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.

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GOC RETRACTS THREAT OF STOP ORDER
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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.

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APPRECIATIVE OF US INVOLVEMENT, MAYBE MORE CONTACT WITH
FRENCH?
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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.

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A FUTURE COMPREHENSIVE AGREEMENT STILL NEEDED
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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.

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TAX ISSUES WITH CHEVRON AND PETRONAS
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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.

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COMMENT
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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