Slick operator

June 3, 2006

Woodside's $1 billion investment in Mauritania's oil catapulted the company into the big league. Then came a coup, claims of corruption and a $US100 million settlement. Kate Askew and Violeta Ayala report.

ON FEBRUARY 21, a white four-wheel drive with darkened windows swept up to the front of the clay-coloured courthouse in the ramshackle Mauritanian capital of Nouakchott.

Slipping out of the vehicle, past the armed security guards in navy blue uniforms and through the wire doors into the courtroom were representatives from Australia's largest oil company, Woodside Petroleum.

Not in court that day, but a couple of minutes drive away behind the lush green hedging and white-trimmed, thick tan walls of Woodside's secure compound, was its chief executive, Donald Rudolph Voelte.

The Mauritanian capital, a sandy, decaying and poverty-stricken city, isn't often host to someone of 53-year-old Voelte's standing.

In Mauritania, bottled water counts as hard currency and business is done over a centuries-old tea-pouring ritual.

What the Islamic nation in north-west Africa does have is oil - and plenty of it.

Voelte was in town that day for Mauritania's oil. Or rather to try and salvage a situation on the brink of going horribly wrong.

Woodside and its partners have a $1 billion investment sitting just 80 kilometres off Mauritania's coast. It has taken five years to develop the Chinguetti oilfield, and oil has just started flowing.

But a change of government last August after a military coup left everything hanging in the balance.

And for the country's former oil minister, a young, handsome and wealthy Arab, Zeidane Ould H'Meida, things suddenly turned ugly.

Zeidane and Woodside knew each other well. The minister had visited Perth and the oil group's Perth headquarters two years earlier.

With his short dark hair and European suits, Zeidane could pass for an oil company executive himself.

He doesn't wear the traditional ankle-length cotton bubu with its tan applique and can often be found in Nouakchott at the upmarket La Palmery cafe and meeting point, with its waiting staff clad in Western clothes.

He's also very rich. He owns a village in the Atar region, three hours drive from Nouakchott on the way to the ancient city of Chinguetti, as well as numerous mansions in Noukachott with large amounts of greenery, a sign of wealth.

But in January 2006, six months after a military junta led by the head of police had seized control of the country in a bloodless coup, Zeidane was arrested, jailed and charged with corruption.

"The ex-minister Zeidane is accused of three things," says the French-speaking Braheem Ul Ebbety, the Government's prosecutor.

Sitting on one of the few chairs in his large sparsely furnished Nouakchott house, the prosecutor explains the charges.

"The first involves using false documentation in public documents, [the] second accusation against him is corruption and [the third accusations is] intelligence working with a foreign power, which could have a negative impact on the strategic interests of Mauritania."

The core accusations relate to four amendments made to the original 2001 agreement between Woodside and the deposed government, amendments the new Government claims have cost Mauritania dearly.

It was these amendments that landed Zeidane in jail, jeopardised Woodside's future and now have attracted the attention of the Australian Federal Police.

Before Woodside's partner Hardman Resources started Mauritania's oil industry a decade ago, the country relied largely on its rich fishing industry.

In Mauritania the Sahara desert runs into the Atlantic Ocean. It's a country where the rich are mostly Moors (Arabs-Berbers) - they make up 30 per cent of the population - and the black population, which accounts for 30 per cent, mostly do menial jobs. The remaining population is a mixture of the two.

Its people descend from four "super" tribes who at one time or another warred with each other. In the past fighting was at the point of a sword and over camels. These days the stakes have risen: the ruling regime puts its enemies in jail and frighteningly large oil profits are the warring point.

Oil, and the wealth it promised, had been used for years by the dictator Maaouya Ould Sid'Ahmed Taya to keep power over an increasingly dissatisfied population. Because of recurrent drought, Mauritania received debt relief under the Heavily Indebted Poor Countries scheme in 2000.

Oil had attracted Mauritanians back from other African countries such as Libya to its east, and the US and Spain. Still, there were not jobs for everyone. For one, Woodside requested its employees speak English, which was not so common in the Arabic and French-speaking Mauritania.

