International Advisory Group Chad-Cameroon Petroleum Development and Pipeline Project REPORT OF VISIT TO CHAD AND CAMEROON MAY 17 – JUNE 5, 2004 July 9, 2004 International Advisory Group IAG Secretariat Mamadou Lamine Loum, Chair 5 Place Ville-Marie, Suite 200 Jane I. Guyer Montreal, Quebec Abdou El Mazide Ndiaye CANADA H3B 2G2 Dick de Zeeuw Tel.: +1 514 864 5515 Jacques Gérin, Executive Secretary Fax: +1 514 397 1651 E-mail: [email protected] www.gic-iag.org International Advisory Group Report of Visit to Chad and Cameroon May 17-June 5, 2004 Table of contents EXECUTIVE SUMMARY CHAD............................................................................................................................................................1 INTRODUCTION...........................................................................................................................................1 1. DOMESTIC SITUATION: VARIOUS CRISES THAT NEED TO BE DEFUSED ............................2 1.1 Financial Context: A Growing Crisis............................................................................................2 1.2 Economic Context: Ongoing Sector Crises ................................................................................3 1.2.1 Cotton Crisis ................................................................................................................................3 1.2.2 Energy Crisis ...............................................................................................................................4 1.3 Political Context: Political and Humanitarian Turmoil ...............................................................5 2. MANAGING OIL REVENUES: INADEQUATE APPROPRIATION................................................6 2.1 Obstruction of the Mechanism for Transferring and Mobilizing Revenues.............................6 2.2 Mixed Progress on the System for Managing and Using the Revenues..................................7 2.3 Capacity-Building Needs in the Petroleum Era ........................................................................11 3. EXPANDING THE PETROLEUM SECTOR: FROM MANAGING THE PROJECT TO MANAGING THE SECTOR...........................................................................................................13 3.1 Project Doba .................................................................................................................................13 3.1.1 Social and Environmental Monitoring of the Project..................................................................13 3.1.2 Environmental Issues ................................................................................................................14 3.1.3 Socio-Economic Issues .............................................................................................................15 3.1.4 Overlapping Issues: Communication and Assessment .............................................................16 3.2 New Fields Developed by Esso ..................................................................................................17 3.3 Future Exploration and Development: Legal and Regulatory Framework.............................18 3.4 Strengthening and Sustaining the Support Institutions, Structures and Tools....................20 CONCLUSION ............................................................................................................................................23 International Advisory Group Report of Visit to Chad and Cameroon May 17-June 5, 2004 CAMEROON...............................................................................................................................................25 INTRODUCTION.........................................................................................................................................25 4. REGULATORY FRAMEWORK AND REFERENCE INSTRUMENTS: STILL LACKING............25 4.1 Sector ............................................................................................................................................26 4.1.1 Implementing Decrees for the Framework Law on the Environment ........................................26 4.1.2 National Oil Spill Response Plan...............................................................................................26 4.2 Project ...........................................................................................................................................26 4.2.1 Memorandum of Understanding between the MINEF and FEDEC...........................................26 4.2.2 Park Management Plans for Campo-Ma’an and Mbam-Djerem ...............................................27 5. MEASURES TO PROTECT THE POPULATION: STILL IN PROGRESS ...................................27 5.1 General Issues..............................................................................................................................28 5.1.1 Social Closure............................................................................................................................28 5.1.2 Health Services for the Populations Adjacent to the Pipeline ...................................................28 5.2 Specific Issues .............................................................................................................................29 5.2.1 The Coastal Area.......................................................................................................................29 5.2.2 Claims by Fishermen .................................................................................................................29 5.2.3 Terms of Local Employment for the Project ..............................................................................29 6. ONGOING ACTIVITIES: UNEVEN PROGRESS ..........................................................................30 6.1 Government ..................................................................................................................................30 6.2 COTCO ..........................................................................................................................................31 6.3 FEDEC ...........................................................................................................................................32 6.4 Non-Governmental Organizations..............................................................................................33 6.5 All Parties......................................................................................................................................34 CONCLUSION ............................................................................................................................................34 ACKNOWLEDGEMENTS Appendix 1: Chronology of Meetings Appendix 2: List of Abbreviations and Acronyms International Advisory Group Report of Visit to Chad and Cameroon May 17-June 5, 2004 EXECUTIVE SUMMARY This report presents the observations, analyses, conclusions and recommendations arising from the seventh statutory visit of the International Advisory Group (IAG) for the Chad-Cameroon Petroleum Development and Pipeline Project (“Project” or “Project Doba”), to Chad from May 17 - June 2 and to Cameroon from June 2 - 5, 2004. The Consortium has practically reached full production mode and is already preparing to expand its activities. The Chadian and Cameroonian governments have improved their Project monitoring abilities, and in the case of Chad, its revenue management skills, but have not yet achieved an adequate level. In Chad, the mission focused on the management of oil revenues, the transition from the Project Doba construction to production phase, the growth of the oil economy through the development of new oil fields and the social, economic and environmental impact on the population, in the overall context of a country marked by serious financial, economic and political problems. The country’s financial situation has been deteriorating since the beginning of 2004 despite the accumulation of oil revenues in the sequestered account. Budgetary assistance from international institutions, in particular the International Monetary Fund, has been suspended for several months, implementation of the overall budget was extremely poor and the oil revenues are still not circulating in Chad.1 Consequently, the Government is unable to honor all its financial obligations, whether internal or external. The economic and social situation continues to suffer the consequences of the crises in the cotton and energy sectors, which are affecting both rural and urban zones, households, businesses and public utilities. The political context is marked by tensions that manifest themselves, among other ways, in an attempted mutiny by elements of the armed forces in May. The Darfour conflict with its hordes of refugees and the political disagreement sparked by the proposal to eliminate the constitutional limitation to the number of presidential terms are also elements of instability that need to be closely monitored. Appropriation of the oil revenue management mechanisms is still inadequate despite the progress made: • The mechanism for transferring and mobilizing oil revenues is blocked. The revenues have been accumulating in London since November 2003 because the procedures for repatriating them back to Chad have not been finalized; • Progress made on the system for managing and using the revenues has been erratic and has not yet been put to the test. Improvements are still possible