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Russian Pipelines: Back to the Future?
Edward C Chow. Georgetown Journal of International Affairs. Washington: Winter 2004. Vol. 5, Iss. 1; pg. 27, 7 pgs
Abstract (Article Summary)
Chow argues that the path Russia takes in developing its pipelines will reflect its broader economic and political choices for the future. He describes that the country's long term economic significance lies in the integration of its population of 145 million into the world market and its potential as a progressive force in the in the economic integration of its neighbors from the former Soviet Union into the global system.
Full Text (3355 words)
Copyright Edmund A. Walsh School of Foreign Service Winter 2004
In Soviet mythology, the health of the country's economy, national power, and influence in the world are directly linked to the performance of its oil and gas industry. It is ironic, then, that peak oil and gas production in the U.S.S.R. was reached in the late 1980s just as economic collapse brought political disintegration. At the time, the Soviet Union was the biggest oil producer in the world, generating 12 million barrels per day, 11 million in Russia alone. Peak consumption at this time was over 8 million barrels per day in the Soviet Union and 5 million barrels per day in Russia. Considerable volumes of crude oil and petroleum products were exported by the Soviet Union, first to other countries in the Eastern Bloc, and then approximately 3 million barrels per day to those outside of the Comecon.1 Oil and gas were part of the important barter trade in the Communist block and provided economic leverage for Russia in maintaining cohesion of the sphere. Moreover, they served as principal sources of hard currency and geopolitical assets in the Soviet Union's relationship with the outside world.
Given the remote location of many Russian production fields, pipelines have always played a critical role in transporting oil and gas. The construction of a vast system of pipelines was often cited as a crowning achievement of the Soviet oil and gas industry. They were designed to move production primarily within the Soviet Union and Eastern Europe and secondarily for export to the West.
Today's Russia inherited from the U.S.S.R. 46,000 km of these crude oil pipelines, 15,000 km of petroleum product pipelines, and 152,000 km of natural gas pipelines, almost all of which are still owned and controlled by the state. By contrast, the United States, with only 55 percent of Russia's land mass, has over four times more oil pipelines and two times more natural gas pipelines, almost none of which are owned or controlled by the government.2
The Russian oil industry privatized and modernized throughout the mid-1990s. A more competitive cost structure after the ruble collapse of 1998, improved property rights protection leading to greater reinvestment, and the introduction of Western technology and business practice allowed Russian oil production to recover from a low of 6 million barrels per day to nearly 8 million barrels per day. This is still far below the level achieved in the peak production year of 1988. Nevertheless, domestic oil consumption has dropped to only about 21A million barrels per day with lower economic activity and better energy efficiency. As a result, much more oil is being exported today, and Russia has become the second largest oil exporter in the world after Saudi Arabia.3
Russian oil production is forecast to maintain this rapid growth while domestic consumption is expected to be relatively flat in spite of better economic performance. The existing pipeline system was, however, designed to move oil to now diminished domestic markets and less desirable markets in Eastern Europe. Thus, Russia is desperately in need of new export facilities-large-diameter pipelines and deep-water marine terminals-to transport increasing volumes of oil to higher-value world markets in the large ocean-going tankers favored in international trade. Otherwise, both the performance of its petroleum industry, which has been the growth engine for the Russian economy in recent years, and its ambitions of playing a larger role in world oil trade will suffer.
In order to harness the potential of its energy sector and capture new markets, three key projects on the drawing board are being discussed widely. These include new pipelines to Murmansk, to Daqing in northeast China, and to Nakhodka on Russia's Pacific Coast. The way in which Russia handles these pipelines and its petroleum resources will signal the likely direction in which its uncertain economic future will unfold.
Multiple Pipelines: The Answer?
November 2002 saw an unprecedented display of unity by usually-competitive oligarchs. The four heads of Russia's major private oil companies announced an agreement to build a pipeline from their booming oilfields in West Siberia (and high-potential fields elsewhere) to the arctic port of Murmansk on the Barents Sea. From Murmansk, crude oil (and perhaps one day oil products and liquefied natural gas) would go to markets primarily in the United States and Europe. Only a year old and still unproven by rigorous commercial evaluation, the Murmansk pipeline proposal has already come to represent a number of trends in Russia, including its economic and political transition, and integration with the world.
Fundamentally, Murmansk is a milestone that challenges Russia to make critical decisions that will permanently shape the relationship between the state and the economy. For example, it raises questions of whether it is better to maintain strong elements of central planning and control by expending public effort and scarce financial resources to manage the allocation of economic resources (such as pipeline capacity or upstream petroleum investment), when the private sector is perfectly capable of doing so efficiently. Or should Russia leapfrog these vestiges of the Soviet era and adopt the proven international market economic model? Indeed, the public can entrust the private sector to conduct business while "controlling" the private sector through taxes, fair regulation, and publicly enacted legislation rather than through state owner-ship and intrusive state planning. Another issue is whether expanding production to seize greater oil market share is sustainable in the face of weak world demand growth and a disciplined OPEC-a possible recipe for confrontation. And finally, it is not clear that Russia's own public institutions are capable of transforming fast enough to live by the international model. Can they capture only the economic rent necessary to provide for the public welfare and defense while celebrating "useful greed" rather than ostracizing businessmen that make a lot of money?
Yet, that unique moment of cooperation in November 2OO2, followed by the merger of TNK and BP in Russia and the news of a potential merger between YukosSibneft and a major U.S. oil company, marked the threshold of something new: the possible end of the post-Soviet scrap for assets, and a new era marked by business cooperation in which the whole is greater than sum of the parts, with a true and concrete partnership with the United States and Europe at the heart of Russia's key industry. From Murmansk to Nakhodka on the Pacific Coast, and Samara to Novorossiysk on the Black Sea, to the refineries of America, Europe, and Asia, and the hallways of decision-making in the Persian Gulf and OPEG headquarters in Vienna, people are waiting for President Putin's decisions on how to cross this threshold.
Central Planning: Last Throes or Retrenchment? In October, Minister of Energy Yusufov made some economically-bizarre statements about the Far Eastern pipelines and Murmansk in calling for a Nakhodka pipeline before any consideration of either a Daqing pipeline or even a Murmansk pipeline, which, he claimed, could at best be considered simultaneously with one in Nakhodka. In the same interview, he claimed that "Murmansk will definitely develop... [but] we should do it in stages." he noted that the uncertainty over which pipeline would obtain political approval was the result of a "need to assess the balance of our supplies to the international and the domestic markets." Moreover, he claimed that a Japanese offer to commit to one million barrels per day of oil imports from Nakhodka to help finance the line is actually unnecessary, given the wide array of potential customers in the Pacific Basin.4 Yet, the state-run oil pipeline monopoly Transneft excuses the delay of the Murmansk line by citing the need for the United States to commit to volume purchases from the pipeline even though any port serving the Atlantic basin would have an equally broad market at its disposal.
The Nakhodka proposal and the Murmansk initiative are two entirely different creatures-any state effort evaluating the merits of Nakhodka versus Daqing cannot provide a guide in comparing Nakhodka and Murmansk. For example, the private Russian companies have pledged publicly up to 3 million barrels per day of crude oil to the Murmansk line from their future growing production in West Siberia and the Timan Pechora region. No one has pledged any oil from anywhere to the Nakhodka line. Additionally, the private companies are now prepared to finance Murmansk, but everyone, even the government, agrees there are not enough resources in the eastern half of Russia to commercially guarantee throughput for the line to Nakhodka. And while five private sector companies are clamoring for Murmansk (with several more Russian and international ones in the wings), absolutely no private companies are yet backing Nakhodka.
This is all a rather sad reminder that Russia remains committed significantly to some degree of central planning. Indeed, these pronouncements come just as the Murmansk and Daqing pipelines were about to emerge as the first major post-Soviet examples of the state allowing the private energy companies to allocate their economic resources as the market dictates, while paying their dues through taxes and obedience to regulatory and legislative authority.
Japan Inc., the Manchurian Candidate, Eastern Supporters. Japan has offered to finance the Nakhodka line up to $5 billion, with another $2 billion for exploration of East Siberian resources to fill the line. As justification for a willingness to commit such huge sums from a beleaguered Japanese economy in such an undeveloped idea, Japanese officials claim that diversification of supplies is paramount for the future of the Japanese economy.
But this argument is highly suspect, for a number of reasons. First, since Japan has a huge economy concentrated on relatively small islands it has already ideal diversity of supply-they can buy from anyone in the world by tanker. If Japan thinks Russian supplies from Nakhodka will somehow be lower priced than competing supplies arriving by ship, it should rethink the numbers: A simple net present value calculation coupled with reasonable assumptions about demand growth in Japan indicates that $5 billion of Japanese money spent today on a pipeline would add about $2/barrel to every imported barrel the country consumes for the next 40 years. Put another way, if it does not invest $5 billion in Nakhodka, Japan could afford to pay a $2/barrel premium for every barrel to give it a competitive edge against every other oil consumer on the market, and still come out even.
In fact, their prices would arguably be lower because Middle Eastern crude oil, otherwise destined for China, would be seeking other Asian markets if some Chinese demand were absorbed by Russian supplies. Moreover, Japanese taxpayers and oil consumers may also question the legitimacy of basing the energy security of the future Japanese economy on untested results of preliminary estimates of unknown and unproven resources in an unfamiliar and remote part of the world.
Finally, this Japanese initiative is completely out of synch with the history of the oil industry. It is oil supplies, not demand, that push pipelines into existence. The opposite is usually true for gas, but there is nothing fundamental about the Nakhodka pipeline, even geographic distance, that makes it any different from the hundreds of other pipelines that have preceded it in the history of oil.
