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[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]

 
                       AFRICA'S ENERGY POTENTIAL

=======================================================================

                                HEARING

                               BEFORE THE

                         SUBCOMMITTEE ON AFRICA

                                 OF THE

                              COMMITTEE ON
                        INTERNATIONAL RELATIONS
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED SIXTH CONGRESS

                             FIRST SESSION

                               __________

                        THURSDAY, MARCH 16, 2000

                               __________

                           Serial No. 106-121

                               __________

    Printed for the use of the Committee on International Relations

 Available via the World Wide Web: http://www.house.gov/international 
                               relations

                                 ______

                     U.S. GOVERNMENT PRINTING OFFICE
65-579 CC                    WASHINGTON : 2000

                  COMMITTEE ON INTERNATIONAL RELATIONS

                 BENJAMIN A. GILMAN, New York, Chairman
WILLIAM F. GOODLING, Pennsylvania    SAM GEJDENSON, Connecticut
JAMES A. LEACH, Iowa                 TOM LANTOS, California
HENRY J. HYDE, Illinois              HOWARD L. BERMAN, California
DOUG BEREUTER, Nebraska              GARY L. ACKERMAN, New York
CHRISTOPHER H. SMITH, New Jersey     ENI F.H. FALEOMAVAEGA, American 
DAN BURTON, Indiana                      Samoa
ELTON GALLEGLY, California           MATTHEW G. MARTINEZ, California
ILEANA ROS-LEHTINEN, Florida         DONALD M. PAYNE, New Jersey
CASS BALLENGER, North Carolina       ROBERT E. ANDREWS, New Jersey
DANA ROHRABACHER, California         ROBERT MENENDEZ, New Jersey
DONALD A. MANZULLO, Illinois         SHERROD BROWN, Ohio
EDWARD R. ROYCE, California          CYNTHIA A. McKINNEY, Georgia
PETER T. KING, New York              ALCEE L. HASTINGS, Florida
STEVE CHABOT, Ohio                   PAT DANNER, Missouri
MARSHALL ``MARK'' SANFORD, South     EARL F. HILLIARD, Alabama
    Carolina                         BRAD SHERMAN, California
MATT SALMON, Arizona                 ROBERT WEXLER, Florida
TOM CAMPBELL, California             STEVEN R. ROTHMAN, New Jersey
JOHN M. McHUGH, New York             JIM DAVIS, Florida
BILL LUTHER, Minnesota               EARL POMEROY, North Dakota
LINDSEY GRAHAM, South Carolina       WILLIAM D. DELAHUNT, Massachusetts
ROY BLUNT, Missouri                  GREGORY W. MEEKS, New York
KEVIN BRADY, Texas                   BARBARA LEE, California
RICHARD BURR, North Carolina         JOSEPH CROWLEY, New York
PAUL E. GILLMOR, Ohio                JOSEPH M. HOEFFEL, Pennsylvania
GEORGE P. RADANOVICH, California
JOHN COOKSEY, Louisiana
THOMAS G. TANCREDO, Colorado
                    Richard J. Garon, Chief of Staff
          Kathleen Bertelsen Moazed, Democratic Chief of Staff
                                 ------                                

                         Subcommittee on Africa

                 EDWARD R. ROYCE, California, Chairman
AMO HOUGHTON, New York               DONALD M. PAYNE, New Jersey
STEVE CHABOT, Ohio                   ALCEE L. HASTINGS, Florida
TOM CAMPBELL, California             GREGORY W. MEEKS, New York
GEORGE RADANOVICH, California        BARBARA LEE, California
THOMAS G. TANCREDO, Colorado
                Tom Sheehy, Subcommittee Staff Director
               Malik M. Chaka, Professional Staff Member
        Charisse Glassman, Democratic Professional Staff Member
                 Charmaine V. Houseman, Staff Associate

                            C O N T E N T S

                              ----------                              
                                                                   Page

                               WITNESSES

Calvin Humphrey, Deputy Assistant Secretary for International 
  Affairs, U.S. Department of Energy.............................     5
J. Robinson West, Chairman, The Petroleum Finance Company........    18

                                APPENDIX

Prepared statements:

Chairman Edward Royce............................................    28
Calvin Humphrey..................................................    30
J. Robinson West.................................................    38

Submissions:

Statement from Chevron Corporation...............................    84
Fact Sheet on Sudan..............................................    99
Statement of Paul Michael Wihbey.................................   102

