World Bank mulls withdrawal from Chad oil pipeline
World Bank mulls withdrawal from Chad oil pipeline
Thu Oct 27, 2005 5:57 PM ET
By Lesley Wroughton
WASHINGTON, Oct 27 (Reuters) – The World Bank may withdraw from a high-profile oil pipeline investment in Chad and halt lending to the government if it changes a law to access a larger share of oil profits, officials said on Thursday.
The officials, which called it “the nuclear option,” said such drastic steps are possible if Chad changes the World Bank-backed oil revenue management law.
The move would be a major setback for the bank’s biggest investment in Africa — one it considered a test case for its strategy for oil investments as a way to benefit poverty-stricken nations.
In exchange for funding the $3.7 billion pipeline, the World Bank told Chad to pass a law ensuring that 10 percent from oil proceeds go into an overseas bank accounts and be spent only on poverty programs.
The government is expected to earn about $2 billion over 25 years from the heavy oil projects developed by an Exxon Mobil-led
On Monday, oil minister Mahamat Nasser Hassan said Chad was not reaping the rewards of the oil and the government was struggling to pay salaries and pensions.
He said the government needed more funds to cover operating costs for the oil project and wanted its allowance to double to 30 percent of net oil revenue.
“I don’t think the World Bank should compromise on the changing of the revenue management law,” said Ian Gary, policy advisor on the extractives industry for development group Oxfam. “They should not be negotiating in this situation over a law that was a condition of the loan.”
“The ‘nuclear option’ may be the only option they have left if the government were to change the law,” he said.
The bank could also insist that Chad pay back its World Bank loans more quickly.
The officials, who spoke on the condition of anonymity because of the sensitivity of the issue, said the bank was also considering finding a bilateral donor to give Chad extra funding if it did not change the law.
Chad’s government has said its budget is being squeezed by the increased security costs related to thousands of refugees fleeing the Darfur conflict in neighboring Sudan.
President Idriss Deby is also facing internal threats from army deserters calling for his resignation and growing political tensions ahead of elections next year.
The Bank’s decision last year to fund the 620-mile (1,000 km) pipeline to take crude to market through Cameroon was criticized by aid agencies which warned Chad was marred by corruption, political instability and human rights abuses.
The country was recently ranked as the world’s most corrupt in a Transparency International survey of 159 countries.
Oxfam’s Gary said Chad would be foolish to change the law and risk losing donor support.
A loan program approved by the International Monetary Fund earlier this year is also on hold because of the government’s failure to meet budget targets.