World Bank suspends loans to Chad – “Model” oil project on the rocks

Published: 10 January 2006

January 6, 2006 – Washington, DC – The World Bank suspended all loans to Chad today because of the Chadian government’s intention to funnel oil revenues – meant for education and healthcare – to the military. Oxfam International regrets Chad’s decision to gut its innovative oil revenue law and urges the World Bank to learn from the lessons of this failed experiment.

In 1999, the Chad-Cameroon Oil Pipeline Project was funded by the World Bank with Chad’s agreement that the oil export revenues would support poverty reduction programs, such as schools and hospitals.

At that time, local civil society organizations and international groups working in Chad, including Oxfam, recommended that the Bank put the pipeline project on hold until Chad’s government had addressed corruption concerns and improved their capacity to manage such a large scale project.

Many civil society groups feared that once oil revenues accrued, Bank leverage would wane and corruption and conflict would increase.

The Bank ignored these concerns and gambled that its assistance could rapidly increase government capacity to turn new oil wealth into real gains for the poor. While the pipeline construction barreled ahead, World Bank capacity-building projects lagged far behind.

“The World Bank has described this project as ‘high risk, high reward’. This unfortunate but predictable outcome shows that the risks are being borne by the people of Chad while the rewards are reaped by the oil companies and government,” said Ian Gary, policy advisor for extractive industries with Oxfam America.

Oxfam is concerned that the World Bank will not take note of the lessons from this experience for current and future activity in the oil, gas and mining sectors. Recently approved or planned projects in Democratic Republic of Congo, Ghana, Guatemala and Russia may also fail to fulfill the World Bank’s poverty reduction mandate due to corrupt, unstable or under resourced governments.

The World Bank should heed the call of the 2004 Extractive Industries Review – an independent assessment commissioned by the Bank – and work with stakeholders to establish minimum governance and human rights thresholds that must be present before approving future oil, gas and mining projects.

“Rather than an aberration, the failed Chad oil experiment is emblematic of World Bank oil and mining projects in many countries where there are grave governance and human rights concerns,” said Gary. “A significant step towards reform would be to fully implement the Extractive Industries Review recommendations.”

The World Bank should work with the private sector sponsors of the project as well as other international donors to continue to press Chad to live up to its poverty reduction commitments.

Background:

Chad’s National Assembly, controlled by President Deby’s ruling party, passed an amendment to the country’s oil revenue management law on December 29, 2005. The law is awaiting signature and ratification by President Deby.

Chad’s Current Oil Revenue Management System At-a-glance

Chad’s innovative oil revenue management system – based on Law 001 and subsequent decrees – sets out a legal and institutional framework for managing oil revenues from Chad’s three Doba fields. Key features of this system include:

  • All direct revenues – royalties and dividends – are paid by the ExxonMobil consortium into Chadian government-controlled escrow accounts at Citibank in London.

  • Indirect revenues – income taxes on the oil companies, customs duties, etc. – are paid directly into Chad’s treasury.

  • After debt payments to the World Bank and European Investment Bank are withdrawn from the Citibank account, the remaining direct revenues are allocated as follows:

  • 10 percent to a Future Generations Fund to save for the post-oil era in Chad

  • 72 percent to capital investments in five “priority sectors” to fight poverty: education, health and social services, rural development, infrastructure, and environmental and water resources

  • 4.5 percent to the oil-producing region in southern Chad as additional, earmarked funding

  • 13.5 percent to Chad’s treasury for discretionary spending, until 2007; thereafter, these funds will be divided among priority sectors

  • A joint government-civil society Petroleum Revenue Oversight and Control Committee – a.k.a. the Collège – established with the authority to approve or reject specific projects financed by direct oil revenues.


The amendments to the law would:

  • Redefine “priority sector” expenditures to include spending on security;

  • Increase from 15% to 30% the amount of revenues deposited into general government coffers, bypassing the joint government-civil society revenue oversight committee (the Collège);

  • Eliminate the Future Generations Fund (FGF) and use the money accumulated for immediate expenditures.

 

Contact Information

For more information, please contact:
Taylor Thompson, 202.321.2967 or,
Ian Gary, 202.375.3628