Chad's Oil: Miracle Or Mirage? Following the Money
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Chad’s Oil: Miracle or Mirage? Following the Money in Africa’s Newest Petro-State Ian Gary Catholic Relief Services Nikki Reisch Bank Information Center Report Team Authors: Ian Gary Strategic Issues Advisor – Extractive Industries Catholic Relief Services Nikki Reisch Africa Program Coordinator Bank Information Center Graphic Designer: Paul O’Donnell Senior Graphic Designer Catholic Relief Services Translators: Mike Flynn Anne-Marie Lavoie Research for this report was conducted from September 2002 to November 2004 and included field research in Chad in September 2002, August 2003 and May and October 2004. Acknowledgements: The authors would like to thank CRS staff at headquarters in Baltimore as well as field staff in Africa for providing invaluable assistance to make this report possible, especially Paul O’Donnell, Bill O’Keefe, Cecile Sorra, Caroline Brennan, Nicole Poirier, Marguerite Dombaya, Oliver Mokom, Jean Baptiste Talla, Jennifer Nazaire and Nell Bolton. Thanks also to Bank Information Center staff, including Manish Bapna and Graham Saul, for their support and feedback. This report would not have been possible without the continued collaboration, support and assistance of numerous individuals and organizations in Chad. We would like to thank the members of the civil society networks monitoring petroleum activities, including the Commissions Permanente Pétrole (CPPL/CPPN/RESAP); the Justice and Peace Commission of the Catholic Church; as well as GRAMP/TC, Intermon and Swissaid. We would also like to thank members and technical staff of the College de Controle et de Surveillance des Ressources Petrolieres, including Michel Barka, Thérèse Mékombé, Dobian Assingar, Naïmbayel Djékondé, Moctar Saadatu Abdou and Mahamat Ramadane Dagache, for their generous assistance. Finally, we would like to express our appreciation to Father Antoine Bérilengar, Delphine Djiraibe, Boukinebe Garka Peugonba and the members of the CPPL, including Nadji Nelambaye, who were tremendously helpful in coordinating visits to the oil-producing region. Thanks also to Korinna Horta, Tawfik Ramtoolah, Martin Zint and Fr. Michael Perry for providing useful comments and photos for the draft report. Notes: • For consistency, monetary conversions are based on an exchange rate of 510 CFAF (Communauté Financière Africaine franc) to U.S. $1. • ExxonMobil is referred to in this report as “ExxonMobil”. The company is known as Esso in Chad, Europe and elsewhere. ExxonMobil’s wholly-owned affiliate in Chad is known as Esso Exploration and Production Chad, Inc. (EEPCI) Cover photo: Chad villagers returning from fetching water walk past an oil well drilling rig in the Doba oil field area of southern Chad. (Tom Stoddart, Katz Pictures/ IPG/K2) © Catholic Relief Services and Bank Information Center, February 2005. Chad’s Oil: Miracle or Mirage? i Chad’s Oil: Miracle or Mirage Following the money in Africa’s Newest Petro-State Table of Contents Page Executive Summary . 1 Introduction: All Eyes on Chad . 4 1. Poverty, Politics and Petrodollars. 15 2. Chad’s Landlocked Treasure: Oil Exploration and Production . 23 2.1. Drilling and Pumping – The Doba Project . 23 2.2. New Production and Exploration in Chad and Beyond . 27 3. Chad’s Oil Revenues: A First Taste of Black Gold . 35 3.1. Oil Company – Government Agreements: Secrecy in the “Model” of Transparency . 37 3.2. Dividing up the Revenues: A Leaky Revenue Management Law . 41 3.3. Filling Out the Legal Framework – Building on Law 001 . 45 3.4. The End of the Honeymoon . 48 4. “Just Add Oil”: Accountability from Scratch . 51 4.1. Collège Composition. 51 4.2. Objectives and Responsibilities. 52 4.3. Performance of the Collège to Date . 57 4.4. Chief Weaknesses in the Structure, Mandate and Operation of the Collège . 58 4.5. Technical Support to the Collège . 64 4.6. A Law is Only as Good as its Enforcement . 64 5. Budgeting for the Boom: Spending Chad’s Oil Revenues . 68 5.1. Budget Basics . 68 5.2. Earmarking Oil Money for Priority Sectors . 69 5.3. How “Oily” is the 2004 Budget? . 71 5.4. Spending the Money: Priority Sectors . 72 5.5. Budget Execution: From Problematic Procurement to Skimpy Spending . 74 5.6. The 2005 Budget: Big Spending. 75 5.7. Revenues for the Oil-Producing Region . 76 6. Changing Chad: The Role of External Actors . 79 6.1. Dependence on External Financing: Will Oil Revenues Drive Donor 79 Dollars Away? . 79 6.2. Building Capacity: The World Bank and the Two-Speed Project. 80 6.3. Changing Policies . 84 6.4. Changing Politics . 85 6.5. Waning Donor Influence Over an Oil-Rich Government? . 86 Conclusion: A “Model Project” Hanging By a Thread . 88 ii Table of Contents (continued) Page Appendices . 98 • Law 001 Concerning the Management of Oil Revenues . 