With the economic rationale for Japanese support absent, suspicion naturally turns to geopolitical motivations, which suggests that Japan is pursuing a strategy of denial. First, undermining the pipeline to Daqing denies supply diversification to China, which has the fastest growing energy markets in the world. This makes the Chinese arguably more concerned with diversity of supply than Japan, which has both longstanding supply relationships and stagnant energy demand. secondly, it would deny China a stronger economic and political relationship with Russia; a relationship the Japanese have watched warily as it has strengthened in recent years. Indeed, the Putin administration has marked considerably more state visits between Moscow and Beijing than between Moscow and Tokyo. Thirdly, it would deny Russian companies a nearterm outlet for proven crude oil reserves and force them to work instead with Japanese companies to develop resources in the Russian east until enough volume exists for the Nakhodka line. This arrangement would compel Japanese entry into the Russian upstream where so many other international investors have failed.
Nevertheless, the fact remains that a pipeline from Angarsk to Nakhodka would be roughly twice the distance of a pipeline from Angarsk to Daqing, cost twice as much to build as a consequence, and require double the throughput guarantee and proven oil reserves to be supported. If Japan chooses to subsidize a more expensive project and Russia accepts this offer, the Chinese strategic objective of diversifying its oil import sources can still be achieved if a pipeline is completed within a reasonable period of time since China can always buy Russian oil from Nakhodka. However, if Japan's objective were strategic denial, then prolonged delay from exploration in East Siberia and the arrangement of financing would suit its purposes just as well.
Ultimately, Russia's action should be driven by its own economic needs-not the motivations or machinations of foreign countries.
Reform in the Russian Oil and Gas Industry: Is it Over? AS of this writing at the end of November 2003, it is difficult to assess the arrest on 25 October of the former head of Yukos, Mikhail Khodorkovsky. It is unclear whether his arrest, along with the campaign against his business associates and company since early summer, is a temporary phenomenon connected to the December Duma elections and the March 2004 presidential election or if they represent a fundamental shift in Russia's decade-long economic transition. It should be noted, however, that Yukos was the Russian company sponsoring an early pipeline to China and a major proponent of a privately-financed pipeline to Murmansk.
What is definitely transitory is the high global price of oil, which is presently above $30 a barrel. High oil prices tend to cover up a multitude of economic sins in oil exporting countries, and Russia is no exception. The positive lessons of productivity gains through the privatization of the oil industry itself are easily forgotten, but the memory of the admittedly flawed process of privatization that enriched a politically-favored few is well-recalled and examined selectively.
Reform of the chief remaining barriers to growth and economic efficiency in the Russian oil and gas industry-the state owned monopolies in major oil pipelines, Transneft, and in the production, transportation, and export of natural gas, Gazprom-has either stalled for the foreseeable future or been abandoned permanently. Both oil and gas pipeline sectors suffer from enormous investment deficits and operating inefficiencies. Meanwhile, the state is missing an opportunity to pursue restructuring and liberalization at a time of high world energy prices. When oil prices inevitably return to a more sustainable level of around $20 per barrel, reform will be more difficult to execute and with lower asset value, be less beneficial to the state. As it stands, chronic under-investment in both sectors will persist to the detriment of oil and gas production and exports.
To compound matters, President Putin's statement to Chancellor Schroeder of Germany on the gas sector in their meeting on 9 October seems particularly ominous. Putin told Schroeder "We are not going to breakup Gazprom. The European Commission should have no illusion: they are going to be dealing with the state in the natural gas industry." And, "The gas pipeline system is a child of the Soviet Union, and only we are in a position to maintain it in working condition, even if you're talking about the sections that lie outside Russia."5
It is easy to understand the appeal to those who favor a centrally-planned command economy of government-controlled oil and gas pipelines. For one, it permits the government to control supply and direct investment flows not only in the pipeline sector, but also in the economy as a whole. It also maintains a system of differential pricing and preferential access to resources, allowing the government to hand out rewards and punishments for both economic and political reasons. Additionally, it is a more convenient tool of foreign policy than a pipeline system owned and operated by private owners governed by market competition and transparent regulations. Even the fact that non-transparent business operations often lead to rent seeking can be seen by some as beneficial to political institutions or well-positioned individuals.
It is. however, one thing to want to extract economic value for Russia from natural gas production in Central Asia and to better manage transit through countries like Ukraine; it is quite another to abandon the much larger economic benefits of capturing associated gas production from Russian oilfields and oil industry investment in the gas sector by not reforming the vertically integrated monopoly of Gazprom. At a minimum, natural gas transportation by pipeline could be separated from production and regulated as a monopoly with fair tariffs and access rules.
There are equally gradual reforms that could also be enacted in the oil pipeline sector in order to mobilize private capital in much needed infrastructure investment. Partnership between government and domestic and international oil companies to build new trunk oil pipelines, along the lines of the Caspian Pipeline Consortium, can be encouraged. Instead this new model for Russian pipeline investment is perceived currently as an obstacle to government control and its success and future expansion are being threatened by the Russian government.
Thus, a Russia that is profiting from rapidly growing oil exports as a result of oil industry privatization in the 1990s and enjoying temporarily-high world oil prices may not see the benefits of continual economic reform and reduced state control-policies that could enable the transition to a full market economy integrated with the international system. However, as proud successor to the Soviet Union, all Mr. Putin has to do is draw lessons from the Soviet economy of 1988, when Russian oil production was a third higher than it is now, when price distortions and false market signals led to wasteful consumption and nonproductive investment, and when the Soviet system soon fell under the weight of economic inefficiency and corruption.
Conclusion. Russia's long term economic significance lies in the integration of its population of 145 million into the world market and its potential as a progressive force in the economic integration of its neighbors from the former Soviet Union into the global system. With 5 to 6 percent of the world's proven oil reserves and a production/reserve ratio of about 20 years, Russia is not a substitute for the Persian Gulf when it comes to oil production, but enjoys better economic options than those countries thanks to its agricultural and industrial potential. Development of Russia's larger natural gas resources will require greater openness to foreign direct investment due to the high investment costs and assured market access necessary for the remote gas projects around the world with which it will be competing.
Other countries, especially the United States, Germany, Britain, China, and Japan, will have to decide for themselves the meaning and value of building an energy relationship with Russia. In doing so, there is no better touchstone than Russia's pipeline policy at home and abroad. The path it takes, be it a statist or market-oriented, will tell us much about the economic future Russia has chosen.
Author's Note: The author would like to acknowledge Geolfrey Lyon, of the United States Department of Energy in Moscow, who was a font of iniormation in the preparation of this article.
Russia has become the second largest oil exporter in the world after Saudi Arabia.
Russia is not a substitute for the Persian Gulf in oil production.
1 All production and consumption statistics for this piece can be accessed online through the online B.P. Energy Reserves and Energy Consumption Review at http://www.bp.com/centres/ energy/index, asp.
2 Central Intelligence Agency, The World Fadbook 2003 (New York: Brassey, 2003), accessed online at http://www.cia.gov/cia/publications/factbook.
3 B.P. Energy Reserves and Energy Consumption Review, 3003, online.
4. Transcript of Minister Yusufov, ITAR-TASS online; see also Bayan Rahman and Andrew Jack, "Japan Offers Russia $7 Billion to Build Oil Pipe," on Rusnet News (13 October 2003), available online at http.//www.rusnet.nl/news/2003/10/14./businesseconomics_02-3532.shtml.
5 ITAR-TASS online (9 October 2003), available at http://www.itar-tass.com.
Edward C. Chow is Visiting Scholar at the Carnegie Endowment for International Peace.
Pipelines in the Caspian: Catalyst or Cure-all?
Fiona Hill. Georgetown Journal of International Affairs. Washington: Winter 2004. Vol. 5, Iss. 1; pg. 17, 9 pgs
Abstract (Article Summary)
Hill looks to the Caspian region and the new oil and gas pipelines from Baku, Azerbaijan to Ceyhan, Turkey to assess whether new infrastructure built by Western companies will be a springboard for the development of these nations or a magnet for internal rivalry over the allocation of hydrocarbon revenues. She warns against overly optimistic assessments of what happens pipelines can be deliver in the Caspian region.
Full Text (3853 words)
Copyright Edmund A. Walsh School of Foreign Service Winter 2004
With questions over future prospects for Iraqi oil-the world's second largest reserves after Saudi Arabia-at the forefront of attention, along with widespread instability in the Middle East, the Caspian Basin and its oil and natural gas resources are back on the agenda. The Caspian, along with Russia, West Africa, and Canada, where new discoveries in the tar sands have been made, are the great new potential sources of world energy. These regions are increasingly vital to addressing the need for new energy suppliers and bypassing OPEC members and Persian Gulf states. Although these regions pose significant difficulties in terms of production and export possibilities and would not necessarily be competitive with the Persian Gulf under a low oil price regime, current high crude oil prices combined with the fact that Iraq's production potential will not be restored any time soon make them major commercial contenders.
In the Caspian Basin, the difficulty has never been one of supply-the region contains 17 to 33 billion barrels of proven oil reserves and around 232 trillion cubic feet of natural gas.1 It has always been one of overcoming the fact that the Caspian is a landlocked sea and of transporting energy resources to world markets. With the collapse of the Soviet Union, the region's limited energy pipeline infrastructure extended only across Russia. The new independent states of the Caucasus and Central Asia were locked into a single set of transportation options to the Black Sea and Europe. Oil and gas exports from Azerbaijan, Kazakhstan, and Turkmenistan required building new pipelines. The Caspian region therefore became a focal point in the 1990s, when the first international oil contracts were signed. Because of the sheer size of Caspian energy reserves, and the evident importance of export revenues for the future development of faltering regional economies, Caspian governments transformed pipelines from merely transportation projects into means to achieve political and social objectives. In public debates about Caspian pipelines at both regional and international levels, the commercial interests of companies investing in the actual energy production were sidelined and often seemed strangely secondary or marginal to other considerations.
