Government and World Bank struggle to save face in oil row

The rhetoric may be flying, with outbursts over "a fool's agreement" and "neo-colonialist and imperialist behaviour,” but most observers believe the oil row between the Chadian government and the World Bank will end in a face-saving compromise. The stand-off began in December when Chad's parliament passed an amendment to the law governing how oil revenues can be spent, prompting the World Bank to suspend $124 million in loans and cut the flow of petrodollars to the landlocked, impoverished country. "Sooner or later they will be obliged to find an agreement. The world can't afford for Chad to become a failed state and President Idriss Deby knows it," said one Western diplomat. "He will likely be punished by the World Bank, but it will more discreet than official." The Chad-Cameroon oil pipeline, which cost US $3.7 billion to get off the ground, was vaunted as a model for making African resources work for the African people. Ten percent of revenues was to be set aside for future generations, and 80 percent of what remained was to be used on priority sectors like education and health. The changes to Law 001 abolish the trust fund, double the amount of revenues flowing directly into Treasury coffers to 30 percent, and add security, justice and territorial administration as priority sectors, meaning a smaller share of the pie for schools and clinics. In a country that was ranked the most corrupt in the world last year by Transparency International, much of the furore has focused on spending priorities, but there is one element of the legal changes that most observers agree is decidedly a good thing. Whereas the original agreement covered only three oil fields, the amended law extends it to any operations that come on stream in future. "The original law was introduced in 1999, four years before our oil even hit the market. It was a leap into the unknown," Finance Minister Abbas Mahamat Tolli told IRIN in an interview in N'djamena. "Today, knowing the realities on the ground, we realised the law needed revising." Today's realities include a wave of army defections, rebel groups announcing they have regrouped in the east with the aim of toppling Deby, and the president's declaration of a 'state of belligerence' with neighbouring Sudan. Then there are presidential elections this year, where Deby is allowed to stand for a third term thanks to an amendment to the constitution. And, chief among the international community's concerns, 200,000 refugees from war-torn Darfur are sheltering in camps along the eastern border. One-year crunch? Some observers in N'djamena say it is in 2006 that Deby urgently needs money and that next year the cash crunch will ease as other spin-offs from the oil project kick in. As of 2007, the tax holiday for the oil consortium ends and the government will receive some indirect taxes. In addition, some of the financing for the oil project will have been paid off, so theoretically there should be more in the revenue pot to share around. As for negotiations over the oil project, observers say much is at stake for both sides. "There is not so much that divides them, there is more that unites them," a senior UN official said. "It seems one side is saying 'I want these changes now, I need this quickly,’ the other is saying 'Let's take time, we need to look at this'." An analyst close to the negotiations told IRIN that at one point last year, a deal had in fact been worked out in which Chad would have access to the future generations fund but only for 2006. But the pact fell apart. Chad's parliament, where Deby's party holds an overwhelming majority, approved changes to the oil revenue law on 29 December. The World Bank announced on 6 January it was suspending loans. Five days later, Deby signed off on the amendment and within 24 hours, Bank President Paul Wolfowitz ordered a London-based transit account frozen.

Oil pipes in Kome, southern Chad

Now, diplomats and analysts say, the two sides are going to have to figure out a way to find a compromise so that both can claim victory. "Chad and the World Bank both have a lot at stake, they definitely would not like the whole thing to come down on them," an African diplomat said. One solution might be a year's moratorium on the future generations fund; another is that any new oil fields would be exempt from the future generations rule; or there may be horse-trading about what constitutes a priority sector, whereby security is added, but justice and territorial administration are not. Tight lips versus fiery words World Bank officials in N'djamena are not talking to the press; neither are representatives of Exxon Mobil, the US oil giant leading the consortium. All the words coming from Chad are fiery. Last month, the national assembly urged Deby to close the offshore Citibank account, transfer the country's oil revenues to the Bank of Central African States, and not be afraid of breaking ties with the World Bank altogether. But last week, Chadian government officials held three days of meetings in Paris with representatives from the World Bank - talks described by the global lender as "constructive.” A delegation from Washington is expected to visit N'djamena in the coming weeks, but not everyone is confident of a quick and neat resolution. "Deby's a double or quits sort of man," said Ibni Oumar Mahamat Saleh, one of Chad's main opposition leaders. "And the damage has been done. It's given the idea that our country is one where the law is not respected. Why would investors come now?" Michel Barka, a union leader who also holds one of the nine seats on the oil project oversight committee known as the college, also notes that for the risk Deby has taken so far, the sums of money involved are relatively small. "The three years worth of future generation revenues accrued so far comes to about $36 million and that would not even pay five months of state salaries," Barka said. What Barka fears is that Deby will now seize the amendment to Law 001 as justification for changing accompanying legal decrees. "And that would be a backdoor way of reducing the power of the college to oversee what the oil money is spent on," Barka said. Money, money, money Finance Minister Tolli hesitates when asked for figures about how much extra cash the government needs. The estimate he finally comes up with is about $700 million, some $200 million to $300 million more than government currently gets from its budget and external aid - a target that would still be massively out of reach even if the government's amendment had gone through unchallenged and it had more oil money at its disposal. Analysts say this is perhaps one reason Deby has been clamouring for more than a year for foreign energy partners to renegotiate the entire oil deal signed by his predecessor, whom he ousted in a coup in 1990. It is a call he repeated on Friday. "Chad gets only 12.5 percent of royalties from the oil revenues ... it's a fool's agreement," he said in an interview posted on the government website, without specifying how much more the country should get. The president stood by the changes to Law 001, saying it was a matter of national sovereignty in which the World Bank had no right to interfere. But he also hinted at an eventual rapprochement, which diplomats say is the only realistic outcome. "We think that only dialogue will allow us to make progress in terms of a mutual understanding," Deby said. "In the interest of Chad and also in the interest of the World Bank."