Zeidane, a minister in the pro-US, pro-Israel Taya regime, which had been in power since 1978, was deposed when Colonel Vall took power on an August morning last year. Vall took advantage of Taya's absence in Saudi Arabia and swooped.

Promising a transition to a democratically elected government in 2007, Vall appointed Sidi Mohamed Ould Boubacar prime minister.

Immediately the Government ordered a group of four auditors to sift through the Ministry of Oil's archives.

"The new authorities tried during the month of September 2005 to see what the oil industry could bring to Mauritania," says Ebbety.

Clearly all deals over oil made with the previous regime were off. On September 1, Woodside appointed a retired secretary of the Department of Foreign Affairs and Trade, Ashton Calvert, to its board.

When the Government's auditors approached Woodside, it was told the company had negotiated four amendments to the original 2001 contract.

"The oil issue [Woodside's negotiations] were conducted by two or three persons, the minister [Zeidane], the president [Taya] and the president's wife," says Mohamed Ould Oumeir, editor of La Tribune, a French language weekly newspaper based in the capital.

Oumeir is no stranger to controversy. He was taken into custody in 2005 and questioned after publishing concerns about the manner in which the amendments to the contracts were negotiated.

"I was the first person to publicly denunciate the illegality of this amendments," he says. "An expert wrote a public letter to the former minister of oil to question the amendments."

According to the new Government, the four amendments benefited Woodside at the expense of Mauritania.

First, they modified the amount of profit the Government made from the production of oil from the Chinguetti field. Second, they modified the tax environment Woodside operated under. Third, they extended the length of the contract. And finally, Ebbety says: "It has a negative impact on the environment."

The new president quickly focused on the renegotiated agreement.

In an address to the nation on February 5, President Vall declared: "Those amendments cause harm to the national interest and can cause great harm to the environment and the shoreline.

"We are going to use only the law to resolve the problem but in the meantime I declare all the amendments made to the original contract illegal."

Woodside responded quickly and with its full force. Voelte made an emergency dash to Mauritania to negotiate with the Government.

"Woodside came with a colonial attitude," says anti-corruption squad member Irabiha Abdel Wedoud. "They thought we are poor and ignorant nomads and they could do whatever they like."

Meanwhile, Zeidane, languishing in jail, was denied bail.

"There exists a shift of an extreme width between this supposed objective of the 'amendments' of February 1, 2005 and the real objective," said Mohamed Aly Ould Sidi Mohamed, Mauritania's new Oil Minister, in an interview in his office in February.

"There is a substantial modification of the contents of the contract relating to the division of production, in the exclusive interests of Woodside," he says carefully.

Ebbety, the Government's prosecutor and a former human rights lawyer, believes the amendments cost the Mauritanian Government up to $US200 million ($267.2 million) a year in lost revenue.

The total revenue in the Mauritanian Government's coffers was last estimated at $US421 million in the CIA World Factbook. Voelte was to later say at Woodside's annual meeting: "I think we can say this with their agreement now, once we sat down and talked around the table: that number of $US200 million was probably - how might I say this best - probably miscalculated."

On February 2, Zeidane left Nouakchott jail for his first court appearance. He was facing a life sentence.

"If Zeidane got bribed it wasn't from Santa Claus," says Zeidane's lawyer, Adama Diop, who denies any corruption. "The law says that both parties should be in jail. The corruption doesn't come from heaven, corruption can't be a supposition, they have to show the tangible product of the corruption."

Oil industry observers note that Mauritania has been Woodside's first outing in Africa as an operator and it shows. "They were dealing in a difficult country without the relevant experience," says one oil industry executive.

Certainly some of its dealings have been clumsy, say a collective of non-government organisations in Mauritania. None was more so than a social impact statement prepared by an outside consultant, Environmental Resources Management's Australian arm.

In ERM's draft, seen by the Herald, the report refers to Mauritania as having some practising Christians and claims its main languages are Hasaniya Arabic and Wolof, with some French being spoken.

Wolof is the national language of Senegal, not Mauritania, and its population is Muslim, the NGO collective says. A small minority of people speak Wolof. Senegal borders Mauritania to the south.

Confusing Mauritanians with the Senegalese is like Australians being referred to as Papua New Guineans, says the president of the NGO collective, Khatu Mint Baham.

