Identifier
Created
Classification
Origin
06NDJAMENA882
2006-06-27 14:34:00
CONFIDENTIAL
Embassy Ndjamena
Cable title:  

CHAD: CREDIBLE OIL REVENUE MANAGEMENT PROGRAM IN

Tags:  EFIN ECON EAID EPET KDEM PREL PGOV KCRS CD 
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DE RUEHNJ #0882/01 1781434
ZNY CCCCC ZZH
R 271434Z JUN 06
FM AMEMBASSY NDJAMENA
TO RUEHC/SECSTATE WASHDC 3978
INFO RUEHUJA/AMEMBASSY ABUJA 1188
RUEHDS/AMEMBASSY ADDIS ABABA 0803
RUEHBP/AMEMBASSY BAMAKO 0670
RUEHDK/AMEMBASSY DAKAR 1105
RUEHKH/AMEMBASSY KHARTOUM 0253
RUEHLO/AMEMBASSY LONDON 1455
RUEHNM/AMEMBASSY NIAMEY 2725
RUEHFR/AMEMBSSY PARIS 1849
RUEHYD/AMEMBASSY YAOUNDE 1247
RUEHNR/AMEMBASSY NAIROBI 0584
RUEATRS/DEPT OF TREASRY WASHINGTON DC
RUCNDT/USMISSION USUN NEW YORK 809
RUEHGV/USISSION GENEVA 0746
RUEHBS/USEU BUSSELS
C O N F I D E N T I A L NDJAMENA 000882 

SIPDIS

SIPDIS

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

E.O. 12958: DECL: 06/26/2016
TAGS: EFIN ECON EAID EPET KDEM PREL PGOV KCRS CD
SUBJECT: CHAD: CREDIBLE OIL REVENUE MANAGEMENT PROGRAM IN
DOUBT

REF: NDJAMENA 867

Classified By: POL/ECON OFFICER MICHAEL P. ZORICK, REASONS 1.4 (B) AND
(D).

---------
SUMMARY:
---------

C O N F I D E N T I A L NDJAMENA 000882

SIPDIS

SIPDIS

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

E.O. 12958: DECL: 06/26/2016
TAGS: EFIN ECON EAID EPET KDEM PREL PGOV KCRS CD
SUBJECT: CHAD: CREDIBLE OIL REVENUE MANAGEMENT PROGRAM IN
DOUBT

REF: NDJAMENA 867

Classified By: POL/ECON OFFICER MICHAEL P. ZORICK, REASONS 1.4 (B) AND
(D).

--------------
SUMMARY:
--------------


1. (C) Senior Chadian government officials have succeeded in
blocking any discussion of capturing all or some indirect oil
revenues generated by taxes and customs fees into an
"improved" revenue management scheme for poverty reduction.
They see no need to change the current distribution of funds
coming from royalties and dividends -- but want the transfers
accelerated, and the managing bank changed. World Bank
energy and legal team members on the Multi-Donor Mission
believe the Bank is unlikely to hold out for a strict oil
revenue management scheme in Chad. The Bank will reach a
"global agreement" with the Government of Chad (GOC) no
matter what, and try to ensure some transparency in the
financial flows as a priority. Bank experts are consumed
with arguments with the Chadians over the calculation of
prices and production quantities, while the big picture of
Chad's political-military dynamic drives the GOC to insist on
full control over oil revenues. The expected creation of a
national petroleum trading company in 2007 will allow the GOC
to price and sell its own oil largely shielded from public
scrutiny. END SUMMARY

--------------
CONTROL THE MONEY,
GET IT FASTER
--------------


2. (SBU) POL/ECON officer participated in the first days of
discussions on oil revenue management, as part of the broader
World Bank/IMF-led Multi-Donor Mission seeking to reach a
global agreement on public finance reform and poverty
reduction strategy revisions (reftel). Working sessions with
the Bank's technical experts and the GOC June 22 and 23 had

focused on the terms of reference for the discussions, and on
a review and analysis of the various models in use to project
oil revenues and their macroeconomic impact.


