to foreign officials via intermediaries, as the extension of France’s foreign policy. That is why the president of Elf made sure the president of the Republic as well as the minister of finance were informed.”
Not only did African presidents, politicians and intermediaries receive commissions, but they benefited from additional sweeteners, euphemistically called abonnements or ‘subscriptions.’ Elf set apart between 20 and 60 cents (1.2 and 4.2 French francs) per barrel for the African heads of state.
The indictment identified Liechtenstein-based trusts in Elf’s name that had transferred these abonnements into offshore accounts held by Congolese leaders. It claimed that these accounts were used to transfer some $64.8 million into the pockets of Congolese decision-makers between 1989 and 1992.
The whole system was shrouded in secrecy Elf designed an elaborate smokescreen that involved a myriad of subsidiaries and foreign companies and offshore bank accounts, the full details of which have never been fully unraveled. In essence, it involved subsidiary companies, which paid money to a Swiss financial group, called Rivunion, which paid commissions into offshore bank accounts.
There was an unspoken rule at Elf that business was conducted behind closed doors and that no one should open them. The knowledge that no one was looking and that everyone was complicit encouraged an attitude of abandon and unrestrained greed.
It is still not known how many oil executives, lawyers, bankers, intermediaries, officials, politicians and presidents benefited from Elf’s largesse.
The commissions were paid to African dignitaries on the understanding that some of them would find their way back to France in the form of “retro-commissions.” This money was used to fund political parties in France.
For every commission that was given to politicians abroad, a percentage was given back to the political parties that had created and sponsored the system and on which the dictators abroad were increasingly dependent.
This scandalous revelation rocked France when it emerged during the Elf trial in 2003. If it had been pursued to the end, it might have incriminated the entire political spectrum in government in Paris.
Editor’s Note: This excerpt is adapted from Brazzaville Charms by Cassie Knight. Copyright 2007 Frances Lincoln. Reprinted with permission of the publisher.
Commissions were paid to African dignitaries on the understanding that they would find their way back to France in the form of "retro-commissions" which funded political parties in France.
The Elf scandal was not only a national scandal — it was an international scandal, and one that caused decades of suffering, dictatorship and corruption.
While the politicians got rich, the budget suffered from deficits, and Elf was approached to lend money to sort out the mess.
The terms of the oil-backed loans set the price of the oil at a fraction of its market value, so debts were low to be repaid and oil companies made fat profits.
There was an unspoken rule at Elf that business was conducted behind closed doors and that no one should open them.
Photographer and author Cassie Knight lived and worked in Brazzaville, the capital of the Republic of Congo, from 2001 to 2003, where she managed a humanitarian aid program after the 1999 civil war. When she came to write “Brazzaville Charms: Magic and Rebellion in the Republic of the Congo” (Frances Lincoln, 2007), her in-depth knowledge […]