TOTALFINA-ELF Part2

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TOTALFINA-ELF MERGER: STARTING OVER WITH A CLEAN SLATE
by Francis Christophe, published in Golias magazine, France, October 1999

Part II
THIERRY DESMAREST, A CAREER SERVED BY OPPORTUNITY

Thierry Desmarest' s modest image since early 1999, when he became France' s 
first general manager after the success of a friendly PEO on Petrofina, is 
more than a feature of his character : It is the cold analysis of the 
fragile conjunction of events which placed him at the helm of the world' s 
only petroleum group headed by a Frenchman.
Better than any of his peers who with him followed  the ideal elite 
educational path of X -Mines (X=Ecole Polytechnique, Mines = Ecole des 
Mines, both elite of the "grandes ecoles")- followed by a ministerial post, 
Thierry Desmarest is able to appreciate the circumstances without which he 
would have remained a faithful second in command to Serge Tchuruk*. Present 
general manager of Alcatel, artisan of Total' s recovery in the early 90s, 
Tchuruk had no plan to leave an increasingly comfortable position. For 
Desmarest an unlikely scenario opened the path to the highest position: The 
French Alcatel group, a giant in telecommunication and turbines etc, had 
been headed for ten years by an  X-Mines who eventually had to be dismissed. 
Under investigation for abuse of social funds due to lavish expenditure for 
the protection of his private residence, Pierre Suard refused all compromise 
and held on beyond reason to his comfortable post. To attempt a recovery of 
the seriously damaged Alcatel, the decision was finally made to resort to 
the aptitudes that Serge Tchuruk had shown as head of Total. He eventually 
accepted on two conditions: To name as his successor Thierry Desmarest, his 
faithful second in command, and for himself to remain a board member of 
Total.
Another marker in Thierry Desmarest' s rise was Algeria. Early in his career 
he was Total's representative there. Featuring on his official CV, his 
mission in the South Mediterranean country had demonstrated the technical 
ability,  negociating skills, as well as quality of leadership which were to 
permit his fast climb through the group' s hierarchy. Through the extreme 
opacity of Franco-Algerian affairs a single feature transpired clearly: The 
part played by France in the exploitation of Algerian hydrocarbons was 
constantly diminishing ... And Desmarest' s mission did not change this 
trend. Was this a skilfully disguised fiasco? Or is it that Desmarest 
managed to make believe that, without him, French industry would have been 
entirely excluded from the Algerian underground reserves in spite of  a 
decision by president Mitterand to pay a premium for Algerian gas. After the 
nationalization of hydrocarbons  in 1971, ELF left Algeria and Total 
remained the only French collaborator of the Sonatrach, the powerful state 
company which controls over 90 % of the Algerian cash income, a gateway for 
the hidden finances which flow into networks of influence on both sides of 
the Mediterranean. From his discrete Algerian observatory Thierry Desmarest 
was able to observe hidden mechanisms of  the oil business and although he 
did not produce glamourous results - nor excite jealousy - he nonetheless 
built up a solid connection network.

The Burmese episode revealed a new facet of  his character. Under a 
forthcoming and consensual appearance - some medias go as far as qualifying 
his smile as angelic - Thierry Desmarest can also be abrupt and stubborn.  
In his capacity as director for exploitation/ production and as Serge 
Tchuruk' s number two he had worked to have the Yadana contract signed, 
after which he accepted no criticism on this subject and bluntly hushed any 
discording voice within Total' s management. (Other petroleum companies, 
notably Texaco and Arco, after previously praising the Burmese mineral 
resources reconsidered their initial stand and withdrew). After he succeeded 
Tchuruk and became Total' s president in 1995   the Burmese question allowed 
him to clean up all contestation and eliminate those few who might have 
questioned options such as his external growth policy, seen by some as 
negative for its potential results: It would  dilute and unavoidably 
internationalise Total' s capital.

