CHADIANS SEEK GREATER FLEXIBILITY WITH NEW OIL

C O N F I D E N T I A L NDJAMENA 001431

SIPDIS


DEPT FOR AF, EB; DOE FOR CAROLYN GAY AND GEORGE PEARSON,
TREASURY FOR OTA, LONDON AND PARIS FOR AFRICA WATCHERS

E.O. 12958: DECL: 09/23/2015
TAGS: ECON EFIN ENRG PGOV CD
SUBJECT: CHADIANS SEEK GREATER FLEXIBILITY WITH NEW OIL
ROYALTIES

REF: NDJAMENA 1357 AND PREVIOUS

Classified By: Economic/Consular Officer Jitu Sardar for reasons 1.4 (b
) and (d).


1. (C) SUMMARY: The GOC has formally asked Esso to deposit
revenues from its new satellite field directly into the
Government's Public Treasury, rather than follow the existing
revenue management process, which stipulates placement in an
escrow account. Esso has declined to adhere to this request,
and has formally informed the World Bank of this development.
The IMF Representative has asked the Government to reverse
this decision. While revenues from the new field are
technically not covered by the petroleum law governing the
project, the Government's request sends a negative signal
about its intentions for managing revenues from future
discoveries. END SUMMARY.


2. (C) On September 22, Esso Public Affairs Advisor Miles
Shaw informed E/C Officer that Minister of Petroleum Oumar
Hassan had sent a formal request to the Consortium to deposit
all royalties from the new oil fields in the Doba region
directly into the Public Treasury, rather than follow the
current revenue management process that required Esso to
deposit royalties into the CitiBank escrow account. Shaw
stated that the Consortium would not agree to the
Government's request, as Esso was already committed to
following the current financial mechanism, and could not
deviate from its current arrangements at this time. Esso has
also formally informed the World Bank of the Minister's
letter. Shaw noted that the company is extremely concerned
about the implications of this request for the revisions of
the petroleum law in 2006.


3. (C) On September 23, IMF Resident Representative Wayne
Camard stated to E/C Officer that he was able to confirm this
request after speaking to representatives in the Public
Treasury and members of the President's economic advisory
team. According to Camard, he asserted to all the officials
that the GOC should reconsider its request to Esso, as the
international donors would begin to question the Government's
commitment to the transparent measures stipulated in the
revenue management process. All GOC officials told Camard
that they would look into the matter, and that the Government
respected the revenue management laws. Camard said that he
suspected certain GOC officials were trying to take advantage
of the absence of Finance Minister Abbas Tolli (who is head
of the Chadian delegation at the IMF-World Bank meetings in
Washington) to exert control over the new royalties.



4. (U) The revenues at issue come from the Nya field that
was brought online in June. The field consists of four wells
and is adjacent to the Miandoum field, one of three that have
been producing since the project got underway in 2003.
Chad's petroleum law governing oil revenues strictly applies
only to those three existing fields. Esso is also working to
develop the much larger Moundouli field to the west. These
efforts are part of a push to increase production. Average
daily production this year has been only just over 180,000
barrels per day, much less than the over 200,000 barrels per
day originally forecast.


5. (C) COMMENT: Chad, strapped for cash as always, is
chaffing at the constraints imposed by the current petroleum
law. While funds pile up in the escrow accounts waiting to
be spent on projects in the designated priority sectors,
civil servants are going unpaid and the Government feels
under pressure to address needs in other sectors. But by
attempting to circumvent the existing arrangements, the GOC
sends a negative signal concerning its intentions for future
oil revenues, and verifies some of the concerns that NGO
groups have been highlighting. While the dollar amount of
the royalties being considered is small, the symbolic effect
of the Government's actions is tremendous. It is not clear
who within the Government initiated this process. It is
possible that new GOC officials, who are still educating
themselves on the Oil Revenue laws and are inexperienced on
the political implications of such a decision, pushed this
request forward without considering the ramifications. In
our recent meetings (septel),the new petroleum minister as
well as the National Coordinator of the oil project have


assured us of Chad's intentions to manage revenues from new
fields "in the spirit" of the current arrangements. However,
if the GOC is truly committed to altering the flow of oil
revenues, its decision does not bode well for negotiations in
2006 on revisions to the petroleum law. The Embassy will
continue to highlight our concern over any deviation from the
current process. We believe the Chadian delegation in
Washington should also hear from Treasury and State officials
that we are concerned with its latest request to Esso.
WALL


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