3. (SBU) Where the original terms of reference for the
discussions had proposed the formulation of a new oil revenue
management scheme, the working group that met June 22 spent
the session removing all references to changing the system
for oil revenue management from that enshrined in the GOC's
January 11 law (no. 02/PR/2006) that had led to the Bank
halting disbursements on its projects and freezing the
payment of royalties and dividends. The final terms of
reference calls only for making "potential improvements" to
the existing scheme that defines the distribution of
royalties and dividends among the oil fields region, the
priority development sectors, and the GOC's general revenue
treasury account.


4. (SBU) Much more pointed note was taken of the need for a
complete review of the procedures by which funds actually
pass into GOC hands, with a view toward accelerating
transfers to the treasury, and selecting a more "appropriate"
banking institution to manage the transit account. Capturing
indirect revenues generated by taxes and customs duties into
an "improved" revenue management scheme is not on the
discussion agenda.


5. (SBU) The working group devoted its June 23 session to a
technical analysis of a number of economic models used in
various ministries and the private sector to project oil
revenues and determine prices. GOC participants revealed


considerable distrust in the discussion of the industry's
standard contracts for oil deliveries, noting that the
contracts allowed for the price Chad receives for its highly
acidic product to be routinely lower than that set at the
time the oil was loaded for delivery. The GOC's working
group president (from the Finance Ministry) brushed aside the
Bank's technical expert's careful explanations of the effect
of temperature exposure on acid levels, and of the standard
nature of the contracts, stating that these problems would be
addressed by moving the trading of at least some portion of
Chad's oil into a new national petroleum trading company.
(NOTE: World Bank team members say the GOC has approved this
company's legal statutes, and that trading is to begin in
first quarter 2007. END NOTE.)

--------------
THE NEED FOR DATA AND CASH
--------------


6. (C) POL/ECON Officer met informally for several hours June
25 with energy and legal experts on the World Bank's oil
revenue team to explore what might realistically come of the
Multi-Donor Mission. The team readily conceded that the Bank
was seen to have caved in to GOC measures to take control of
Chad's oil revenues. They said they believed that there was
little hope for re-instating the terms of the original oil
revenue management program (which covered direct receipts
from royalties and dividends),and no hope at all that
indirect receipts from taxation and duties would come under
the program.


7. (C) Team members thought that their GOC counterparts were
under enormous pressure to generate revenue numbers that
would support a macroeconomic image of a steadily increasing
percentage of central government spending on poverty
reduction that would satisfy the donors. This led to a deep
distrust of the revenue projections coming from private
sector models (particularly that used by the banks lending to
finance Chad's oil field development). The revenue
projections were weaker than the GOC expected; in particular,
they were too weak to overcome the effect of stagnation in
most of the rest of Chad's economic activities.

--------------
THE BEST AGREEMENT
MIGHT NOT BE MUCH
--------------


8. (C) But according to the World Bank team leader, Marie
Francoise Marie-Nelly (Program Manager -- Chad-Cameroon
Pipeline Cluster),the negotiating environment is dominated
by a GOC insistence on maximizing immediate revenue
transfers. This, she concluded, is driven by Chad's
"political-military dynamic." Marie-Nelly speculated that
President Deby is counting the months until the transfer of
the very large windfall in indirect revenues expected March
2007, and seeking to ensure sufficient arms purchases after
the receipt of the last tranche of blocked royalties and
dividends from the frozen transit account (totaling some $150
million over the next three months).


9. (C) The World Bank team believed that these kinds of
pressures did not allow for a reasonable discussion, at
either the political or the technical level. Were the Bank
to dig in its heels, the GOC would simply opt for survival
over any gestures toward poverty reduction, and take over all
aspects of direct and indirect revenue flow. The best that
could be hoped for would be convincing the GOC to accept some
transparency in the oil revenue management, through
modernization of Chad's public finance system. They noted
that, in this regard, the advent of a national oil trading
company would be a sort of "black box" within which the

operations of pricing and selling of oil would likely be
hidden from scrutiny.
WALL