The development of energy resources is often seen as an important way to generate much-needed revenues for a government in order to raise living standards and build a prosperous, stable society. However, in many countries--particularly energy exporting countries--the revenues generated for the government may not lead to better standards of living, increased democratic participation in government, or a better climate for human rights. Instead, economic, social, and political conditions may stagnate or even deteriorate. Stagnant or diminished development in countries that enjoy ample oil revenues is frequently associated with poor governance and reflects a government's inability or unwillingness to adequately manage energy revenues in order to use its increased wealth as a means to foster constructive economic, political, and social development.

A key indicator of the quality of governance is whether a government is committed to transparency, accountability, the rule of law, and human rights. When governments are undemocratic or otherwise unaccountable to their citizens, poor management, poor economic decision-making, corruption, and human rights abuses thrive. Instead of improving the overall situation, an increase in revenue--such as those created by energy development--can serve to reinforce bad practices of an already abusive government by strengthening it financially and by providing the wherewithal to entrench and enrich itself without any corresponding accountability for continued abusive behavior or poor management. Research at the World Bank supports the linkage between increased respect for civil and political rights and better economic performance.⁽³⁾

Conversely, control over resources and revenues without accountability can lead to the marginalization of certain sections in society and if economic or social conditions deteriorate, the prospect for increased public dissatisfaction with government and hostility towards foreign investors exists because the government and its business partners are seen as mutually reinforcing actors in a situation that does not benefit society as a whole. This can also lead to further human rights violations because of a general climate of instability that can include abuses in the context of civil unrest or conflict, or because the government chooses to adopt repressive measures to suppress any opposition to its rule, or because rebels seek to control resources and territory. It can also have a negative impact on economic performance as well. For example, World Bank research found "an indication that countries in which all modes of expressing discontent are repressed experience worse performance on investment projects than countries in which public expression of social tensions is tolerated." ^{(4) Although the government made commitments to improve human rights, these conditions are present in Angola.}

Of particular concern, particularly in the context of good governance and establishing greater government transparency and accountability, is the limitation on press freedom in Angola. The press has been tightly controlled by law and by government and opposition intimidation. Angola's press laws allow for no private television stations or short-wave radio stations and also prohibit direct rebroadcasting of other broadcasts. During the Lusaka peace process there was a limited opening up of the media, particularly in Luanda. With the return to war in December 1998, however, these meaningful gains were once again threatened by censorship and intimidation. Attacks against the rights to freedom of expression and association have undermined the defense of other rights and efforts by journalists to hold government accountable have led to government retaliation.

For example, Gustavo Costa, who writes for the Portuguese newspaper Expresso, was informed in April 1999 by the presidency that charges of defamation and slander were to be brought against him for writing about corruption within the cabinet. The Luanda Tribunal sentenced Costa on December 24, 2000 to a suspended sentence, a fine of $508 and $20,000 as compensation for "defaming the Chief of the Civil Office of the President, Jose Leitao." Costa made two court appearances on December 12 and 13 in a trial closed to the public and the media. Costa has complained that during the daylong sessions he was subject to pressure from the jury to reveal his sources. Costa's lawyer lodged an appeal against the judgment with the Supreme Court that has yet to be heard. ⁽⁵⁾

Background to the Agreement: Weapons Procurement and Oil-backed Loans

A key area where a lack of transparency and a subsequent lack of accountability was a factor was the procurement of weapons after the resumption of all-out war after the collapse of the Lusaka peace accords between the government of Angola and UNITA in December 1998. Human Rights Watch repeatedly called for the international community to implement a complete arms embargo on the government of Angola and UNITA and to disclose all details of weapons purchases and military transfers following the signing of the Lusaka Peace Accords in 1994. These measures were not adopted and the only arms embargo in place was the 1993 embargo against UNITA.

However, the embargo was weakly enforced and at the end of 1998, the renewed conflict, human rights abuses, and violations of laws of war were fueled by new flows of arms into the country. UNITA purchased large amounts of weaponry from foreign sources, "sanctions-busting" through neighboring countries, especially South Africa, Congo, Zambia, Zaire (now the Democratic Republic of Congo), and also Togo and Burkina Faso.

