LNG project gives Yemen light at end of the pipeline

A liquefied natural gas operation is one ray of hope for a country that is grappling with civil unrest and an increasingly active al Qa'eda movement.

BALHAF // It was a celebration of much pomp and circumstance, with ambassadors and government ministers flown to this remote coastal outpost in November to inaugurate Yemen's crown jewel of foreign investment - the US$4 billion (Dh14.68bn) liquefied natural gas (LNG) facility. For the country's president, Ali Abdullah Saleh, it was a particularly momentous occasion and not only because the massive project was constructed at a breakneck pace of just under five years. It also marked a new and important revenue stream for his government, which is mired in a budgetary crisis.

Revenues from oil exports make up three fourths of the national budget, but production has nearly halved since 2003. The decline has had dire repercussions, forcing the ministry of finance last year to call on all ministries to halve their budgets. In a country where nearly half the population subsists on US$2 a day or less, and which is grappling with serious shortfalls of fresh water, civil unrest and an increasingly active al Qa'eda movement, finding new opportunities for its 23 million population is of utmost importance.

Officials at Yemen LNG Company, a consortium of seven companies and government entities, including the French oil giant Total, are confident the plant is having a beneficial effect on the country and its people. "There is certainly a positive impact on Yemen, and more than just generating revenue," said the company's general manager, Francois Rafin. The massive facility is expected to soon churn out, at its peak, nearly seven million metric tonnes of liquefied natural gas a year for export to energy-starved markets in South Korea and the United States.

To do so in an isolated and fiercely tribal environment, in which the government's remit is marginal at best, the company has built its own self-contained community on the coast of Balhaf. It has its own airport and desalination plant (one of only two in all of Yemen) as well as Yemeni-themed housing blocks, football pitches and tennis courts for its permanent staff of 1,000 - in total, 20 square kilometres of barren, rocky landscape, encircled by barbed wire and Yemeni troops wielding automatic rifles.

All this, despite its slightly menacing feel, is generating many local employment opportunities, Mr Rafin said: "Indirectly there have been 20,000 jobs created in Yemen because of the project, and we have many other programmes in the project like capacity-building and training for Yemeni employees." However, sceptics abound. "Yemen's future is very dark," said Abdo Seif, Yemen's programme adviser for the United Nations Development Programme (UNDP). "So far, the sectors other than oil, such as the export of natural gas, will not be enough to substitute the lost income that used to be earned from oil exports."

Furthermore, industries such as oil and gas only marginally employ Yemenis, with foreign expertise typically preferred for the sector, he said. "The only viable strategy is to promote other sectors, such as agriculture, tourism, creative industries, because Yemen is attractive for that. But all this depends on a stable environment within the country." Others question whether windfall revenues from such projects as Yemen LNG, after entering government coffers, will be fairly distributed.

Analysts say Yemen is rife with corruption, fuelled in part by the government's pervasive but nebulous patronage system, through which enemies are bought off, cronies and relatives promoted and officials kept in power. "President Saleh rules Yemen in part through a web of tribally and regionally based patronage networks, which are themselves buttressed by grand corruption," said April Longley Alley, an American who did her doctoral research on patronage in Yemen.

In the past decade, she said, power and wealth have increasingly been concentrated in elite circles in the capital, Sana'a, much to the chagrin of average Yemenis, with those in Mr Saleh's own clan some of the main beneficiaries. "There is little trickle-down benefit to the average citizen," she said, but this style of governance "has over time undermined regime legitimacy and the prospects for long-term stability".

But officials at Yemen LNG facilities in Balhaf, located in the dune-swept southern governorate of Shabwah, showed The National what they hoped would help form a cornerstone of development and environmentally sustainable projects in Yemen. Like the UAE's efforts to encourage nationals to seek employment in the private sector, Yemen LNG wants 90 per cent of its workforce to be Yemeni nationals by 2015.

Already about 70 per cent of its permanent staff of about 1,000 are Yemeni nationals, working as engineers and technicians, and the vast majority of subcontracted workers are Yemeni. Many of the latter come from surrounding villages, working as security guards or among the 10,000 or so labourers who helped build the facility and the 320-kilometre pipeline that carries gas extracts from a large field in the north.

Mr Rafin also described the company's array of development projects for nearby communities: building school facilities and aiding teachers, sponsoring mobile health clinics, promoting the cultivation of honey and raising goats. He emphasised that the projects were not cash handouts, but tangible efforts, in tandem with non-governmental groups, that aimed to ensure results.

"We are not a charity," he said. "In general we don't provide money - we do things. It's capacity-building to help promote economically sustainable projects." The company's development projects only cover a 10km distance beyond the pipeline, and Mr Rafin declined to put a number on the amount of funds distributed. "Let's just say, after a few years, with that amount of money, you could buy a Boeing [aeroplane] with it."

In addition to these, he said Yemen LNG went to great lengths to gain favour among local fisherman, who increasingly compete with the facility's incoming tanker traffic and Yemeni navy vessels stationed there to protect them. At least a kilometre of ocean surrounding the facility's port and 800-metre gas-offloading jetty is off limits to unauthorised vessels. A new breakwater to help a nearby fishing community was recently built at the company's expense, and environmental groups were brought in to help minimise the impact of construction and tanker traffic on the coastline's vibrant coral reef colonies. "We recognise that fisherman are our neighbours, and we have to co-operate with them," Mr Rafin said.

Even so, on top of Somali pirates looming in nearby waters, evidence on the mainland suggests a seemingly precarious situation for Yemen LNG operations. Internal checkpoints at the facility, not unlike those scattered throughout the country, routinely interrupt the flow of company traffic. Most are manned by security guards from surrounding areas who seemed reluctant, at times, even to let high-ranking personnel pass through.

Making the project palatable to Yemen's not-always-welcoming network of tribes and families, through which the company pipeline wends on its journey to Balhaf, required doling out extra "incentives", Mr Rafin said. The company has a special team that deals just with these sort of matters. "Everything here is about negotiation. We get co-operation, but in Yemen, they [tribespeople] come to you," he said. "You dig for five minutes in the desert, and someone approaches you."

The governorate of Marib, where gas is extracted and then piped out, is a particularly dangerous place. Abu Ali al Harithi, a senior al Qa'eda operative, was harboured and eventually killed there, in 2002, by a US Predator drone missile strike. In July, several Yemeni troops died in a gunfight with Marib tribesmen believed to be giving refuge to members of al Qa'eda, in which the radical Islamic group later boastfully called "The Battle of Marib".

So far, however, Mr Rafin said, none of his staff had been kidnapped. "We make sure we have friendly relations" with neighbours, he said. "We can't afford to be unfriendly." @Email:[e-mail]