Having thus built up a monolithic group Thierry Desmarest followed fashion 
and , after BP - AMOCO- ARCO and Exxon-Mobil headed for the supermonopoly of 
petroleum concentrations. A first target was the Belgian company Petrofina, 
previously turned down by Elf 's Philippe Jaffre who considered it too 
expensive.  This was the object of an amicable Public Exchange Offer on the 
last pride of Belgian  industry controlled by Albert Frere** who, with 9% of 
shares, was personally  becoming the largest shareholder of the new 
Totalfina group. Before the merger 40 % ot Total's capital was in foreign 
hands and this increased to over 50% after the merger. While still digesting 
its Belgian prey Total then aimed for Elf. Some see in this operation the 
effect of bankers' manipulations: Desmarest had been led to believe that  
Elf was about to launch an offer on Total, and was thus prompted to act 
quickly, while in fact obsessed as he was to increase the shareholders 
return, Jaffre was not planning anything of the kind.

By prioritizing mergers and acquisitions, Thierry Desmarest knowingly 
modified the composition of Total' s capital, and supervised the group 
passage to a majority foreign ownership. Mathematically the board of 
administrators was restructured ; Converging interests and collusions which 
are typical of French capitalism faded away. Maintaining a French director 
general and head office now needed strictly financial justifications, with 
all the required blackmailing (in sectors such as jobs, taxes, etc) of the 
administration. The example of Totalfina + Elf  under majority foreign 
ownership is only a foretaste of what French firms can expect when they 
change the hexagone into a large-scale Belgium, which according to its " 
model " allows foreign control of the jewels of its economy. Lionel Jospin 
and Jacques Chirac' s noticeable silence - as they did not praise the merger 
- shows embarassed and powerless rulers.

For Thierry Desmarest, at the helm of a supertanker under a flag of 
convenience, how long would he find this gratifying?

*Duting two years, before being head of Total, Serge Tchuruk had been a 
right hand for Loic Le Floc Prigent, then General Manager of  the chemical 
company Rhone-Poulenc. When Le Floc became general manager of Elf and 
Tchuruk headed Total no hostility was ever felt, some understanding existed 
between them. At the geometric centre, where the petroleum networks met, 
Tchuruk had a critical part in the Total-Elf agreement of September 12. H 
had previously blessed the merger with Petrofina, even though he had not 
suggested it, and the PEO on Elf. What a bitter lesson for Philippe Jaffre: 
He had to give up his post as ELF' s  general manager by a request from the 
former right -hand of his ennemy Le Floc Prigent, under the terms of an 
agreement between Desmarest and his (former) "boss". For Jaffre 250 millions 
FF worth of stock options and golden handshake would make up...

** Baron Albert Frere, ennobled by King Baudouin, is often seen as the grave 
digger of Belgian industry. He started making and selling nails at a very 
early age in the suburbs of Charleroi, and from there on went a long way as 
a self-made man. He progressively took control of the entire Belgian iron 
and steel industry, before selling off to Usinor, moving on to finance, 
laying his hands on the Generale de Belgique banking company, whose control, 
again, went to the French Suez-Lyonnaise banking group. His next prey was 
Petrofina, which just had a similar fate. He will now be the main 
shareholder (with 4.5 % of shares) in the future Totalfina + Elf group. He 
is not an easy partner, at least not for those who are sensitive to national 
interest. In case of conflict within the board of directors defence of his 
own interests will not necessarily coincide with the defence of Desmarest's 
post.

AN OIL POLICY FROM THE 1920'S

France?s oil policy was first established just after the First World War, 
with two principal objectives : guaranteed access to external supplies ? 
essentially in the Middle East at that time ? and a secure reserve kept in 
metropolitan France. A company was established, with majority public 
ownership, to receive certain war reparations : the German share of the 
Iraqi petroleum consortium, which became the origin of the Compagnie 
Francaise des Petroles (French Petroleum Company), from which Total was 
born.