The Baku-Tbilisi-Ceyhan pipeline project (BTC) provides the best example of this transformation. The goal of this project is to transport crude oil from Azerbaijan's Caspian fields through Georgian territory to Turkey's port on the Mediterranean. The Azeri and Georgian governments have seen BTC as their lifeline to Turkey and Europe rather than simply a pipeline. Politicians from both countries have tried to enhance their positions through their involvement in energy and pipeline negotiations. Regional elites have enriched themselves through related business deals. Local populations have viewed BTC as a potential panacea for all the ills that ail the region. And international NGOs have pushed governments and international investors to address a host of issues including government responsibility and accountability for energy revenues, democratization, human rights, and environmental protection as part of the pipeline project.2 Since the conclusion of the final host government agreements for the pipeline's construction in 1999, many hopes and aspirations have been invested in BTC along with many millions of dollars from companies like British Petroleum (BP).
BTC is not the only regional pipeline project to have such high stakes beyond its commercial viability. Pipelines from Kazakhstan overland to China, from Turkmenistan across the Caspian Sea to Azerbaijan, and from Turkmenistan through Afghanistan and onward to Pakistan and India, have been seen as means for reorienting regional export routes toward new markets, or-even more loftily-for reconstructing Afghanistan and fostering peace between Pakistan and India. In its early stages of development, the Baku-Tbilisi-Ceyhan project itself was portrayed as a prospective "pipeline for peace," with initial plans to cut through Armenian territory and thereby improve relations between Armenia and Azerbaijan and Turkey, its two regional enemies.3 Although the Armenian option was quickly rejected for a longer route through Georgia, the idea that the pipeline can eventually promote peace and prosperity across the whole region has not quite been abandoned. And while other pipelines remain lines on the map, BTC is rapidly becoming a reality on the ground in the Caucasus.
The Geopolitics of Caspian Pipelines. That BTC has been endowed with so many purposes is not surprising. It began, in many respects, more as a geopolitical project than a commercial one. Due to their isolation during the Soviet period and their fear of forced reintegration with Russia, Caspian states like Azerbaijan and Georgia sought to reorient themselves strategically by creating new security and economic ties to the United States and Europe. Turkey was seen by both countries (although not by neighboring Armenia) as a window to the West by virtue of its geographic location, NATO membership, and strategic partnership with the United States. Contracts with international oil companies and the process of negotiating agreements for energy pipelines with the Turkish and U.S. governments immediately became ways to build new political and physical linkages with the West. Likewise, for the United States, the BTC project became a three-pronged tool in its regional policy. It was a means of creating an East-West-rather than a North-South-transportation corridor from the Caspian to the Black Sea that would avoid Iran to the south, cement the position of Turkey as the new bridge between the Caspian and Europe, and break dependence on Russia to the north.
BTC addressed several policy imperatives for Washington in the 1990s. First, it would help to isolate Iran in the Caspian as well as in the Persian Gulf as punishment for its continued sponsorship of international terrorist groups perpetrating attacks against American and allied interests. This was especially important after the August 1996 adoption of the Iran Libya Sanctions Act (ILSA) by the U.S. Congress. ILSA imposed penalties on major international investors in Iran's oil and gas industry. Second, it would reward Turkey for its support of the United States during the first Gulf War and its willingness to forego transit revenues from Iraqi oil. Turkey's Mediterranean port of Ceyhan was the terminal for Iraqi oil and its economy was hard-hit by the loss of Iraqi crude. Ceyhan's infrastructure, relative proximity to the Caspian, and access to world seaways made it an ideal destination for a new pipeline from Azerbaijan. Third, BTC would increase export options beyond Russia and promote the development of multiple pipelines for oil and gas in the region. Although there was no specific policy to isolate or even avoid Russia as there was for Iran, relations between the United States and Russia soured in the late 1990s. Russia was increasingly viewed in Washington as a spoiler in international affairs and as something other than an honest broker in regional conflicts. And Russian state-run companies made life difficult for exporters forced to deal with Soviet-era pipelines, volatile tariff agreements, and precarious access during disputes. International oil companies became increasingly anxious about Russia's potential stranglehold over oil and gas exports.
As a corollary to these geopolitical considerations, BTC and other pipelines became the central part of a framework for economic development and conflict resolution in the Caucasus-the scene of violent ethnic conflicts and civil wars in the late 1980s and 1990s. BTC and peace were two important elements of a virtuous circle. Energy revenues and transit fees were essential in boosting the coffers and legitimacy of cash-starved and weak central governments in states like Azerbaijan and Georgia to help them entice back secessionist regions like Nagorno-Karabakh and Abkhazia. Trickle-down economic benefits for local communities from energy and related service sector jobs and overall foreign investment were presented as eventually outweighing factors for conflict. In turn, conflict resolution and political and economic stability in the Caucasus region were crucial for the long-term success of international investment in Caspian oil production.
Zero-Sum Games and Commercial Concerns. This range of geopolitical considerations and the U.S. policy of isolating Iran fed popular perceptions of a zero-sum game in Caspian energy development. In the late 1990s, the United States was depicted in discussions of energy politics as pitted against both Russia and Iran in the Caspian. Russian and Iranian analysts frequently criticized U.S. efforts to push the countries out of Caspian projects and both governments adopted tit-for-tat strategies in response to any U.S. policy innovation. When, for example, the Clinton Administration created a new position in the State Department to coordinate U.S. executive branch programs for Caspian oil and gas, Russia responded by appointing not one but two high-level officials with special responsibility for the Caspian. Russia and Iran also concluded agreements on strategic energy cooperation in the region, and together tried to block the exploitation of Caspian resources by demanding a new division of the Caspian Sea's resources. Russia later softened its stance on this issue after discovering substantial oil deposits in its own sector of the Caspian.
The geopolitical noise around Caspian energy development and talk of a new "Great Game" among the United States, Russia, Iran, and the other Caspian states were good media fodder in the 1990s, but they detracted attention from the overarching commercial issues. For international oil companies investing in Caspian energy projects, there was a great deal at stake in the machinations over pipelines. The costs of operating without them were high. Under a low oil price regime, overheads made Caspian energy less competitive on global markets when oil and gas had to be transported over thousands of kilometers across land and sea. When oil production began in the mid-1990s, it was transported by ship and rail across Russia or the Caucasus, first to the Black Sea, and then from there through Turkey's Bosphorous straits out to the Mediterranean. The cost of the rail transportation alone was around $34 per ton, or about $4.60 per barrel, which became a serious issue when oil prices dropped to around $10 per barrel in 1998.4 Companies were often forced to suspend oil production when overland transportation options were not available. Pipelines were essential to cutting costs and avoiding the inherent problems of having to constantly offload oil from tanker to rail and back again.
The Push for BTC. Commercial concerns drove feasibility studies and Caspian pipeline projects forward, but the BTC project was not always the preferred option in companies' calculations. For example, Chevron, which operated the onshore Tengiz oilfield in Kazakhstan, pushed for a pipeline from Kazakhstan overland around the northern tip of the Caspian and then across southern Russia to the port of Novorossiysk that could be constructed relatively quickly. This was a shorter route than other options proposed-including a project to build a pipeline from Kazakhstan across the Caspian to Azerbaijan. This pipeline started to function in October 2001. Trans-Caspian pipelines, on the other hand, were technically difficult to build and potentially expensive in the absence of high oil production volumes. Some international oil companies also considered Iranian transportation options in defiance of U.S. sanctions. With its highly developed energy sector and existing domestic network of pipelines, Iran was considered by many investors the cheapest and most secure export route. In 1998, for example, Total, a French company, conducted a feasibility study for a pipeline from the Caspian to Iran's ports on the Persian Gulf. Two American companies, Mobil (now subsumed under ExxonMobil) and Conoco, lobbied the U.S. government to ease ILSA restrictions and allow oil swaps with Iran. This would have allowed them to ship Caspian oil to northern Iranian refineries in exchange for an equivalent amount of Iranian crude that could be shipped from Persian Gulf ports to world markets. The U.S. government resisted these pipeline and oil swap projects.
Two other oil pipelines in the Caucasus were also used before BTC to transport the first batches of new oil production from Azerbaijan to the Black Sea-a Soviet-era pipeline from Azerbaijan to Russia's Black Sea port Novorossiysk, and a new pipeline from Azerbaijan to Supsa, a Georgian port on the Black Sea. These pipeline routes were fully operational by 1999, and both the Azeri government and the Azerbaijan International Operating Company (AIOC), an international consortium of ten major oil companies exploiting Azerbaijan's Caspian fields, considered expanding them to export main oil production. The U.S. government played the decisive role in modifying this plan, fearing that its sanctions regime would soon be breached and that Iran would become a viable option for Caspian oil exports.
While intense U.S. diplomacy succeeded in convincing the governments of Azerbaijan, Georgia, and Turkey to conclude the host government framework agreements necessary for the construction of BTC, the oil companies proved more difficult to persuade. The AIOC and its lead company, BP resisted 'geopoliticking' and remained focused on business considerations-whether BTC was commercially viable or not. Early cost estimates for the construction of the pipeline varied from $2.4 to $3.8 billion and, after oil prices hit a major low of around $10 per barrel in 1998, the AIOC was understandably cautious. Reports suggested that the consortium could lose as much as $3 billion in profits over thirty years by using BTC as its main export pipeline if oil prices were low.5 In March 1999, AIOC Chairman David Woodward also announced that the consortium did not anticipate sufficient volumes of oil production to warrant BTC's construction before 2005.6
The position of BP and the AIOC changed quite dramatically after BP's merger with Amoco, an American energy company. BP's chairman, Lord John Browne, took the strategic decision to make the Caspian one of the centerpieces of the company's global portfolio and endorsed BTC. Some analysts saw this decision as directly related to BP's merger and its desire to cooperate with the U.S. government now that it had new interests in the United States. But BP also had to factor other considerations into its decision-making. The Turkish government, international environmental groups, and even oil companies had pointed to the dangers of straining the already limited capacity of Turkey's narrow Bosphorous straits with increased tanker traffic from the Caspian. U.S.-Iranian relations showed little sign of improvement and it was clear that the United States would continue to block Iranian transportation options for the foreseeable future. The considerable financial considerations related to the construction of BTC were also somewhat eased by a dramatic rise in world oil prices (up to almost $40 a barrel and a ten-year high by 2000), and by Turkey's decision, under U.S. guidance, to offer a maximum cost or completion guarantee to the AIOC for pipeline construction. The U.S. government also offered financial assistance through its trade agencies.7 BP's decision to endorse BTC was crucial in pushing the project forward.