                       AFRICA'S ENERGY POTENTIAL

                              ----------                              

                        Thursday, March 16, 2000

                   House of Representatives
                             Subcommittee on Africa
                       Committee on International Relations
        Washington, D.C.
    The Subcommittee met, pursuant to notice, at 2 p.m., in 
room 2200 Rayburn House Office Building, Hon. Edward R. Royce, 
(Chairman of the Subcommittee) presiding.
    Mr. Royce. This hearing of the Subcommittee on Africa will 
come to order. Today the Subcommittee will look at the 
development and use of energy resources in Africa. This is an 
important issue.
    In order to improve the lives of their citizens, African 
nations need to develop affordable energy that is reliable and 
is environmentally friendly. Some African countries are major 
exporters of energy resources which brings them significant 
political and economic challenges.
    The democratically elected Nigerian government of President 
Obasanjo, for example, is facing a very difficult challenge 
posed by Nigeria's production of over 2 million barrels of oil 
a day. To succeed with Nigeria's national revival, President 
Obasanjo must address legitimate grievances over revenue 
sharing and environmental polices--grievances ignored by the 
previous military regime--while rejecting the small element of 
radicals in the oil-rich Delta region who are committed to 
violence and destruction and who have halted production on 
several occasions.
    Foreign oil and gas companies face their own task of being 
part of the solution in Nigeria and elsewhere in Africa. Energy 
development can also raise diplomatic questions. Many Americans 
are concerned that a Canadian oil company is helping Sudan's 
National Islamic Front regime to develop that warn-torn 
country's oil sector.
    Energy revenue can be less than a blessing economy-wise. 
Academic studies suggest that an oil boom leads to a weaker 
performance in other sectors of an economy. Once a government 
feels flush, the pressure to reform is relieved and the non-
energy sectors of the economy wither. This is largely in the 
past been the Nigerian experience. New offshore production 
doubled Equatorial Guinea's GDP overnight. This small country 
just now successfully manage this boom. Other Africa countries 
confront similar economic and political challenges.
    Resource management issues are all the more pressing 
because Africa is developing an increasing amount of its energy 
resources. With technology allowing for ever deeper offshore 
drilling, West Africa is now considered to be one of the 
world's top regions for petroleum prospects. An American oil 
company recently made a billion barrel discovery off the 
Nigerian coast. Another company has announced a $8.5 billion 
investment in Nigeria, which is the largest industrial 
investment in the history of the continent. Meanwhile, interest 
in oil exploration is spreading to East Africa.
    Africa has more than petroleum though. Some 17 African 
countries hold potential as major natural gas producers. A 
liquefied natural gas plant off the Nigerian coast recently 
came on line. This is one of the biggest industrial projects in 
Africa. In the works for Nigeria is another project to supply 
natural gas to Ghana, Benin and Togo. Natural gas is 
increasingly seen as the energy of the future, being cleaner 
and cheaper than other energy resources. Developing Africa's 
natural gas should help African countries overcome their heavy 
dependence on the environmentally destructive practice of 
burning wood to produce energy. Africa's hydroelectric 
potential is nearly limitless. Congo alone has the potential to 
light up half the continent.
    The U.S. has a significant interest in Africa's energy 
development. Our country would be better off if African 
countries developed their economies while protecting the 
environment. We have an interest in seeing that energy 
resources do not fuel African conflicts and we are major 
consumers of African produced oil, some 15 percent of America's 
oil imports are from Africa. Given Africa's potential, this 
figure promises to grow. Analysts suggest that West Africa 
could soon rival the Persian Gulf in terms of strategic 
significance to America.
    The U.S. has an obvious interest in greater oil exploration 
and development in Africa, especially in light of the recent 
hike in prices Americans are paying at the pump. This interest 
gives us even more reason to be attentive to Africa's many 
energy challenges. Today the Subcommittee will hear from the 
U.S. Department of Energy which is spearheading U.S. Government 
energy efforts in Africa, and a private witness, who will share 
his views on energy issues in Africa.[The statement of Mr. 
Royce appears in the appendix.]
    Mr. Royce. I will now turn to the Ranking Member of the 
Subcommittee, Mr. Donald Payne of New Jersey for an opening 
statement.
    Mr. Payne. Thank you very much, Mr. Chairman. Let me 
commend you for calling this very important hearing at a time 
when we know that this is an issue, the question of energy, 
throughout this country and the world. We in the northwest 
suffered tremendously because of the home heating fuel problem 
in addition to the gasoline problem. The fact that the 
northeast has very little natural gas pipelines and so it 
certainly hit my congressional district and my State extremely 
hard.
    But I am pleased to join you here to explore Africa's 
potential and to see what can be done in order to spur this 
along. As we all know, Africa has a tremendous amount of 
natural resources, both in oil and natural gas and other 
potential energy resources and we would like to explore what is 
going on there.
    We all are concerned about the cost of gasoline. We are 
seeing prices go as high as $2.00 to $2.25 a gallon. This is 
the sharpest increase in prices over a 2-week period that we 
have seen in this country since the Persian Gulf War in 1990.
    The full International Relations Committee convened a 
hearing on February 10th to discuss the energy crisis with 
representatives from the State and Energy Departments. At that 
time administrative witnesses indicated that there was little 
that the United States could do to convince the major oil 
producing nations to increase the international supply of oil.
    I know that Secretary Richardson recently returned from a 
trip to major oil producing nations in which he urged OPEC 
members to raise production levels. We know that Secretary 
Richardson has been doing an outstanding job, although he is 
taking a lot of criticism for OPEC's behavior and I do not know 
how we can blame him for what the Saudis and the Kuwaitis are 
doing, but you have got to blame someone in the Administration, 
so I guess he is the target right now.
    We really need to exert pressure to see if we can break 
this stranglehold that we currently see. According to the 
President of OPEC, his Excellency Attiah, OPEC produces 40 
percent of the world's reserves and in this era of rising oil 
prices and legislative efforts to pressure the Saudis and 
others, we need to seek alternative solutions. In addition to 
other means of energy, we ought to look at how can we expand 
the potential of the Africa markets where I think trade and 
investment has sorely lacked as relates to our country's 
position and I would like to see that as another alternative 
for additional oil production.
    It will be interesting in finding out what role African oil 
exporters play in setting world oil prices, not just Nigeria, 
but the other sub-Saharan African countries in the oil cartel, 
countries like Angola and Gabon and Equatorial Guinea.
    Today, the U.S. imports an average of 736,000 barrels today 
of Nigerian oil or close to 10 percent of the total United 
States imports and I understand that Angola is not too far 
behind. If we could substantially increase Africa's production, 
we could see that the United States could move up to 25 to 30 
percent of our oil dependency being on Africa, therefore 
reducing the cartel, OPEC cartel's control and moving into 
Mexico and Venezuela could possibly offset the dependency.
    Let me say that we are working very hard to insure the 
passage of the Africa Growth and Opportunity Act. This bill 
will provide additional incentives for U.S. businesses to tap 
into Africa's rich oil and natural gas reserves and also to 
develop its energy infrastructure.
    On the international front I am eager to hear from 
witnesses about the--the representative Humphrey about how the 
Chad, Cameroon and Benin pipeline project is going and where 
the proposed pipeline for natural gas which currently has been 
flared, creating in Nigeria, creating environmental havoc and 
where the proposed pipeline for natural gas stands at this 
time.
    We would also like to conclude by saying that we are 
certainly concerned about the continuing problems in the Niger 
Delta the Chairman mentioned which produces most of Nigeria's 2 
million gallons of crude a day. When we visited with President 
Obasanjo in December, not only did we discuss problems in 
Nigeria and commending them for other things like ECOWAS troops 
helping Sierra Leone and Liberia, but we also talked about the 
role of the Nigerian government and how the problem in the 
Delta region can be resolved.
    So once again, Mr. Chairman, I look forward to the 
testimony of our witnesses.
    Mr. Royce. Thank you, Mr. Payne. Mr. Campbell?
    Mr. Campbell. Mr. Chairman, in the interest of getting to 
the witnesses I will simply say thank you for your 
conscientiousness in holding the hearing. Thank you, Mr. 
Chairman.
    Mr. Royce. Thank you, Mr. Campbell.
    Congresswoman Barbara Lee made a trip to Nigeria a few 
months ago, met with an important delegation there on 
environmental issues and I believe they are here and if I could 
turn it over to you at this time.
    Ms. Lee. Thank you very much, Mr. Chairman.
    Let me just say thank you very much and Mr. Payne for your 
leadership on this issue. Africa's energy potential really is a 
matter that I do not believe has received significant and 
sufficient congressional attention and so this hearing is very 
important today. It is very timely in light of the issues that 
we are dealing with in this country which Mr. Payne spoke of.
    Let me say how excited we are to see the Minister from 
Nigeria here. We did have the privilege to be in Nigeria and we 
saw the great potential now in terms of this transition and we 
know that Nigeria is one of our trading partners and we want to 
hear from our Administration how our policy toward Nigeria can 
really help increase the supply of oil and what we need to do 
from this Committee, at least, in terms of our policies to 
insure that this be part of our U.S. foreign policy as it 
relates to Africa.
    Also, let me just say Mr. Chairman, I want to hear, I guess 
from Mr. Humphrey with regard to the whole war in Angola and 
given that Angola is really one of our major, primary sources 
of oil, how the devastating civil war is really impacting the 
oil industry there.
    Finally, let me just say that as we look at Africa's energy 
potential, we also have to be concerned and aware of 
environmental protections and what the issues are around oil 
spill cleanup and just all of the other surrounding issues that 
hopefully we can help address.
    Thank you very much for being here and I look forward to 
this hearing and thank you, Mr. Chairman, for your leadership.
    Mr. Royce. Thank you. Thank you very much. I will just 
mention that President Obasanjo announced plans to raise oil 
production 50 percent over the next 4 years in Nigeria and I 
would like to ask our delegation to stand at this time, if they 
would.
    If I could ask our guests to stand, Minister of State for 
Environment, Dr. Ome Oko Pido. He is accompanied by the 
Chairman of the House and Senate Committees on the Environment, 
the Environmental Commissioners for the River State and by Elsa 
State and the Secretary General of the Peoples Democratic Party 
which won the election last year with the election of their 
Presidential candidate, President Obasanjo. If I could ask the 
whole delegation to stand at this time.
    We now turn to our first panel. Calvin R. Humphrey is 
principal Assistant Secretary for International Affairs at the 
U.S. Department of Energy. Mr. Humphrey has a B.S. degree from 
Bradley University, a law degree from Georgetown University Law 
Center and he has completed the Senior Executives in National 
and International Security Program at Harvard University's John 
F. Kennedy School. Mr. Humphrey is no stranger to Capitol Hill. 
He worked as a legislative assistant to former Congressman 
Lewis Stokes of Ohio after completing law school. He then 
assumed the position of counsel to the House Permanent Select 
Committee on Intelligence. In 1995, Mr. Humphrey was promoted 
to the position of Senior Democratic Counsel for the Committee. 
In his current position which he has held since 1998, Mr. 
Humphrey is responsible for advising the Secretary of Energy on 
international energy affairs.
    I thank you for joining us today, Mr. Humphrey.