At the beginning of the 1960s, at the initiative of De Gaulle' s government, 
a second major publicly-owned company was created, to exploit the natural 
gas reserves of Lacq, and the discoveries made in the Algerian Sahara, which 
was still (for a short time) a French departement. This company eventually 
became the ELF group (Essences et Lubrifiants Francais ? French Petrols and 
Lubricants). Pierre Guillaumat was named as managing director ?previously 
minister of defence under General de Gaulle, he had also been one of the 
founders of the DGSS (Direction Generale des Services Speciaux ? Directorate 
General of Special Services) in London in the 1940s, a direct ancestor of 
the current DGSE (Direction Generale des Services Exterieurs ? Directorate 
General of External Services).

Following the first oil crisis of October 1973 (which brought the spectre of 
shortage and a quadrupling of oil prices), the end of the Pompidou regime 
and the beginning of that of Giscard D'Estaing formalised the latest 
manifestation of France?s energy policy. The consequences of this stay with 
France today. Since ELF and Total were not able to guarantee stable energy 
supplies, the government decided to follow the path of nuclear energy. To 
underline the intentions behind this policy, the petroleum companies 
invested in the nuclear sector, and it was thus that Total became a major 
share-holder in Cogema, the public company charged with extracting, 
enriching and re-processing the ?atomic fuel? (uranium and plutonium). This 
policy made France the country most dependent on nuclear energy 
(three-quarters of our electricity comes from nuclear generation), and gave 
her also a powerful nuclear-energy lobby linked to the petroleum companies, 
excluding for years to come any debate on the energy strategies of the 
country.

In parallel to this, and to seek to maintain the status of a great power, 
Total and Elf were expected to give France the capabilities of a 
global-player in the petroleum industry. Elf was to concentrate on the old 
French colonial territories in Africa, while Total was to work in those 
other regions where the French presence was weaker.

At the same time, by a phenomenon of osmosis, officials passed from senior 
posts in government into management posts in the petroleum companies, and 
vice-versa.. Thus a director of Elf Africa, previously an official in the 
secret services, ended his career as French Ambassador in Gabon ?

Under the Third and Fourth Republics, and in particular during the 
?gaullist? part of the Fifth Republic, petroleum matters came under the 
joint supervision of the Ministries of Industry, of Foreign Affairs, of 
Finance, and of Defence, and were subject to the influence of ?networks? 
which assisted in the sharing of these petroleum benefits among these 
different ministries, among the majority parties, and among various 
personalities. This Colbertian tradition of an administered economy was 
however undermined by the  gradual establishment of the European Union, the 
signature of the Single Act, and the process of privatisation. In addition, 
the share capital of the two petroleum companies has passed for the majority 
into foreign ownership. France has constantly opposed the slightest 
suggestion of an European energy policy. But her implacable defence of 
national sovereignty has in the case of the petroleum sector led to a defeat 
as yet little realised ? the gradual passage of the French petroleum 
companies into foreign hands.

In this context, it is nevertheless surprising to note that while the 
underlying parameters have radically changed, there has as yet been no 
change in the automatic and massive French government support for these two 
companies. Why should French diplomacy have as one of its priority 
strategies the support of an illegitimate regime in Burma, in order to 
support the implementation of a pipeline contract entered into by a private 
company, for gas supplies to Thailand ? Yet this is the motive cited by the 
Quai d?Orsay to press the US Federal Court in Los Angeles to abandon the 
proceedings against Total in the complaint placed by Burmese refugees for 
violations of human rights and acts of barbarism.

The State as appendage of the oil companies

Whether in Iran ? where Total obtained government support for braving the 
American ban on investing in that country ? or in Angola, Nigeria, Burma, it 
seems that the osmosis between the state and the oil companies has been 
reversed, and the initiative has moved to the other side. The management of 
the two oil companies has determined the political and diplomatic choices 
subsequently endorsed by the political authorities. The poor fit between a 
governmental orthodoxy deriving directly from the Colbertist tradition, and 
a liberalised and globalised economic environment, is creating serious 
contradictions, mistakes which weaken the credibility of French policy.

