CHAD: MULTI-DONOR MISSION ON PUBLIC FINANCE AND

UNCLAS SECTION 01 OF 03 NDJAMENA 000867

SIPDIS

SENSITIVE
SIPDIS

DEPT. FOR AF, AFC, DRL, PRM, S/CRS
LONDON AND PARIS FOR AFRICA WATCHER
NAIROBI FOR OFDA

E.O. 12958: N/A
TAGS: EFIN ECON EAID EPET PGOV PREL KDEM KCRS CD
SUBJECT: CHAD: MULTI-DONOR MISSION ON PUBLIC FINANCE AND
OIL REVENUE MANAGEMENT


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SUMMARY:
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1. (SBU) The second Multi-Donor Mission to Chad since April
opened on June 21. A week of meetings with the GOC will seek
to settle on the framework of a "global agreement" on the
issues of public finance and oil revenue management. This
would replace the "interim agreement" the GOS and World Bank
reached in April, and open the door to normalized relations
with the Bank. Tensions between the Bank's team and GOC
representatives were evident in the discussion of the terms
of reference for talks on oil revenue management. The Bank
will open the tap for a first tranche transfer of $50 million
within roughly two weeks; future tranches will be dependent
upon progress toward a "global agreement". END SUMMARY

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OPENING THE MONEY TAP
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2. (SBU) Chad's second Multi-Donor Mission since April opened
in N'Djamena on June 21, seeking particularly to resolve
tensions over the GOC's January modification of its oil
revenue management scheme. The opening day was spent
discussing terms of reference for the coming week of talks
aimed at achieving within the next three months a "global
agreement" on (a) revisions to Chad's Poverty Reduction
Strategy Paper (PRSP),(b) implementation of a Plan of Action
for Modernizing Public Finances (PAMFIP),and (c) development
of a new framework for the management of oil revenues to
"take into account recent evolutions in international
markets" (according to conference documents). Taken with
the approval of a revised 2006 central government budget
conforming to the GOC's objectives for poverty reduction --
which was to go to the Chadian Assembly June 21 -- the GOC
and Donors seek to resolve the outstanding issues central to
the April "interim agreement" between the Bank and Chadian
authorities that allowed for gradual resumption of Bank
operations in Chad. A global agreement on all these
questions would fully normalize Bank relations with Chad, and
allow for disbursement of oil royalties due to Chad to date.


3. (SBU) In her introductory remarks, the World Bank's Marie
Francoise Marie-Nelly (Program Manager -- Chad-Cameroon
Pipeline Cluster) noted that, as discussions continued, the
Bank would begin transfering funds from the direct oil
revenues (royalties and dividends) deposited in Chad's frozen
offshore account. The transfers were to be effected in three
tranches. She estimated the first, approximately end-June,
would amount to around $50 million; the two successive
tranches, at something less than the first, would come
on/about July 21 and August 31. Release of these funds would
be contingent on progress toward, and ultimately finalization
of the global agreement.

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PRSP REVISIONS,
PUBLIC FINANCE MANAGEMENT
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4. (SBU) Discussions of terms of reference for revising
Chad's PRSP showed considerable gaps in the GOC's ability to
document progress toward achieving poverty reduction
objectives. In fact, the PRSP technical secretariat's
economist said that he had little statistical data at all,
given that no funds had been set aside to build data
collection capability. He proposed that revisions were
nonetheless a good idea, given that the first triennial
implementation phase of 2003-2006 was coming to a close,
warranting the integration of an updated macroeconomic
framework, and consideration of the results of a recent High

NDJAMENA 00000867 002 OF 003


Inter-ministerial Commission's observations on governance,
sustainable growth, and human resource development. That
said, commentary from the floor noted that the target date
proposed for finalizing revisions -- May 2007 -- was too far
away, and it would be better to try to document what had or
had not been done over the last three years, instead of
creating new goals.


5. (SBU) Regarding the Plan of Action for Modernizing Public
Finances, Chad's Technical Secretariat Coordinator for PAMFIP
showed that virtually nothing had been accomplished on any of
the ambitious reforms envisaged when the plan was approved in
July 2005. He suggested that the goals of the week of
discussion to come should be to agree on priority actions for
the next 2-3 years, and to achieve an agreement in principle
between the GOC and donors on the conditions for
implementation of technical assistance.

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OIL REVENUE MANAGEMENT
SPARKS LIVELY EXCHANGES
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6. (SBU) Setting the stage for what seems set to be the most
controversial issue, the Multi-Donor Mission's terms of
reference paper noted that the April interim agreement had
required a new global framework on oil revenue management to
be agreed within three months (putting a rough due date at
end-July). Four key stages in the technical work are
proposed: (1) preparation of technical data; (2) data
analysis to investigate appropriate spending strategies from
revenue streams to avoid dramatic swings in spending and
financial disequilibria (the creation of "automatic
stabilizers"),as well as the impact of revenue saving
mechanisms on overall public finance management; (3)
formulation of a new oil revenue management scheme, based on
data and analysis above; and (4) legal codification of the
new scheme.


7. (SBU) Discussion from the floor quickly turned to thinly
veiled suggestions that the Bank and the oil exploitation
consortium were not being forthcoming with the GOC on several
key issues. One was the significant difference in production
levels from those initially expected (currently averaging
some 175,000 barrels/day, vice an originally estimated
225,000 bbls/day). Another was the method by which the
selling price of Chad's oil production was calculated against
the benchmark product (North Sea Brent),which to some
Chadians seemed to produce a larger and larger discount for
Chadian oil against the benchmark as global petroleum prices
have climbed.


8. (SBU) Chad's Counselor to the Minister of Finance called
into question existing mechanisms for repatriating direct
revenues through the off-shore account, calling them slow and
opaque. He said that, with the experience of a period of
production now completed, it is clear that the original
repatriation scheme needs "improvement", based on a better
understanding of the production profile, and a re-evaluation
of the pricing structure. He referred to "the unhappy
experience we have had with the mechanism of direct revenue
repatriation through the Citibank off-shore account," and
called for its redesign.

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COMMENT
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9. (SBU) A quick review of Chad's development documents show
that the same types of commitments to poverty reduction and
growth, and to public finance management, have been made
since at least the IMF's approval of Chad's first Poverty

NDJAMENA 00000867 003 OF 003


Reduction and Growth Facility December 1999. The results of
discussions on PRSP revisions and re-energizing public
finance management will be important to the extent that they
are indicators of an aspect of Chad's political will to
improve transparency and confront poverty. But the main
event is going to be the elaboration of a new oil revenue
management scheme. There is considerable mistrust between
Bank experts and GOC representatives that will not make it
easy to meet the end-July deadline for an agreement on this
point. We should prepare for the possibility that failure to
resolve this issue may push both the Bank and the GOC into
taking positions that would jeopardize their April interim
agreement to resume Bank operations in Chad. END COMMENT.


10. (U) Tripoli Minimize Considered.
WALL