Oil upheaval unlikely to impact development in short-term

A spat between the Chadian government and oil companies over revenue-sharing is unlikely to affect the government’s obligation to lock oil revenues into development projects, analysts said on Tuesday.

Chad has been pumping oil since 2003 through a project funded by the World Bank and a consortium of oil companies led by US firm ExxonMobil.

As part of its agreement with the World Bank, Chad’s 12.5 percent share of oil revenues flows into an independently monitored escrow account. 70 percent of that money is supposed to be put towards development projects.

In an unexpected move, Chadian President Idriss Deby on Sunday expelled from Chad the representatives of two members of the ExxonMobil consortium, Chevron from the US and Petronas of Malaysia.

Deby promised that a recently formed Chadian national oil company would replace the two firms’ 60 percent stake in the consortium. He also said the government would be seeking to increase its cut of revenues above the 12.5 percent it currently receives.

“We are engaged in a battle for the economic sovereignty of Chad,” Deby said on Tuesday at a rally outside the presidential palace in central N’djamena. “My decision is risky, but I have taken it at whatever cost.”

Ian Gary, extractive industries analyst at Oxfam in Washington, DC, said that the spat is unlikely to affect Chad’s World Bank obligations. “On the surface, this has relatively little impact on that agreement,” he said.

However, should Chad be successful in increasing its cut of the revenues to higher than 12.5 percent, Gary said this would make it all the more important that greater effort be made to monitor the use of Chad’s oil revenues.

“We would face the same issues [as we do now] of how to manage this wealth and the utter lack of capacity on behalf of various government ministries to plan and execute development projects,” he said. “So far, most of the money has gone to infrastructure projects and road construction, but there has not been a balance in terms of spending on different sectors like health and education.”

Gary said the Chadian civil society groups tasked with overseeing the use of oil revenues are finding it harder to track oil revenue, because the government budgets have recently started showing all income from oil, taxes, donor funds and other sources as one total.

Deby has said the two firms are being expelled for failing to pay US $350 million in taxes owed to the Chadian state. Both companies said they had signed contracts exempting them from paying taxes. Three government ministers involved in negotiating the contract were subsequently sacked by presidential decree.

Low quality crude oil was discovered in Chad in the 1960s, but investors were turned off by the country’s high corruption and successive civil wars. In 1999 the World Bank provided US $190 million to kick-start the project in a plan it hoped would be model for creating transparency and poverty reduction in resource-rich developing countries.

The original deal with the World Bank allocated 70 percent of revenues to development and 10 percent to a “future generations” fund to provide Chad with reserve funds after the oil reserves are exhausted.

It was renegotiated earlier this year when Chad’s parliament voted to modify the agreement, cancelling the future generations fund and diverting money away from poverty alleviation.

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