CHAD:CHEVRON STILL SEEKING A RESOLUTION

UNCLAS SECTION 01 OF 02 NDJAMENA 001213

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 EPET PGOV CD
SUBJECT: CHAD:CHEVRON STILL SEEKING A RESOLUTION


1. (SBU) SUMMARY: Chevron representatives are currently in
N'Djamena, and plan to use high-profile consultant Andrew
Young to meet directly with President Deby to resolve the
company's tax dispute with the GOC. Chevron still asserts
that the tax benefit agreement it negotiated with the GOC is
a valid text, and that President Deby was aware of the
agreement. Chevron has also pointed out that should Esso
continue to lift Chevron's crude, it will eventually max out
on the amount of crude oil that Esso is permitted to lift
according to intra-consortium agreements. The end result: a
possible shut-down in production. END SUMMARY.

- - - - - - - - - - - - - -
CHEVRON TO MEET DEBY, AGAIN
- - - - - - - - - - - - - -


2. (SBU) On October 3, Chevron representatives coming in
from Paris met with Ambassador Wall to discuss the state of
play with the GOC over a disputed tax payment. Fred Nelson,
managing director for West Africa, led the team, which also
consisted of general manager Carole Rock and Margaret
Broussard, who was also involved in the negotiation with the
2000 tax benefit agreement with the GOC. Nelson told the
Ambassador that Chevron hoped that this trip to N'Djamena
would be their last one, as they hoped the company and GOC
could come to a resolution. Any delay in a resolution was
costing Chevron money and resources, as it was losing out on
royalties from crude oil sales and was still required to pay
the costs of operating in Chad.


3. (SBU) Chevron, according to Nelson, was also bringing in
high-profile consultant Andrew Young to come to N'Djamena to
speak directly to President Deby on Chevron's behalf. Nelson
admitted that their hope that the meeting in Paris between
Chevron CEO Dave O'Reilly and President Deby would resolve
the matter did not come to fruition. However, President Deby
had expressed an interest in meeting Young, and Nelson
expressed hoped that the former USUN Ambassador could help
Chevron reach a resolution with the GOC.

- - - - - - - - - - - - - - - - - - -
TAX BENEFIT AGREEMENT IS A VALID TEXT
- - - - - - - - - - - - - - - - - - -


4. (SBU) Nelson said that Chevron believed that the tax
benefit agreement with the GOC was still a valid text. He
and Broussard pointed out that President Deby was present
during the actual negotiations, and was the person who
actually agreed to swap the deductions incurred by former
consortium partners Elf and Shell for a payment of 25 million
to enter the consortium. Deby, according to Broussard, was
also the one who proposed that the document not go through
the proper legal channels to expedite the process. She noted
that Chevron and Petronas were both eager to quickly reach an
agreement with the GOC, as Exxon-Mobil had already reached
its agreement, and was ready to move forward with production,
and the World Bank had reached its agreement with the GOC on
the revenue management process. Deby, Broussard states, was
strapped for cash, as well, and was extremely receptive to
his petroleum minister and finance minister signing off on
the text of the agreement.


5. (SBU) While Chevron still considers the agreement
legitimate, it is willing to accept a compromise. This
compromise could possibly consist of a full cancellation of
the tax benefit agreement, and paying taxes based on an
amortization schedule similar to that of Esso. However,
Nelson said that the company would not pay any penalties for
a late payment on taxes. If the GOC pushed this issue,
Chevron would have to consider more drastic approaches,
including arbitration.

- - - - - - - - - - - - - - -
A POSSIBLE SHUT-DOWN SCENARIO
- - - - - - - - - - - - - - -

NDJAMENA 00001213 002 OF 002




6. (SBU) Nelson noted that while Esso was currently lifting
Chevron's crude (as the company's operations were suspended),
agreements between the two company permitted Exxon-Mobil to
lift only a certain percentage of Chevron's crude. Once that
percentage was exceeded, Nelson said that Exxon-Mobil could
no longer lift Chevron's crude. The implications, Nelson
argued, of this scenario would be tremendous, and may include
a possible shut-down of production altogether. Nelson noted
that the GOC, in discussions between Chevron and the National
Petroleum Coordinator and the Minister of Finance, was aware
of this scenario.

WALL