Bank’s on-off Chad programme raises eyebrows

by Simon Pirani

The World Bank’s new agreement with the government of Chad, linked to the resumption of lending to the Chad-Cameroon oil project, has run into a storm of opposition from NGOs and development experts.

On 14 July the Bank signed a memorandum of understanding (MoU) with Chad, under which the government promised to spend 70% of all revenues on priority poverty reduction programmes. That followed a decision in April to lift suspension of the Bank’s $300 million lending programme to the Chad-Cameroon pipeline operated by Exxon Mobil.

But NGOs say that the deal has not put right damage done previously — when Chad wrecked a proposed law on petroleum revenue management, added arms spending to supposed “priority” uses of oil money, and scrapped a Future Generations Fund designed to save cash for the post-oil economy.

And late last month president Idriss Deby of Chad added further to his reputation as unpredictable, by ordering ChevronTexaco and Petronas of Malaysia, ExxonMobil’s partners in the project, to quit the country. He accused them of non-payment of taxes, which they strenuously deny.

The Bank has long flagged the Chad-Cameroon project as a “model”, showing how borrowers could be persuaded to use oil revenues for development. But critics, who warned from the start that the project’s proceeds would be misused, say the Bank never had any means of enforcing its agreement with Chad.

“It would have been better to leave the oil in the ground,” former World Bank chief economist Joseph Stiglitz, an outspoken critic of lending policies, told EM.

The $3.7 billion project, approved by the Bank in 2000, entailed developing oil fields in southern Chad and building a 1070 km pipeline to the Cameroonian coast for export. Pipeline construction is complete and Chad received its first oil revenues in 2003.

The Bank provided $92.9 million in IBRD loans to Chad and Cameroon and a $200 million IFC loan, alongside $900 million in cover from US Eximbank, Coface and African Eximbank. It conditioned its participation in the project on Chad passing an oil revenue management law, which provided for most royalties and dividends to be spent on poverty reduction, through “priority sectors” such as health, education and infrastructure, and for 10% of oil sales revenues to be set aside in the Future Generations Fund.

But in January this year, after months of public disputes with the Bank, president Deby ratified amendments to the revenue management law that gutted it, by adding military expenditures to the list of “priority” sectors. The share of oil revenues available for discretionary government spending was increased. The Future Generations Account was abolished and $36 million that had accumulated in it taken by the government.

In February, the Bank responded by suspending loan disbursements. But in April, with Deby facing an armed rebellion supported even by members of his own family, the Bank announced an interim agreement under which funding was restored.

In the process, the Bank “provided Deby with political support” prior to presidential elections on 3 May, an international group of NGOs argued at US Senate foreign relations committee hearings in July. The elections were deemed fraudulent by international observers, who refused to attend them, and boycotted by the Chad opposition.

The World Bank-Chad agreement of 14 July provided for 70% of all oil revenues to go on poverty reduction, and for the government to support the independent oversight committee. But Korinna Horta of Environmental Defense in the US, which has monitored the pipeline project with NGOs in Chad and Cameroon, told EM that the government was no more likely to honour this commitment than previous ones.

“The interim agreement strengthened president Deby’s hand,” Horta said. “That makes real democratic development even harder to achieve – which in turn raises issues about how Chadian civil society can play any part in deciding how the oil revenues are spent.”

Belmond Tchouba, project manager of the Centre for Environment and Development of Cameroon, said that campaigners in both Cameroon and Chad had argued from the start that the oil project would do more harm than good in development terms. “The government of Chad was not ready to implement such a project. It was no surprise when it broke its promises.”

Former World Bank economist Stiglitz said that the Bank had shown itself to be unable to enforce its agreement with Chad, and thus weakened its own hand. “The difficulty is that Exxon Mobil and the local partners were always in a position to go ahead without the Bank, anyway.

“But the question of whether this contract [the initial agreement with Chad] was enforceable should have been asked earlier and more forcefully.

“The oil is not a disappearing asset. It only disappears if you give it to a dictator with guns. Unless you had an enforceable mechanism, it would have been better to leave the oil in the ground.”

Deby’s attack on ChevronTexaco and Petronas last month did nothing to weaken the case of those who say the government is apt to change its mind. He claimed that they had arranged a tax exemption with an individual government minister – a charge both companies strongly denied.

Deby’s order that the two companies leave was accompanied by an announcement of the dismissal of oil minister Mahamat Nasser Hassane and the ministers of livestock and planning, the BBC reported. Industry sources believe the government may be hoping that Chinese oil companies join the consortium. Chad resumed diplomatic relations with Beijing in early August.
 

This article appeared in Emerging Markets, 18 September 2006.
Posted October 2006; © 2006 Simon Pirani
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