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. - - - - - - - - - - - - GOC ISSUES FORMAL NOTICE - - - - - - - - - - - - ¶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. - - - - - - - - - - - - - - - - - PETRONAS AND CHEVRON'S NEXT MOVES - - - - - - - - - - - - - - - - - ¶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 �A;the dispute over tax payments, or the GOC's apparent decision to suspend the company's operations. - - - - - - - - - ESSO'S NEXT MOVES - - - - - - - - - ¶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. - - - - - - - - - OTHERS NEED TO ACT - - - - - - - - - ¶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. - - - - - - GOC ACTIONS - - - - - - ¶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