Why the tar sands are bad for Madagascar

By Guest, 19 May 2011

Jeremy Williams, blogger from MakeWealthHistory.org

As a child growing up in Madagascar, I remember the fleet of distinctive cars driven by the American oil workers. They had their own school for the children of AMOCO families. They even had their own supermarket, which we only found out about when the company pulled out. Like the rest of the expatriate community we descended like hawks on the closing down sale, and came home with armfuls of exotic US goods - bacon bits, tubes of cheese and dried French onions.

AMOCO packed up and left Madagascar in 1987 for the same reason that Chevron and Elf left in the 70s. Madagascar's oil just wasn't profitable enough to extract. It was dirty and far away, in a less than stable country with little infrastructure. Oil was selling for $20 a barrel in 1987, and at that price it was uneconomic.

Fast forward 25 years and it's a very different picture. Soaring global demand has pushed the oil price to new highs, and suddenly those marginal oil fields in difficult places look viable. The deep water drilling in the Gulf of Mexico and the push for Arctic oil are part of the same phenomenon. We've drunk the good stuff, and now we're fumbling around at the back of the cupboard. With the promise of fat profits for anyone who can bring new supplies to the market, it was only a matter of time before the oil companies came knocking on Madagascar's door again.

This time around, the contracts for the country's oil sands lie with a conglomerate called Madagascar Oil. Despite the name and the hastily drawn logo with a lemur on it, there's almost nothing Malagasy about it. It was founded by a Canadian and two Australians (One of them is the notorious Alan Bond, a man who was convicted and jailed for Australia's biggest ever corporate fraud). Madagascar Oil is administered out of an office in Texas, and registered in the tax haven of Bermuda. Funders include Credit Suisse, and French oil giant Total will be assisting on the ground and have recieved finance from our very own RBS. Profits will accrue anywhere but Madagascar itself.

Still, at least there will be tax revenues for the Malagasy government, right? Not really. Madagascar Oil has negotiated a deal that sees them keep 99% of profits for the first decade, leaving just 1% for the government's coffers. That increases to a 80/20 split for the second decade, and a 70/30 share for the third. It's not an easy country to work in and a hefty profit share is par for the course on a risky venture, but it's still the most generous deal that's ever been negotiated by an oil company.

To put that 1% in perspective, consider that Chad charges a 60% tax on profits from its oil. Norway keeps 78%, Saudi Arabia can demand as much as 85%. A one percent tax share is unprecedented, and you have to wonder what the oil ministry was doing signing away the national assets for such a pittance.

Even if the treasury gets its hands on the 1%, it is unlikely that much of it will filter down to the estimated 120,000 people who will see their land destroyed by the oil sands initiative. Madagascar has unconventional oil, and this is going to be messy. One of the key fields is Tsimiroro, where heavy oil seeps from the ground. A little further north is Bemolanga, where a test well is already coaxing crude out of the bituminous sands by steam injection. It's a process that will require huge amounts of water, both to extract and to process the oil, and will leave vast tailing ponds of polluted waste water.

If the tar sands project goes ahead, Madagascar will have unleashed one of the world's most destructive industries, and will get almost nothing in return. It's a project that should not be allowed to continue.

Jeremy Williams, MakeWealthHistory.org

To find out more about the tar sands, catch Malagasy campaigner Holly Rakotondralambo on a speaking tour next week.

23 May – Public talk. Boyd Orr Building, Glasgow University, with the Glasgow Centre for International Development, 6-8pm, free. (Campus map: location D1)
24 May – Public talk and Petropolis film screening. Augustine United Church Edinburgh EH1 1EL, with Take One Action, 6-8pm, entry by donation for film.
25 May - Public talk and Petropolis film screening. Malet Suite, University of London Union WC1E 7HY, 6-8:30pm, entry by donation for film.