98 • Additional Resources on the Chad-Cameroon Pipeline . 103 The following appendices are available online at http//advocacy.crs.org/oil • Decree 240 Concerning the Structure, Operations and Oversight Capacities of the Petroleum Revenue Oversight and Control Committee (CCSRP – Collège) • Decree 457 Concerning the Creation of a Provisional Revenue Management Committee for the Oil Producing Region • Council of Ministers Declaration on the Principles for the Utilization of Future Oil Revenues • Communiqué concerning Government of Chad dispute with ExxonMobil Boxes 1. Financing a Project: The Chad-Cameroon Oil and Pipeline Project . 6 2. The International Publish What You Pay Campaign. 7 3. The World Bank’s Participation in the Chad-Cameroon Project . 10 4. Chad’s Oil Revenue Management System at a Glance. 11 5. Multiple Monitoring Mechanisms: All Bark and No Bite? . 13 6. Environmental and Social Standards for New Oil Developments . 28 7. Exploration Beyond Chad . 30 8. Social and Environmental Impacts: Lasting Effects and Lessons for New Oil Development. 32 9. New Revenue for Cameroon . 38 10. Closing a Loophole? . 45 11. Beremadji: The Man Who Knew too Much . 63 12. The Elusive National Budget . 70 13. Weak Environmental and Social Oversight by the Government. 82 Charts/Graphs/Tables/Maps Chad-Cameroon Petroleum Development and Pipeline Project . 9 Governance Research Indicator Country Snapshot for Chad. 16 Chad’s Oil: Permit Areas and Fields . 24 Sub-Saharan Africa’s Oil Producers. 27 World Bank Disclosure of Escrow Account Activity. 36 Chad’s Oil Production and Revenue Profile. 38 Chad’s “Take” in Comparison to Other African Oil Producers . 39 Hypothetical Example of Royalty Calculation. 41 Oil Revenue Allocation and Utilization . 43 Stages in the Budget Execution Process . 54 Stages in the Budget Formulation Process. 69 2004 Summary of Oil Revenue Projects Approved by the Collége. 73 Proposed 2005 Budget . 76 Allocation of Petroleum Revenues in 2004/2005. 77 Chad’s Oil: Miracle or Mirage? iii Key Terms and Abbreviations bbl barrels bpd barrels per day BEAC Banque des Etats de l’Afrique Centrale BIC Bank Information Center Brent North Sea crude blend used to set a benchmark price in the world oil market CCSRP Collège de Contrôle et de Surveillance des Ressources Pétrolières CFAF Communauté Financière Africaine franc Collège Collège de Contrôle et de Surveillance des Ressources Pétrolières Consortium ExxonMobil/ChevronTexaco/Petronas oil consortium COTCO Cameroon Oil Transportation Company CPPN Commission Permanente Pétrole de N’Djaména CPPL Commission Permanente Pétrole Locale CRS Catholic Relief Services CTNSC Comité Technique National de Suivi et de Contrôle ECMG External Compliance Monitoring Group EIB European Investment Bank EIR Extractive Industries Review EITI Extractive Industries Transparency Initiative EMP Environmental Management Plan FACIL Fonds d’Actions Concertées d’Initiative Locale FGF Future Generations Fund FSO Floating Storage and Offloading vessel GRAMP/TC Groupe de Recherches Alternatives et de Monitoring du projet Pétrole Tchad-Cameroun HIPC Heavily Indebted Poor Countries initiative IAG International Advisory Group IBRD International Bank for Reconstruction and Development IDA International Development Association IFC International Finance Corporation IFI International Financial Insitutions IMF International Monetary Fund IRSC Institutional Reform Support Credit MPS Mouvement Patriotique de Salut (Patriotic Salvation Movement) MTEF Medium Term Expenditure Framework NGO Non-governmental organization OFDA Oil Field Development Area PRGF Poverty Reduction and Growth Facility PRSP Poverty Reduction Strategy Paper PWYP Publish What You Pay RDP Regional Development Plan RESAP Réseau de Suivi des Activités liées au Pétrole au Moyen Chari SAC Structural Adjustment Credit TOTCO Tchad Oil Transportation Company USD United States dollars UST United States Treasury WBG World Bank Group iv Executive Summary Chad’s Oil: Miracle or Mirage? The Chad-Cameroon Petroleum Development and Pipeline Project, transporting oil from landlocked southern Chad to the Atlantic coast of Cameroon for export, represents the foremost test case of the extent to which oil revenues can be used to alleviate poverty in a challenging developing country context. The most innovative feature of the project is the establishment of a legal framework (Chad’s Law 001 and subsequent amendments and decrees) that earmarks money for poverty reduction expenditures and creates an oversight committee to ensure the transparent management of the country’s oil wealth. Touting the promise of petrodollars for Chad’s poor over public concerns that new revenues would be lost to corruption and mismanagement, the World Bank provided financing that catalyzed the ExxonMobil-led