Identifier
Created
Classification
Origin
06NDJAMENA1095
2006-08-30 19:32:00
UNCLASSIFIED
Embassy Ndjamena
Cable title:  

CHAD: CHEVRON/PETRONAS TAX DISPUTE UPDATE

Tags:  ECON EFIN ENRG PGOV CD 
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RUEATRS/DEPT OF TREASURY WASHINGTON DC
UNCLAS SECTION 01 OF 03 NDJAMENA 001095 

SIPDIS

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: CHEVRON/PETRONAS TAX DISPUTE UPDATE

UNCLAS SECTION 01 OF 03 NDJAMENA 001095

SIPDIS

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: CHEVRON/PETRONAS TAX DISPUTE UPDATE


1. (SBU) SUMMARY: Reiterating that oil consortium members
Chevron and Petronas' tax agreement was "illegal," acting
Petroleum Minister and National Petroleum Coordinator both
expressed confidence that the situation could be resolved so
long as Chevron and Petronas paid the taxes owed. According
to Esso representatives, Chevron and Petronas may indeed
avoid arbitration and negotiate with the GOC to resolve their
tax dispute. However, foreshadowing longer-term problems for
the members, President Deby lashed out at Petronas and
Chevron in a GOC-planned demonstration, and called for the
GOC to take a 60% ownership (the amount currently owned by
Chevron/Petronas) in the Consortium's production activities.
"Just a coincidence" was how GOC officials described the
visit last weekend of the Vice Foreign Minister of Venezuela,
but disclosed that the envoy carried a letter from President
Chavez offering training in oil management. End summary.

- - - - - - - - - - - - - - - - - - - - - - -
CHEVRON AND PETRONAS SEEK THE DIPLOMATIC ROUTE
- - - - - - - - - - - - - - - - - - - - - - -


2. (SBU) On August 29, Esso Public Affairs Advisor Miles
Shaw told Econ/Consular Officer that consortium partners
Chevron and Petronas were leaning against going to
arbitration in their tax dispute with the GOC, and indicated
that they may explore settling directly with the GOC. It was
unclear how they would go about doing this, but both
organizations were considering having senior officials reach
out the GOC. Esso still planned to hold off on any response
to GOC calls to renegotiate the 1988 Convention, and was
still considering a meeting with Exxon-Mobil chairman
Tillerman and President Deby.

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- - - - -
INTERIM PETROLEUM MINISTER'S AND NATIONAL PETROLEUM
COORDINATOR'S VIEWS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- - - - -


3. (SBU) During a meeting with CDA on August 30, interim
Petroleum Minister Mahamat Ali Abdallah Nassour stated that

the GOC wanted to see a resolution in its tax dispute with
Chevron and Petronas, but the companies needed to respect
their financial obligations and pay the taxes they owed. He
claimed that the tax benefit agreement between Chevron and
Petronas and the GOC was done without the approval of the
Chadian President, the Chadian National Assembly, or the
Chadian Prime Minister, and that the secrecy of the
negotiations demonstrated its illegality. Nassour stated
that President Deby had sent in a letter to President Bush on
August 26 via the Chadian Embassy in Washington explaining
his position, and said that he hoped the U.S. would
understand Chad's sovereign right to defend its economic
interests. President Deby reportedly sent similar letters to
the President of Malaysia and to World Bank President
Wolfowitz.


4. (SBU) Nassour also said that the GOC was fully prepared
to move forward with its plans to renegotiate its existing
conventions with Esso. While it would take some time to
implement plans for a Chadian national oil company that would
take part in the production of the country's oil, Nassour
argued that Esso could provide the technical expertise for
the development of the company. He denied that the
suspension of Chevron's and Petronas' operations was linked
to the GOC's plans to directly insert its national oil
company into the oil production process in their place. He
did state however, that the companies had reaped a rich
profit on their initial investment, and therefore should
consider themselves sufficiently rewarded.