In November 1999, a new framework agreement was signed during the OSCE summit in Istanbul between BP, on behalf of the AIOC, and the Turkish, Azeri, and Georgian presidents. In this agreement, BP/AIOC pledged to secure the financing for the construction of the pipeline, and the Turkish government agreed to pay for cost overruns in excess of $1.4 billion on its portion of the pipeline.8 In addition, the three governments reached an agreement to build a gas pipeline from Shah Deniz, the newly discovered Azeri natural ras field, that would run parallel to BTC up to the Turkish border. It would then continue to the Turkish city of Ezerum, where it would connect with an existing gas pipeline network and supply Turkish consumers. On its way through the Caucasus, this new pipeline would also provide natural gas to Georgia to address the country's chronic energy shortage. The new parallel oil and gas pipelines added to the overall geopolitical and economic importance of the BTC project.
A Pipeline for Regional Prosperity?
The BTC pipeline project broke ground in September 2002 in Baku and was billed as the largest private sector construction and investment project in the Caucasus. When completed, it will extend 1,760 kilometers across three countries. At its maximum capacity in about 2010, it will carry a through-flow of one million barrels of oil a day, and will be the central element of a projected $20 billion investment package that includes up and down-stream projects.9 Most analysts inside and outside the region recognize that the scale and extent of BTC and its related projects will be unique. No other private sector projects of this magnitude are likely to materialize. The success of BTC and the overall profitability of Caspian oil production will also certainly determine the extent to which other foreign investment investments are made in other regional sectors in the future.
In many respects, the very prosperity of Azerbaijan and other Caucasus states is at stake in the construction of BTC. The collapse of the region's centrally planned economies after the dissolution of the USSR was compounded by the effects of the regional conflicts of the 1990s. Hundreds of thousands of people were displaced in the region and many more left for Russia. The loss of human resources through emigration, the contraction of domestic markets, and the few opportunities for international trade limit the Caspian states' potential for development outside the energy and related service sectors. Furthermore, even though there is an abundance of energy available for export, the Caspian region suffers from a domestic energy deficit. Regional consumers lack the ability to pay utility bills and the energy distribution infrastructure for households and industry is in extremely poor condition. All the states, including Azerbaijan, still depend on Russia for power and gas supplies.
These concerns preoccupy governments, local populations, and NGOs. Since 2000, international NGOs like Human Rights Watch, Friends of the Earth, Transparency International, and many others have launched a major public advocacy and outreach campaign to press BP, the AIOC, the BTC management company, the Azeri and Georgian governments, and international financial institutions involved in building the pipeline, to address myriad issues related to the pipeline's construction and other regional issues. Indeed, the allocation by governments of export revenues and transit fees is still to be determined. Other issues have been raised, including the environmental impact of the pipeline, the preservation of important cultural sites along the route, land purchases for the construction of the pipeline, employment for communities along the pipeline, community oversight of the construction process, and the central and local governments' response to public protest and the concerns of communities at different phases of the project. As of the end of September 2003, one year after the groundbreaking ceremony, 200 kilometers of pipeline had been laid along the BTC route and a 400-kilometer construction corridor had been prepared through Azerbaijan, Georgia, and Turkey. Of the 10,000-strong workforce on the project, 7,000 local nationals had been employed. The BTC operating company had also deployed teams of archaeologists to excavate and record data at ancient sites uncovered during construction in Georgia.10
Conclusion-Catalyst or Cure-all? Regardless of the geopolitical and other considerations behind the decision to build BTC, the pipeline is primarily a commercial venture to transport to oil from the Caspian to world markets. The companies involved in the project will move ahead regardless of the complexities if their negative impacts do not outweigh the commercial benefits. The pipeline's ultimate success also depends on issues detached from the Caspian region such as the long-term fluctuation of world oil prices. While BTC can link Azerbaijan, Georgia, and Turkey, the construction of one pipeline to the Mediterranean cannot overcome the otherwise disadvantageous location of the Caspian. The series of legal and political agreements that made BTC's construction possible have created a complex set of relations among the three countries, the United States, and international energy companies, but the pipeline cannot be substituted for other economic, political, and security relations with the West. Nor can it tie fractured countries like Azerbaijan and Georgia back together again or replace regional cooperation in the Caucasus-especially given the fact that it bypasses Armenia.
And there are few examples of pipelines promoting peace. Instead, there are plenty of examples of pipelines traversing areas of considerable instability in Latin America, West Africa, and elsewhere. The higher costs of operating in conflict zones, and of protecting and repairing pipelines, are factored into companies' calculations. Most existing and proposed energy pipelines in the Caspian region run through conflict zones. In 1999, oil exports were suspended when the pipeline from Baku to Novorossiysk was ruptured due to the war in Chechnya. Restoring service required building a route bypassing Chechnya through the neighboring republic of Dagestan. In the future, the Baku-Novorossiysk pipeline is unlikely to play any significant role in a peace settlement in Chechnya, just as BTC is not likely to be the deciding element in resolving the conflict between Armenia and Azerbaijan over Nagorno-Karabakh.
Although they cannot ensure peace, pipeline projects-especially on the scale of BTC-can provide an important economic boost through infusions of investment and creation of jobs at the national and local level. But pipeline projects cannot solve the overall under-development of regional economies. Large-scale economic development projects are the purview of international institutions like the World Bank, not of oil companies like BP. Pipelines are a catalyst for development but not a cure-all for the political, economic, and social problems of regions like the Caucasus and the broader Caspian Basin.
Caspian governments transformed pipelines from mere transportation projects into means to achieve political and social objectives.
BTC and other pipelines became the central part of a framework for economic development and conflict resolution.
In many respects, the very prosperity of Azerbaijan and other Caucasus states is at stake in the construction on BTC.
1 See figures provided by the U.S. Department of Energy's Energy Information Agency (EIA), August 2003, available online at: http://www.eia.doe.gov/ emeu/cabs/caspstats.html. These figures would put the Caspian's oil reserves on par, at the lower end, with Qatar and with the United States on the upper end; and its natural gas resources at the same level as Saudi Arabia.
2 See, for example, Svetlana Tsalik, Caspian Oil Windfalls: Who Will Benefit? (New York: Open Society Institute, Caspian Revenue Watch, 2003).
3 See Jack Maresca, "A 'Peace Pipeline' to End the Nagorno-Karabakh Conflict," Caspian Crossroads I (Winter 1995).
4 Cited from Russian pipeline company Transneft's figures in Nefl i Kapital (January 1999), 51.
5 Reported in "Pipelines: Azerbaijan," Caspian Investor (January 1999), 28. As outlined in the article, with estimated construction costs of $3-8 billion and low crude oil prices, Baku-Tbilisi-Ceyhan would generate $14.5 billion in profit, in contrast to an expanded version of the pipeline from Baku to Supsa, which would offer $17.5 billion in profit.
6 See "Turkey, AIOC Begin New Round of Discussions on Baku-Ceyhan," Newsbase, FSU Oil and Gas Monitor (30 March 1999), 5; and "AIOC Head Says MEP Will Only Be Profitable under Certain Conditions," Newsbase, FSU Oil and Gas Monitor (27 April 1999), 17.
7 Haitham Haddadin, "United States, Turkey Try to Speed Baku-Ceyhan Pipeline," Journal of Commerce (23 April 1999).
8 Jane Perlez, "Strategic Issues Aside, Focus on Oil Pipeline Turns to Money," New York Times (21 November 1999).
9 For this and other information see BTC, Co. "Regional Review: Economic, Social and Environmental Overview of the Southern Caspian oil and Gas Projects" (February 2003).
10 BTC, Co., "Construction gathers momentum, passes milestone," BTC Bulletin (25 September 2003), available online at: http://www.caspiandevelopmentandexport.com/ASP/LatestNews.asp?ArticleID=14.
Fiona Hill is Senior Fellow in the Foreign Policy Studies program at the Brookings Institution.
Chad-Cameroon: A Model Pipeline?
Aude Delescluse. Georgetown Journal of International Affairs. Washington: Winter 2004. Vol. 5, Iss. 1; pg. 43, 10 pgs
Abstract (Article Summary)
Delescluse contends that, if the World Bank and others step up to the job, the widely-watched Chad-Cameroon pipeline could be a model for the future. He describes that since the onset of the Chad-Cameroon Petroleum and Pipeline Project, the environmental, social, and political safeguards that the World Bank and Chad established have gradually improved.
Full Text (4880 words)
Copyright Edmund A. Walsh School of Foreign Service Winter 2004
In early October, Chad joined the club of oil -exporting countries as a result of a unique agreement between its government, a consortium of oil companies, and the World Bank. This partnership, known as the Chad-Cameroon Petroleum Development and Pipeline Project, could change the destiny of Chad and its 7-5 million inhabitants. The project has generated debate regarding whether it could serve as a model for future projects: if successful, not only would it significantly reduce poverty in Chad, it could also encourage other mineral-rich developing countries, multinationals, and aid agencies to emulate it. Moreover, this unique pipeline could overcome the so-called "oil curse" that oil -exporting countries have traditionally suffered by ensuring that petroleum revenues are channeled towards national development. Perhaps due to the importance this project plays in an economy with few natural resource alternatives to oil, Chad has embarked on a path with the World Bank to minimize the risk to private investors. The country also committed to an ambitious program of reforms, including a broad-based consultative process to feed into project design, an oil revenue management plan, capacity building and structural reforms, and the creation of external controls. Nevertheless, the initiative is not without its challenges. Indeed, guaranteeing that oversight mechanisms and good governance standards are realized and enforced, as well as ensuring that political stability is maintained in a country with a history of political volatility are essential to the project's success. The future holds promise for the people of Chad and their government if, in partnership with the foreign entities, they prove able to reap the benefits of this lucrative opportunity. The lessons learned as a result may inform, and herald the onset of, a new generation of development projects.
