CHAD: ESSO CONCERNED ABOUT FUTURE OPERATIONS

UNCLAS SECTION 01 OF 03 NDJAMENA 001080 SIPDIS SENSITIVE SIPDIS DEPT FOR AF, EB, ENERGY FOR CAROLYN GAY AND GEORGE PEARSON, TREASURY FOR OTA, LONDON AND PARIS FOR AFRICA WATCHERS E.O. 12958: N/A TAGS: ECON EFIN ENRG EPET PGOV CD SUBJECT: CHAD: ESSO CONCERNED ABOUT FUTURE OPERATIONS ¶1. (SBU) SUMMARY: In the wake of Chad's renewed diplomatic ties with the People's Republic of China, Esso is concerned that Chad's intention to re-negotiate the conventions with the Consortium and develop a national oil company portend a desire to do business with another more accommodating oil partner (read China). END SUMMARY. - - - - - - - - - - - - - - - - - TIME TO RENEGOTIATE THE CONVENTION - - - - - - - - - - - - - - - - - ¶2. (SBU) On August 17, Esso Country Manager Ron Royal invited Ambassador Wall to the company's new office building in N'Djamena. After asking for the Ambassador's read of the new diplomatic environment following renewed ties with Sudan and the PRC, Royal expressed his concern that the Consortium's presence may be challenged with the entry of China into Chad's economic scene. Royal showed the Ambassador a letter, sent two days after the August 8 presidential inauguration, from the Ministry of Petroleum to Esso asking the Consortium to begin a process of renegotiating certain clauses of the 1988 Convention between Esso and the GOC. In the letter, Minister of Petroleum Mahamat Nasser Hassane stated that, while the 1988 Convention had already been renegotiated numerous times, the "positive changes" in the country's economic environment required another examination of the Convention. ¶3. (SBU) Royal told Ambassador Wall that he and others in the Consortium believed that the "positive changes" referred to renewed diplomatic cooperation with China. Royal said that following talks with Consortium partners Chevron and Petronas, he would respond by asking the Minister to clarify the aspects of the 1988 Convention that the GOC would like to re-examine. Royal would also note that changes to the Convention could not be done unilaterally, and would require the approval of the Consortium. Finally, he would state that any attempts to renegotiate the Convention would cause the Consortium to reconsider its commitment to building an oil refining topping plant that would be used to manufacture diesel for local consumption. Royal told the Ambassador that if the GOC continued to press this issue, Esso would take the matter to an international arbitration setting. - - - - - - - - - - - - - - - THE NATIONAL MARKETING COMPANY - - - - - - - - - - - - - - - ¶4. (SBU) Royal added that the Chadian National Assembly's recent decision to approve the development of a national oil company to market the country's crude oil could also have implications for the future of the country's oil activities. According to him, the creation of a national company would now mean that the Chadians could receive liquid crude to sell on the oil markets, instead of cash royalty payments. This arrangement, of course, would require renegotiation of the GOC agreement with the World Bank, and the Consortium would be hesitant to accept an arrangement of direct crude oil distribution, given the lack of controls to ensure that crude oil is marketed and distributed in a transparent fashion. ¶5. (SBU) However, China, Royal noted, would have no qualms about assisting Chad's crude oil marketing efforts. He added that the Chinese could easily assist the Chadians in selling Doba crude. Royal also suggested that the Chinese might obtain these rights as a payment for building large in- country infrastructure projects (which the Chinese had apparently done in other African countries). According to him, Minister of Infrastructure Adam Younousmi told Royal NDJAMENA 00001080 002.3 OF 003 earlier in the week that Chinese firms had already expressed interest in constructing roads, railroads, and even establishing a ferry service between Chad and Nigeria. With respect to the World Bank agreement, Royal argued that as long as China was willing to pay off Chad's World Bank oil pipeline loans, the GOC would be free to establish a national marketing company without any restrictions from the World Bank. - - - - - - - - - - - - - - - - SEPTEMBER 30 TAX PAYMENT LOOMING - - - - - - - - - - - - - - - - ¶6. (SBU) Royal also said that future tax payments to the GOC might throw another wrench into the company's operations. He pointed out that the next tax payment for Exxon-Mobil was due September 30. While the amount was small compared to past payments (nearly 17 million USD),the manner of payment would be potentially significant. Royal indicated that World Bank Chad-Cameroon Country Manager Marie-Francoise Marie-Nelly had stated that prior to the tax payment deadline, the Bank would ask Esso to deposit the payment into the Citibank escrow account, which was part of the World Bank agreement with the GOC. However, this contradicted the actual GOC Petroleum Revenue Management Law (Law 002),which stated that indirect revenues would be deposited directly into the Public Treasury. ¶7. (SBU) Royal noted that while this discrepancy had always existed, the status of indirect tax payments was much more high profile, given the projected increase in tax revenues and the Bank's attempts to commit the GOC to spend its indirect revenues on poverty reduction. Royal told the Ambassador that even if the World Bank instructed Esso to deposit its tax payments into the escrow account, the company would probably not wish to violate Chadian law and would deposit the revenues into the public treasury if the GOC so requested. He feared that this action would create tensions between the Bank and GOC similar to last year's disagreement over revising the revenue management law, which would once again place Esso in a difficult position. - - - - - - - - - - - - - - - - - - - - - - - PETROLEUM MINISTER'S COMMENTS ON RENEGOTIATION - - - - - - - - - - - - - - - - - - - - - - - ¶8. (U) During an interview with the BBC on August 21, Minister of Petroleum Hassane stated that the GOC wanted to re-negotiate the convention with Esso to permit the national oil company to be part of the Consortium. He asserted that the Consortium members should not have a problem with this decision by the Government, as the convention has undergone a number of changes in the past several years. Hassane also said that should the Consortium refuse, the GOC would still go forward and obtain World Bank permission to market its own crude. He added, "if China say they want to be leaders in Chad's oil industry, we will not refuse. If they want to build a new pipeline we will have no problem." - - - - COMMENT - - - - ¶9. (SBU) Attempts to renegotiate the convention and talks of a national oil company for the marketing of Chad's crude oil are not new developments. However, the presence of China, which Chad could view as an alternative to Esso to assist in the country's oil production, might give the GOC the confidence to challenge the Consortium's resistance to renegotiation of the convention or implementation of a NDJAMENA 00001080 003 OF 003 national oil marketing company. China's presence may also impact the GOC's relations with the World Bank in the treatment of indirect oil revenues. To the extent that China is willing to support the GOC's fiscal needs, the leverage of the Bank over Chad's indirect tax receipts might be weakened. WALL