CHAD'S OIL REVENUE MANAGEMENT: DEALING WITH THE

UNCLAS NDJAMENA 000866 SIPDIS SENSITIVE LONDON AND PARIS FOR AFRICA WATCHERS; TREASURY FOR OTA, ENERGY FOR GPERSON AND CGAY E.O. 12958: N/A TAGS: ECON EFIN ENRG EPET PGOV CD SUBJECT: CHAD'S OIL REVENUE MANAGEMENT: DEALING WITH THE FINANCIAL ISSUES REF: A. NDJAMENA 72 ¶B. 04 NDJAMENA 2157 ¶1. (SBU) Summary: In a meeting with visiting Treasury advisors May 23, Chad's Minister of Finance explained his commitment to implementing Chad's oil revenue management system, but expressed concerns over the need to designate new priority sectors eligible for oil revenue financing. He welcomed plans for a new resident Treasury Advisor and said a a provisional committee to oversee the expenditure of funds in the oil producing region would be installed soon. The Treasury advisors also discussed the challenge of integrating Chad's new oil revenues into its overall budget process. Representatives from the World Bank and International Monetary Fund informed them that both institutions may also be sending resident budget advisors to Chad soon. End Summary ¶2. (U) Treasury Advisors Ken Torp and Eileen Brown visited Chad from May 15-26 as part of a series of periodic visits from the Office of Technical Assistance to strengthen the capacity of Chad's Oil Revenue Management College (the College). Septel reports on their preliminary evaluation of the work of the College to date. This message reviews their discussions with Chad's Finance Minister and the World Bank and IMF representatives. - - - - - - - - - - - - - - - - - - - - - - - - - - - - MINISTER OF FINANCE: EVERY SECTOR IN CHAD IS A PRIORITY - - - - - - - - - - - - - - - - - - - - - - - - - - - - ¶3. (SBU) Minister of Finance Ngueyam Djaibe met with the Ambassador, the Treasury team, and P/E officer on May 23. He was pleased to hear that the Treasury Department would be sending back a resident technical advisor. The Treasury team emphasized the importance of constructing a strong relationship between the Ministry of Finance and the College. Minister Djaibe described a "long tradition of cooperation" with the College and his view that it is important for the Government of Chad that management of oil revenues conforms with arrangements specified in the petroleum law. ¶4. (SBU) Djaibe said that the College suffers from a staffing deficit which will be more pronounced as its workload increases this year. He noted that the five-day deadline for the College to approve project proposals is already difficult to meet. Djaibe also stated that the verification of the projects is also important and that it is in the interest of the GOC to have such an "organ of control" because a functioning independent monitoring entity helps improve the Government's credibility. ¶5. (SBU) Djaibe views the role of the MOF and the College as complementary. If the College detects deficiencies in a project, it is important for the ministries to correct them. He said that he is very interested in the outcome of any of the College's investigations. He added that President Idriss Deby and Prime Minister Pascal Yoadimnadji share his interest. It is the College that can let Chadian know where the oil revenues are being spent and dispel notions that the Government is hiding the money. ¶6. (SBU) The Ambassador asked Djaibe how the revenues from the new oil fields will be handled. Djaibe replied that on September 9, 2004, the Government announced it would apply the same law to the new fields. However, he raised several issues with the current management system. The first is the issue of the funds set aside for future generations. He said that many Chadians are wondering when the future begins as they need salaries now as a means of reducing poverty. Second, he described the necessity of a strategy of good governance to enable the success of poverty reduction as outlined in the current law. For example, the Ministry of Justice has asked that some petroleum revenues be set aside for the construction of the courts necessary to ensure rule of law. The Ministry of Public Security argues that Chad is not safe for outside investments without law and order. The Minister said that it is not possible to name a sector in Chad that is not a priority sector. Third, the definition of what fits into the priority sectors is open to interpretation. For example, communications and energy can be considered infrastructure, both of which are critical to poverty alleviation. ¶7. (SBU) Djaibe also told the Ambassador that a provisional committee to oversee the five percent of oil revenues designated for the oil producing region has just been established. It consists of three members of the National Assembly from the region, two traditional chiefs, two members of civil society, and the state-level representatives, such as the Deputy Governor and deputy state administrator for Finance. This committee would remain in place until local elections are held in late June. Talk of establishing this committee began in late 2003 and early 2004. (Ref B.) (Note In January, we heard from more than one member of the College, that the provisional committee was hand-picked by President Deby. The timing of its installation so close to the upcoming public referendum to remove presidential term limits is not a coincidence. End