Background. Given Chad's geography and economy, and the involvement of the World Bank as a broker, the ChadCameroon pipeline represents what is, for now, a unique confluence of circumstances. Chad is a landlocked country, generating high transportation costs and constraining trade. According to the UNDP, Chad remains the fifth poorest country in the world with an infant mortality rate of 54 per 1,000, a life expectancy of 46 years (1990), limited access to basic social services, a GNP per capita of $160, and 80 percent of the population living on less than one dollar a day. Nearly half its territory is unsuitable for human habitation, with 67 percent of the country's land being arid. Agricultural products, mostly cotton, have represented 90 percent of all exports and decades of ethnic and regional conflict until the early 1990s ruined the country's economy. Although petroleum was discovered in the 1960s, civil wars prevented the development of oil fields until the 1990s.1 Other than oil, Chad's natural resources are limited. Thus, exploiting petroleum is an indispensable opportunity for the Chad.
The program is itself the result of lengthy negotiations begun in 1988, when Chad and a consortium of oil companies signed an agreement that provides a 30-year concession to exploit oil resources in the Doba region of southern Chad. The original companies in the consortium were Exxon, Royal Dutch Shell and Elf Aquitaine (which was since replaced by Petronas and Chevron). The project involves an investment of $3-7 billion to develop three oilfields and export the oil through a 1,070 km pipeline across Cameroon. In addition, the potential hazards of Chad's isolation and history of conflict motivated the companies to seek the participation of the World Bank to help mitigate the risk. The World Bank agreed to support the project on the condition that environmental standards be enforced, transparency ensured, and guarantees given that would Chad adopt structural reforms (including an oil revenue management program) to manage oil receipts that could more than double state income. Chad's oil resources were undeveloped at the time the agreement was signed, due to its lack of expertise in the oil industry and limited financial capacity. As a result, Chad submitted to stringent conditions to receive technical assistance and international funds.
Although the World Bank's share of the total financing is small, its participation has been critical in attracting investment from other financiers, as well as ensuring environmental and social safeguards in project implementation; imposing strong conditionalities intended to minimize the risk of oil revenues misuse, which have resulted in the development of an oil Revenue Management Program; raising project visibility both locally and internationally. Moreover, this visibility has meant that NGOs and academics have actively informed the debate around the project's perceived weaknesses, in particular those related to its revenue management plan-and the pressure from these groups may have convinced involved parties to improve the plan.
These stipulations do much to further the aims of the international community, but the economic leverage applied on a nation with limited alternatives raises interesting questions regarding sovereignty and the use of financial power. Indeed, Chad has few alternatives to the pipeline for generating revenue and financing economic development and, as a result, it accepted numerous constraints in order to bring the project to fruition-not, however, without negotiating. As Ahmedou Ould-Abdallah, Executive Director of the Global Coalition for Africa, and others suggest, "the government has accepted something very difficult to endorse a few years ago by any African government. "2 Indeed, this is the first time a government has committed in advance to allocate its oil revenues expressly to priority sectors (the oil production region and to a fund for future generations) and to undertake reforms to prepare the oil economy. It is also the first time a government subjected itself to such an intense level of auditing and monitoring at the hands of domestic and foreign entities. Moreover, during the construction period, Chad submitted to several express World Bank demands to rectify malpractice such as its 1999 agreement to release a former congressman who had been arrested partly because of opposition to the pipeline and its 2OOI agreement to release six opposition candidates arrested following the presidential election. In addition, the country took corrective measures after it bought weapons with $4-5 million of a $25 million "signing bonus" that it obtained at the project's onset. The rest of the signing bonus was strictly allocated to priority sectors for poverty reduction. This potential "infringement on sovereignty" has required the weight of an international institution like the Bank-the principal source of international funds for Chad and the constant pressure brought about by inquiries by the media and NGOs. This degree of flexibility reflects the high priority that Chad attaches to this project, and highlights several of the complexities associated with this model of leveraging transparency, which has many potential benefits-and potential costs.
Innovations and Potential Benefits. The strengths of the Chad-Cameroon pipeline are two-fold: It has unique potential to improve the political and economic conditions of Chad; and its design, although unique, could be the foundation of project model that could be grafted onto other contexts-several of the pipeline project's elements can be replicated in natural resource extraction in other developing countries. One such feature is the consultation scheme undertaken during the project's planning and design phase, in which an extensive and broad-based consultation process took place that included approximately QOO village meetings, 145 meetings with international NGOs (project supporters and opponents), and discussions with scientists and environmental engineers. The scope of the consultation was unprecedented, particularly at the village level, and contributed to improvements in implementation plans. For example, results from the consultations led to the reevaluation of a Compensation and Resettlement Plan for Indigenous People and the rerouting of the pipeline in Cameroon.3
The project's major innovation, however, is a joint effort by the World Bank and Chad to build a new legal framework to create the conditions for sound oil revenue management. The keystone is the oil Revenue Management Program, a political compromise between Chad, the World Bank, and civil society (international and Chadian NGOs). Negotiated over five years, the program was adopted in 1991 and has two aims: to channel oil revenues towards priority sectors for poverty alleviation (health, social services, education, infrastructure, rural development, environment and water); and to strengthen oversight, and to ensure that oil revenues benefit national development and are not siphoned off. This initiative has resulted in the adoption of a legal framework that has as its foundation new national oil revenue management legislation. The Law; on oil Revenue Management allocates direct oil revenues (i.e. from royalties and dividends) to the priority sectors and the oil producing region and provides for the creation of a trust fund for future generations.1 This legislation, refined further, by a series of implementing decrees that created, in addition to the usual supervision institutions (the Supreme Court and the Auditor General's office), an ad hoc oversight committee in the College de Contole et de Surveillance des Revenus Petroliers (CCSRP), composed of civil society representatives, parliamentarians, officials from Treasury and the Central Bank of Central African States (BEAC), and a Supreme Court judge.5 The implementing decrees have also designed mechanisms for oil revenues sterilization and stabilization that give the BEAC a critical role in controlling the repatriation of oil revenues deposited in off-shore accounts as well as in the effort to avoid excess liquidity.6
Nevertheless, critics note that building a new institutional framework does not guarantee good management of oil resources: additional strategic capacity building initiatives and structural reforms must be undertaken. Therefore, in 2OOO, the World Bank approved $37-8 million in loans for the Petroleum sector Management Capacity Building Project and a Management of the Petroleum Economy Project that aim to provide the government with environmental, social and technical capabilities to develop and manage Chad's petroleum sector and to increase efficiency, transparency, and accountability of public financial management. These activities are part of a larger economic development strategy signed in 2OOO, which prescribes restructuring the national legal framework to improve efficiency in policy decisions, increase accountability, and reduce corruption.7 Thus, the prospect of new resources from the Petroleum Project has accelerated the implementation of structural reforms by making these reforms urgent and providing incentives to carry them out.
Beyond these domestic reforms, the promise here is that other innovations (for example, the creation of external control entities to oversee the development of the pipeline) could be replicated in other developing countries seeking to increase transparency and compliance with pre-set rules. In the case of Chad, the World Bank appointed an international supervisory organization, the International Advisory Group (IAG), in 2OOI to report its observations on the implementation of the project, such as revenue allocation, the participation of civil society, governance and human rights, environmental management, social impacts, and potential future issues in need of redress. In addition, an engineering consulting company, which formed the External Compliance Monitoring Group (EGMG), monitors compliance of the oil companies to the environmental management plan and performance of the capacity-building projects. Finally, virtually anyone can exercise control over compliance with the World Bank's policy by filing complaints before the World Bank's independent Inspection Panel. Thus, the World Bank's involvement in the Chad-Cameroon pipeline marks it as a unique endeavor; it remains to be seen whether this model will prove successful in a potentially turbulent climate and, if so, whether it can be exported.
New Dangers and Remaining Challenges. Although the world Bank-brokered scheme has the potential to barter economic development for good governance while mitigating investment risks attached to the project, it is still faced with appreciable challengesboth technical and geopolitical-to its overall success. Despite the controls established and progress achieved since 19981 limitations to good governance persist and signal the difficulty of sequencing political reforms, capacity-building, and infrastructure construction, which have differing time frames. Thus, soon after the start of the pipeline and oil field construction and the implementation of political and economic reforms, IAG reported major discrepancies in the speed of completion of commercial and institutional projects. In short, the construction is moving forward faster than planned and the capacity-building is lagging behind." Since then, the "two-speed problem" denounced by IAG has not been resolved, and Chad's ministries, Parliament, and the College still lack the capacity to fully carry out their missions.10 Dinanko Ngomibe, the budget director in Chad's Ministry of Finance, declared to journalists last june that "in terms of human capacity, we're not ready yet." he notes that "less than 25 percent of [his] colleagues in the civil service know how to use computers, even when the electricity works."11 This lack of human resources poses serious challenges to the efficiency of the allocation of oil revenues and weakens the capability of those acting as checks and balances.
In addition to a looming lack of capacity, the government's behavior, especially that of President Derby, presents another threat to the sound allocation of oil revenues. A slew of issues, including human rights abuses, political repression, government distrust of freedom of information, the use of a portion of the signing bonus to buy arms, and the interdiction of the local association EPOZOP, contradict the government's stated commitment to political reform and the revenue management plan.12 In the short run, the World Bank has been able to use its political leverage (by threatening to withdraw support from the petroleum project or to not provide debt relief to Chad) to correct the President's misbehavior; to a certain extent, international scrutiny has also maintained pressure on the Chadian authorities. But it is unclear what will happen when the World Bank's leverage and public scrutiny wind up as years pass and oil revenues increase. Also in questions is whether the College, the new Auditor General's Office, and the Supreme Court will be strong enough to counterbalance the political power of the executive and prevent oil revenue mismanagement. These questions are critical, as much rests on how the College's authority will be exercised in practice. Indeed, in the absence of a strong civil society that holds the government accountable and compels it to honor its commitments, oversight of gOvernment spending of oil revenue and ensuring compliance with the legal framework falls heavily on the College. Its ability to do so effectively will depend not only on financial and human resources to carry out its mission, but also on the effective cooperation of the ministries and the enforcement of the Supreme Court's decisions in the event of violations.
