CHAD'S OIL REVENUE MANAGEMENT PROCESS: SHOWING

C O N F I D E N T I A L NDJAMENA 001357

SIPDIS


LONDON AND PARIS FOR AFRICA WATCHERS, TREASURY FOR OTA,
ENERGY FOR GPERSON AND CGAY

E.O. 12958: DECL: 08/18/15
TAGS: ECON EFIN ENRG EPET PGOV CD
SUBJECT: CHAD'S OIL REVENUE MANAGEMENT PROCESS: SHOWING
SIGNS OF STRAIN


Classified By: Political/Economic Officer Kathleen FitzGibbon for reaso
ns 1.4 (b) and (d).


1. (C) Summary: The recently released report of Chad's Oil
Revenue Management College's verification of projects
highlights some of the issues now arising over the use of
petroleum funds. The College found numerous deficiencies
such as non-delivery or significant delays in delivery of
items, poor quality of services provided, and some instances
of fraud as it inspected projects approved in 2004. The
College made recommendations to the various ministries
responsible for the priority sectors, but the responsibility
for follow-up and accountability to their recommendations is
unclear. We have also learned of examples of encroachment on
the College's mandate including the Prime Minister's requests
for exceptions to the regular contracting process and
President Deby's request for use of the stabilization fund in
order to pay salaries of civil servants, who are about to go
on strike. Growing pressure to use petroleum funds for
additional "priority areas" makes it a foregone conclusion
that the government will seek to revise the law governing use
of funds. The international community, including the World
Bank and major donors should be seeking to shape the debate
so that any changes are consistent with the goal of poverty
reduction. The transparent expenditure of the oil revenues
and reform of the budgetary process requires close
examination and will benefit from the presence of a resident
U.S. Treasury Advisor. End Summary.

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REPORT FINDINGS
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2. (U) Chad's Oil Revenue Management College recently
published its report on its visits to projects approved in

2004. The report highlights a number of serious problems and
makes recommendations to the various ministers responsible
for the priority sectors (Education, Water Resources,
Agriculture, Health, and Infrastructure). Some of the
deficiencies identified in the educational sector include
lack of delivery or poor quality of contracted items such as
desks and books, delays and/or non-construction of
classrooms, and lack of a point of contact within the
Ministry to answer the College's questions about these
issues. Contract delays, non-delivery of motor-bikes and
communications, and lack of contact with local government
authorities in Moissala, Bousso, and Wadijigui about proposed
projects in their areas were identified in the Water
Resources sector. According to the College report,
contractors only constructed two instead of four water
distribution points. In the agriculture sector, the College
identified corrupt practices, including double charging for
transport, dubious quality of pesticides, and materials that
never arrived at intended sites. The College also questioned
use of funds by the research institutions, such as the
University of N'Djamena and the government research center at
Farcha. In the health Sector, the College questioned the
abandonment of a health center project at Abdi, in Ouaddai.
The two roads projects visited were moving ahead, but not yet
completed.


3. (U) The College recommended an increase in the number of
verification visits to project sites and public awareness
campaign to explain the role of the College to Chadians
throughout the country. The College also called for
discussions among each of the priority sector ministers to
discuss project deficiencies and work to resolve the
disconnects between the Minister of Finance and the
institutions of financial control (dispensing). It
recommended that the university accounts be audited for fraud
and that contractors be penalized for failure to execute the
contracts properly. Other recommendations included the need
for priority sector ministries to involve and inform local
authorities in projects and resolving a lack of understanding
among local populations about price of oil and management of
the oil revenues.

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MIXED GOVERNMENT REACTION
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4. (C) P/E and E/C officer met with Dobian Assingar,
representative of human rights groups on the College, on
August 18 to discuss the report and its likely consequences.
According to Assingar, when the report was presented to
President Deby and his immediate advisors, their first
reaction was one of anger and disappointment over the
non-execution of projects by government ministers. However,
they also noted to the College that the government should
have seen the report prior to its public distribution.