 STATEMENT OF CALVIN HUMPHREY, DEPUTY ASSISTANT SECRETARY FOR 
        INTERNATIONAL AFFAIRS, U.S. DEPARTMENT OF ENERGY

    Mr. Humphrey. Thank you, Mr. Chairman, and it is a pleasure 
to be before the Committee and let me also thank the Ranking 
Member, Mr. Payne and all the Members of the Committee for your 
interest in Africa and what the Department of Energy is doing 
there. I have submitted a statement for the record and with 
your permission, Mr. Chairman, I would like to read an oral 
statement that is a synopsis of that complete statement. Thank 
you.
    I am both pleased and honored to appear before you today to 
discuss the Department of Energy's strong commitment to 
promoting stability and achieving economic growth on the 
African continent through sustainable energy development. By 
promoting sustainable energy development in Africa, we strive 
to enhance Africa's economic and social development, alleviate 
poverty, improve health services, increase prosperity and 
integrate African states into the world economies.
    To demonstrate our commitment, last year Secretary 
Richardson launched the African Energy Initiative at Howard 
University, an historically black college and university. Under 
the initiative, the Department of Energy vigorously engages in 
bilateral and multilateral efforts to promote sustainable 
energy development and regional integration. The initiative 
builds upon President Clinton's U.S.-Africa partnership and the 
blueprint for U.S.-Africa partnership, as you know, was signed 
in Washington in March 1999 to promote democracy, good 
governance, human rights, trade and investment and global 
integration.
    In December 1999, Secretary Richardson hosted the U.S.-
Africa Energy Ministers conference in Tucson, Arizona. The 
conference represented the first time that energy ministers 
from Africa and the United States convened as a collective body 
to discuss the future of Africa's energy sector. The response 
was overwhelming. Representatives from 48 countries 
participated, including 41 energy ministers. They expressed 
their desire to establish an on-going process and agreed to 
meet again in South Africa later this year.
    From the Department's perspective, we must first and 
foremost help African countries develop an economic framework 
that will attract private sector investment. This includes 
assisting them in the development of independent and effective 
regulatory bodies and helping them through the restructuring 
process that must accompany their energy sector development.
    Africa is important to us as a key source of diverse energy 
supply, as a market for energy goods and services, and as a 
fountain for investment potential. Moreover, we want to support 
efforts to improve the quality of life in Africa and promote 
political stability.
    With a population of approximately 785 million and an 
annual growth rate of approximately 20 million, Africa is 
poised to become the next important emerging market in terms of 
trade and investment, energy resources and energy consumption. 
Energy will fuel the engine of economic change and sustainable 
economic development in Africa. It will also promote a wealth 
of opportunities for U.S. trade and investment. Africa is the 
third largest oil exporter to the United States and plays a 
critical role in our efforts to diversify oil supply. In 1999, 
Africa exported approximately 1.5 million barrels of oil per 
day to the U.S. or 15 percent of all U.S. imports. Nigeria, 
Angola and Algeria were among the largest suppliers.
    The development of new infrastructure in the region will 
allow for an even greater share of the U.S. market. Africa's 
proven oil reserves of 74.9 billion barrels and proven gas 
reserves of about 400 trillion cubic feet, can enable African 
countries to increase their importance to the U.S. market while 
allowing the U.S. to expand and diversify its oil supplies.
    The largest of these reserves are located in Algeria, 
Nigeria, Angola and Egypt. Oil and gas revenues represent a 
primary source of income for many African countries. They 
account for a large share of export revenues and foreign 
exchange earnings. If managed properly, energy sector 
development can be a powerful force for fielding the economic 
development of these countries.
    But energy production is just one of the forces for 
economic development. In 1998, Africa accounted for about 3 
percent of the world's primary energy consumption. That is, 13 
percent of the world's population consuming just 3 percent of 
the world's primary energy. Excluding South Africa, Egypt, 
Algeria, Nigeria and Libya, Africa countries use the same 
amount of energy as Belgium, a country of only 10 million 
people.
    Clearly, there are huge opportunities for U.S. and African 
businesses to develop the infrastructure necessary, to increase 
access to energy for all of Africa's people.
    Let me take this opportunity to inform you that just today, 
earlier this morning the Energy Information Administration 
released its latest long term forecast for the world. The 
outlook for Africa is similar to the numbers described in my 
written testimony, however, I would note that the forecast 
indicates that total African energy consumption may go up by 76 
percent through the year 2000. The most significant growth in 
consumption is expected in natural gas which could grow 147 
percent over the next 20 years.
    Several U.S.-based firms have already begun to take 
advantage of these opportunities. In May 1999, Chevron 
announced plans to invest $12 billion in its Africa operations 
over the next 5 years. The West African gas pipeline is a gas 
transmission pipeline project designed to connect Nigeria's gas 
reserves to markets in Benin, Togo, and Ghana. I traveled to 
Benin last year to lend U.S. Government support to the signing 
of this historic pipeline agreement. Exxon Mobil is leading the 
development of the Chad Export Project, a proposed $3.5 billion 
project to produce and transmit 250,000 barrels of oil per day 
from southern Chad through neighboring Cameroon to the Atlantic 
Coast for export to the world and this includes the United 
States.
    Dallas-based Triton Energy has nearly doubled its 
investment in Africa to about $200 million with its on-going 
oil develop in Equatorial Guinea. Ethiopia announced the 
signing of a $1.4 billion joint venture deal with the U.S. firm 
Secore to develop and transport natural gas. Enron, an oil and 
gas firm, Houston, Texas, has signed several joint venture 
agreements with the States of Abuja and Lagos in Nigeria for 
power development. AES is involved in a 250 megawatt 
hydroelectric project in Uganda. CMS Energy Corporation is 
working in Ghana on two 110 megawatt thermal power plants. 
There are many other examples throughout the continent.
    Two key things of the Department's initiative are achieving 
support from African nations to encourage private sector 
investment as the vehicle for economic growth and to promote 
growth that supports the global environment, two themes, Mr. 
Chairman, you mentioned.
    At the U.S.-Africa Energy Ministers Conference, we achieved 
unanimous support among the ministers on policies and practices 
that promote economic development, address environmental 
concerns, encourage private investment, enhance regional 
integration and increase access to energy for Africa's people. 
The ministers approved the joint statement on investment 
principles for the energy sector to demonstrate their 
commitment to establishing a transparent and reliable framework 
that encourages expanded trade and private sector investment. 
The ministers also approved a joint statement on sustainable 
energy development and cooperation and support of the 
environment to highlight important measures that can be taken 
in the energy sector to address global climate change concerns 
and to promote a sustainable cleaner environment for future 
generations while at the same time ensuring economic growth.
    Bilaterally, the Department has strong programs in many 
African countries. Our longest running and largest effort is 
with South Africa, a program initiated in 1995 under the Gore-
Mbeki Binational Commission. We have worked on over 100 joint 
programs. These programs include providing the benefits of 
renewable energy to rural schools, clinics and homes and 
offering training to government and business energy experts.
    We have begun to expand cooperation with Nigeria. Secretary 
Richardson visited Nigeria last August and it resulted in the 
signing of a bilateral cooperation program. The Department, in 
coordination with USAID is developing an action plan with the 
government of Nigeria.
    In the context of the Angola Bilateral Consultative 
Commission the Department of Energy will work with the Angolan 
Energy Ministry to streamline its energy sector and facilitate 
development of its infrastructure.
    With Mozambique, we are involved in the U.S. Government 
effort to address the recent flood disaster. Department 
officials traveled to Mozambique last fall and agreed to send a 
team to evaluate the potential for renewable energy. That 
program becomes even more important as we revisit the issue of 
the reconstruction effort.
    We know, however, that individual country efforts in a 
continent the size of Africa will not be an effective way to 
reach the many. We are working hard to support regional 
integration with efforts like the West African gas pipeline, 
the South African power pools and the West African gas power 
pool. In this regard, we are building pillars of cooperation 
with regional organizations such as ECOWAS, SADC and COMESA. 
Under the Africa Energy Initiative, the Department works with 
countries and regional organizations in Africa along with U.S. 
agencies and organizations such as USAID, the Overseas Private 
Investment Corporation and the Export Import Bank to promote 
sustainable energy development.
    We believe energy development in Africa should not only 
generate export revenues, but must, and I underscore must also 
respond to internal energy demand and address the issues of 
sustainable development that benefit all African citizens.
    Good corporate citizenship which includes continued 
investment in local communities and developing indigenous human 
infrastructure is an important element that we hope to advance 
under this initiative.
    Again, I am pleased to be here with you to discuss Africa's 
energy potential, U.S. energy policy in Africa. We have an 
opportunity to build a partnership with African countries that 
will allow Africa to realize its energy and economic potential 
and a sustainable economically sound future for all of its 
people. We believe this initiative will help promote 
sustainable energy development in Africa and lead to a 
measurable expansion of U.S. energy cooperation with Africa 
well beyond the tenure of Secretary Richardson and the Clinton 
Administration.
    Mr. Chairman, Ranking Member, this concludes my oral 
statement. I will be happy to answer your questions and we look 
forward to working with you in a cooperative effort.[The 
