CHAD: CHEVRON/PETRONAS AGREE ON TAX PAYMENT

C O N F I D E N T I A L SECTION 01 OF 02 NDJAMENA 001216

SIPDIS

SIPDIS

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

E.O. 12958: DECL: 10/09/2016
TAGS: ECON EFIN ENRG EPET PGOV CD
SUBJECT: CHAD: CHEVRON/PETRONAS AGREE ON TAX PAYMENT

REF: A. NDJAMENA


B. 001213

Classified By: CHARGE D'AFFAIRES LUCY TAMLYN FOR REASONS 1.4 (B) AND (D
)


1. (C) Summary: The Government of Chad (GOC) agreed
October 6 to lift the suspension of oil consortium members
Chevron and Petronas after Chevron and Petronas agreed to pay
USD 281 in taxes. Payment will be made in a lump sum seven
days after the agreement is officially promulgated. A
Chevron representative unofficially described the deal as
"not the worst, but not the best," and admitted that Chevron
felt that leverage had been very much on the government's
side during the negotiation. The next hurdle facing the oil
consortium is the GOC's avowed intention to renegotiate the
1988 oil convention. Chevron, for one, recognizes that the
GOC has successfully used a "divide and conquer" approach to
dealing with the consortium, and hopes that members will be
able to show a more united front in future dealings with the
government. End Summary.


2. (SBU) Chevron General Manager Carole Rock informed
Charge October 6 that the Government of Chad had agreed to
lift the suspension of oil consortium members Chevron and
Petronas after the two members agreed to pay USD 281 in
taxes. (Petronas was not present during the negotiations,
having agreed to follow Chevron's lead in resolving the
suspension.) The agreement, signed by Chevron's Africa
Director and Finance Minister Tolli, will be sent to the
Council of Ministers for approval. Once the Council of
Ministers has signed and promulgated the decree, the
companies have seven days to pay the USD 281 in one lump sum.



3. (C) During a meeting October 6 with Charge, Rock
described the deal as "not the worst, but not the best." She
admitted that Chevron felt on the defensive during the
negotiation, and had ended up agreeing to completely put
aside the 2000 Tax Benefit Agreement. They were also
unsuccessful in getting the GOC to agree to an amortization
schedule similar to that of Esso. They did, however, receive
an "exoneration" which lowered the bill somewhat. They also
were able to obtain agreement that they were not liable for
penalties. Rock admitted to some unease during the
negotiation when GOC negotiators argued that the agreement
did not need to be passed as a law, and at one point,
dismissed the need to even have the agreement promulgated as
a decree. According to Rock, Chevron insisted on the utmost
transparency of the agreement, lest it suffer a fate similar
to that of the 2000 Tax Benefit Agreement (which the
government later disavowed). Rock revealed that GOC
officials had even argued that it wasn't necessary to specify
the bank account number into which the payment would be made
in the agreement -- another point on which Chevron insisted.
Rock said that Finance Minister Tolli had proven to be a very
tough negotiator, but appeared to be competent as well.


4. (C) Rock admitted that the Government's strategy of
dealing with oil consortium members individually had given it
greater leverage. She also noted that Chevron's lack of an
N'djamena presence had been a disadvantage, as Chevron did
not have established relationships with Chadian officials. As
a result of this experience, Chevron may consider raising its
profile in-country. Looking ahead to the GOC's avowed
intention to renegotiate the 1988 oil convention, Rock noted
that the consortium would need to stick together to be
effective. While Chevron didn't eliminate the possibility of
renegotiation, in her opinion, Esso had shown in other
countries that it was not above "walking away."


5. (SBU) Rock informed Charge that Ambassador Andrew Young
(accompanying Chevron representatives in his capacity as
Director of the consulting firm "GoodWorks International")
had obtained a meeting with President Deby. Rock said that
his presence as a third party with experience in promoting

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development through the private sector may have been helpful
in bringing the government to agreement, but she was not
present at the meeting.

COMMENT
--------------


6. (C) Finance Minister Tolli has once again delivered an
agreement that is very much in Chad's favor through a
calculated series of moves which cleverly isolated Chevron
and Petronas. The fact that the consortium members had
earlier agreed that tax issues were solely the responsibility
of individual members played to Chad's advantage. As a
preview of the renegotiation of the 1988 convention, the
consortium has undoubtedly gotten the message that it will be
a tough ride ahead.
TAMLYN