Meanwhile, there were also arms shipments to the government throughout the Lusaka process. This was not illegal, but undermined the spirit of the Lusaka Protocol and contributed to undermining confidence in the peace process. The weapons were purchased from a range of countries including, Belarus, Brazil, Bulgaria, China, Israel, Ukraine and South Africa. Russia, one of the three governments serving as official observers/mediators in the peace process (the "Troika"), undermined its official position by selling large amounts of weapons to the government, resulting in a number of shipments to Angola. Portugal, also a Troika member, entered into military agreements during the peace process. The government's procurement of weapons reached record levels again in 1999, matching the high levels of purchasing in 1994; Russia again featured as the prime source of arms to Angola. ⁽⁶⁾

During this period, there were concerns that oil revenues were used to finance covert arms purchases. With the decline of international oil prices in 1998, the government was short of cash and used approximately U.S.$870 million of funds generated from signature bonus payments on oil exploration and offshore deepwater concession blocks thirty-one, thirty-two, and thirty-three to pay for its weapons purchases. According to the Angolan foreign minister, these funds are earmarked for the "war effort."⁽⁷⁾ The multinational oil companies BP-Amoco, Exxon-Mobil, and Elf play a dominant role in these blocks, principally because only large oil majors have the technical expertise and investment capital to develop these technically challenging and expensive deepwater concessions. ^{(8) A round of bidding is currently underway for offshore deepwater concession block thirty-four, which industry sources state is attracting record sums of cash down payments from the multinational oil companies.(9)}

Because the government budget is not unified or transparent on payments for arms there were also substantial discrepancies between government estimates of defense spending and independent estimates. In some cases, these payments bypassed the ministry of Finance and Central Bank and were made directly through the state-owned oil company Sociedade Nacional de Combustiveis de Angola (Sonangol), or through the Presidency. The government estimated it was going to spend more than $302 million of its U.S.$2.6 billion budget on defense in 1997. ⁽¹⁰⁾ However, the Stockholm International Peace Research Institute (SIPRI) estimated that 1997 defense spending was $400 million--an almost 33 percent discrepancy with the government's estimate.⁽¹¹⁾ Similarly, the official government figures suggested that defense spending amounted to 11.1 percent of the 1997-98 budget.⁽¹²⁾ However, the IMF estimated that 36.3 percent of the 1997-98 budget was spent on defense and noted that only about half of this expenditure (18.1 percent) was actually recorded by the government.⁽¹³⁾ During the Lusaka peace process (1994-1998), no country submitted details of their weapons transfers to Angola to the U.N. Register on Conventional Weapons.

As early as 1997, BP Amoco recognized that the company's involvement in the country could be problematic "if the government fails to live up to commitments made to increase democracy, accountability, and transparency and if oil revenues continue to be the main source of income to the government."⁽¹⁴⁾

In order to address this issue, BP Amoco's chairman Peter Sutherland stated that, "We have no means of ensuring that these [signature bonus payments] are not used to help finance the government's war effort… What we will do is insist as far as we can that such payments are transparent. Governments can be challenged by their electorates and public opinion generally to justify where the money has been spent."⁽¹⁵⁾ However, Human Rights Watch believes that the lack of transparency in the use of oil revenues effectively undermined the ability for the Angolan public to hold government accountable. As former World Bank Chief Economist Joseph Stiglitz noted,

[M]eaningful participation in democratic processes requires informed participants. Secrecy reduces the information available to the citizenry, hobbling their ability to participate meaningfully… We often speak of government being accountable to the people. But if effective democratic oversight is to be achieved then the voters have to be informed…⁽¹⁶⁾

Compounding these problems was the government's use of future oil production as collateral for loans because of the government's dire financial condition, arrears on debt service payments, and its lack of foreign exchange reserves. These oil-backed loans were obtained in a manner that was not transparent. For example, in early 1998, the Angolan government reached a deal with the Swiss oil trader Glencore to mortgage virtually the last barrel of the government's own oil production in exchange for up-front payments of some U.S.$900 million. The deal was routed through Sonangol and the Presidency rather than the Ministry of Finance and Central Bank. Its terms guaranteed Glencore some 75,000 barrels per day of the government's allocation. The remainder was tied up in pre-financing deals with Britain's Lloyds Bank, BP-Amoco, Chevron, and Elf-Aquitaine.⁽¹⁷⁾

The constraints on freedom of the press, combined with these large oil deals conducted with virtually no transparency or accountability, have made a volatile situation in Angola worse. Angola, and many of its trading partners, failed to make public details of weapons transfers and other military assistance that would shed light on Angola's actual defense expenditures.

The hiding of significant defense expenditures from the budget and arranging oil-backed loans that bypassed normal channels raised serious concerns for the IMF since these unusual financing arrangements did not meet the basic standards of transparency and accountability required by the IMF in order to qualify for assistance. ⁽¹⁸⁾

Such public accounting is particularly necessary in the case of arms purchases to governments that have committed human rights violations and when the possibility of future misuse of weaponry is high. One particular situation where the risk of misuse pertains is the procurement and use of indiscriminate weaponry such as antipersonnel landmines. Although the Angolan government signed the Mine Ban Treaty in December 1997, it has since been responsible for systematically laying new mines and minefields. Human Rights Watch was an eyewitness to this in 1998 and 1999 and received numerous reports in 2000 of renewed landmine warfare in central and northern Angola and across international borders in Namibia and Zambia.⁽¹⁹⁾

The Oil Revenue Monitoring Agreement

In response to the lack of transparency and accountability in the use of oil revenues, the IMF and the World Bank negotiated an agreement that was finalized on April 3, 2000 to monitor oil revenues as part of a larger agreement known as the Staff Monitoring Program (SMP) that set ambitious financial, fiscal policy, and program targets that the government must achieve by December 2000 in order to qualify for lending by the IMF.⁽²⁰⁾

Human Rights Watch considers the oil monitoring agreement to be a positive first step by the government and the international financial institutions in order to instill transparency, accountability, and good governance, and ultimately to encourage greater respect on the part of the government for free expression and civil liberties. Nevertheless, there are weaknesses in the agreement that are detailed below.