statement of Mr. Humphrey appears in the appendix.]
    Mr. Royce. Thank you, Assistant Secretary Humphrey for your 
testimony. Let me ask you a few questions. You said last year 
about 15 percent of America's oil imports came from Africa. Do 
oil imports in the United States have the potential to increase 
from Africa over the next few years in your view?
    Mr. Humphrey. Absolutely, Mr. Chairman. One of the 
initiatives that is part of the Africa Energy Policy is to work 
closely with a number of African countries to do a couple of 
things, No. 1, create a better private sector investment 
climate in those countries. To do that, we have to work with 
the African countries to develop a regulatory framework, a 
framework that includes such things as sanctity of contracts, 
transparency and process, a streamlined bidding process.
    We believe and we have talked with a number of U.S. 
companies that these are some of their major concerns. If we 
can address these concerns the private sector will go in. They 
will be able to make a fair judgment on what the risk 
associated to their investment will be and they will go to 
Africa.
    Mr. Royce. Given the importance of African oil to the 
United States would it be correct to describe West Africa as 
strategically important to the U.S.?
    Mr. Humphrey. Absolutely, Mr. Chairman. West Africa is 
definitely strategic. Nigeria is the second largest oil 
producer in Africa. They also have tremendous gas potentials. 
But there are also strategic alliances in South Africa, East 
Africa, Central and North Africa. We have talked to a number of 
companies and in our travels we have found that a number of 
exploration activities are on-going in all regions of Africa. 
So to expand upon your question, I would say that the African 
continent is a strategic reason for the United States to be 
involved in the energy sector.
    Mr. Royce. We are going to have to work to make that 
perception commonplace to have people better understand.
    The international community is beginning to normalize 
relations with Libya which is a major oil exporter. Do you 
envision U.S. energy firms operating in Libya in the near 
future?
    Mr. Humphrey. As you know, Mr. Chairman, U.S. firms were 
actively engaged in Libya prior to U.S. sanctions which predate 
U.N. sanctions. The U.N. sanctions have been relaxed at this 
point in time until after the trial which begins on May 3rd. It 
is our policy that we want to see a couple of things from Libya 
first. First, payment of appropriate compensation. Second, 
cooperation in the trial of the Lockerbie defendants. Third, 
renunciation and an end to the support of terrorist 
organizations. If this is done and the State Department really 
has the lead on this, it will be their judgment that sanctions 
would be removed. I can assure you that U.S. companies will go 
in to Libya. It is a tremendous opportunity and they want to go 
in.
    Mr. Royce. Let me ask you about the comment that I made 
earlier about President Obasanjo's announcement to raise oil 
production by 50 percent over the next 4 years in Nigeria. As 
part of OPEC last year, Nigeria cut production. What are the 
prospects for increased production in Nigeria given the 
political turmoil in the Delta region? If I could ask you that 
question and also did non-OPEC member Angola reduce oil 
production in accord with OPEC's decision to cut production 
last March?
    Mr. Humphrey. We are aware that President Obasanjo has made 
comments of his intent, his desire to increase production by 50 
percent. We think that that will be a difficult goal to 
achieve, but that begs the question. Certainly, there is an 
opportunity to increase production in Nigeria.
    You mentioned the problems in the Delta. Secretary 
Richardson and I visited Nigeria in August. We had an 
opportunity to go to Escarvos there in the Delta and to talk 
with some of the representatives of the people there in the 
Delta. Certainly we think that the government is making 
progress, is making effort at reconciling some of those 
differences.
    Two things to increase the production, first, again 
providing an effective investment climate. Investors will 
invest if they have an investment climate. Notwithstanding the 
problems in the Delta, having again transparency, streamline 
bidding process and sanctity of contracts. Second, a number of 
the oil produced by Nigeria is offshore. So those can be 
expanded, but it will require technology and U.S. companies and 
other foreign companies and of course, U.S. companies are 
second to none and have that technology, but to date they have 
been a little resistant to invest wholeheartedly in Africa.
    Mr. Royce. Let me ask you as part of that. When we were 
there for the election in Nigeria one of the big election 
issues was the Niger Delta Commission, the concept of putting 
together a bill to guarantee a certain amount of revenue to go 
locally to different purposes, basically, that would be decided 
locally.
    What is the status of that bill to provide for more 
dispersed distribution of oil revenues to the States in 
Nigeria, if I could ask you?
    Mr. Humphrey. Mr. Chairman, the latest information that I 
have is that the differences have been worked out between both 
Houses, but there is still some fine tuning of the legislation 
that needs to be done.
    I might also add that we did talk about that with President 
Obasanjo and Secretary Richardson certainly offered his support 
for measures that do take into account people of the region and 
look toward putting back some of those resources and to the 
infrastructure and to the human capital of those regions of 
Nigeria.
    Mr. Royce. Let me ask you one last question. How badly is 
the recent oil spike hitting the economies of the majority of 
African states that are not oil exporters, that are in fact oil 
importers? Is this a major threat to their development?
    Mr. Humphrey. Mr. Chairman, it is devastating them. One of 
the problems that we see with many of the African countries is 
first and foremost most of its citizens do not have the 
resources to pay for energy, notwithstanding the oil spikes 
that we are presently seeing. But because of the oil spikes, 
those individuals that had the capability are now experiencing 
difficulty. This is exacerbating deforestation. People are now 
going out, cutting down more trees. This is creating 
desertification problems, the burning is creating greenhouse 
gas emissions and it is retarding their development. There is 
an over dependence on the Federal budget in many African 
countries to import oil. Now that those prices have gone up, 
they are having to spend even larger portions of their budget 
for the oil. So, yes, it is having a devastating impact and if 
it continues it will definitely retard the growth of many 
African nations.
    Mr. Royce. Thank you, again. Mr. Payne?
    Mr. Humphrey. Thank you, Mr. Chairman.
    Mr. Payne. Thank you very much, Mr. Humphrey, for your 
comprehensive testimony. Just the last question highlights the 
difficulty of dependence on oil as the source of energy. I know 
that there is a tremendous amount of potential for 
hydroelectrical energy. As a matter of fact, there is, I 
understand, rivers that start in Angola and go all the way 
through Africa and up in Mozambique. Along that way it seems 
that there would be a lot of potential for hydroelectrical 
power. I heard some statistics years ago that said that 
Mozambique could probably provide enough energy for all of the 
countries if they had properly built hydroelectric 
opportunities.
    Have you seen any interest on the part of U.S. companies, 
the Bechtel types to take a look at the potential of 
hydroelectrical which, of course, therefore reduces dependence 
on other forms of energy?
    Mr. Humphrey. Thank you, Mr. Payne. Yes, we have. In fact, 
just January AES Corporation headquartered right here in 
Virginia signed an agreement with the government of Uganda to 
move forward with a major hydroelectric facility.
    We support hydroelectric facilities. One of the concerns we 
have is that they are very capital intensive. Additionally, one 
of the things that we need to work with our African colleagues 
on is integration. In the past, we have had a number of 
hydroelectric plants built in Africa, but there has become a 
debt problem for the government. One of the reasons, because 
there was not regional integration. The amount of power that it 
is producing is not cost effective unless you can reach it out 
and deliver that power beyond the country's borders. This is 
one of the reasons while we are focusing on regional 
integration, working with SADC, working with ECOWAS, working 
with COMESA so that you maximize the efficiencies.
    Additionally, we support hydroelectric plants, but one of 
the things that we want to caution about is that we do not want 
to see you just going totally to hydroelectric because if a 
drought comes, now you have created a real extensive problem. 
Just as we need to diversify our sources, we want our African 
colleagues to diversify their sources. But hydroelectricity has 
a tremendous application and tremendous potential throughout 
Africa.
    Mr. Payne. Thank you, as a matter of fact, I think your 
statement is really on target because I think, Mr. Campbell and 
I, on one of our visits to Ghana there was a U.S. aluminum 
plant, I believe, that built many years a hydroelectrical plant 
and of course they got about 80 percent of the energy and the 
country got the other 20 percent. But be that as it may the 
drought then has created a real problem for energy at that 
point now and I think we sent several generating barges to that 
region because of the inability to have sustainable energy.
    Energy is so important in trade and in investment. If 
companies are going to have computers running, if they are 
going to have refrigeration for products and all that, there 
really needs to be that sustainable energy, dependable energy 
and the practices, for example, I might ask you this question 
about Sudan. I have a hundred of them, but the red light is 
going to go on in a minute. The Talisman Company is a Canadian 
based, but Chinese and Malaysian and we have moved in our State 
of New Jersey, I did get the State to divest 850,000 shares. I 
got a letter from the Governor's office just several seeks ago 
because Talisman's investment in Sudan, Sudan supports slavery, 
bombs its people in the south, uses torture and other things 
and are we--what is our policy toward oil from Sudan and 
whether it can be segregated out well enough to seek that we 
are not involved with it?
    Mr. Humphrey. Thank you, Mr. Payne. Our sanctions policy 
toward Sudan dictates that we are to have no trade whatsoever 
with Sudan. There are to be no materials, oil, gas. They also 
have the capability to produce gas, coming from Sudan to the 
United States, nor is there any technologies that would support 
those industries, supposed to be coming from the United States 
going into Sudan.
    So our sanctions are fairly carte blanche and we would hope 