On February 6, a day after the Mauritanian president came out publicly criticising Woodside, the Oil Minister followed suit. "The Government cannot accept these documents, which constitute a clear violation of the law," said Sidi Mohamed.

"Mauritania recognises the interests of third parties and respects its obligations, but in return won't accept having its legitimate rights trampled on."

One of the key elements of the amended contract is a relaxing of environmental regulations. As it is, environmental concerns count for little in Mauritania.

Under the terms of the agreement, Woodside prepared its own environmental impact assessment statement. According to the amendments, it is up to Woodside to monitor itself according to its own environmental plan.

One of the major environmental concerns, taken up by Greens Senator Christine Milne, revolves around Chinguetti's floating production and storage operation.

Oil is pumped from the Chinguetti well up from the sea floor and on to a retired sea tanker, the Berge Helene.

Milne says the Berge Helene is a single-hulled vessel and Woodside ought to use a double-hulled ship as it does at its North-West Shelf operations off the coast of Western Australia, to protect from collisions and consequent oil spillage. Massive fishing boats trawl the waters around the Berge Helen, she says.

"This is the nursery for Africa's fisheries."

The tax amendments appear to have stemmed from a misprint in the original contract. The 2001 document had two contradictory figures relating to taxes. In the amended contract, Woodside and the Government agreed that the lower figure would apply.

Another section of the amendments relates to the provision of goods.

Under the amended contract, seen by the Herald, Woodside is required to "give their preference to Mauritanian enterprises and goods, under equivalent conditions in terms of price, quantity, quality, conditions of payment and delivery time".

It also says the company must call for bids for contracts worth more than $US250,000. But a final paragraph deftly sidesteps this condition. In short, it says that with the approval of the Minister for Hydrocarbons, the contracts can be awarded "without issuing tenders, on a sole source basis".

The company is now accused of exploiting that loophole.

"Woodside didn't even make a small impact for the people, they import everything and they make excuses that the market doesn't match their necessities," says Wedoud of the anti-corruption squad. "They import everything from Europe, even the onions."

Back in February, Woodside was still maintaining the amendments were legally binding.

"We are not going to debate this in the public arena," said Brendan Augustine, a former Department of Foreign Affairs and Trade employee who is now Woodside's man on the ground in Nouakchott. "We believe they are binding."

Woodside wasn't even going to release the details of the Mauritanian issues to its shareholders. That was left up to its smaller partners in Chinguetti.

"The supplementary agreements [amendments] in dispute were the result of a co-operative process undertaken with the Mauritanian Government," said Hardman on February 7. "They contain clarifications and amendments to the PSCs [production sharing contracts] agreed over a period of years."

Another partner, Roc Oil, was in the middle of a European roadshow to raise funds from institutional investors and notified the stockmarket of the issues with the Mauritanian Government after Zeidane was arrested and thrown in jail.

It said in a market release on January 18 that Woodside was in discussions with the Mauritanian Government and those discussions related to "elements of documents which are ancillary to the PSCs."

"When we announced it and we finalised the raising the attitude in London [from investors] was we're not fussed by this [Mauritanian political upheaval]," said Roc Oil boss John Doran during the week.

There is little doubt there is a cultural chasm between Woodside's management and the diverse and complex Mauritanian population.

Nouakchott has only two buildings of any size. Shops are roadside lean-to affairs. Hygiene doesn't rate highly. In one telephone shop a shopper relieved himself in the corner before picking up a cigarette packet to clean himself up. Minutes later another shopper repeats the exercise, using the same cigarette packet to clean himself.

The Woodside issue, meanwhile, is hotly debated on the streets.

"Woodside are going to court for unfair dismissal," said a former Woodside worker, now a private driver, when interviewed in Nouakchott in February, saying 117 workers were sacked.

"One day I went to work and they said to me there is no work any more, with no further explanation."

Even the small student community in Nouakchott became involved. On March 2 a student rally was held at the only university in Mauritania.

While the essence of the amendments has been hotly debated, more serious were allegations the changes had not been properly implemented.

Ebbety, the prosecutor, says an examination of the contracts shows the amendments were put in place before they were officially signed by the Government.