5. (C) According to Ahmat Saleh Bodoumi, a ruling Movement
for Patriotic Salvation (MPS) deputy who represents the
National Assembly on the College, the report should have been
given directly to the Government for a response. After
fifteen days, the College transmits it to the Supreme Court
and releases it to the public. At this juncture, the Supreme
Court has requested that the College submit a letter
requesting it to take action on any deficiencies.


6. (SBU) During a courtesy by the Ambassador, DCM, and E/C
Officer, the recently-appointed Minister of Finance, Abbas
Tolli, stated that the Government continues to support the
process established by the Revenue Management Law and the
independence of the College. Nevertheless, he noted that the
priorities of the current Revenue Management Law required
revisions, given immediate problems not foreseen by the
drafters of the law. Tolli indicated that the Government was
planning to re-advocate the abolition of the Fund for Future
Generations, as the resources of the fund needed to be
utilized for present social needs.


7. (SBU) On August 25, during a meeting with E/C officer,
Director of Cabinet for the Ministry of Petroleum, Abdelkarim
Abakar, said that the Ministry was concerned by the
deficiencies highlighted by the College's report. However,
he explained that while the shortcomings were worrisome, a
matter of greater concern was the World Bank's
ineffectiveness to generate the means to correct these
deficiencies. Abakar argued that the failure of the Bank to
deliver on capacity-building initiatives has resulted in the
inefficient management of the oil revenues. With regards to
the Revenue Management College, he said that the Ministry is
highly supportive of the independence of the College and the
transparent management of oil revenues, but feels that this
process demands enhanced international support if it wishes
to be a success.

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GOVERNMENT REQUESTS USE OF STABILIZATION FUND
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8. (C) Assingar stated that prior to the recent cabinet
reshuffle, former Minister of Finance Ngueyam Djaibe arrived
at a weekly College meeting to request, on President Deby's
behalf, 4 billion FCFA (approximately 8 million USD) from the
stabilization fund to pay for outstanding salaries (the fund
itself was established in July 2003 to manage external price
shocks). According to Djaibe, the Government was making the
request to demonstrate responsibility to the international
financial institutions and to avoid a series of potentially
destabilizing strikes. While Assingar himself raised
concerns about an apparent circumvention of the Revenue
Management Laws with Djaibe's request, the other members of
the College approved the request without debate. He
expressed to P/E and E/C officers his concern that this
request is the first of many to come.


9. (C) Bodoumi said that the stabilization fund can be used
for situations to absorb external shocks. He said the
College approved the Government's request because the current
dire financial situation of the government constitutes an
urgent situation and a potential government-wide shock. He
agreed with Assingar that there is a high likelihood the
Government will continue to make such requests. Bodoumi is
also a member of the Petroleum Committee in the NASS and has
backed the College since its inception. He said the
Government has yet to explain to the National Assembly where
the budgeted funds and monies from donors have gone for 2004
and 2005. Bodoumi is particularly concerned with corruption
surrounding the funds spent on the public referendum,
particularly those off-budget monies. According to several


sources within the ruling party, each Governor was given at
least 400,000 USD. Several ministers were fired for their
failure to deliver the vote and account for money given to
them late last year for the registration and referendum.

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OTHER CONCERNS
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10. (C) Assingar and Bodoumi also described attempts by GOC
officials to circumvent normal contracting procedures in
order to give projects to friends and allies. For example,
Prime Minister Pascal Yaodimindji requested exceptions to
normal contracting methods. According to Assingar, the
College can approve exceptions in the case of extreme
urgency, or contract specific services which require a firm
which specializes in a particular service, or in a case where
money can be saved if a particular contractor is used.
However, the Prime Minister allegedly tried to reward his
friends with contracts for projects with the oil revenues.
For example, one contract was issued for 800 million FCFA for
a one kilometer road allegedly to a friend of the Prime
Minister. The road was constructed with oil revenues at the
request of President Deby for security reasons. Boudoumi
told us that Deby needed a direct road to the airport that
would not take his motorcade in front of two military
installations (the Nomadic Guard and the Gendarmerie). The
College rejected a different request from the Prime Minister
for another exception to the contracting procedures. The
Prime Minister wrote back insisting on the contract, claiming
that the College's refusal amounted to insubordination to
President Deby. College President Lamana Abdoulaye, who
represents the National Assembly, complained when the College
members questioned why the Prime Minister had resent the
request. According to Dobian, Lamana said that if the
College refuses the Prime Minister's request, it would create
a "crisis between the two institutions (namely, the College
and the Prime Minister's office)". The World Bank issued a
statement expressing its concerns about the circumvention of
contracting procedures.

