CHAD: WORLD BANK OFFICIAL CAUTIOUSLY OPTIMISTIC

UNCLAS NDJAMENA 001013

SIPDIS

SENSITIVE

SIPDIS

DEPT FOR AF, EB, TREASURY FOR OTA, LONDON AND PARIS FOR
AFRICA WATCHERS

E.O. 12958: N/A
TAGS: ECON EFIN ENRG EPET PGOV CD
SUBJECT: CHAD: WORLD BANK OFFICIAL CAUTIOUSLY OPTIMISTIC



1. (SBU) SUMMARY: Chadian authorities have taken concrete
steps to demonstrate their commitment to the July 13
agreement between the GOC and the World Bank, according to
the Bank's Senior Advisor on the Chad oil project. However,
the Bank will still need to come to an agreement with the
GOC on the management of the country's indirect oil
revenues. Bank officials, including President Wolfowitz,
are keenly aware of the negative implications that a failed
political dialogue or continued instability in Eastern Chad
could have on the agreement and the GOC's commitment to
transparent oil revenue management. END SUMMARY.



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GOC TAKING POSITIVE STEPS
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2. (SBU) On July 28, Ambassador Wall met with World Bank
Senior Program Manager for the Chad-Cameroon Pipeline Marie-
Francoise Marie Nelly to discuss recent developments in Chad
following the July 13 agreement between the GOC and Bank and
the subsequent visit by World Bank President Paul Wolfowitz.
Marie-Nelly told the Ambassador that the approval of the
2006 budget prior to Wolfowitz's visit was a necessary and
positive step in establishing budgetary reform. She noted
that the GOC had begun to lay the foundation for the
implementation the World Bank-proposed and GOC approved
Budget Modernization Plan (PAMFIP),which entailed the
closure of the multitude of GOC commercial bank accounts and
the establishment a single bank account in the Central Bank.
This development would streamline the cash disbursal process
and streamline the GOC's expenditure capabilities.


3. (SBU) Marie-Nelly added that the GOC was already in the
process of establishing an inter-governmental committee for
the creation of a national poverty reduction strategy paper
(PRSP),and had agreed to hold a workshop for GOC
authorities and civil society representatives to develop the
initiative. She noted that the GOC was also taking steps to
develop a medium-term expenditure framework (MEF) for GOC
spending of its oil revenues in 2006 and 2007. To this end,
the Government will also host a national budget conference
in August to begin formulation of the 2007 budget. All
these initiatives were, according to Marie-Nelly,
indications that the GOC was taking measures to execute the
agreement. She added that the GOC was set to receive USD
130 million from the Citibank escrow account (which was now
completely unfrozen),which would assist in servicing a
number of arrears that the GOC maintained, including unpaid
salaries and payments to it cotton and electricity
parastatals. This would add to the USD 10 million budgetary
support package from the African Development Bank and the
USD 100 million in indirect tax revenues set to come in the
fall of 2006.

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UNRESOLVED MATTERS ON THE INDIRECT REVENUE SIDE
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4. (SBU) Marie-Nelly stated that while there were clear
signs of progress, the management of the indirect oil
revenues still required significant discussion. According
to her, the Bank would like to see Chadian authorities
implement three measures to manage indirect tax revenues:
establish a transparent spending system, develop a
stabilization fund to ensure proper investment of additional
revenues, and develop a concrete and efficient plan to
program any new spending needs. Marie-Nelly pointed out
that Bank and GOC authorities would still have to determine
if the transit account used for direct revenues would also
apply to indirect revenues.

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A VERY FRAGILE AGREEMENT
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5. (SBU) Marie-Nelly stated that military spending for the
2006 budget amounted to FCFA 34 billion (approximately USD
60 million, or ten percent of the national budget),most of
which was already spent. She pointed out that GOC officials
intended to spend more if another attack takes place.
According to the World Bank official, while the Bank was
aware of the country's security needs, it would have to
seriously consider any military spending on the part of the
Government that exceeded reasonable spending activities.
She stated that the Bank was fully aware that increased
insecurity, the failure of a political dialogue, and civil
unrest against the regime would all affect the GOC's
commitment to the revenue management process. Marie-Nelly
definitely stated that if the GOC failed to adhere to any
commitments laid out in the July 13 agreement, President
Wolfowitz and the Bank were fully prepared to end its
support for the revenue management process.

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COMMENT
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6. (SBU) The frank comments from a senior Bank official
show that the implementation of the July 13 agreement is far
from a done deal. Management of the indirect revenues still
requires a resolution. And should the political and
security environment become unstable, the revenue management
process, and relations with the Bank and GOC will once again
be in jeopardy.


WALL