• The scope and scale of the monitoring agreement (the terms of reference) are not publicly available since the government of Angola has not released this information and has not authorized the World Bank and IMF to release it. Human Rights Watch considers this to be a significant omission by the government, especially since the monitoring agreement is supposed to lead to greater transparency and accountability and encourages the government to release the terms of reference for the oil monitoring agreement.
• In order to conduct the monitoring program, the IMF, World Bank, and government of Angola have agreed to hire a major accounting firm to monitor oil revenues and their effort will be supervised by the World Bank. But the program is not retroactive and will not examine past allegations of the secret use of oil revenues. Instead it will monitor revenues from July-December 2000. Once the monitoring program is completed, the government is expected to assume this responsibility. However, there is no guarantee that the government will be willing or able to continue monitoring once the IMF and World Bank program ends.
• Past efforts by the international financial institutions to monitor oil revenues in other countries have been unsuccessful because of the inability or unwillingness of governments to provide adequate information. The oil monitoring agreement is intended to determine how much oil revenue is deposited into the central bank. Although it is colloquially referred to as an oil revenue "audit," the agreement is not an audit in the traditional sense. Instead it is an agreement to compare revenues generated for the government from oil exports (domestic oil sales are not part of this program) through its various production sharing agreements and joint ventures (including signature bonus payments) with the amount of funds deposited in the Central Bank derived from these activities. The quality of the monitoring program is completely dependent on how much information the government and the companies, which may have independent data on oil revenues, choose to disclose. Without the cooperation and disclosure of the companies and the government, the monitoring agreement will not succeed. Documents and data from oil companies operating in Angola will be essential for the monitors to assess and compare the flow of oil revenues to the Central Bank. Human Rights Watch urges all of the oil companies to cooperate fully with the monitors and provide the necessary information required to conduct an effective monitoring program. Companies should also urge the government of Angola to cooperate fully with the monitoring program and to publicly disclose the terms of reference and the results of the program.
• The appointed accounting firm will calculate the amount of government revenue that should be generated by oil exports and then examine whether this amount of funds was deposited in the Central Bank. The effort will help to determine whether any discrepancies between the expected amounts of revenue and the actual amounts of revenue deposited in the Central Bank exist. In some cases, discrepancies may be due to fluctuations in oil prices, changes in the price of oil because of varying degrees of quality, or lesser (or greater) production than initially recorded. However, there may be unexplained discrepancies as well, such as off-the-books arms purchases or loan repayments that are funneled through Sonangol or the Presidency. Human Rights Watch urges the monitors to detail publicly the nature of discrepancies if they emerge.
• The monitoring program does not have the capacity to trace or audit any discrepancies if they emerge nor will it examine how funds were used after they were deposited in the Central Bank since the government did not agree to these terms. The only way to determine what happened to funds will be to ask the government to report its use of funds. The quality of this information is completely dependent on how much the government decides to disclose and it is possible that the government could refuse to disclose any information. Human Rights Watch strongly urges the government to cooperate fully with the monitoring program and to consider a follow-up agreement with the World Bank and IMF to conduct an investigation and audit when unexplained discrepancies are found. In particular, Human Rights Watch believes that any future oil monitoring agreements should ensure that oil remittances are not used to purchase indiscriminate weapons, such as antipersonnel landmines.
• The government has not yet authorized the public release of reports and information related to the findings of the monitoring agreement. At this writing, all information will only be available to the government, the World Bank, the IMF, and the monitoring firm. Human Rights Watch believes that an agreement designed to foster accountability and transparency should be publicly available and urges the government to authorize release of this information at the time that the reports on revenue flows are published.

Conclusions

As the war conditions recede, Angola could be taking the opportunity to move forward from an environment of war, bad governance, economic breakdown and human rights abuses towards an environment of transparency, accountability, rule of law, good governance, and sustained social development--all conditions which auger well for human rights improvements. In this context, the oil revenue monitoring agreement is a positive and necessary step forward in order to establish transparency and accountability within the government of Angola. While a number of institutions have a role to play--the oil companies, the IMF, and the World Bank--the principal responsibility lies with the government of Angola to disclose information to the monitors and to the public as a whole. But without full cooperation by the government and companies and certain further steps, such as a follow-up audit to determine discrepancies, this agreement is not a solution in itself. A key element that can only be supplied by the government itself is a commitment to create strong institutions that promote and protect transparency, accountability, respect for the rule of law, and human rights.