Elf, the largest French company in terms of turnover (until the Total-Fina 
merger in early 1999), has been a topic for gossip for three years now. Some 
of its secrets have already figured in the press, including the existence 
and operations of its Swiss subsidiary, distributing hand-outs to the 
Parisian political classes and their friends and girlfriends,  and the 
interlinking of Elf?s own intelligence services with those of the French 
government. Judicial enquiries have brought to light a network linking with 
the state security services (DST, DGSE, RG, PJ ). Secret documents coming 
from the prosecution service and the defence ministry were found in the safe 
of J. Pierre Daniel, head of the security department of Elf, in his office 
on the 42nd floor  of the Elf Tower in Paris. Among these papers was a 
confidential analysis on Burma, its diplomats in France and on French 
citizens or companies working with Burma. Forced to resign by this scandal, 
Mr Daniel (previously an official in the state intelligence services and 
still a colonel in the military reserve) was succeeded by General Patrice de 
Loustal, who had just retired as head of the ?Action Service? in the DGSE. 
General Loustal?s CV speaks for itself : paratrooper in the Foreign Legion, 
this man from the shadows had been director of the top-secret training 
centre for combat-frogmen at Aspretto in Corsica (which produced Commandant 
Mafart, arrested and convicted by the New Zealand authorities for the 
sinking of the Rainbow Warrior in Auckland harbour, and the killing of one 
of its crew). He subsequently commanded two paratroop regiments before 
serving, from 1993 to 1996, as head of the Action Service of the central 
French intelligence agency.

Some months after the search of the Elf headquarters by Judge Eva Joly, the 
publication of a series of press articles on the activities of a new Elf 
intermediary in Angola showed up the practices which Elf?s new Managing 
Director Jaffre claimed to have abandoned.

Seeking in 1994 to expand their activities off the coast of Angola, Elf 
launched a complex operation to support the regime of Angolan President Dos 
Santos, including in particular facilities for the supply of armaments in 
large quantity and at supposedly advantageous prices. This operation was 
intended to obtain a research and exploitation permit for Elf for the 
promising Girasol deep-water field. With or without the support of its 
security service, Elf contracted the company Brenco (closely linked with Mr 
Jean-Charles Marchiani, appointed as Prefect of the Departement of Var 
shortly after the operation was completed). Brenco, in association with a 
Slovakian import-export firm created for this purpose, entered into a $300 
million contract for the supply of military materials from the ex-Soviet 
Union on behalf of the authorities in Luanda. Payments were made by the 
supply of crude oil by the Angolan state company Sonangol to intermediaries 
designated by Brenco and its Slovak partner.

Various complaints were expressed, both by the Angolans (who found that the 
specifications, quality and quantity of arms did not always correspond to 
the contract), and by American petroleum companies irritated by what they 
saw as disloyal competition.

Oil contracts are not known for their transparency. But these particular 
contracts, linked to arms-sales, were of an opacity which raised a number of 
questions, in particular as regards the circumstances in which a giant like 
Elf could select as intermediary a small company like Brenco, with no known 
links with Angola, with Russia, or with the oil industry.

According to corroborated sources, Brenco had gained the confidence of Elf 
management through a particular ?network?. Within the Elf hierarchy, persons 
close to the then Minister of the Interior, Charles Pasqua, had lent a 
friendly ear to a ?friend? of Pasqua who had described Brenco?s success in a 
comparable and delicate triangular operation in Burma, on behalf of Total. 
For Mr Marchiani, the Total-Elf merger was a reality some years before the 
stock-market bid.

The magazine L?Express published in early December 1996 a memo attributed to 
the ex-managing director of Elf, Loïc Le Floch-Prigent, who at the time was 
lodged in the Sante Prison in connection with an investigation into the 
abuse of state property. Le Floch-Prigent underlined that even if a 
?strong-arm tradition? was clear within Elf, this was ?absolutely not the 
case with Total?. Quite apart from the incongruity of such statements from a 
man who could not speak for a company with which he had no reason to be 
familiar, it is difficult not to consider this memo as a warning. In case 
his message was not heard, or his imprisonment was prolonged (in fact he was 
released before the New Year), Le Floch-Prigent could have been able to pass 
other compromising revelations to the press, spreading the dirt beyond Elf 
alone.

While Total does not have the strict equivalent of the security service of 
Elf, this clearly does not mean that it never has a need of such services, 
which rather than integrating within its own operations it prefers to 
sub-contract to outside bodies.