These challenges of good governance crystallize many of the criticisms of the Chad-Cameroon pipeline model. Thus, some development experts and NGOs have rejected the validity of the model a priori, accusing the World Bank of "corporate welfare" and suggesting that "the private sector risk [would be] comfortably cushioned by public funds intended to help the poor in a politically unstable area of Sub-Saharan Africa.'13 Nevertheless, many observers recognized the efforts pursued by the World Bank and Chad, but stressed that political and institutional capacity reforms cannot be developed alongside infrastructure construction and many argue that the former must precede the latter. In other words, the World Bank has emphasized the building of a legal framework and institutions, but has overlooked the importance of governance, human rights, and political capacity, as well as the time necessary to make improvements in these areas. A lack of human capacity and the persistent fragility of Chad's democracy corroborate this thesis. Indeed, the primary contributor to this lack of preparation is that the World Bank has not traditionally tackled corruption and governance malpractices, has little experience in strengthening civil society, and is arguably not equipped to do so. Consequently, the World Bank could have benefited from the involvement of other organizations more competent in dealing with those issues. Thus, any future application of this model would need to rely heavily on an array of agencies whose technical assistance in fighting bad governance and strengthening civil society could be brought into play.
In addition to the problems of implementation and logistics associated with the project, the case of the ChadCameroon pipeline demonstrates limitations to the model that could be dramatic in terms of both economic impact and political stability. Indeed, in the worst case scenario, if the weaknesses of the project prove to completely undermine the oil revenue management scheme, then the "oil curse" would strike Chad (as it surely would without the project's unique mechanisms), creating major economic distortions (atrophy of other productive sectors, expansion of the non-tradable sector, appreciation of the real exchange rate, waste, unsustainable public expenditure, rent-seeking behavior), and increasing corruption and theft. In a less pessimistic scenario, these weaknesses would only limit the potential benefits of the pipeline project for poverty alleviation. At best, with improvements in the oil revenue management scheme and in the areas of structural reforms, human resources, and governance would continue as they have throughout the preparation stage and improve the lives of the poor.
At stake in the pipeline project is not only Chad's economic development, but also the goal of achieving political stability through poverty reduction-a situation that could, in fact, be worsened as a result of the project's failure. As the neighboring countries of Sudan and Nigeria exemplify, the lure of gain from oil encourages the battle for power and civil unrest opposing oil producing regions and governments. Therefore, badly-managed and unfairly-distributed oil revenues are a major threat to stability and national development, a particularly pressing concern given Chad's long history of violent ethnic and regional rivalries. To mitigate this risk, 5 percent of the royalties are earmarked for use in the oil producing region, and an accompanying Regional Development Plan is being implemented. Nevertheless, many observers protest that both are inadequate. The 5 percent is supplementary to other expenditure, and the true question is of how much will be allocated to this region in the rest of the budget lines. The risk here is that funds allotted to different regions put the Doba region at disadvantage, thereby reigniting ancestral antagonisms between North and South, and even sparking claims for autonomy in the South.
This risk is all the more significant as, besides a provision calling for alternating membership of representatives of the Muslim and Christian communities in CCSRP, ethnic and religious considerations were arguably not properly taken into account in the project's design. The fact that most of those who received training from the World Bank before the project was approved belonged to the same northern ethnic group as President Derby also fuels fear that this group may attempt to hoard oil revenues to the detriment of the rest of the population.14 Therefore, if the project fails to guarantee concrete improvements in the lives of the whole population, domestic political stability will be threatened.
Should Chad confront domestic conflicts, not only could civil wars within Sudan and the Central African Republic (CAR) propagate, but tensions between Chad and its neighbors could also reemerge, further threatening Chad's stability. Indeed, Chad must currently cope with an influx of refugees in the South and increasing tensions along its border with the CAR, which is violently shaken by an internal conflict.15 Similarly, Chad is fighting an invading militia from Western Sudan and is facing the penetration of nearly 70000 Sudanese refugees fleeing attacks in Sudan's western region, where government forces and rebels are fighting.17 This situation threatens Chad's security and could encourage President Derby to use oil revenues to strengthen his army at the cost of economic development. The disastrous experiences of other African oil-producing countries should raise Ghadian officials' vigilance and persuade them to appropriately manage the country's oil resources in order to avoid sinking into civil unrest, a situation that its neighbors could exploit. Indeed, in a weakened Chad, Libya and Nigeria, which have territorial ambitions in Chad and supported Chadian armed groups during the three decades following its independence, could represent an additional threat.17 As far as Cameroon is concerned, the common interests around oil exports should maintain stability between the two countries. Therefore, while current border clashes are troublesome, it is not clear at this time how oil revenues will play in Chad's relations with its neighbors other than Cameroon.
Conclusion: A Viable Model? Since the onset of the Chad-Cameroon Petroleum and Pipeline Project, the environmental, social, and political safeguards that the World Bank and Chad established have gradually improved. Today, as Chad sends its first barrels of oil to market, the oil Revenue Management Program and accompanying structural reforms will soon be tested. Success will depend in large part on the performance of Chad's new legal framework and its enforcement, as well as on the continuing efforts at macroeconomic reform and strengthening state capacity and oversight. Positive signs are evident, as the World Bank's involvement, pressure from NGOs and the expectations surrounding the birth of the oil era in Chad have already led to the implementation of numerous reforms.
Although Chad's preparation for the oil economy is uncertain, the efforts to create the conditions for sound oil resources management could provide a model for other mineral-rich developing countries to "bring to fruition the potential positive impacts" of petroleum projects.' In particular, some countries could replicate Chad's legal commitments to distribute oil revenues according to a specific development strategy. Other countries-especially those in which different national authorities conflict-might mirror the oversight mechanisms and establish an independent ad hoc committee similar to the College, and even empower this authority to settle disagreement within the power structure.
To what extent other mineral-rich countries will follow the model proposed by this project will not only depend on the success of the project in terms of economic development and political stability, but also on the will of governments, companies, and international or bilateral aid agencies to make similar commitments to those made in this project. Even if the project fulfills the expectations it raised, it is not certain whether other gfovernments would agree to implement identical reforms to Chad's, though it may be in the long-term interest of their populations and leaders. Nonetheless, the model that the Chad-Cameroon pipeline project provides could encourage reluctant international institutions to pressure and accompany governments in adopting structural and political reforms in return for their support in bringing other investors to the table. Only time will reveal whether the Chad-Cameroon pipeline can achieve its economic and political goals, and if the innovations born of this unique arrangement can provide the blueprint for future geopolitical and developmental change.
Chad has few alternatives to the pipeline for financing economic development.
Unfairly-distributed oil revenues are a major threat to stability and national development.
1 Mario Azevedo and Emmanuel Nnadozie, Chad: A Notion in Search of its Future (Boulder: Westview Press, 1998). Also, The World Bank, World Development Indicators (Washington, D.C.: The World Bank, 2000), CD-ROM.
2 Statement of Excellency Ould-Abdallah, Ahmedou (Ret.). The Chad-Cameroon Pipeline :ANew Model for Natural Resource Development, Hearing before the Subcommittee on Africa of the Committee on International Relations, House of Representatives, 107-75 (18 April 2OO2), 22. By May 2OOO, Peter Rosenblum, Associate Director for Harvard Law School's Human Rights Program, commented that "at the core is a challenge to the sovereignty of undemocratic rulers... Previously, no one would have interfered in the relations between an oil company and an African state." see Peter Rosenblum "Pipelines Politics in Chad," Current History (May 1999), 195-199- Quoted in Benjamin C. Esty, "The Chad-Cameroon Petroleum Development and Pipeline Project (A)," Harvard Business School cases (17 January 2OO2), IO. The Wall Street Journal reports: "The bankers agreed to join the project but with two key provisos: Exxon would submit its plans to bank scrutiny, and Chad would agree to the unprecedented step of relinquishing its oil sovereignty." Roger Thurow and Susan Warren, "A Global Journal Report-Pump Priming: In War on Poverty, Chad's Pipeline Plays Unusual Role-To Unlock Buried Wealth, Nation Gives Up Control Over Spending Its Cash-A Sears Catalog' From Exxon," The Wall Street Journal (24 june 2003).
3 "EssoChad Documents," available online at: http://www.esso.com/eaff/essochad/documentation, and "Chad-Cameroon Petroleum Development and Pipeline Project," available at: http://www.worldbank.org/afr/ccproj/project/pro_over view.htm.
4 More precisely, the Law prescribes that IO percent of direct resources are to be held in trust for future generations in savings accounts in an international financial institution, 72 percent of royalties and 76.5 percent of dividends are earmarked for additional spending in priority sectors of development, 13-5 percent are set aside for operating and investment costs of the State until 31 December 2007, after which they will go to the priority sectors, and the remaining 4-5 percent oi royalties are tagged for the regional development plan in Doba in addition to other usual state spending. The legal prescriptions on oil revenues management are better known under the following form: IO percent of the direct revenues are allocated to a fund for future generations, the remaining 90 percent are divided with 8o percent of royalties and 85 percent of dividends to the priority sectors, 15 percent to operating expenses for 5 years from the production start, and 5 percent of royalties for the producing region. If we take the direct revenues as reference for the allocation of eveiy portion of those revenues and not the 90 percent, which is usually done, then we obtain the first numbers (15 percent of 90 percent of the direct revenues gives 13.5 percent of the total direct revenues). The first description of the law is more precise and the second one, which is the general way, is a little misleading.