1. Government violations included torture, "disappearance," summary executions, indiscriminate killing of civilians, pillaging, arbitrary recruitment into the military, forced displacement, use of indiscriminate weapons such as antipersonnel landmines, and harassment of loyal political opposition. In addition, UNITA has engaged in summary executions, torture, mutilations, abductions of women and children, hostage taking, and restricted movement of civilians.

2. Economist Intelligence Unit, Angola 1999-2000, Country Profile, London, December 1999.

3. Jonathan Isham, Daniel Kaufmann, and Lant H. Pritchett, "Civil Liberties, Democracy, and the Performance of Government Projects," World Bank Economic Review, Washington, D.C., May 1997, pp. 219-242.

4. Ibid.

5. Human Rights Watch interviews, Luanda, December 1999. Follow up interviews, London, May 2000.

6. For more information on the signature bonus payments see Human Rights Watch, Angola Unravels: The Rise and Fall of the Lusaka Peace Process (New York: Human Rights Watch, 1999), pp. 92-98. According to the SMP document on Angola in 2000 there is "A substantial decline in military spending (which was very high in 1999) and transfers…" p.12.

7. Human Rights Watch interview with Foreign Minister Venancio de Moura, Luanda, December 9, 1998.

8. Ibid.

9. At this writing, oil industry press reports predicted that this block would be awarded to a consortium led by Norway's Norsk Hydro.

10. Information provided by Ministry of Defense, Luanda, August 1998.

11. www.sipri.se/cgi-bin/backend.milex.pl?coun=Angola.

12. Information provided by Ministry of Defense, Luanda, August 1998.

13. International Monetary Fund (IMF), "Angola: Statistical Annex," IMF Staff Country Report Number 99/25, Washington, D.C., April 1999, p. 19.

14. BP Amoco, "BP Social Report, 1997 (London: BP Amoco, 1997), p. 19.

15. Undated letter from BP Amoco Chairman Peter Sutherland to House of Lords Member Lord Averbury regarding Averbury's May 18, 1999 letter of inquiry about the government of Angola's use of signature bonus payments paid by BP Amoco.

16. Joseph Stiglitz, former Senior Vice President and Chief Economist of the World Bank, "On Liberty, the Right to Know, and Public Discourse: The Role of Transparency in Public Life," Oxford Amnesty Lecture, speech given at Oxford University, United Kingdom, January 27, 1999.

17. Human Rights Watch has seen a copy of the confidential memoranda between Glencore staff and officials of Sonangol. See also Africa Confidential, vol.39, no.14, July 10, 1998.

18. As is the case whenever large sums of money are used in a secretive manner, allegations of corruption surfaced as well. The most high-profile allegations were made by the London-based nongovernmental organization Global Witness in its December 1999 report A Crude Awakening: The Role of the Oil and Banking Industries in Angola's Civil War and the Plunder of State Assets.

19. Human Rights Watch field work in Angola in August 1998. These included: (1) seeing new minefields being prepared in Luena in August 1998, and also establishing that the provincial authorities had refused to allow mine clearance operations in these areas;¹⁹ (2) interviewing newly-arrived refugees in Zambia who said that the Angolan National Police had protected their police station in Cazombo by putting landmines in their roof;¹⁹ and (3) speaking with Angolan soldiers who admitted to planting landmines under orders in August 1998 during operations in Piri and in Uige. Human Rights Watch fieldwork in Angola and Zambia, May 2000; IRIN, "Namibia: Angolans faces terror charges," IRIN, May 24, 2000.

20. Human Rights Watch has seen the Staff Monitoring Program document and the monitoring program sets out a series of ambitious reforms that the government must undertake before becoming eligible for the ESAF loan including: creating an integrated financial management system; eliminating domestic fuel subsidies; limiting subsidies to indebted state-owned enterprises; eliminating tax exemptions that are not a part of international agreements; eliminating import licenses and non-tariff barriers; simplifying commercial licensing; progressively adjusting tariffs for public services such as water and electricity to market levels; liquidate the Caixa de Credito Agropecuria (CAP); defining a strategy to deal with the country's external debt; clearing arrears payments to multilateral financial institutions; gradually eliminating external commercial credits to the central bank; creating a register of debt service payments, including oil-backed loans; preparing a restructuring of the financial system, including privatization of state banks; revising of the special foreign exchange regime; presenting a policy document on privatization; implementing a pilot program involving the privatization of five state-owned companies; publishing comprehensive statistics on government accounts and macroeconomic indices; and preparing a plan for tax reform.