Lanka’s oil rich hopes
by Michael Patrick O'Leary
This article was published in The Nation on November 20 2011
In his treatise Petroleo y Dependencia, Juan Pablo Pérez Alfonzo, principle architect of OPEC, wrote: “Oil will bring us ruin. It’s the devil’s excrement. We are drowning in the devil’s excrement.”
Once again, fantasies of Sri Lanka becoming oil-rich are bubbling to the greasy surface.
Sri Lanka imports nearly 30 million barrels of oil a year, which is used to generate electricity as well as for transport, every year. This used to cost around $800 million a year. In 2005, it cost $1.64 billion. In 2006, higher international prices took the bill to $2.2 billion. Add to this, $19 million per month in subsidies, the knock-on effect of transport costs on prices and the never-ending cost of war and reconstruction and one can see why the government would like to have its own oil.
India started exploring the Cauvery Basin in the Palk Straits as long ago as 1954, drilling 100 test wells. From 2000, India started production from fields close to Sri Lanka at the rate of 1,000 barrels per day. In the late 1970s, the Ceylon Petroleum Corporation, assisted by US and Russian companies, drilled seven test wells on and offshore in the Gulf of Mannar Basin without success. India’s success encouraged Sri Lanka to try again. The Cauvery and Gulf of Mannar basins are said to be associated with rift complexes of the Late-Jurassic-Cretaceous Age and have the potential to yield 100 million barrels.
An oil bonanza cannot be confidently predicted without drilling. Offshore wells require more than $10 million each and the investor loses it all if the well is dry. It will be at least five years before there is any return on the investment.
The Director General of Petroleum Resources, Dr Neil R de Silva said in January 2007 that the picture was still “fuzzy” about how viable the fields were. “One of the requirements oil companies would be expected to meet in getting a licence for oil exploration would be a benefits plan – this would ensure employment for Sri Lankans and enable Sri Lankan manufacturers and service providers to take part on a competitive basis to supply goods and services.” He added that they must be competitive, efficient and trained. How can that work? He conceded that there was a serious shortage of professionals to work in the field and that the industry needs to train a certified labour force. There are no petroleum professionals coming through the education system.
The number of local people employed after the construction phase of the Chad-Cameroon pipeline was negligible in Cameroon and around 350 in Chad. In Ecuador, 50,000 new jobs a month were promised; there have been only 9,000 new jobs so far, mostly unskilled and temporary.
De Silva gave the Sunday Observer an update in March 2011. He did not sound very positive to me: “with the available data it is not possible to estimate the amount of oil in the Mannar Basin confidently… At the beginning of the oil production process, the Sri Lankan Government’s share would be 15% and Cairn Lanka’s 85% … As the years go by, Sri Lanka’s share will increase to … 85% while Cairn Lanka’s share will come down to …15%”.
Oil and corruption
As long ago as 2004, Transparency International estimated that billions of dollars were lost to bribery in public purchasing and oil seemed to guarantee corruption. Oil-rich Saudi Arabia, Angola, Azerbaijan, Chad, Ecuador, Indonesia, Iran, Iraq, Kazakhstan, Libya, Nigeria, Russia, Sudan, Venezuela and Yemen were highly corrupt. Public contracting in the oil sector is plagued by vanishing revenues.
Even if Sri Lanka’s oil exploration is successful, it is unlikely that many citizens will benefit. Venezuela is to some extent an exception in that government policy has been to use oil to improve the lot of the people as a whole. Even with Chavez’s reforms, problems persist and Caracas is one of the three most violent cities in the world.
Prof. Michael Ross of UCLA produced a chart mapping oil sales against literacy and malnutrition. Every 5% rise in oil exports was matched by a three-month fall in life-expectancy and a one-point rise in childhood malnutrition. Sri Lanka currently enjoys good WHO indicators, but child malnutrition figures are causing concern. This could get worse with the ‘benefits’ of oil.
Terrorism and environment
Spillages from sabotage sometimes occur. In Colombia and Nigeria, guerrillas persistently targeted pipelines. In 1995, the LTTE attacked CPC refinery and oil storage installations in Colombo causing several deaths and massive fires in the storage areas. Security fears undermine human rights. In more recent times the LTTE air force targeted oil installations.
The seismic vibrations generated by drilling can adversely affect buildings and the chemicals used can also deplete aquatic life in rivers and streams. Pollution can occur because of human error, sudden rupture of pipelines, or instrument failures.
So, does Sri Lanka want to be a nation where foreigners call the shots – a polluted nation, plagued by poverty and inequality; where corruption, dynastic elites and nepotism compromise good governance and erode human rights?
Does Sri Lanka deserve the blessing of oil?