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Sudan Tribune

Plural news and views on Sudan

Chad’s oil creates more problems than it solves

April 11, 2006 (N’DJAMENA) — In just under 30 months, Chad has become a typical oil-producing, African country, with allegations of rampant corruption, an ongoing fight with the World Bank and a burgeoning rebellion along the eastern border while the population remains dirt poor.

Chad was touted by many for having a model oil program when the central African country began exporting oil in October 2003. Two-thirds of revenues went to projects aimed to improve living standards in one of the world’s poorest countries.

The oil revenue law, which parliament passed in 1999, further required that 10% of oil proceeds go to a savings fund to be used when Chad’s oil reserves are exhausted. It also set up a board of government and nongovernment officials to independently verify where the money went.

These safeguards were supposed to help Chad – which is three times the size of California – improve the income, life expectancy and education of its 8.8 million people. Instead, it moved down eight positions to rank 173 out of 177 countries last year on the U.N.’s human development index.

“Impediments to growth include the country’s inadequate physical infrastructure and transportation networks, expensive and unreliable energy supply, weak governance, insecurity, limited access to financial services, and an unskilled labor force,” the International Monetary Fund said in a March 2005 report, its most recent public analysis of the Chadian economy.

The drop comes even though the ExxonMobil-led consortium exported 133.2 million barrels of oil from Chad between October 2003 and December 2005, according to the World Bank.

Chad, which receives a 12.5% royalty on each barrel exported, earned a net total of $307 million, the bank said.

The paradox extends to infrastructure. Residents of the capital, N’djamena, suffer daily power outages and look with envy toward the oil fields in southern Chad, which can generate 120 megawatts a year while N’djamena currently needs 30 megawatts.

The oil fields have that huge generating capacity “to meet growing operational needs,” said Susan Reeves, a spokeswoman for ExxonMobil.

She explained that Chad does not have a national grid and each city uses local generators to provide and distribute electricity, so it is currently impossible to share the power.

Announcing that the government needed more money, parliament amended the widely praised oil revenue law in December, giving the government more discretion on how to spend revenues.

The amendments doubled the money going to the government’s general budget, unblocked the funds that had gone to savings and added security – a euphemism for buying arms and equipment for the military and other security forces to fight a rebellion in eastern Chad – to the group of programs that received over two-thirds of the oil royalties.

Chad got arms and equipment from France and others in the past, but it no longer receives that kind of military aid.

In response, the World Bank froze $124 million in aid.

The law had been a major condition for the World Bank to give its nod to the 663-mile pipeline that stretches from landlocked Chad to Cameroon’s Atlantic port at Kribi.

The bank’s imprimatur encouraged oil companies ExxonMobil (XOM), Chevron (CVX) and Malaysia’s Petronas (5681.KU) to finance the potentially risky and controversial $4.2 billion pipeline. The World Bank also provided 4% of the funding.

Foreign Affairs Minister Ahmad Allam-mi said that the government had tried for a year to negotiate the amendments with the World Bank, but it did not get any feedback and so parliament went ahead to change the law.

The World Bank said that during those discussions it expressed its concern that any changes that would put more money directly into Chad’s treasury would work against the law’s objectives, since Chad’s finances have historically been poorly managed.

“It was (and still is) the World Bank’s view, that the modifications to the law alone would fail to provide a lasting solution to the recurring financial problems that Chad faces,” said Anne Gillet, a World Bank spokeswoman, via e-mail.

Therese Mekombe, vice chairwoman of the government-appointed Oil Revenue and Supervision Board, also thinks parliament was wrong.

“Each time I traveled outside Chad, people talked (positively) about the law and I was proud,” Mekombe said. But now when people talk about Chad it is negative, she said.

Michel Barka, chairman of the Union of Trade Unions of Chad said that government corruption has become a major problem. He said it is one reason why government employees haven’t been paid regularly since 2003, at times facing delays of up to three months.

Before Chad started earning oil royalties, “all government revenues went to the treasury without a problem. Now that money does not reach the treasury. It is misappropriated,” said Barka.

Ali Haggar, an economist who is close to the president, said that growing rebel movement in eastern Chad comes from within the president’s tribe and has more to do with dissatisfaction over oil revenues than politics.

Since October, there has been a burgeoning rebellion in eastern Chad that authorities say has the backing of some top officials in Sudan who allow the rebels to use bases in their country, which shares a 621-mile border with Chad.

Sudanese officials have in the past accused Chad of backing rebels in the 3-year conflict in Darfur, which borders Chad and whose tribes are the same as those in eastern Chad.

“The war that has started, is a petrol war,” Haggar said.