that we are doing an effective job of monitoring to insure that 
that oil or that gas coming out of Sudan is No. 1, definitely 
not making it into the U.S. markets for the very reasons that 
you stated.
    Mr. Payne. Our time is up, but I would just like to just 
mention that hopefully the Libyan change could not only for 
energy, but if Libya can become a productive country in Africa, 
as you know many of the African states have positive relations 
with Libya. Sometimes when developments start, can start of our 
Libya, that energy can be changed into a positive area, then I 
think that will have an impact on sub-Saharan Africa and some 
of the problems that it faces.
    Iran, there seems to be a changing of a policy and that may 
also bring some more oil to the table, but just my last quick 
question is that these energy projects are so capital 
intensive, hydroelectrical dams, you talk about Chevron, $12 
billion, you mentioned somebody else putting $3.5 billion and 
it is such a large industry that does the Department of Energy 
have any kind of policy?
    I know the Congress has a policy of attempting to encourage 
our agencies to use small and disadvantaged businesses and with 
such a large capital intensive, it would certainly be difficult 
for minority business people to jump in and put bids and 
proposals out for some of these potential projects. But does 
the Energy Department talk to the Chevrons who incidentally 
have a bad record anyway in Nigeria under the past regime, 
maybe they would be interested in trying to clean up their act. 
But are there any kind of initiatives taken by the Department 
of Energy? I think that the Congress still would like to 
encourage diversity. What are you all doing in your Department?
    Mr. Humphrey. Mr. Payne, those programs are run out of the 
Office of Economic Impact and Diversity. However, I can tell 
you first and foremost my personal commitment to ensuring 
diversity. There is a mentor protegee program that is operated 
domestically where we try to team small disadvantaged 
businesses in the U.S. as well as businesses from Africa with 
some of the major multinational corporations here in the United 
States. We are committed to seeing what we can do to take that 
program internationally, to see what we can do in working with 
some of the multinational corporations here in the U.S. teaming 
them with some of the small disadvantaged women-owned 
biosciences so that they can have opportunities in Africa too.
    One of the beauties that we see in that is that in many 
instances because of the size of some of the countries in 
Africa, it is not economically feasible for the multi-nationals 
to go in and invest the large resources that they have. But for 
some of the small businesses, it becomes very, very profitable 
and they have the technology. So we are hoping to expand that 
program internationally to take the lessons and the skills that 
the multinationals have and see if they will mentor and 
protegee some of the very, very qualified and very technically 
sound competent small disadvantaged and women-owned businesses 
in the U.S.
    Mr. Payne. Thank you.
    Mr. Humphrey. Thank you, Mr. Payne.
    Mr. Royce. Mr. Campbell.
    Mr. Campbell. Thank you, Mr. Chairman, for holding the 
hearings. Thank you, Secretary Humphrey for your helpful 
testimony. I want to ask you about Ethiopia and the Blue Nile. 
Here is what I know and I would love to hear encouragement, but 
I would certainly like to have enlightenment, short of 
encouragement.
    Blue Nile rises from Tata, runs through this deep gorge, 
then winds its way, of course, up through the Sudan and 
eventually joins the White Nile at Khartoum. Up in Egypt the 
Nile is dammed at Aswan and creates this huge shallow lake, 
Lake Nasser and evaporation is extreme. If you took the same 
cubic feet from Lake Nasser and instead put it behind a dam in 
the Blue Nile Gorge in Ethiopia, you would be able to supply 
Ethiopia with water to guarantee no drought ever again, purely 
from the evaporation savings, if you follow me, so that there 
is no diminution in downstream supply. Now all that is missing 
is the cost of a dam on the Blue Nile in Ethiopia. The will of 
the well to do nations to assist Ethiopia in doing so. If I 
have my facts wrong, I stand ready to be corrected. That is 
what I said about enlightenment, but I am prepared to be 
encouraged to hear from you that this is something the 
Administration looks with favor upon. How is that for a leading 
question?
    Mr. Humphrey. That is a very good leading question. I just 
hope I do not strike out on it. No, I cannot provide you any 
additional facts that might enlighten you, but let me try to 
respond this way.
    One of the things that we have found that we need to do is 
educate some of the businesses in the United States about some 
of the tremendous opportunities in Africa. One of the things 
that we do is we hold a quarterly industry dialogue where we 
invite representatives from a variety of industries, energy 
industries, oil, gas, renewable, efficiencies and we dialogue 
with them and tell them what we are doing, what opportunities 
that we see available, places they may want to look. We also 
work with our African colleagues to encourage them to No. 1, 
put in an investment, friendly climate. That is central and 
that is integral.
    What we can do is take your idea. We will vet it throughout 
the Department. We can certainly discuss this with our 
Ethiopian colleagues, but also make it known to the private 
sector what these opportunities are because there really is a 
gap.
    Mr. Campbell. Let me jump in again, if I may, and I do 
understand. You are a master of so much. If you just do not 
have at present these facts, I would be delighted if you would 
pursue it. So that is a perfectly OK answer with me. But from 
my limited knowledge what is lacking is not the interest of the 
private sector. What is lacking is the World Bank willingness 
to finance it and that is because the United States is not 
prepared to back it at the World Bank and the reason is because 
nobody bucks Egypt when it comes to the Nile. So I am putting a 
fine point on it now. I believe that the problem is not 
addressable by the information services much as I value them 
and I grant that you are great to be developing them. The 
problem is will in this or previous Administrations, Democrat 
or Republican, to go to the World Bank and support Ethiopia in 
this request.
    On that subject, do you have any information?
    Mr. Humphrey. I do not have any information and with your 
permission I would like to get back to you.
    Mr. Campbell. Would you be so kind. Mr. Chairman, I would 
like to use this opportunity to ask Secretary Humphrey to push 
this upward in the Energy Department so that maybe there is 
some counter pressure to other Departments that might not be as 
interested in supporting it. May I make that request?
    Mr. Royce. You certainly may, Mr. Campbell. Assistant 
Secretary, if you would respond in writing to Congressman 
Campbell that would be most appreciated, the position of the 
Department.
    Mr. Campbell. And I would conclude by saying--I addressed 
it in the question of availability of water, but it would fall 
under your bailiwick because the hydroelectric potential is 
magnificent as well, as you might guess.
    The key point that I would make is it is a huge 
environmental savings. It is no threat to the downstream water 
users because of the tradeoff in evaporation. All that is 
missing is the courage to stand in the World Bank, at least in 
my humble opinion, so thank you for giving me the chance to put 
that question to you and if you send that to our former 
colleague, Mr. Richardson, I would be delighted to support his 
efforts in any way.
    Mr. Humphrey. Will do and we will definitely get back to 
you.
    Mr. Royce. Congresswoman Barbara Lee.
    Ms. Lee. Thank you very much, Mr. Chairman, and I was very 
pleased, Mr. Humphrey to hear you talk about the advocacy which 
you have for the mentor protegee minority owned business owned 
program.
    Let me just ask you with regard to helping minority and 
women owned businesses getting established in the energy 
industry. Many of our businesses are transitioning from 8A 
program in one sector and want to diversify and want to move 
into other industries and given the fact that unless you are 
really teamed with a major oil company in the energy business 
you have little likelihood of being successful. So for those 
companies does the mentor protegee program specifically address 
those companies which want to diversify or are you focusing 
mainly on those companies, those few companies, really that 
have the capacity already?
    Mr. Humphrey. Thank you, Congresswoman. No, we are focusing 
on all of the companies. We realize that it would be very, very 
limited and, quite frankly, arguably the success would be 
doomed from the start if we just looked at those small 
disadvantaged minority, women owned businesses with energy 
expertise, because they are few. But there are a lot of 
companies out there that have tremendous technical capabilities 
that are easily transitional to the energy sector. We have done 
this truly in the gas sector here domestically. We have a 
WAMBE, Woman and Minority Business Enterprise that they 
protegee and mentor with multi-national corporations. We are 
going to be talking to the multinational corporations about 
extending this. As you go into Africa, take some of these small 
businesses, take some of these minority businesses, take some 
of these women owned businesses, mentor them, be a protegee to 
them and let us see what we can do to increase opportunities 
because as Africa as we developed its energy infrastructure, 
tremendous commercial opportunities exist. After all, the one 
common denominator for every advanced society is a well built 
energy infrastructure. That is the one common denominator.
    Ms. Lee. Thank you very much. Mr. Chairman, let me just ask 
if it is possible that we could get a little bit more 
information on this? I would like to share it with my 
colleagues, especially those in the Women's Caucus and the 
Congressional Black Caucus and Hispanic Caucus so we can really 
get a handle on this because it sounds very exciting to us and 
we would like to get the word out.
    Let me ask you with regard to the war in Angola and Unita. 
How is the war affecting the United States from tapping fully 
into Angola's oil reserves at this point?
    Mr. Humphrey. One of the ways that it certainly is 
affecting the U.S. and tapping into its complete oil 
capabilities gets back into the infrastructure, the business 
climate, what type of investment climate do you have? Because 
of the war, a number of investors view that as a tremendous 
high risk, that maybe because of the amount of money that they 
are willing to invest, the war and the occasional sabotage that 
occurs and the loss of life. It is not worth the risk.
    What we need to do and what we are doing is we are working 
very, very closely with the government. The government, in 