This approach also seems to correspond with Total?s habit of recruiting from 
the Ministry of Foreign Affairs, in contrast to Elf?s links to the Defence 
Ministry and the security services .

The sub-contracting approach can also be seen in Total?s difficult 
experiences in the Burma of the SLORC. In order to ensure the security of 
its construction sites for the gas pipeline in the South of the country (and 
in addition to the services of the Burmese army), Total has drawn on the 
services of certain companies of ?security consultants?. These companies 
have no direct link to Total but are very close to the French intelligence 
services, a common characteristic of the companies PHL Consultants, OGS and 
ABAC.

In the same way, for the delicate negotiations which preceded the signature 
of the contract for the Yadana pipeline, Brenco and its local affiliate 
SETRACO- Myanmar has been an inevitable intermediary, something which Total 
believes it can continue to overlook.

By means of this supposedly watertight compartmentalisation, and in contrast 
to Elf in Angola, Total continues to deny any link between the supplies of 
arms (Polish helicopters in this case) and its pipeline contract. To admit 
this would of course be a major embarrassment ? in contrast to Angola, Burma 
is subject to an EU arms embargo. And as regards the means of payment, 
Angola could at least draw on its substantial petroleum revenues, while the 
SLORC?s Burma could at the time of these arms purchases draw only on the 
revenues arising from its heroin exports.

The special character of Total?s approach comes also from the care which it 
brings to its alliances. Bearing in mind the risk of sanctions arising from 
its position as largest investor in a Burma under the heel of an 
illegitimate narco-dictatorship, Total brought into the Yadana consortium an 
American partner, Unocal , seen as a solid shield against a possible 
reaction from Washington. At the same time, the French Embassy in Rangoon 
has been transformed into a zealous auxiliary of Total, supporting its cause 
to the point of caricature.

This has not been sufficient to sweep away all suspicions of implication in 
and profiting from the heroin trade. The members of the petroleum 
consortium, benefiting from the ?protection? of the Burmese Army whose 
equipment purchases are substantially financed by drugs money, thus benefit 
also from this illicit cash. In addition, Unocal and Total are accused of 
covering up and contributing to the illegal practices of their Burmese state 
partner MOGE (Ministry of Gas and Energy), which has been described as 
?laundering on behalf of the Burmese military intelligence services the 
profits arising from the export of heroin?.

A DELICATE PARLIAMENTARY MISSION

In order to better understand the context in which the petroleum companies 
operate, the Foreign Affairs Committee of the National Assembly established 
in the autumn of 1998 a mission of enquiry into the role of the petroleum 
companies in international politics and the social and environmental impact 
of this role. This responded in part to a repeated demand from various 
groups within the plurality of the Left ? particularly the Greens ? who had 
been calling for a formal investigation of Elf. Such an investigation was 
excluded, apparently being contrary to the principal of the separation of 
powers, whereby the legislature could not enquire into a matter already 
being considered by the justiciary.

Three Deputies ? Marie-Helene Aubert (Greens) as rapporteur, plus Pierre 
Brana (Socialist Party) and Roland Blum (UDF) ? were appointed as members of 
the mission, which in distinction to a formal Parliamentary committee of 
enquiry did not have the power to compel testimony. Persons invited to give 
testimony can decline to attend, and do not testify under oath. Government 
departments and private companies may decline to provide papers called for 
by the mission.

In these conditions, and with modest means (as indicated by Marie-Helene 
Aubert ? see interview), the mission worked for more than one year on this 
?colossal? subject. Field investigations were carried out in Africa (Chad 
and Cameroon), in Asia (Burma and Thailand) and in the USA. Not wishing to 
reveal prematurely the tone of their report (which should be submitted to 
the Foreign Affairs Committee in mid-October 1999), the Deputy did not hide 
the fact that the announcement of the Total-Elf merger changed the 
perspective and impact of their report. ?It is clear that neither Elf nor 
Total, during this period, is interested in seeing a number of unfortunate 
stories appear before the public.? But at least some routes have been 
explored outlining the need to improve financial transparency and fight 
corruption, and the means of doing this, and regarding the management of the 
relationship between the petroleum companies and regimes who care little 
about human rights.

