CHAD OIL CONSORTIUM FEELING PRESSURE

UNCLAS SECTION 01 OF 02 NDJAMENA 000880

SIPDIS

SENSITIVE
SIPDIS

LONDON AND PARIS FOR AFRICAWATCHERS; TREASURY FOR OTA

E.O. 12958: N/A
TAGS: EPET EFIN ENRG PGOV CD
SUBJECT: CHAD OIL CONSORTIUM FEELING PRESSURE



1. (SBU) Summary: A series of Government of Chad
(GOC)-instigated pressures on the Exxon/Mobil-led oil
consortium in Chad has led Esso management to conclude that
the GOC is once again desperate for cash. Esso feels that
they will be able sort out a dispute with the government over
alleged unpaid employee taxes from 2000 and ride out a
proposed three-day employee strike in July. However, they
are concerned that the GOC will either seize bank assets or
vehicles once the (expected) final ruling against Esso on
back pay to subcontracted employees is handed down.
According to Esso management, certain GOC Ministers -- eager
to come out looking good ahead of an anticipated cabinet
re-shuffle -- may be attempting to demonstrate their loyalty
by helping the President scrape together the cash he needs so
desperately. End Summary.


2. (SBU) Esso Managing Director Ron Royal briefed the
Ambassador June 22 on a series of incidents that have
affected the oil consortium's operations in Chad. In a
meeting June 20 with GOC representatives and representatives
of the World Bank/IMF Multi-donor Mission, the Minister of
Petroleum announced (without any prior explanation) that
"Esso is no longer welcome in Chad." He claimed that Esso
was not being "respectful" of Chad. Royal speculated that
Esso's last-ditch appeal to the Supreme Court to reconsider
the labor decision concerning overtime pay to Esso subsidiary
TCC employees was seen by the GOC as a sign of disrespect.
While Royal confessed to have been taken aback by the
announcement, he noted that later in the week the Minister
downplayed the incident. However, no further explanation has
been forthcoming.


3. (SBU) Royal reported further that on June 21 the Finance
Ministry ordered Esso to close its offices. Esso was
notified that a Working Group had been created at the
Ministry of Finance to investigate allegations of delinquent
employee taxes dating from 2000 and 2001. Royal said that
the amount in question claimed to be owed the GOC was around
$18,000. (Subsequently Esso was given thirty days to provide
documentation on payment of employee taxes and allowed to
keep its offices open.)


4. (SBU) Royal reported as well that on the same day, Esso
employees delivered a strike notice to management. In
subsequent conversation Esso management reported that they
had met with the Minister of Labor, and feel fairly confident
the strike will either be averted, or will be held from July
3-5 without major incident.


5. (SBU) Of most concern, however, is the fact that the
Government of Chad has frozen Esso's local bank accounts
since June 21. According to Esso Public Relations Director,
Miles Shaw, this has not affected local operations as both
local banks allow Esso a line of credit from which they are
drawing for local expenses. However, Shaw noted that in the
next few days a final ruling on Esso's appeal of the TCC
judgment is expected. Esso expects the ruling to be against
Esso. Esso Headquarters is still formulating a final
position, but Shaw was concerned that the GOC might seize
local bank assets or impound Esso vehicles in lieu of prompt
payment of the multi-million dollar ruling.


6. (SBU) Royal felt that the tension between the GOC and
the oil consortium was due to the GOC's need of money. He
reported that Esso had been requested to pay an advance of
its $10 million estimated tax payment due June 30 (which he
refused to do.) Apparently other large companies in
N'djamena have also been approached by the Government for
alleged delinquencies in employee taxes from 6 years ago.
Royal speculated that an anticipated change of cabinet was
driving Ministers to prove that they were able to bring in
resources. He noted that with the World Bank's payment of
the first tranche of frozen resources, the GOC will shortly
receive some $50 million. However, because of the oil
revenue management scheme, only $12 million of this will be
destined for general revenues. Royal pointed out that, if the
World Bank does not pay the Second Tranche of frozen
royalties, come September the government would be "really
hurting."


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7. (SBU) In a brief discussion with the Ambassador June 24,
Petroleum Minister Mahamat Nasser Hassan shed light on one
aspect of Chad's frustration with the Consortium. He
complained bitterly about the delay in the start-up of Esso's
proposed diesel fuel topping plant. The project was intended
to use a portion of Doba crude production to supply the
Consortium's own needs; a surplus amount would be available
for Chad's use. Fuel from the project was expected to be
available by the end of 2006, and even President Deby was
counting on this to help address Chad's chronic fuel
shortages. According to the Petroleum Minister, the project
has been delayed, and will not be ready before 2008. Nasser
claimed that Chad had not been informed about the delay by
Esso and had only learned about it indirectly from the World
Bank.
WALL