CHEVRON LOOKS TO ETHNIC COUNCIL MODEL FOR DELTA

C O N F I D E N T I A L SECTION 01 OF 04 LAGOS 000433

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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
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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
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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
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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
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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
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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
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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