fact, has begun to take some initiative. They have agreed to 
elections, I believe in 2001. They are making fundamental 
changes in their constitution. They are making economic 
changes. They have agreed in their budget, in their fiscal 
budget to begin to look at social programs, to address some of 
those issues. But in large part, yes, it is having an impact 
and until we can bring peace and democracy, you never will 
realize its true potential.
    More so, we do not know what may exist in some of those 
territories that are controlled by Unita, that at this point 
the possibility of exploration does not exist. So until we can 
get into those areas, until we have peace in Angola, it will be 
difficult for Angola to realize its true potential.
    Ms. Lee. What percentage of oil comes from Angola?
    Mr. Humphrey. I would have to check that.
    Ms. Lee. Do you know approximately?
    Mr. Humphrey. Last year it was 4 percent of the U.S. total 
imports.
    Mr. Royce. But in the next 10 years it is expected to 
anticipate potentially Nigeria, so it has tremendous potential.
    Ms. Lee. You said 4 percent Angola.
    Mr. Humphrey. At the present time.
    Ms. Lee. Present time, OK, but in the next 10 years we 
expect it to surpass Nigeria?
    Mr. Humphrey. Nigeria's production. So it could be 8 
percent.
    One of the things is that Nigeria has so much potential in 
the gas sector and natural gas is the fastest growing source in 
the world and certainly as we indicated with the West Africa 
gas pipeline, Nigeria is now reducing the amount of flaring 
that they are doing in the oil to recapture some of that gas. 
Gas is going to take on, we believe, a larger percentage of the 
energy resources that Nigeria produces, but again, if we can 
get that investment climate, if we can end the war, and we also 
have to get rid of those mines, just ending the war and getting 
the investment climate, we do not know, Angola is one of the 
most heavily mined countries in the world. Until we can address 
those issues and really get out there and have some exploration 
from our private sector companies, Angola will never truly 
realize its potential.
    We do not know how much they can do, but we know they can 
do more.
    Ms. Lee. Thank you very much.
    Mr. Humphrey. Thank you.
    Mr. Royce. Mr. Meeks.
    Mr. Meeks. Thank you, Mr. Chairman. Mr. Secretary, I 
apologize for not being here for the beginning of your remarks 
and I hope that the questions that I have you did not--I am not 
asking repetitive questions, but in light of the situation in 
Angola, I do not think it is by accident, for example, that we 
are having this hearing. I thank Mr. Chairman for it, because 
of what is going on this country now. Recently when Secretary 
Richardson was before us one of the questions that I asked him 
at that time was have we explored other nations that are not a 
part of OPEC in getting them to increase their pumping out of 
oil and he said he had.
    In looking at Africa, not only Nigeria, but Angola and it 
looks like it has a chance to pump out more and you hear about 
Tanzania and Sudan and Somalia, Madagascar, I think that it has 
an opportunity to change. How even we look at Africa period 
with reference to our own interest dealing with petroleum.
    So I am wondering if we are looking at a general policy 
that will basically give OPEC some competition coming straight 
out I think OPEC does 40 percent of the oil now so therefore 
that leaves another 60 percent that is needed and there is no 
real competition where the continent of Africa can form that 
kind of competition. I am wondering if there is a general 
policy that the Department of Energy is looking at so that we 
can fortify, in essence, some of the economies in Africa, but 
as well as make sure there is some competition to OPEC.
    Mr. Humphrey. Thank you, Mr. Meeks. The general policy, 
what we are trying to do is first and foremost develop the 
energy infrastructure of the countries of Africa and that 
includes if they have resources, whether it is oil or whether 
it is gas, we want to fully develop that.
    We also realize that if they have those resources that 
exporting those resources is the one sure fire way they have of 
gaining access to hard currencies which can make a difference 
in the lives of their people.
    Secretary Richardson has been talking to a number of 
leaders around the world, including Africa, who are not members 
of OPEC, but who have the capabilities to produce oil. We think 
that this is also critical because it is a national security 
issue. We have to have a diverse supply of energy. We really 
learned a harsh lesson back in the 1970's when we were just 
totally dependent on energy supplies from the Middle East and 
it was stopped. We cannot afford to have that again. It is in 
our interest to have the diversity of energy supplies. It is in 
our national security interests, but it is also in the 
interests of the Africa countries.
    One of the interesting facts is that we always talk about 
trade and energy between the United States or Western Europe 
and Africa. It is interesting that there is a tremendous 
opportunity for trade and energy amongst the African countries. 
They are not doing that, but this again, trading energy, gives 
them badly needed resources to develop their country. But yes, 
we are looking at as a general policy enhancing their 
capabilities and that gets toward again, I know I have said it 
once and I keep saying it because it is key, putting in an 
infrastructure that is investment friendly, sanctity of 
contracts, transparencies, streamlined bidding process, because 
companies are interested in Africa because it is one of the 
last great markets and to date, we do not really know what its 
true potential is. We only know that it has a tremendous 
potential.
    Mr. Meeks. We know that there are new oil discoveries and 
they are continuing to be found off the West Coast--in the West 
of Africa. Are our companies, are American companies involved 
with these new discoveries? What are they doing? Are they 
around? I know the French is looking. What are we doing as to 
these new discoveries?
    Mr. Humphrey. A number of U.S. companies are heavily 
involved throughout Africa, not just West, but Central and East 
as well and a number of exploration contracts have been signed. 
There is some exploration going on in Uganda because carbon 
deposits have been located in Uganda. In Tanzania. Some more 
going on in Botswana. So yes, a number of U.S. companies are 
heavily involved in these exploration activities. I could not 
give you a definitive number to categorize what the totality of 
the investment dollars are, but I can assure you there are a 
number of U.S. companies involved and continuing to get 
involved.
    Mr. Meeks. Let just ask a last question and it deals with 
Equatorial Guinea where we know that there has been, their 
elections are just passed, there has been some questions of 
fraud, etcetera, but there also has been some new found oil 
there. I am wondering how would you see, or how do you see this 
new discovery. Is it going to help the government? Is it going 
to help some of the human rights issues and questions that are 
there with this new found wealth that the country now has 
because I know most of the people live in poverty. How do you 
see it making a difference and are we involved or any of the 
U.S. companies involved with discoveries there?
    Mr. Humphrey. Thank you, first and foremost it has the 
capability of making a difference in the lives of the 
Equatorial Guineans. We had the pleasure of meeting with the 
Minister of Energy from Equatorial Guinea and his delegation 
when he was in Tucson. We had bilateral discussions with him as 
well.
    One of the keys is the government of the Equatorial Guinea 
themselves, whether or not they are going to hold true and take 
whatever resources that they get from these discoveries and 
invest them in the citizens, invest them in the islands or as 
we have seen in some countries in the past when corruption 
comes in, these resources never make it to the people and 
benefit the people. So we are working with the government of 
Equatorial Guinea to make certain that there is investment in 
the human capital of their country that goes along with 
investment in the resource capital.
    Yes, U.S. firms are involved and there is tremendous, 
tremendous opportunities there in Equatorial Guinea and we can 
hope and we will continue to push that there be some fair 
distribution of resources, that it gets back to the 
communities, to the people so that these assets are not just 
taken out of the shores of Equatorial Guinea and shipped 
somewhere to Western Europe, but there is a corresponding 
commitment to the people.
    Mr. Meeks. Thank you.
    Mr. Humphrey. Thank you.
    Mr. Royce. Assistant Secretary Humphrey, we want to thank 
you very much for your testimony today.
    Mr. Humphrey. Thank you, Mr. Royce.
    Mr. Royce. And Mr. Payne has a question for you.
    Mr. Payne. Not a question, just a statement. Tell the 
Secretary of Energy that if he is going to have another 
ministerial meeting of African ministers of energy that I know 
he likes Tucson, Arizona and the West, but we do want those 
African ministers to know that there are other people around 
too, so tell him he can come to New York, Atlanta, New Orleans, 
Los Angeles.
    Mr. Royce. Let the record show that Newark, New Jersey----
    Mr. Payne. Mr. Chairman, the record might show that, but 
having spent many, many years on the Hill, I know the power of 
the gavel, so California looks pretty good to me.
    Mr. Royce. Again, thanks for your testimony.
    Mr. Humphrey. Thank you, Mr. Chairman, thank you, Members.
    Mr. Royce. Before we go to our last panel I would just like 
to note that we have a statement from the Chevron Corporation 
and without objection it will be submitted for the record and 
now we will turn to our second panel.
    I am going to ask Mr. J. Robinson West, Mr. Robin West, 
Chairman of the Board and founder of the Petroleum Finance 
Company to come forward. He advises Chief Executives of leading 
international and national oil companies on corporate and 
international gas and power strategy, on acquisitions and on 
investor relations. Mr. West received his undergraduate at 
University of North Carolina at Chapel Hill and a J.D. at 
Temple University. Mr. West is a member of the Pennsylvania 
Bar. Prior to founding the Petroleum Finance Corporation in 
1984, Mr. West served in the Reagan Administration as Assistant 
Secretary of the Interior for Policy, Budget and 
Administration. Between 1977 and 1980 he was the first Vice 
President of Blithe, Eastman, Dillan and Company, an investment 
banking firm and Mr. West served in the Ford Administration as 
the Deputy Assistant Secretary of Defense for International 
Economic Affairs and on the White House staff from 1974 to 
1976.
    We thank you for joining us today, Mr. West. If you could 
proceed with your testimony and if you want to abbreviate and 
just--we have got your written testimony for the record.