"I want to say something else that is irregular," says Ebbety. "The law that concerns the mining and investment code in Mauritania says that all of the contract amendments can only enter into effect once they have been ratified by law."

A copy of the four amendments that the Herald has seen, however, appears to have been backdated to December 26, 2004. The amendments were submitted to the National Assembly in January and the law was enacted the following month.

Zeidane's lawyer doesn't agree.

"The amendments that I have seen have all the signatures. They went through the Prime Minister and then through the Parliament that voted for the changes. I believe everything is legal," says Diop.

Woodside has always argued the controversial amendments were all above board. But in March this year, it was willing to pay more to secure the tenure of the Chinguetti oil project.

On March 31, Don Voelte agreed to hand over $US100 million to the seven-month-old Mauritanian Government.

He has labelled suggestions that the payment was not legal as "patently ridiculous".

Voelte argues the payment was made because it was a "$US30 [a barrel] world" when Chinguetti was developed and now it's a "$US60 world".

But it did more than agree to the payment. It went one step further. The controversial amendments were dropped.

And just as the payment was finalised, Zeidane, the former oil minister, was released from jail.

The party at Zeidane's house went on for three days. His vast home had more than 30 camels outside, after his release, and as many vehicles again.

"There is no proven link between Zeidane and Woodside, the judges are incompetent and this is a non-democratic government," says Diop. "My client has money because he was a minister. In which country did you see a poor minister?"

Woodside announced it had come to an agreement with the Mauritanian Government. But it did not name a figure in its release to its shareholders.

That was left up to the Mauritanian Government and the Mauritanian press.

Of the $US100 million on which the Government has yet to officially sign off, $US1.4 million will be set aside for an environmental fund.

Later, Voelte gave his employees an insight into the negotiations in an email.

"This is a commercial settlement," he wrote. "Once the agreement is fully concluded, the bonus will be paid through proper channels to the Mauritanian Government without any secrecy, just like we will pay our taxes in that country."

As for Zeidane, he was "never" discussed during Woodside's negotiations with the Mauritanian Government, according to Voelte.

His email to staff said: "The agreement to resolve the dispute contains no reference to the release of the former energy minister or his immunity from prosecution. Nor did the agreement come with any such written or unwritten understanding."

Zeidane's prosecutor, Ebbety, believes that in being released from jail, Zeidane "gained an enormous advantage from Woodside".

Australia's Senator Milne says with Mauritania's weak democratic processes, the Mauritanian Government has little capacity to negotiate appropriately.

Zeidane's lawyer, Diop, is even more philosophical. "In every country in general things like this happen. Woodside is a corporation, they could have come and find nothing … oil always brings problems in Africa, America or Europe. We live in a commercial world where the smartest one takes advantage of the less smart one."

Certainly Mauritania is still not politically stable.

Voelte, who would not speak to the Herald, may have secured Woodside's future in Mauritania for the meantime, but the problem of its political dealings in Mauritania hasn't quite gone away.

Senator Milne has asked the police to look into bribery allegations. In Senate Estimates in Parliament House on Monday, she also asked whether the Department of Foreign Affairs and Trade's Paris office had worked with Woodside on facilitating access to Mauritania.

"It really depends on what you have in mind. There will be instances where the Paris embassy may make representations on behalf of Australian companies in Mauritania," responded DFAT's deputy secretary, Doug Chester.

"When the head of the mission visits she picks up issues in relation to a number of Australian companies that are working in Mauritania. It is an ongoing part of our work, as necessary, to promote Australian business access and deal with their issues."

Voelte, meanwhile, was adamant in his email to Woodside employees that the allegations "have no standing and can easily be dismissed".

"The slur made against our company and all of us who work at Woodside is more difficult to deal with. As you know, we have a corporate code of conduct that I am passionate about.

"Compliance with the law - in every jurisdiction we operate in - is at the heart of this code."

But in Mauritania at least, the brouhaha appears to be forgotten.

The government prosecutor and human rights lawyer Ebbety says it all.

"The state doesn't speak of it any more."

Violeta Ayala and Dan Fallshaw's documentary Between the Oil and the Deep Blue Sea airs on the BBC later this year.
