ESSO PLEASED WITH CHAD-WORLD BANK DECISION, BUT NOT

UNCLAS NDJAMENA 000611 SIPDIS DEPARTMENT FOR AF, EB, LONDON AND PARIS FOR AFRICA WATCHERS, TREASURY FOR OTA, ENERGY FOR CAROLYN GAY AND GOERGE PEARSON SENSITIVE SIPDIS E.O. 12958: N/A TAGS: EFIN ENRG EPET ECON EINV CD SUBJECT: ESSO PLEASED WITH CHAD-WORLD BANK DECISION, BUT NOT OUT OF THE WOODS YET REF: NDJAMENA 142 and previous ¶1. (SBU) SUMMARY: Esso is pleased with the interim agreement reached between the World Bank and the GOC, and received formal word from the Government that it was rescinding its request for Esso to halt production. Nevertheless, it admits that the possibility of another threat from the GOC to halt production exists if long-term issues surrounding the Revenue Management Process are not resolved. Other members of the Consortium, Chevron and Petronas, hope to resolve a tax dispute with the GOC in the coming days. - - - - - - - - - - - - - - - - - GOC RETRACTS THREAT OF STOP ORDER - - - - - - - - - - - - - - - - - ¶2. (SBU) On April 27, during a meeting with the Ambassador and E/C officer, Esso Country Manager Ron Royal and Miles Shaw expressed their satisfaction that the interim deal that was reached between the World Bank and GOC on April 26. According to Royal, the deal appeared to entail five concrete steps: 1) the ratification of the 2006 budget by the National Assembly 2) the release of the oil royalties held by the Consortium back into the Citibank escrow account 3) the commitment by the GOC to utilize seventy percent of the oil revenues for poverty alleviation and thirty percent for the public treasury 4) the immediate lifting of the suspension on the USD 124 million in social loans and 5) the gradual release of oil royalties from the escrow account. ¶3. (SBU) Royal noted that the royalty payments falling under this framework would only include the royalties held by the Consortium following the January 9 freezing of the escrow account, which amounted to USD 125 million. Future royalty payments would follow the previous practice of being deposited directly into the escrow account. He added that the Consortium would still need to receive a letter from the Ministry of Petroleum rescinding its formal request for Esso to halt production. On April 28, Embassy received word from Esso that the letter had been sent from Minister of Petroleum Mahamat Hassan to Royal, stating that in light of the recent accord between the World Bank and GOC, the Ministry would remove its demand for Esso to halt its oil production. - - - - - - - - - - - - - - - - - - - - - - - - - - - - APPRECIATIVE OF US INVOLVEMENT, MAYBE MORE CONTACT WITH FRENCH? - - - - - - - - - - - - - - - - - - - - - - - - - - - - ¶4. (SBU) On April 25, during a meeting with DAS Yammamoto and the Ambassador, Royal stated that he and Exxon-Mobil headquarters were extremely appreciative of USG involvement to ask the GOC to re-consider its demand to halt the Consortium's oil operations. He added that Chadian Ambassador Mahmoud Bechir appeared to play an important role in pushing the GOC to reach an agreement, and speculated that the U.S. and Exxon's dialogue with Bechir may have persuaded the Ambassador to convince President Deby to accept the Bank's proposal. ¶5. (SBU) Royal noted to Yammamato and the Ambassador that he had met with French Ambassador Jean-Pierre Bercot last week to discuss concerns of a possible shutdown of oil production in the context of the current instability the country faced. Royal said that Bercot was interested in seeking out more dialogue with the Consortium. Royal speculated that the Bercot probably understood the importance of the revenue management process and the devastating impact that a shutdown would have on the country. After all, while the French had no economic interests associated with the oil operations in Southern Chad, it understood the importance of the operations for the country's economic and social stability. He believed that Bercot, given his close relationship with President Deby, could probably be an ally in future disputes between the GOC and the Consortium, particularly those related to the Revenue Management Process. - - - - - - - - - - - - - - - - - - - - - - - A FUTURE COMPREHENSIVE AGREEMENT STILL NEEDED - - - - - - - - - - - - - - - - - - - - - - - ¶6. (SBU) While Esso is temporarily out of the woods, Royal admitted to the Ambassador on April 27 that the deal between the Bank and GOC was an interim deal, and should be followed by negotiations between the parties to resolve long-term issues concerning public finance management and the use of indirect revenues. He added that he hoped the World Bank would send in technical assistance to assist the Chadian Public Finance System, and that President Deby would commit to significant reforms and spending on poverty reduction. - - - - - - - - - - - - - - - - - - - TAX ISSUES WITH CHEVRON AND PETRONAS - - - - - - - - - - - - - - - - - - - ¶7. (SBU) Royal raised a tax dispute that Chevron currently faced with the GOC. The GOC asserted that Chevron and Petronas were required to pay a certain amount of income taxes based on the revenue earned by the Consortium last year. Royal explained that unlike Exxon-Mobil, neither Chevron nor Petronas established an amortization schedule of its costs in its agreement with the GOC. As there was no consistent rate of depreciation identified in the agreement, Chevron and Petronas used a faster depreciation to ensure a minimal tax payment. While the two Consortium members have asserted that the agreement with the GOC permits them to take such a measure, Government officials claim that such a measure does not conform to the spirit of the agreement. GOC officials fee that a loophole is preventing them from receiving tax revenues that Chad deserves, as the Consortium as a whole was accruing profits from the Doba project. ¶8. (SBU) Royal said that Minister Hassan had stated that if Chevron and Petronas did not fulfill their tax payment obligations, the GOC would use whatever means possible to have the Consortium members replaced. Ambassador Wall indicated that he received a letter from Chevron General Manager Cheryl Rock asking the U.S. Embassy to assist directly in facilitating a fair review of the tax process. Royal thought it better for now for Chevron and Petronas to communicate with the Ministry of Finance (who is responsible for collecting tax payments) to determine if a resolution can be reached on tax payments. The Ambassador noted that if necessary, he would be happy to facilitate a resolution. - - - - COMMENT - - - - ¶9. (SBU) While the Consortium is able to maintain its operations for the time being, it may face similar threats in the future if dialogue between the GOC and the World Bank does not continue. We will continue to monitor developments in the tax dispute between Chevron and Petronas and the GOC. WALL