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฀Revenus฀Petroliers,฀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.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