5. (SBU) On August 29, National Petroleum Coordinator Haroun
Kabadi admitted that while the dispute initially developed as

NDJAMENA 00001095 002 OF 003


a technical dispute over the amortization schedule of the
Consortium partners' costs, the issue had evolved into a
political dispute over the legitimacy of a tax benefits
agreement. He acknowledged that the expulsion of Chevron and
Petronas had been precipitate. Queried as to the practical
impact of the expulsion for the consortium's operations,
Kabadi himself was mystified and admitted that the government
had not appeared to have thought through all of the
implications.


6. (SBU) In order for a resolution to be reached, both
parties needed to come back to the negotiating table. Kabadi
said that he believed this was possible. However, if an
amicable resolution was not possible, then both parties would
have to enter into arbitration to resolve the matter. He
added that the GOC may also take another, and much harsher
approach, and rupture its relations with Chevron and Petronas
and face consequences with investors in the Chad-Cameroon
Pipeline (this option, Kabadi pointed out, was more unlikely
given the risks associated with such a rash decision). Like
Nassour, Kabadi did note that the tax dispute and the
renegotiation of the conventions with Esso were two separate
issues, and was being treated by the GOC as separate.

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
-
DEBY BLASTS CHEVRON AND PETRONAS, NOTES BEGINNING OF
"REVOLUTION
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
-


7. (SBU) On August 29, President Deby delivered a clear and
aggressive message on Chad's decision to suspend Chevron and
Petronas' operations and begin renegotiation of the country's
oil conventions, during a GOC-organized public demonstration,
which was attended by an estimated 1,000 people. Cheering
supporters listened as Deby asserted that "a revolution has
begun. We're only receiving the crumbs, that are called
royalties, but that amount to 12.5 percent of our oil. This
is a flagrant injustice. I've been asking since 2000, and
insisting since 2004, with all of our partners, that the
terms of the 1988 convention be renegotiated. I was not
heard. So, the Government has a made a decision that had to
be taken, and this decision is healthy: not only must the two
companies pay their dues to the public treasury, but Chad
must enter into the country's production, at a reasonable
level of 60 percent." Deby also acknowledged what he viewed
as Exxon-Mobil's good behavior, stating, "one company has not
failed in its obligations, I'm speaking of Exxon-Mobil, with
whom we will continue to work."

- - - - - - - - - - - - - - - - - - - - - -
GOC NAMES NEW MINISTERS, APPOINTS COMMISSION
- - - - - - - - - - - - - - - - - - - - - -


8. (SBU) On August 29, the Government appointed new
ministers to the Petroleum and Livestock ministries, naming
Emmanuel Nadinger (former Minister of Environment and,
previously Minister of Defense) as the Petroleum Minister and
Rakhis Manany, influential businessman and a close confidant
to President Deby, as Minister of Livestock to replace the
Ministers dismissed in connection with the Chevron/Petronas
tax arrangement. The GOC also appointed a national
commission to begin discussions on the renegotiation of the
existing oil conventions. The President of the National
Assembly was named President of the Commission. The
commission consists of members from the Government and
representatives from civil society.

- - - - - - - - - - - -
AND VENEZUELA PAYS A CALL
- - - - - - - - - - - - -


9. (SBU) "Just a coincidence" was how GOC officials described

NDJAMENA 00001095 003 OF 003


the timing of the visit of the Venezuelan Vice Foreign
Minister the same weekend that President Deby ordered
Petronas and Chevron out of the country. However, GOC
officials disclosed that the envoy carried a message from
President Chavez offering training in oil management, and it
appears that the Chadian Ambassador to Washington will
shortly be presenting his credentials in Venezuela as well.

- - - -
COMMENT
- - - -


10. (SBU) There is a clear difference between GOC officials'
assertions that the tax dispute and renegotiation of the
conventions are separate, and President Deby's public
comments that appear to link the two initiatives. While
Chevron and Petronas may resolve the short term issue of
their taxes, the GOC's clearly stated intention to pursue a
majority share of the oil consortium will undoubtedly figure
prominently in that negotiation.


TAMLYN