STATEMENT OF J. ROBINSON WEST, CHAIRMAN, THE PETROLEUM FINANCE 
                            COMPANY

    Mr. West. Mr. Chairman, what I would like to do with your 
permission is to go through some of these slides quite quickly. 
I do not work from written testimony generally, I work from 
slides.
    A couple of points on West Africa which is what I want to 
talk about, not all of Africa. The first point is that there is 
a lot of discussion about oil in the Middle East and oil in the 
Caspian, but the fact of the matter is that West Africa is 
very, very significant to world oil markets for several 
reasons. First, as one of my slides will show, there is a lot 
more oil in West Africa than there is in the Caspian. Also 
there is a long history of industry investment in West Africa. 
In the Middle East, there is a lot more oil, but there is very 
little access on the part of the industry to the Middle East. 
West Africa is an area of enormous importance to the industry.
    Second, the kind of crude oil that comes from West Africa 
is different than from many other places. It is light, sweet 
crude and is among the most widely traded crude oils in the 
world. So West Africa, even though you do not hear too much 
about it in public, it is very important to the industry.
    Can we have the first slide? Why is it that Africa is 
attracting so much interest right now to the industry now? 
First, a lot of big discoveries made possible by new 
technology, breakthrough technologies in ultra-deep water. 
There are enormous reserves that are being discovered, 
totalling in excess of 5 billion barrels. The governments, the 
host countries such as Nigeria and Angola, Equatorial Guinea, 
and others, need the revenues. The government's track record 
with foreign oil companies over time is very good. For 
companies that know how to deal with the governments, they know 
how to manage the risk. So West Africa is an area of great 
importance to the industry.
    The second slide I think is important to keep in mind too 
in terms of reserves and production. You will see that West 
Africa has more oil than say Europe, United States, less than 
Russia, but a great deal more than Central Asia. The other 
point, however, is that you will see the rate of production 
that oil is produced at a much lower production rate, given the 
reserves, than for example, in Europe and the United States. So 
that we believe there is a lot of prospectivity and that 
production is going to increase a great deal.
    Mr. Royce. If I could stop you, is there a graph of the 
Persian Gulf in there?
    Mr. West. No, it is not on here.
    Mr. Royce. What would it be in billion barrels?
    Mr. West. It would be hundreds of billions of barrels.
    Mr. Royce. Hundreds of billions.
    Mr. West. But remember from the standpoint of the industry, 
(a) there is no industry access in Saudi Arabia, virtually none 
in Kuwait. In Iran, it is very modest. It does not exist in 
Iraq, Qatari, Abu Dhabi, Dubai, and Oman is really in the only 
Gulf places where there is any access. So it is important--it 
is a unique role that Africa plays.
    If I could go to the next slide, it is also important to 
remember that there is oil production in other places in places 
other than Nigeria and Angola that includes the Congo, 
Equatorial Guinea, Gabon and Cameroon. This gives you the idea 
of not only the production, but also the expected production. 
These are based on our estimates.
    Going to the next slide, there was--some discussion here 
about volumes. These are our estimates of the impact of deep 
water developments in both Angola and in Nigeria. You will see 
that in the year 1999 that there is about--Angola is producing 
approximately 600,000 barrels of oil per day. This is going to 
rise very substantially. It will more than double by 2010. 
Nigeria is producing close to 2 million barrels and this is 
going to rise very substantially also, close to 3 million 
barrels. The question which was asked about on-shore 
production. If the situation in Nigeria clears up and it is 
stable, that we estimate there will be another 400,000 barrels 
of production of oil that would come from on-shore production. 
Likewise, in Angola, nobody really has any idea. It is largely 
unexplored. It is physically dangerous. There are a lot of 
mines. Oil production in Angola began on-shore, but there is 
very modest.
    The next slide is oil investment needed to lift per capital 
GDP. As we will show in later slides, oil is very, very 
important to the economies of this country. PPP is Purchasing 
Power Per Capital. This is not Purchasing Power for GDP. We 
have adjusted it so the number comes out a little more than it 
would if it was flat GDP. But what is really quite striking is 
if you take the surge in production in Angola that we 
anticipate and you take the population of Angola which is about 
12 million which is relatively small, is that the ground oil 
production can transform Angola. If the war can end, Angola can 
become a very vital, strong country, a really unique country in 
West Africa.
    If you go to the next slide, again, we see production 
surging and the yellow here is the potential from ultra-deep 
water. At this point are just estimates.
    The next slide is to give you an idea of other heavily 
populated oil producing countries such as Algeria and 
Indonesia. What you see is that Nigeria and Angola are going to 
take a much more important role, that they are going to take a 
bigger place at the table in the international oil business.
    The challenges ahead for the governments of West Africa, 
are that they need to create a secure environment for foreign 
investment. They must build strong political institutions. They 
have got to create the necessary conditions for sustained 
economic growth and development. For the industry to invest as 
Deputy Assistant Secretary Humphrey pointed out, there has got 
to be a legal infrastructure on which the capital can flow and 
we are talking about enormous amounts of capital.
    Where is this money going to come from? There is really 
only one place it can come from. It can only come from the 
international companies. This shows the balance sheet of the 
industry. On the bottom axis is the credit rating. On the 
vertical axis is the reserves. You can see that governments 
have a lot of oil, but the high credit ratings, they come from 
the international companies. So the only way that the potential 
of West Africa is going to be unlocked is in partnership with 
these companies that have strong balance sheets.
    In terms of competition in West Africa, the governments are 
going to need the balance sheet and the technology of the big 
companies, but the industry is restructuring and this could 
affect West Africa. However, that being said, there are a 
number of very large, strong companies such as Chevron and 
Exxon Mobil which are interested in West Africa. There is high 
above-ground risk, political problems however, as well as 
increasing operational costs, particularly on-shore in both 
Nigeria and Angola.
    Big ticket, major capital projects, this is really a 
business only for very large companies which is too bad. If you 
have smaller companies, then more prospects will be developed. 
If peace can come to Angola and stability can come to Nigeria, 
you will see a lot more competition.
    The question was asked are American companies involved? You 
can see that Exxon which had no deep water licenses in 1991, 
now has 21 in 1999. It is a very, very important part of Exxon 
Mobil's future. They have invested and they have more than $10 
billion of capital exposed.
    Likewise, in the next slide if you look at Chevron in West 
Africa and its role in West Africa, the graph on the left is 
reserves and production in 1998. You can see that Chevron has 
reserves of a little under 1.5 billion barrels in Net 
production to the company, is a little over 100,000 barrels. 
But if you look on the other axis you can see that the vertical 
axis is production cost and the horizontal axis is net income 
per barrel. Are people making money in West Africa? The answer 
is yes. So that West Africa is a very important part of 
companies' portfolios. They have a very good relationship and 
it is mutually beneficial to both countries.
    Now if you look at the economies of these countries, it is 
pretty sobering. Oil has a key role to play. If you look at 
trends in fiscal accounts, the blue line is revenues, the red 
line is expenditures and the green bar is the difference. You 
can see that Angola is permanently running deficits. Where does 
the money come from? To a large extent oil. You can see it fell 
in 1998, which was just a function of price. The other source 
is primarily diamonds. You look at the composition of 
expenditures, you can see that defense and interest expenses 
are important parts. I should point out that the chart begins 
at 40 percent, so it is not quite as bad as it looks. But you 
can see that they have got very, substantial structural 
problems in the Angolan economy. The only way out of this is 
going to be oil. You can see that crude exports represent a 
vast preponderance of the foreign exchange reserves and that 
oil investment is critical to the country's economy going 
forward.
    For Angola, the need for oil sector revenues will increase 
with growing budget requirements. The oil business has got to 
be encouraged in Angola and Angola has got to encourage the oil 
business, but this is a partnership that I think both the 
companies and the country are eager to encourage.
    Finally, in terms of Nigeria, if you look at the economy as 
a whole you will see that the blue line, which crashes in 1998, 
again is a function of price. This is an economy that is 
entirely leveraged to oil, when oil goes down, everything else 
goes down.
    I would like to go to the next slide which shows that 
petroleum is the key to stabilizing finances. Again, the gray 
is expenditures. The blue is revenue. The red line is WTI which 
is the price of crude oil and the black is the balance. You can 
see that when oil prices go up, generally the government can 
run a balanced budget, but when oil prices fall, the government 
goes substantially into deficit.
    The last chart, I think is quite important here and that is 
the balance of payments, the real money in Nigeria. You can see 
that you have got foreign investment is gray and other flows 
which is really flight capital and if you look at the red line, 
you can see when oil prices were high, the blue line went up 
substantially. That means the money moved out of the country. 
This is an unsustainable situation for the Nigerian economy.
    Debt rescheduling relief will be insufficient to solve 
Nigeria's balance of payments problems. That is not enough. 
That being said, that rescheduling is very important to it.
    So in conclusion, we believe that the outlook in Nigeria 
there is a new political structure. The old tensions are a 
problem, but the energy sector remains the main economic driver 
and really the critical source for foreign investment.
    The other question, Mr. Chairman, if you want me to go into 
briefly on gas, what I would really like to do is simply say if 
you look at the gas, go to the second chart here, what you will 
see is with growing production there has been an effort to 
utilize the flared gas. Shell has an LNG plant, Chevron is in 
gas to liquids and the West African gas program, but the 
problem of production is growing. They are absorbing, in 
effect, the existing gas, but as production grows more gas will 
be available and this is a very, very difficult challenge for 
them to manage.
    I conclude there.[The statement of Mr. West appears in the 
appendix.]
    Mr. Royce. Thank you for a very excellent presentation. I 
am going to make a copy of your notes there and send that to 
the Members.
    Let me ask you about a question concerning China. Angola 
and China recently signed a letter of intent on joint 
construction of a refinery. The China National Petroleum 
Corporation also involved a controversial operation in Sudan. 
Is China involved in any other African nations' energy sector 
and how should we view China's energy activities in Africa, in 
your view?
    Mr. West. I do not think they are involved in any 
significant activities in Africa at this point. They are, for 
example, in Khazakstan. They have a significant investment. The 
Chinese are in the process of floating Petro China, a new part 