Note.) - - IMF - - ¶8. (SBU) On May 23, the Treasury advisors and Econ/Comm officer met with Jean-Luc Helis, a technical associate advisor who heads an IMF team that has been working with the Ministry of Finance on improving the Ministry's technical capacity. Helis noted that the most difficult issue with the budgetary process was the lack of a single treasury account that consolidates all government revenues and expenditures. Currently, the fragmentation of government funds significantly undermines the efficiency and transparency of budgetary operations, and presents additional costs for a Ministry already hampered by a lack of technical capacity. A single treasury account would streamline the budgetary process, and allow the Ministry to examine and evaluate the collective budget. ¶9. (SBU) To aid the development of a single treasury account, Helis announced the IMF's intentions to send a resident technical advisor to work with the Ministry of Finance. The advisor would also work with the Ministry's technical staff to develop strategies for reviewing and assessing the values and risks of project proposals. Helis and the Treasury team both agreed that the Ministry was hampered by the Francophone budgetary model, which placed strict regulations on the expenditures of purchases associated with a specific project. As a result of focusing too much on the process accounting for all items delineated in the project's budget, the technical staff loses focus of the effectiveness of the project itself. The resident advisor would help the staff of the MOF to shift their focus from process to results. ¶10. (SBU) Helis also noted two other concerns for the Ministry of Finance. First, its inability to absorb the HIPC resources obtained from the recently-obtained IMF package. Second, its inability to monitor the oil revenues as they shift from the CitiBank escrow account to the GOC's account. On both counts, Helis pointed to the lack of capacity (stemming from both a lack of technical expertise and infrastructure) within the Ministry to adequately report and account for resources as they flow into the government's budget. Helis and the Treasury advisors agreed that the resident advisor should be able to improve the capabilities of the MOF in these areas, and concurred that the IMF resident advisor should work closely with the Treasury technical advisor at the College to address issues of capacity-building in both the Ministry and the College. - - - - - - WORLD BANK - - - - - - ¶11. (SBU) At the World Bank, Charles Donang Ningayo, a senior procurement specialist, met with the Treasury Advisors, P/E officer, and P/E assistant on May 25. According to Ningayo, the Bank will continue to provide support for the College even though the World Bank's support program for the College expires at the end of May. Bank officials will discuss the College's needs in the coming weeks to design a new project, such as the modernization of Chad's public finance system, including linking the College with the Ministry of Finance and National Treasury through an Integrated Financial Management System. Ningayo described the College's key weaknesses as lack of experience with advanced budget systems. Torp added that the College members and technical staff also lack an understanding of budget analysis and need help in setting up a strong monitoring and control system to evaluate the expenditure of the funds. ¶12. (SBU) The Treasury team told Ningayo that is important to forge a better relationship between the College and the Ministry of Finance. Ningayo informed the team that the World Bank has identified a resident advisor that will work with the College technical staff on public finance issues. The World Bank advisor will likely arrive in July. On the question of how oil revenues from the new fields will be handled, Ningayo said that initially the Government wanted to put in place a new structure to manage them. However, the World Bank insisted that the Government modify the existing law to add the additional fields and use the same College to monitor the expenditures. Ningayo also said that the World Bank is interested in developing a system by which the College can quickly discover financial discrepancies and report them to the National Treasury. For now, this is difficult to do because the accounting is done manually which leads to a high percentage of errors. - - - - COMMENT - - - - ¶13. (SBU) With new fields expected to begin producing as soon as the end of the year, pressure will grow to finance projects not currently allowed under the oil revenue management mechanism. While plans for World Bank and IMF budget advisors in Chad are welcome, the World Bank's proposal for an Integrated Financial Management System may be too much for Chad to handle. The scheme would theoretically provide quicker and more modernized accounting practices. According to the Treasury advisors, however, the World Bank's previous attempts to implement these systems in other developing countries have failed. Implementing such a technologically sophisticated system in Chad (which lacks even a basic IT infrastructure) could create more problems than solutions. End Comment. ¶14. (U) Torp and Brown did not have the opportunity to review this message before their departure. WALL NNNN