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CHAD: World Bank’s Model Oil Deal on the Line

Emad Mekay

WASHINGTON, Dec 5 2005 (IPS) - The World Bank said Monday that it is considering retaliatory measures against the government of Chad if the Central African nation enacts changes to a legal agreement governing its oil wealth.

But a spokesman for the Bank added that it remained optimistic the government would honour its original commitments to direct oil revenues to the fight against poverty.

“There are steps in this case that the Bank can take when there has been a breach of contract that the Bank certainly still hopes to avoid,” Tim Carrington told IPS.

Chad, one of the world’s poorest nations, says it plans to amend an agreement to control oil revenues from the high-profile Chad-Cameroon oil pipeline, and that it will take greater profits from the pipeline to meet budgetary demands.

The move ignited an international outcry and was described by watchdog groups and international civil society organisations as an attempt to gut the law, and destroy a World Bank “model” in oil revenue management.

The law was the centerpiece and main governance “safeguard” of the World Bank-supported pipeline, designed to ensure that oil revenues benefit the poor by allocating most of the revenues to “priority sectors” like health, education, social services and rural development.

The law also requires that 10 percent of proceeds from oil sales be set aside in the Future Generations Fund (FGF) for the post-oil era.

But now, citing its inability to pay salaries or pensions, the government wants to amend the framework to include an increase from 15 percent to 30 percent of revenues deposited into general government coffers.

It also wants to cancel the FGF and use the money accumulated for immediate expenditures, as well as to redefine “priority sector” expenditures to include spending on security.

The controversial four-billion-dollar oil facilities, which include a 1,000-kilometre pipeline designed to carry oil from Chad to the Atlantic coast of neighbouring Cameroon, was predicted to fatten state coffers by at least two billion dollars over the next 25 years, or 80 million dollars per year.

The pipeline transfers 225,000 barrels of oil a day. It is a joint venture between the U.S. oil giants ExxonMobil (which holds 40 percent of the private equity) and Chevron (25 percent), and Malaysia’s state oil company Petronas (35 percent).

World Bank officials had promised when they approved their participation in 2000 that the project would help fight poverty in the country by increasing government revenues by 45-50 percent per year.

The World Bank’s participation is particularly critical since international financing institutions, including in the private sector, look to the Bank for the green light before investing in international projects.

Despite protests from local and international groups who decried the social and environmental cost of the project, the World Bank decided to co-finance it with 292.2 million dollars.

Responding to pressure from watchdog groups, the Washington-based World Bank had promised to help prevent the project from leading to further poverty or corruption – as oil booms have done in other poor nations like Equatorial Guinea and Nigeria.

The Bank insisted that a tight legal mechanism had been put in place to ensure the transparent management of oil revenues – a promise threatened by the announcement of Chad’s government.

But Bank officials say that the mood at the institution is one of “wait and see”.

The Chadian capital N’Djamena has been sending mixed signals regarding its intentions. On one hand, the government, through press statements and interviews by President Idriss Deby, says it is determined to institute the changes.

But a visiting finance minister, Abbas Mahamat Tolli, told officials from the World Bank and its sister institution the International Monetary Fund (IMF) in November that the government was willing to consider compromises.

The amendments have been approved by the cabinet but are yet to be reviewed by the country’s legislature.

Carrington said that the Bank would welcome changes that would expand the revenue monitoring plan to cover other oilfields and projects, one of the proposed amendments.

“That would be a change for the good,” he said.

But non-governmental organisations, who acknowledge that the Bank appears to be taking a strong line against changing the law, fear that a “compromise” will be reached at the expense of the poor.

Groups like Oxfam America, the Washington-based Bank Information Centre, Environmental Defence and Amis de la Terre (Friends of the Earth – France) have all called on the Bank, whose approval of the project opens doors to other financing sources, to take a leading role in stopping the amendments, even through penalties.

They want the Bank to suspend all further financing to Chad, withhold disbursements on active loans, and postpone consideration of future projects “unless and until key demands of Chadian civil society groups concerning the management of government finances are met”.

Some have accused the Bank of lax oversight from the start.

“The World Bank displayed willful naiveté about Chad’s government from early on,” Korina Korinna, an activist with Environmental Defence, told IPS.

She referred to the fact that the Bank’s initial documents, which served as the basis for the loan approval, conceded that democratic institutions had been established in Chad, which became an oil-producing country for the first time in 2003.

But the Bank insists that while it may take punitive measures, its final reaction will largely depend on the package of changes, if any, which will pass.

“It really totally depends on what the changes are and what comes out of various discussions,” said Carrington.