Can Congo’s incompetent government make the most of new oil finds?

Apr 8th 2010 | KINSHASA | From The Economist print edition

IN THE wake of exciting oil discoveries on the eastern side of Lake Albert, which separates north-eastern Congo from Uganda, the Congolese government is trying to emulate its smaller neighbour by wooing foreign investors to help rejuvenate its country’s ramshackle but potentially rich economy. But Congo is not Uganda. Though the Ugandans have their share of headaches—for instance, the murderously messianic Lord’s Resistance Army that has ravaged parts of northern Uganda and neighbouring regions—they have at least a core of functioning institutions and infrastructure that the Congolese woefully lack. But Congo’s leaders are hoping a similar oil bonanza will give their country the boost it so badly needs.

At present Congo gets only 28,000 barrels a day, courtesy of a French company, Perenco, from onshore and offshore blocks along its sliver of Atlantic coastline between Angola to the south and the Angolan exclave of Cabinda to the north (see map). But the Congolese are looking to their bit of Lake Albert in the far north-east, where reserves of 2 billion barrels are said to await exploitation. Some of the biggest American, French and Italian oil companies are sniffing around, with Total apparently nosing ahead.

But developing Congo’s newly discovered oilfields will be tricky. For a start, the area is not safe. Two years ago seven people were killed in a couple of skirmishes between Congolese and Ugandans, in one case involving a British contractor, on Lake Albert. A South African-led oil consortium keen to explore the Congolese blocks has given the government $1.5 million to help it police its side of the lake.

Worse, Congo’s president, Joseph Kabila, who managed to be abroad when a recent glitzy oil conference took place in Kinshasa, his capital, has failed to woo or reassure investors. Several independent oil companies, including Tullow, the Irish one that has led the way in Uganda, have been waiting years for presidential decrees giving them the final go-ahead to start exploring blocks for which they have already paid “signature bonuses” (upfront initial payments), in some cases for around $2m a go. To make matters worse, some licences to exploit blocks are being disputed.

In any event, Mr Kabila’s government must tackle several other oil-related issues. It has to settle its differences—over demarcation of its coastal boundaries, for one thing—with Angola, the region’s new oil giant, whose co-operation it requires in oil and political matters. Congo’s parliament must pass a new hydrocarbons code to attract outside investors. With elections due in 2011, it could usefully offer a fresh bunch of signature bonuses to get some cash into the national coffers. And finally it needs to meet the conditions that would entitle it to full membership of the club whose members sign up to the Extractive Industries Transparency Initiative. This requires governments and foreign energy and mining companies to publish full details of their dealings to ensure that corrupt secret payments are kept to a minimum. But Mr Kabila has yet to convince foreign companies that Congo is willing to play straight.