CHAD OIL CONSORTIUM MULLS NEXT STEPS

UNCLAS SECTION 01 OF 02 NDJAMENA 001091

SIPDIS

SENSITIVE
SIPDIS

DEPT FOR AF, EB, ENERGY FOR CAROLYN GAY AND GEORGE PEARSON,
TREASURY FOR OTA, LONDON AND PARIS FOR AFRICA WATCHERS,
DAKAR FOR FCS REPRESENTATIVE CYNTHIA GRIFFITH GREENE

E.O. 12958: N/A
TAGS: ECON EFIN ENRG PGOV CD
SUBJECT: CHAD OIL CONSORTIUM MULLS NEXT STEPS


1. (SBU) SUMMARY: The GOC has formally issued a notice to
Chevron and Petronas suspending their oil activities in Chad
for an alleged failure to pay income taxes. Petronas and
Chevron are still determining whether and when to enter into
arbitration over the tax dispute. Exxon-Mobil will seek a
meeting between its chairman and President Deby. Exxon-Mobil
representatives in Chad strongly believe that the U.S. and
the World Bank should send a strong message to President Deby
defending the sanctity of contracts in response to his
actions against American private sector interests. END
SUMMARY.

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GOC ISSUES FORMAL NOTICE
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2. (SBU) During a meeting between Esso Country Manager Ron
Royal and CDA on August 28, Royal stated the Consortium had
just received a letter from newly appointed Minister of
Petroleum Mahamat Ali Abdallah Nassour (former Minister of
Mines and Energy, and former Minister of Territorial
Administration) that formally suspended the operations of
Consortium partners' Chevron and Petronas. The letter
alluded to the GOC's allegation that the two companies had
failed to respond to the Government's demand that the
companies pay taxes that it owed the GOC. Royal said that
Esso (the sole entity now operating in the Consortium) would
pass the note onto Chevron and Petronas, and would also
notify private lenders of the Government's decision.

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PETRONAS AND CHEVRON'S NEXT MOVES
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3. (SBU) Royal said that neither Petronas nor Chevron had
clearly laid out a strategy to respond to the GOC's decision.
Both sides had initially decided go to arbitration over the
tax dispute (as both parties felt that the 2000 tax benefits
agreement between the GOC and the Consortium partners should
be acknowledged). However, as of today, according to Royal,
Petronas executives told Esso that they may reconsider the
arbitration approach. Royal opined that Petronas may opt for
a government to government solution between the two
countries. Chevron appeared prepared to go to arbitration,
and was now determining whether to enter into arbitration on
the dispute over tax payments, or the GOC's apparent decision
to suspend the company's operations.

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ESSO'S NEXT MOVES
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4. (SBU) Royal stated that Exxon-Mobil was facing two
issues, the suspension of the activities of its partners over
the tax dispute, and the GOC's call for renegotiations of the
1988 Convention to allow for a partial ownership by the
Government's national oil company. Prior to the GOC's
decision to suspend Chevron and Petronas' operations,
Exxon-Mobil planned to send a letter to the Government
refusing to take part in any renegotiation of the 1988
convention between the Consortium and the GOC. Now, given
the present, and highly tense environment, Royal said that
Exxon-Mobil leadership decided to hold off on any discussions
over the renegotiation of the convention, in an attempt to
keep the tax dispute and the renegotiation separate.
However, admitting that the issues do eventually converge,
Royal said that Exxon-Mobil would seek a meeting with
President Deby and Exxon-Mobil Chairman Rex Tillerman. If
the issue of the Convention arose prior to this meeting,
Royal was instructed to convey the company's willingness to
discuss possible production-sharing agreements in the case of
future agreements on new oil fields, but insist that the
existing Convention be respected and not altered.


5. (SBU) Royal admitted that the request of the GOC was
confusing and that Consortium members did not have a clear

NDJAMENA 00001091 002 OF 002


idea of what was expected of them. Was Esso supposed to cut
back production 60% to reflect the departure of Chevron and
Petronas? Royal and other Esso members believe that
ultimately the GOC would like to have a "Cameroon" type
situation where a Chadian-controlled National Oil Company
would effectively control a Chadian share of the consortium.

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OTHERS NEED TO ACT
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6. (SBU) Royal also asked that the United States and the
World Bank consider a strong reaction to the GOC's decision,
possibly through letters from senior officials to President
Deby asking him to consider his decision, based on the impact
that his actions would have on American private sector
interests and possible future foreign investment. Royal
suggested that the World Bank might want to reconsider
freezing the escrow account again. He noted that Robin
Cleveland (Senior Advisor to President Wolfowitz) of the
World Bank told senior Exxon-Mobil officials that she was
"shocked" by the GOC's decision.


7. (SBU) Royal continued to say that if the suspension of
the partners continued, the implications on the GOC decision
on the project would have a highly negative impact. Private
lenders, who may consider the decision as a breach of
contract, would, in an attempt to secure their returns,
recall their loans, a decision that would hit all
stakeholders in the Chad oil project. At the same time, if
permitted to continue down this path, President Deby would
surely cause potential foreign investors to re-consider
entering into business with the GOC, which many would see as
being incapable of preserving its contractual obligations.

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GOC ACTIONS
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8. (SBU) The GOC also officially removed Mahamat Nasser
Hassan, the Minister of Petroleum, Mahamat Ali Hassan, the
Minister of Plan, Economy, and Development, and Moctor
Moussa, the Minister of Livestock. All three officials were
implicated in the negotiation of the 2000 Tax Benefit
Agreement between the GOC and Chevron and Petronas (which,
the GOC asserts, they were not authorized to do). The
Government has also announced plans for a public
demonstration tomorrow in support of President Deby.
Organizations such as the High Islamic Council, the Chadian
Labor Union, and opposition political parties now part of the
current government have issued public statements in support
of President Deby's decision.

TAMLYN