of their national oil company. China is very concerned about 
energy demand. If their economy is to grow they are going to 
have to import more and more energy. Again, one of the key 
factors, to remember about Africa is that it produces light, 
sweet crude and this requires the least investment in 
refineries. This is the best kind of crude you can get and a 
lot of the crude from West Africa flows into the Asian market 
including China. So I think the Chinese are going to be 
watching Africa, but they are watching the whole world and this 
is one of the areas where their economy is going to move.
    Mr. Royce. Let me ask you about Elf Aquitaine, if I could. 
They have been reviewed traditionally as a tool of foreign 
policy for France in Africa. Elf has been identified by press 
accounts as having played a major role in the overthrow of 
Congo Brassaville's government a few years ago. Going back 30 
years in support of the Biafran secessionist movement in 
Nigeria which led to civil war in Nigeria, Elf recently merged 
with the French oil company, Total Fina, and how do you see the 
new Elf Total Fina acting in Africa? Do you think the company's 
business practices in Africa are going to differ from the 
practices of American oil companies in Africa?
    Mr. West. I think there are really two questions. One, will 
Elf change its behavior now that it is part of Total? I think 
there has been a huge series of scandals, some of the most 
significant figures in France in the last 10 years have been 
dragged into this. Chancellor Kohl in Germany was involved in 
what was known as L'Affaire Elf. That being said, I think that 
the management of Total is not interested in being a political 
pawn as they used to be.
    By the same token, Total has demonstrated its move into 
Myanmar. It moved behind Conoco in Iran. They play by different 
rules. It is perfectly legal, but it is by different rules and 
they do it quite publicly. The old Elf did a lot of things 
under the table.
    Mr. Royce. In your presentation you state that the 
governments in West Africa need to create a secure environment 
for foreign investment. What are the specific challenges for 
these governments and how much progress has been made over the 
last several years?
    Mr. West. If I may say I think that to increase investment 
you do need a secure environment, particularly in the gas 
business. The gas business is entirely different than the oil 
business. People have to (a) be able to pay for the gas. There 
has to be a market for the gas. Oil can be exported, and given 
its physical characteristics, it can be moved all over the 
world. Gas cannot. So there has got to be a legal regime, you 
have got to be able to know how it is going to work. You have 
got to have contracts which obligate the buyer. You have to 
know you are going to get paid real money for it.
    But that being said I think I should point out that the 
competition between the major oil companies to compete in West 
Africa in deep water off-shore Nigeria and Angola is intense. 
If, you look, for example, at government revenues in Angola, 
the foreign investment is largely bonus bids from the oil 
companies. In terms of the oil business, there is a pretty 
secure, substantial course of dealing right now. It is more 
risky, when you get either on-shore or in gas, then there are 
substantial problems, commercial and physical security.
    Mr. Royce. I want to thank you, Mr. West, for your 
testimony and fine presentation. I am going to turn over the 
chairing of the Committee at this time to Mr. Payne who will 
continue because I have another appointment. So thank you very 
much.
    Mr. Payne. [Presiding] Thank you very much, Mr. Chairman. 
Let me thank you for calling this very important meeting. I 
think there is going to be a vote in about 10 to 12 minutes 
also, so we might try to speed through.
    I really appreciate your comments and we are talking about 
trying to increase the production in Nigeria. I think one of 
the problems when you find oil is that everybody just wants the 
oil to be the answer. Other sectors that could, be the answer, 
such as agriculture, and other kinds of industries that could 
really move forward are forgotten and everybody is depending 
simply on the oil, and I know your country is only interested 
in oil, but is there any discussion ever to when you are just 
giving advice that it is all right to get all the oil you can, 
but like Nigeria is a great example, import, vegetables. I mean 
it makes no sense. It is one of the most fertile countries in 
the world and so do you feel that is the responsibility of your 
people or that is out of your hands?
    Mr. West. I think a lot of people who look at the oil 
industry now recognize that oil can be both a blessing and a 
curse for a country for exactly what you are saying, that it is 
easy money and it is controlled often by governments. I have 
often heard the formula for corruption is if you have power 
without accountability equals corruption. In the oil sector 
that happens. I think that if you look now that the way the oil 
companies operated even 10 years ago and the way they operate 
now that they are spending more and more money.
    I think you have to be realistic. A place like Nigeria is a 
huge country and to ask the oil companies to bear the burden on 
all of this is simply unrealistic. Can they be good partners? 
Are there ways they can be imaginative? Oil companies have--
they do not have just big balance sheets. They have access. 
They have some very talented people and I would encourage them 
to try and build that human capital. I think the next 
generation of oil executives really are trying to do that. In 
the past, they did not, but the spirit of what you are saying I 
agree with. I think one has to be realistic as to just how much 
they can do.
    Mr. Payne. Right, as has been mentioned, you have heard me 
mention Chevron before, when they were involved in Nigeria with 
the former dictator, of course, they have been improving since 
that. Shell years ago, Elf, Talisman, now. Let me just, I guess 
time is going to run out. So I will just ask about the question 
of----
    Mr. West. Can I make one point?
    Mr. Payne. Sure, go right ahead.
    Mr. West. You mentioned Chevron. I believe there is a 
hospital in Angola Chevron has rebuilt three different times. I 
mean you have got to be fair to these guys. They have made some 
not insignificant investments here.
    Mr. Payne. Yes, that is true. I have heard about that 
hospital. One of the other things though we need to deal with 
and that is once again some organizations are now taking, 
looking at them, but this question about transparency. There is 
a lot of corruption and usually the corrupted is the one that 
gets all of the bad publicity, but you have to--I do not know 
if there is such a word, but you have to have a corrupter, you 
know or a corruptees or corrupt whatever. The ones who are 
doing the corrupting, and when do we start to seriously not 
only in this industry, but all the rest, when we do start 
seriously talking about the wasted money when as a matter of 
fact in Germany it is a tax deductible item. You just put down 
how much graft you paid and it goes in the whole business 
account. Others are not as blatant but it is understood 
practice.
    How do we ever change that cycle of corruption from the 
western countries that are offering the money and then so that 
it can filter down to some of these very poor countries that it 
is very enticing when these offers are made?
    Mr. West. Mr. Payne, I agree entirely. I think corruption 
is a terrible blight. I think in fairness to American companies 
now, large international American companies are extremely 
sensitive to this issue and they just do not do it.
    Now if money is stolen from the government once the money 
is received that is beyond the control of the government, 
excuse me, of the company.
    Mr. Payne. Right.
    Mr. West. I think that the big international companies are 
very sensitive to this because they realize that the board and 
management can be criminally liable and they are very sensitive 
about going to jail.
    I think the question is whether other countries play by our 
roles and the answer is they do not and I think there are 
efforts now to try and impose our standards on other countries 
and companies of those countries. I personally, I think this is 
going to happen over time. I think American companies deserve 
some credit because American companies at times have had to 
leave the table, if there is the perception or looks like 
corruption, they just will not go near it now and I think it is 
wise.
    Mr. Payne. I agree and I am going to yield to my 
colleagues. It is being discussed now I think in the European 
Parliament when they were here a year or so ago, meeting in the 
U.S. I raised the question and I do not know if they are going 
to invite me to their meeting in Europe, but we did raise the 
question that this corruption of these countries have to be 
addressed and there is this transparency, international and 
others that are doing that.
    Let me yield to Ms. Lee from California. She has questions.
    Ms. Lee. Thank you very much. Let me just ask you in terms 
of the environmental consequences of oil production, how do you 
advise your companies with regard to the responsibility that 
oil companies have in terms of environmental degradation? For 
instance, look at Nigeria in the Delta region. Specifically, 
the initiatives that were or are being developed now to address 
that and what could have prevented that, if anything, based on 
how you see corporate, U.S. corporate responsibility in this 
area?
    Mr. West. I think that there are really two questions. The 
question is in terms of new projects and projects going 
forward, one executive was asked how do you, if there are not 
environmental laws in a country, what standard do you apply? He 
said we apply the same standards we do in the United States. 
They recognize--there is a cost of doing business around the 
world as a world class company and they simply have to play in 
a certain league.
    So going forward, I think you will find and in recent 
years, the equipment is state-of-the-art and they do not cut 
corners.
    Where life gets complicated is in the historic projects and 
things like the Delta and you have situations where the 
companies can argue, look, we met our legal standards in these 
countries which they usually did, but the standard either was 
so low or nonexistent and I think it is a problem that people 
have got to kind of work together. There is no obvious answer 
and it is a gray area. I think companies recognize they have 
responsibility, but the countries do too and find a way that 
you can do it on the most efficient least cost basis and in 
some place like the Delta the cleaning up the environment is a 
visible sign, and outward and visible sign of a lot of other 
problems and it is not a discrete problem.
    Ms. Lee. Thank you very much.
    Mr. Payne. Thank you. The gentleman from New York?
    Mr. Meeks. Thank you, Mr. Chair. Let me just ask a quick 
question. The African Growth and Opportunity Act is something 
that once passed, it increased incentive for our companies to 
do investment in Africa. I am just wondering and curious, your 
opinion. Do you think that the passage of that bill will give 
incentives to U.S. companies to invest in Africa's energy 
infrastructure?
    Mr. West. Yes, I think, you put your finger on the right 
word. Invest in the energy infrastructure. I think in terms of 
these enormous oil and gas projects, I do not think it makes 
much difference, the investment was taking place, the structure 
was in place. They know how to do it. I think in terms of power 
projects and gas and it is the infrastructure within the 
countries, I do think it can make a difference.
    Mr. Meeks. I yield back to the Chair.
    Mr. Payne. All right, thank you very much. Thank you very 
much, Mr. West and to Mr. Humphrey for that very important 
testimony. We appreciate we know we have a lot of work to do, 
but we will move on. I do not want to get too used to this 
gavel, but at this time the meeting is adjourned.
    Thank you.
    [Whereupon, at 3:43 p.m., the Subcommittee was adjourned.]
      
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                            A P P E N D I X

                             March 16, 2000

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