CHAD: OIL REVENUE LAW UPDATE

UNCLAS NDJAMENA 001851

SIPDIS

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

E.O. 12958: N/A
TAGS: CD ECON EFIN ENRG EPET PGOV
SUBJECT: CHAD: OIL REVENUE LAW UPDATE

REF: NDJAMENA 1760 AND PREVIOUS


1. (SBU) SUMMARY: The Government of Chad (GOC) has formally
invited a World Bank team to come to Chad to discuss the
Government's proposed amendments to the Oil Revenue Law and
strengthening of the Public Finance System. Some donors have
expressed concern that continued disagreement between the
World Bank and the GOC over the proposed elimination of the
Fund for Future Generations and the inclusion of security as
a priority sector might jeopardize the success of the
mission, currently projected for January 2006. The Minister
of Finance has stated that while he and the GOC appreciate
the team's visit, the Government will maintain its sovereign
right to amend its laws. National Assembly debate over the
revisions to the Oil Revenue Law is still scheduled for
December 29, but we do not anticipate a vote the same day.
The GOC has clarified which changes it seeks to the draft
terms of reference of the U.S. Department of Treasury
Resident Advisor. We are hopeful that this will resolve the
impasse over placement of the Advisor at the Oil College.
END SUMMARY.

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GOC AGREES TO ACCEPT WORLD BANK TEAM, DONORS HAVE CONCERNS
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2. (U) On December 21, the World Bank convened a donors'
meeting/audioconference in N'Djamena to update donors on the
status of negotiations with the Government pertaining to
revisions to the Oil Revenue Management Law. Representatives
from the IMF, African Development Bank, French Development
Agency, French Embassy, the European Commission, and the U.S.
Embassy were present. The audioconference included
representatives from Paris, Brussels, and Washington. Ali
Khadr, World Bank Country Director for Central Africa, and
Marie-Francoise Mary-Nelly, World Bank Coordinator for the
Chad-Cameroon Pipeline, began the meeting by expressing the
World Bank's satisfaction with the receipt of a letter from
Prime Minister Pascal Yoadminadji's office, which accepted to
host a World Bank/IMF mission. Khadr stated that upon
receiving the blessing of Senior Management, the Bank would
send a letter outlining the details of the missions that
would be arriving in Chad.


3. (U) While the details of the mission were still being
finalized, Khadr stated that the Bank's tentative plan was to
send two missions: a technical assessment mission on January
15, and a high-level political delegation on January 29.
According to Khadr, the technical assessment mission would
discuss the GOC's proposed revisions to the Revenue
Management Laws, examine the current budgetary process and
explore needs for technical assistance to strengthen the
current system, and identify financing requirements to
relieve any financing gaps in the 2005 budget. The political
delegation (which would be led by the WB's Senior Vice
President for Africa and the Director of the African
Department) would relay the findings of the assessment
mission to the GOC, and resolve any specific differences with
the Government.


4. (SBU) Donors also discussed the GOC's preparation of the
2006 Budget. IMF Representative Wayne Camard stated that,
based on discussions with the Ministry of Finance, the
Government had not made a decision on whether to pass a
temporary budget for 2005 and amend it if the amendments to
the Revenue Management Laws are approved, or if they would
extend the 2005 budget into 2006 and maintain spending
through continuing resolutions. Khadr stated that it was
important for the GOC to make its intentions clear on the
2006 Budget before the assessment team arrived in January, as
a lack of concrete position would make the team's mission
extremely difficult.


5. (SBU) Following the premature cut-off of the
audioconference (due to technical difficulties),donor
representatives in N'Djamena exchanged views on the current
negotiations. While IMF representative Camard was optimistic
that the January visits could resolve differences over the
revisions to the oil laws, representatives from the European
Commission and the French Embassy pointed out that the basic
disagreements between the World Bank and the GOC over the

elimination of the Fund for Future Generations and the
inclusion of security as a priority sector still had not been
resolved. They expressed concern that the failure to resolve
these points before the arrival of the team may pose a
problem for the team's ability to carry out its assessment.
Camard asked the donors whether their respective
organizations would be open to contributing resources to GOC
financing needs to close any spending gaps. The donors
stated they would have to know exactly what the financing
would be used for, and what the spending limits would
actually be. French Economic Attach Marco Bellito stated
that while the French were open to providing resources for
demobilization efforts, they would not approve of spending
for military equipment. The European Commission
representative concurred with this assessment, and said that
clear boundaries needed to be delineated before the EC could
even consider providing additional financing.

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MINISTER WELCOMES DIALOGUE, ASSERTS SOVEREIGNTY, DEBATE STILL
SCHEDULED
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6. (SBU) On December 23, Minister of Finance Abbas Tolli
told Charge that the invitation of the World Bank team by the
Government was a positive step in enhancing dialogue between
the Bank and the GOC, and he looked forward to their
recommendations for the Public Finance System. The Minister
pointed out that he and his colleagues understand the
importance of current IFI programs, and want to ensure that
they continue. However, he noted that points of blockage
still remained between the two parties, and the Government
would stand firm on maintaining its sovereign right to amend
the oil revenue laws to benefit the country. The Minister
reiterated the GOC's argument that the PRSP, in which the
international partners identified specific economic and
social needs in-country, required financial resources that
the Government did not have. Freeing up the resources from
the Fund for Future Generations (FFG) would allow the
Government to make progress on the PRSP, and alleviate
current social tensions associated with salary arrears and
failing public services. He also pointed out that the
Government would not accept a solution that was imposed by
the World Bank.


7. (SBU) With respect to the 2006 Budget, Tolli stated that
the Government was still trying to decide whether to pass a
budget law in the near future and rectify it based on the
outcome of vote in the National Assembly, or to pass a
continuing resolution to extend the 2005 budget, and allow
the debate to be completed. For the time being, the Minister
stated the debate was scheduled for December 29, and he added
that the President of National Assembly told him that unless
the Government said otherwise, the debate would move forward.
(NOTE: E/C Officer confirmed with the Secretary General of
the National Assembly that the debate was scheduled for
December 29, but that was susceptible to change if the
committees designated to resolve internal disagreements among
ruling-party deputies over the proposed amendments could not
complete their work in time. END NOTE).

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PROGRESS ON STATUS OF TREASURY ADVISOR
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8. (SBU) During meetings with Finance Minister Tolli and
Minister of Plan, Economy, and Cooperation Mahamat Hassan,
Charge was informed that the status of the Department of
Treasury's Resident Advisor, Linda Gregory, was close to
being resolved. Minister Hassan provided Charge with a copy
of a letter addressed from the Government to the Revenue
Management College outlining proposed amendments to the
Resident Advisor's Terms of Reference. Both Tolli and Hassan
stated that once the amendments were made, they foresaw no
other obstacles that would prevent Ms. Gregory from taking up
her duties.

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COMMENT

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9. (SBU) The Government willingness to host a Bank-Fund team
is definitely a positive step towards resolving differences
between the World Bank and the GOC over proposed revisions to
the oil revenue law. However, the fact that the basic points
of disagreements still remain over the elimination of the FFG
and the inclusion of security as a priority sector means that
significant obstacles remain before any type of compromise
can be reached. The Government seems adamant in maintaining
these two items in any resolution, and other donors seem
hesitant to accept changes on these fronts. We are pleased
that the GOC has moved forward on our Resident Advisors'
Terms of Reference. We will follow up with the College to
make sure that the process continues, and hope to have her
fully installed at the beginning of the new year.

TAMLYN


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