5 In English, "Committee for the Control and Supervision of oil Resources."
6 Republic of Chad, Law Governing the Management of oil Revenues, Law OOI/PR/99 modified by the Law OI6/PR/2OOO N'Djamena, 1999; Decree Appointing the Members of the College de Controle et de Surveillance des Ressources Petrolieres (CCSRP), 579/PR/PM/2OOO, N'Djamena, 2OOO (ad hoc oversight committee); Decree Pursuant to the Organization, Functioning, and Conditions of the CCSRP's Control and Oversight, 24-O/PR/MEF/O3, N'Djamena, 2OO3 (abrogating the precedent decree of 2001); Decree Establishing the Sterilization Mechanism of the oil Revenues from the Three Fields Kome, Miandoum and Bolobo (in the Doba basin), 238/PR/MEF/O3, N'Djamena, 2OO3; Decree Establishing the Stabilisation Mechanism of the Expenses Financed by oil Revenues, 239/PR/MEF/O3, N'Djamena, 2003.
7 Defined in Chad's interim Poverty Reduction Strategy Paper (PRSP). The PRSP is a document prepared by poor countries that define their strategy to alleviate poverty and is endorsed by the World Bank and the International Monetary Fund.
8 A Member of Parliament and active opposition leader, Ngarlejy Yorongar, filed complaint to the Inspection Panel in March 2OO1, where it alleged violations of the World Bank's policies in several ways, including environment, resettlement, poverty reduction, economic evaluation, and monitoring. In September 2OO2, the Panel judged that non-compliance effectively occurred in 2O instances. Inspection Panel, Report on Chad-Cameroon Pipeline Project, September 2OO2. Quoted in Ian Gaiy and Terry Lynn Karl, Bottom of the Barrels: Africa's oil Boom and the Poor (Baltimore: Catholic Relief Services, 2003), 66.
9 International Advisory Group, Chad-Cameroon Petroleum Development and Pipeline Project: Report of Mission to Cameroon and Chad july IQ-August 3, 2OO1, 28 September 2OOI.
10 To make up for this lack of capacity, the College and the newly created ministries' administrative and financial offices hired technical staff (economists, experts in communication, public linance, procurement and management). Nearly thirty economists, public finance experts, and procurement specialists were thus hired, especially in the priority sectors. One of the goals of this technical assistance is to reduce delays in the spending cycle to prevent absorptive capacity problems while contributing to the training of local staff. However, World Bank's staff acknowledged that more work is needed, particularly in the areas of budget management and project identification. From an interview with Christine Richaud, World Bank Economist for Chad, on 2 September 2003.
11 Thurow and Warren, 2003.
12 see Amnesty International's 2003 Report on prisoners of conscience. Amnesty International, Chad Report 2OO3 (December 2OO2), available at: http://web.amnesty.org/report2OO3/tcd-summaiy-eg. As explained above, President Derby had some political opponents arrested in several occasions. The authority shut down Radio Liberty (Ghadian independent radio) for weeks before being reopened under popular pressure. Reported in the international media at the time and in The Chad-Cameroon Pipeline: A New Model for Natural Resource Development, Hearing before the Subcommittee on Africa of the Committee on International Relations, House of Representatives, 107-75, 18 April 2OO2. EPOZOP (Entente des Populations de la Zone Petroliere) has close ties with local communities in the Doba region.
13 Korinna Horta, Questions Concerning the World Bank and Chad/Cameroon oil and Pipeline Project, Environmental Defense Eund (March 1997).
14. Statement by P. Roscnblum, Hearing before the Subcommittee on Africa of the Committee on International Relations, House of Representatives, 107-75, 18 (April 2OO2), 21.
15 United Nations Integrated Regional Information Networks (IRIN), "Continued Militia Incursions Across Border With Chad," distributed by AllAfrica Global Media (30 September 2003), available at: http://allAfrica.com. see also "Clash on Chad-CAR Border," BBC (7 August 2OO2).
16 United Nations Agency, "Sudanese Refugees Hoeing Into Chad to Escape Air Attacks," distributed by AllAfrica Global Media (15 September 2003), available at http://allAfrica.com.
17 Libya occupied Northern Chad in the Aouzou for about ten years until forced out in 1987 and continued to claim the area until the International Court of justice ruled that Chad had sovereignty over the strip in 1994. In spite of trade relations between Nigeria and Chad, both countries entertain conflicting relations mainly due to border dispute around Lake Chad.
18 "Esso Chad Executive Summary," available at: http://www.esso.com/eaff/essochad/documentation/summary.
Aude Delescluse works for the Agence Francaise de Developpement in Lebanon. Previously, she was an energy consultant for the World Bank.
Serious Thinking About Democratization
Thomas O Melia. Georgetown Journal of International Affairs. Washington: Winter 2004. Vol. 5, Iss. 1; pg. 131, 7 pgs
Abstract (Article Summary)
Melia reviews Democratic Institution Performance; Research and Policy Perspectives edited by Edward R. McMahon and Thomas A. P. Sinclair.
Full Text (2815 words)
Copyright Edmund A. Walsh School of Foreign Service Winter 2004
Serious Thinking About Democratization Edward R. McMahon and Thomas A.P. Sinclair, editors. Democratic Institution Performance; Research and Policy Perspectives. Westport, Connecticut: Praeger Publishers, 2002, 267 pp. $64.95
The promotion of democracy abroad has emerged as the conceptual lynchpin of U.S. foreign policy in the current Bush administration. Whenever the president and his senior officials cast "terror" as the principal threat to U.S. security todaywhether that terror is sponsored by states or by non-state actors, using weapons of mass destruction, suicide bombers, or small arms-democracy is generally presented as the solution. The remarkable address by President Bush on the occasion of the 2Oth anniversary of the National Endowment for Democracy, in which he declared a long-term national commitment to foster democracy throughout the Arab Middle East, and chided American allies in Egypt and Saudi Arabia to get with the program, may constitute the boldest expression of this ambitious strategy."The military prowess, economic and financial strength, and political capital of the American superpower are now to be harnessed to the promotion of democracy, not only because it is seen to be the right thing to do, but also as the way to guarantee the long-term safety and prosperity of the United States. Despite the considerable resources at the government's disposal, the results thus far have been decidedly mixed. The question remains whether adequate know-how exists in the United States to make democracy promotion a success.
Of course, democracy promotion is nothing new to U.S. foreign policy. It has been a slowly growing theme in U.S. foreign policy since Woodrow Wilson first spoke about the "rights of small nations" at Versailles. Sometimes, this interest has extended beyond the rhetorical. In the late ig7Os, for instance, Jimmy Garter made human rights a priority for U.S. foreign relations-even to the point of alienating traditional allies and client states. Garter was reluctant, however, to go beyond individual casework and address the larger, structural problems stemming from authoritarian rule. He did not contemplate the ouster or overthrow of the repressive governments that practiced the human rights abuses he condemned.
During Ronald Reagan's presidency, the launch of the National Endowment for Democracy (NED) and other initiatives substantially ratcheted up the U.S. rhetorical and operational devotion to democratization. The George H.W. Bush and Clinton administrations then institutionalized and routinized the U.S. program for promoting democracy. In post-conflict situations, or in lands where regimes had collapsed (as in much of the formerly Communist world), pressuring and/or helping governments to improve their electoral and judiciary systems became a regular part of the foreign policy "tool kit." During the nineties, it even became commonplace for aid agencies-in the United States and elsewhere in the Western world-to provide substantial financial and technical support to civil society organizations existing mainly to monitor the quality of democratic governance.
With the election of George W. Bush, however, it seemed that the growing U.S. enthusiasm for nation-building and democracy promotion would recede. Bush had campaigned in 2000 against what he saw as the over-extension of American military and political resources to faraway lands of no strategic consequence to the United States-places like Haiti, Kosovo, and Bosnia. His campaign's chief foreign policy advisor, Condoleezza Rice, cautioned against "attachment to largely symbolic agreements and...pursuit of, at best, illusory 'norms' of international behavior." Describing in Foreign Affairs how a Republican foreign policy would be different from its predecessor's, Rice insisted "American policy must...separate the important from the trivial." She made it clear that the Clinton administration's efforts at nation-building belonged to the latter category.2
9/11 changed all of that. President George W. Bush has stated clearly that there is no limit to the distance he will go or the measures he will use to change the nature of foreign governments to suit U.S. interests. he has demonstrated the United States's willingness to establish democratic governments in even the most formidable of places by forcefully effecting regime change in Afghanistan and Iraq. The dramatic new approach to foreign aid contained in the president's Millennium Challenge Account bolsters the case that democracy promotion is actually the motive behind these military operations. This promises to allocate a substantial portion of foreign aid to developing countries on the basis of demonstrated achievement of long-term institutional reform of economies and polities alike. The Middle East Partnership Initiative, a particular favorite of secretary of State Colin Powell, focuses the global democratization and reform strategy in this most challenging and important region-and seems to indicate that, while there are differences within the Cabinet on other aspects of policy, there is unanimity on the goal of promoting democracy.
Despite the varied language that George W. Bush and his advisers employ-the president himself seems to use "freedom" and "liberty" interchangeably with "democracy"-they mince no words when they commit the United States to this audacious mission.3 National security Advisor Condoleezza Rice has underscored the depth of the commitment by declaring that the United States and its allies "must make a generational commitment to helping the people of the Middle East transform their region."4
Yet, the hesitations and missteps to date in the political reconstruction of both Afghanistan and Iraq demonstrate that the United States has not developed fully or finely tuned its approach to fostering democracy abroad. One reason, perhaps, is that public investment in developing the country's international democracy-building capacity pales in comparison to the investment in its warfighting capacity. Nonetheless, a growing cadre of professionals exists at the State Department and the United States Agency for International Development (USAID) with practical experience in managing nation-building efforts, both in cooperative multinational contexts and in those cases in which the United States flies solo. An even larger pool of talented political development professionals has emerged in the employ of forprofit firms and non-profit enterprises. U.S. taxpayers provide most of the funds for these endeavors, but they are sometimes funded by the United Nations or other governments. Though these are mainly U.S. organizations, the personnel actually hail from dozens of countries and bring a wide range of experience to the table.