Ms Aubert underlined that to her knowledge, no pressures have been brought 
to bear (as of 1 September 1999) to delay the publication of the mission?s 
report till after the Total-Elf merger, and she intends to be particularly 
vigilant on this point. The Desmarest-Jaffre agreement of 13 September 
certainly brought an end to the conflict between the two Chairmen, but does 
not obstruct the exposure of some of their less transparent or less shining 
practices in Africa and Asia. Their image, as well as that of their 
god-father the French state, should not be improved as a result. And if the 
judicial enquiries in their respect point to the horizon, the stock-markets 
should not be indifferent.

So far ignored by the media, the parliamentary mission of enquiry has 
nevertheless given rise already to certain counter-attacks. In the Senate, 
the Chairman of the Committee on Foreign Affairs and Defence, Xavier 
Galouzeau de Villepin, organised at the beginning of 1999 a hearing with the 
participation of various experts from the petroleum sector, including Mr 
Desmarest of Total, who in particular argued for the sound basis of his 
Burmese investment.

At the start of the parliamentary mission?s work, a coincidence in the 
National Assembly ? Joseph Daniel resigned from his post of Director for 
Communications for Total and joined the private office of Parliament 
Chairman Laurent Fabius, before taking up, eight months later, a position in 
the High Council for Audiovisual Matters.

In addition, certain tapes of the mission?s hearings have been abridged, 
even censored of elements which would tarnish the image of the petroleum 
companies and of French diplomacy. Their retranscription has not made it 
easy to complete the work of the mission, while further hindrances have come 
from the insistence of certain senior officials to rewrite entirely, indeed 
to censor, the passages dealing with the testimony they had given. Was this 
intended to give Total time to complete its purchase of Elf ?

A NEW SUPERTANKER, UNDER A FLAG OF CONVENIENCE

At the time of the announcement of Total?s purchase of Belgium?s Petrofina, 
a Wall Street chronicler told of the love borne by a well-known financial 
analyst for his two poodles, named Elf and Total, that he would take for 
walks on the pavements of Manhattan at the end of a tricolor leash. At that 
moment, in December 1998, 40% of Total?s share capital was owned by foreign 
investors and American pension funds, which (according to Intersec Research) 
manage across the planet a total of eleven thousand billion dollars, or 
about forty times the annual budget of France and one hundred ten times the 
market capitalisation of TotalFina plus Elf. Calling since the 14 July for 
the establishment of pension funds ?a la Francaise? to fight the ?foreign 
peril hanging over French companies?, President Chirac is seeking to fill an 
Olympic swimming pool with a wine-glass, when the competition has an 
aqueduct at their disposal. No financial arrangement can hinder the 
purchasing-power of these American pension-funds. State safeguards (such as 
the ?golden share?, or veto rights maintained by the State after 
privatisation) are banned by the WTO in cases where they seek to persist 
after the merger process. A complaisant French press has awaited the merger 
agreement between Total and Elf before timidly asking Desmarest what would 
happen to the golden share held by the French government in Elf. The 
Financial Times on 17 September reported that this golden share would be 
continued in the new merged company, but in ?a modified form?, which ?can 
not be invoked when the threshhold is crossed (when existing shareholders 
take a majority share), but only in case of a hostile takeover?. The 
continued use of the golden share would in any case be contrary to European 
law, and must inevitably be abolished, even if after a rearguard action in 
the courts.

As the only petroleum company still under French management, Total-Elf may 
be starting with a clean slate, or embarking on a new voyage. But the new 
combined group has raised its anchor and henceforth will be sailing under a 
flag of convenience. The tricolor will continue to fly only for as long as 
the pension-funds find it convenient. The supertanker is just a ship, its 
home-port and its flag can vary at the will of the ship-owner, and the 
captain has the choice of obeying his orders, or of hanging up his 
sea-boots. Desmarest may propose, but the ship-owner will dispose.
End of Part II

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