CHAD: Government and World Bank struggle to save face in oil row

[ This report does not necessarily reflect the views of the United Nations]

NDJAMENA, 6 Feb 2006 (IRIN) - The rhetoric may be flying, with outbursts over "a fool's agreement" and "neo-colonialist and imperialist behaviour,” but most observers believe the oil row between the Chadian government and the World Bank will end in a face-saving compromise.

The stand-off began in December when Chad's parliament passed an amendment to the law governing how oil revenues can be spent, prompting the World Bank to suspend $124 million in loans and cut the flow of petrodollars to the landlocked, impoverished country.

"Sooner or later they will be obliged to find an agreement. The world can't afford for Chad to become a failed state and President Idriss Deby knows it," said one Western diplomat. "He will likely be punished by the World Bank, but it will more discreet than official."

The Chad-Cameroon oil pipeline, which cost US $3.7 billion to get off the ground, was vaunted as a model for making African resources work for the African people. Ten percent of revenues was to be set aside for future generations, and 80 percent of what remained was to be used on priority sectors like education and health.

The changes to Law 001 abolish the trust fund, double the amount of revenues flowing directly into Treasury coffers to 30 percent, and add security, justice and territorial administration as priority sectors, meaning a smaller share of the pie for schools and clinics.

In a country that was ranked the most corrupt in the world last year by Transparency International, much of the furore has focused on spending priorities, but there is one element of the legal changes that most observers agree is decidedly a good thing.

Whereas the original agreement covered only three oil fields, the amended law extends it to any operations that come on stream in future.

"The original law was introduced in 1999, four years before our oil even hit the market. It was a leap into the unknown," Finance Minister Abbas Mahamat Tolli told IRIN in an interview in N'djamena. "Today, knowing the realities on the ground, we realised the law needed revising."

Today's realities include a wave of army defections, rebel groups announcing they have regrouped in the east with the aim of toppling Deby, and the president's declaration of a 'state of belligerence' with neighbouring Sudan.

Then there are presidential elections this year, where Deby is allowed to stand for a third term thanks to an amendment to the constitution. And, chief among the international community's concerns, 200,000 refugees from war-torn Darfur are sheltering in camps along the eastern border.

One-year crunch?

Some observers in N'djamena say it is in 2006 that Deby urgently needs money and that next year the cash crunch will ease as other spin-offs from the oil project kick in.

As of 2007, the tax holiday for the oil consortium ends and the government will receive some indirect taxes. In addition, some of the financing for the oil project will have been paid off, so theoretically there should be more in the revenue pot to share around.

As for negotiations over the oil project, observers say much is at stake for both sides.

"There is not so much that divides them, there is more that unites them," a senior UN official said. "It seems one side is saying 'I want these changes now, I need this quickly,’ the other is saying 'Let's take time, we need to look at this'."

An analyst close to the negotiations told IRIN that at one point last year, a deal had in fact been worked out in which Chad would have access to the future generations fund but only for 2006. But the pact fell apart.

Chad's parliament, where Deby's party holds an overwhelming majority, approved changes to the oil revenue law on 29 December. The World Bank announced on 6 January it was suspending loans. Five days later, Deby signed off on the amendment and within 24 hours, Bank President Paul Wolfowitz ordered a London-based transit account frozen.

[ENDS]