There is also a growing community of scholars and analysts-drawn from political science, law, anthropology, sociology, and elsewhere in the academy-pondering the nature of democracy and the process of democratization. Some former government officials have written very informative documents based on their particular experiences. These include Rick Barton, formerly at USAID and the UN, who now directs the Program on Conflict and Reconstruction at the Center for Strategic and International Studies (CSIS), and James Dobbins, a retired diplomat and veteran of Haiti, Kosovo and Somalia, who is now at the Rand Corporation.5 The Office of Democracy and Governance of the USAID has produced the most comprehensive collection of publications examining programs USAID itself has sponsored, as well as some that propose ways to think about new programs.
Nevertheless, there are simply not enough centers of research and policy analysis that enlist practitioners, investors, and analysts to sort through the nuts and bolts of democratization strategies. A few such venues exist, but they are still relatively few in number. Tom Carothers has been the most active convener of these sorts of discussions at the Carnegie Endowment for International Peace (CEIP). Mike McFaul and Larry Diamond weigh in from the Hoover Institution at Stanford University. The Journal of Democracy published by the NED has become the leading forum for thoughtful writing on these themes. Still, there is not nearly enough serious, original thinking and writing available to inform those who want to go abroad to promote democracy-whatever their motivations. Certainly, the first few months of political reconstruction in Iraq and Afghanistan confirm that there are questions to be answered, or at least examined, more thoughtfully.
The Center for Democratic Performance at the State University of New York at Binghamton, established in 1999, represents an important addition to the field. Directed by Edward R. McMahon, a former U.S. diplomat and senior official at the National Democratic Institute for International Affairs, the Center brings together practitioners and scholars in a focused and practical way in order to advance the collective understanding of these issues. Democratic Institution Performance: Research and Policy Perspectives is one of the valuable fruits of this endeavor. The volume begins with an excellent scene-setter on the "paradox of democracy," written by lead editor McMahon and researcher Brian Nussbaum. They aptly describe how, though "democracy has never been more widely practiced than in our present time...our understanding of how it is practiced and perpetuated remains quite limited."'' Moreover, they observe, an "inability to predict what choices are most appropriate for a particular nation at a given time continues to challenge democratic practitioners and scholars alike."8
Collecting chapters from fifteen different writers and assembling them into a coherent book poses a daunting task. McMahon has nevertheless managed to do just that in this work on a potentially unwieldy topic. The resulting collection of thoughtful essays takes the reader on an intellectual tour of key factors in democratic polities-particularly the challenges inherent in efforts to foster democracy elsewhere.
Written principally by scholars of democracy at home and abroad, the work is leavened with contributions from practitioners who have been on the front lines providing advice and information around the world. Democracy promoters-agencies and organizations trying to shape elections and political parties, direct civic education projects, and professionalize governing institutions-have too often shied away from rigorous intellectual scrutiny of their premises and their programs. Academic writers, for their part, frequently appear unconcerned with the very real problems of funding cycles, recruitment and deployment challenges, and the immense difficulty of trying to help real-life political leaders improve their performance without undermining their viability in unforgiving local political environments. Bringing the two perspectives together under one roof, or between book covers, brings out the best of each.
McMahon divides the book into two major sections. One addresses the domestic aspects of democratization-the internal dynamics and tensions that give rise to (or thwart) the democratic impulse of nations. The other section looks at the external facets of the democratization process. Specifically, these chapters analyze what various actors in the international community, from gov-ernments to privately managed non-governmental organizations, can do to facilitate democratization. Chapters discuss the interplay between political parties and civic associations; reconsider the centrality of civil society-and the individual citizen-to the functioning of democracies; review the limits to popular support for democracy in certain African countries; and assess "transitional justice" in post-conflict situations.
Perhaps the most provocative contribution in this section comes from the most famous of the distinguished authors, AIiA. Mazrui. Dr. Mazrui looks at the rise of "Shariacracy" in presentday, democratizing Nigeria. He views the enactment of strict Islamic laws in the northern states of Nigeria as a consequence of globalization-a kind of nationalist reply to this region's marginalization in the world's economy and culture. Like the other chapters in this section, Mazrui's essay offers a novel way to look at what might at first glance seem a familiar topic.
The external discussion begins with two solid chapters on the emergence of international actors-official and nongovernmental agencies-both as agents of change and as arbiters of the quality of political processes in other countries. Eric Bjornlund, the most widely experienced practitioner of democracy-promotion programs among these authors, offers sober reflections on the bureaucratic machinations that can impair donor efforts to help local actors. Bjornlund has advised election-monitoring organizations in places as diverse as Zambia, Palestine, and Indonesia, and what he has seen troubles him. The Indonesia experience, in particular, suggests that foreign donors and advisers can sometimes fail to appreciate the larger purpose of their activities: "using elections as a catalyst for the process of building democratic practices and institutions." The result, he writes, was that the international community "inadvertently hampered the new civic organizations and the momentum for reform"-a devastating indictment.9
Retired U.S. diplomat Elizabeth Spiro Clark discusses the evolution of international standards in determining the political processes necessary for countries to be considered democratic. She notes several trends that have emerged in recent years. One is the enhancement, or "hardening," of standards by such intergovernmental bodies such as the Organization for security and Cooperation in Europe (OSGE) and the Organization of American States (OAS), where concern about the quality of member states' elections has become part of the institutions' mission. Another important trend has been the broadening of the focus in democracy assistance to include not only elections, but also a range of institutions and behaviors that can indicate whether a country is democratizing or not. Further, she notes that each new transition offers the prospect of new innovations in sequencing, methods, and political architecture.
The final three chapters address the gap between theory and practice-the cultural divide between policy-makers and scholarly researchers-that drives the collection. Harry Blair, whom USAID has frequently engaged to assess the impact of its programs, offers a candid review of the USAID's efforts to demonstrate the actual impact its hundreds of millions of dollars in programs have had. Shaheen Mozaffar looks closely at the intellectual paradigms that compete for dominance among the functionaries who frame USAID's programs, and laments the limited pool of talent available to bridge the estranged communities of academia and policy-makers: "only a limited number of scholars who have developed skills combining substantive professional and area expertise, intellectual entrepreneurialism, and mastery of the bureaucratic maze are able to impact USAID democracy programs."
The powerful final chapter, by Edward Friedman of the University of Wisconsin-Madison, brings together the various intellectual and political factors in an essay entitled "The Art of Democratic Grafting and Its Limits." His sharpedged review of the experts' analytical errors over the years, combined with a practical-minded appreciation for the political world, leaves the reader nodding in agreement at the statement: "analysts of democratic Grafting should approach their topic with great humility and selfrestraint, cognizant of the limited value of general theory."11
While the book might seem limited in scope because it revolves largely around the work of Americans promoting democracy abroad-and also around the particular experience of USAID-it must be said that until very recently democratic development action in many parts of the world has been implemented mainly by Americans and funded by USAID. While the democracy movement is truly worldwide, and has increasingly been institutionalized as a feature of other nations' foreign policies-usually as a component of development assistancethe United States remains by far the most significant actor in this field. Other countries' aid programs have tended to follow where the Americans PO first, and private philanthropists, other than the remarkable George Soros, have simply not involved themselves in the process of democracy promotion to any significant extent.
Ned McMahon has recently moved to the University of Vermont at Burlington and launched another new center of inquiry into democratization strategies. One hopes this means another institutional contribution will be forthcoming before long, and that the policymakers will pay ever greater attention. Meanwhile, now that the Pentagon has suddenly emerged as a better-endowed, better-armed rival to USAID and the Department of State in the democracy promotion arena, one hopes those planning the political reconstruction of Iraq at the Coalition Provisional Authority in Baghdad brought along a few copies of Democratic Institution Performance to light the way forward.
There are Simply not enough centers of research to sort through the nuts and bolts of democratization strategies.
Indonesia, the international community "inadvertently hampered the new civic organizations and the momentum for reform."
1 George W. Rush, "Remarks at the 29th Anniversary of the National Endowment for Democracy, November 6, 2003," Internet, http://whitehouse.gov/news/releases/2003/11/print/2 0031106-2.html (Date Accessed: 12 November 2003).
2 Gondoleezza Rice, "Campaign 2000: Promoting the National Interest," Foreign Affairs 79, no. 1 (2000).
3 See, for instance, the President's televised address to the nation of 7 September 2003, Internet, http://www.whitehou.se.gov/news/releas- es/2003/09/20030907-1.html (Date Accessed: 27 October 2003).
4 Gondoleezza Rice, "Remarks to the 28th Annual Convention of the National Association of Black Journalists, Internet, http://www.whitehouse.gov/news/releases/2003/08/200308071.html (Date Accessed: 27 October 2003).
5 See, for instance, Frederick D. Barton & Bathsheba N. Grocker, "A Wiser Peace: An Action Strategy for a Post-Conflict Iraq," available online at http://csis.org/isp/wiserpeace.pdi and James Dobbins, et al., "America's Role in Nation-Building: From Germany to Iraq," available online at http://www.rand.org/publications/MR/MR1753/.
6 Available online at: http://www.usaid.gov/ democracy/techpubs.
7 Edward R. McMahon and Brian Nussbaum, "The Paradox of Democracy" in Democratic Institution Performance; Research and Policy Perspectives (Westport, CT: Praeger Publishers, 2003), 3-4.
8 Ibid, 4.
9 Eric Bjornlund, "Lessons from Domestic Election Monitoring," in Democratic Institution Performance: Research and Policy Perspectives (Westport, GT: Praeger Publishers, 2003), 105.
10 Shaheen Mozaffar, "The Research-Policy Nexus and U.S. Democracy Assistance," in Democratic Institution Performance; Research and Policy Perspectives (Westport, CT: Praeger Publishers, 2003), 200.
11 Edward Friedman, "The Art of Democratic Grafting and its Limits," in Democratic Institution Performance; Research and Policy Perspectives (Westport, CT: Praeger Publishers, 2003), 227.
Thomas O. Melia is Director of Research at the Institute for the Study of Diplomacy, at Georgetown University's School of Foreign Service.
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