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IMF PRESENTS ITS OWN ASSESSMENT
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11. (C) On August 21, Ambassador and E/C officer met with
IMF Representative Wayne Camard and Technical Assistance
Deputy Director Pierre Van Den Boogaerde, who is leading a
joint IMF-World Bank mission to assess Chad's PRGF progress.
According to Van Den Boogaerde, Chad's Revenue Management
Process is experiencing operational difficulties, rather than
transparency issues. The major problem with the process,
noted Van Den Boogaerde, is the complexity of the system
(which currently separates the budget of the oil revenues and
the national budget),which prevents the government from
accurately ascertaining its revenue and expenditure levels.
Complicating matters are the lower-than-expected revenues
associated with oil production, and a continuation of
spending at the end of FY 2004 by the GOC even when they
lacked the adequate financial resources. According to Van
Den Boogaerde, spending on military operations in Darfur and
the June referendum had little impact on the revenue
shortfalls. Both officials said that the burden of the
budgetary system would be eased by the creation of a single
treasury account that combines the regular budget and the oil
budget. They also pointed out that this system could still
safe-guard the role of the College, allocate resources for
the oil-producing regions and the Fund for Future
Generations, emphasize the theme of social expenditures of
the existing Revenue Management Laws. They noted that the
team was discussing the possibility of proposing this idea in
the beginning of 2006 when the Revenue Management Laws would
be up for revision.


12. (C) The Ambassador then raised some of the concerns
highlighted by Assingar to Camard and Van Den Boogaerde. Van
Den Boogaerde said that he did not understand how the
government could take resources from the Stabilization Fund,
as currently the Fund lacked resources. He and Camard
pointed out that the recent expenditure of salaries of 4
billion FCFA actually conformed to the National Budgetary


Law, for the Law permits the government to substitute oil
revenues for a immediate social expenditure not accounted for
in the creation of the national budget, such as salaries. In
return, the government is required to compensate the shortage
in the oil budget by this expenditure by transferring
resources from the regular budget to the oil budget. Van Den
Boogaerde assured the Ambassador that this process still
upholds the mandate of the Revenue Management College, which
makes the final decision on this initiative. He also
commented on the GOC's overall compliance with the spirit of
the Revenue Management Process, saying that the Government
has supported the Revenue Management Laws and the presence of
the College. The IMF did reject the GOC's request to
eliminate the Fund for Future Generations, which, according
to the two officials, is the only formal attempt by the GOC
to seek amendments to the Revenue Management Process.

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COMMENT
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13. (C) Chad's oil revenues are protected by the Revenue
Management Law to ensure their transparent and accountable
use for poverty alleviation. Swift action by the various
ministries in the priority sectors on the verification
reports' recommendations could demonstrate the Government's
commitment to the process. The World Bank should also
deliver on promised assistance to bolster the College's
internal transparency measures.


14. (C) The differences of opinion between the Government,
international financial institutions, and civil society over
interpretation of the law and the proper use of the revenues
are to be expected as the system is finally being tested.
Civil society representatives are particularly concerned over
what they view as the Government's weakening commitment to
poverty alleviation and mismanagement of other budget
revenues. The Government may also be misinterpreting signals
from the international financial institutions on eventual
revision of the law governing use of oil revenues. The
international community, including the World Bank and major
donors should be seeking to shape the debate so that changes
are consistent with the goal of poverty alleviation. The
transparent expenditure of the oil revenues and reform of the
budgetary process requires close examination and will benefit
from the presence of a resident U.S. Treasury Advisor.
TAMLYN


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