Identifier
Created
Classification
Origin
06NDJAMENA908
2006-07-04 11:39:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Ndjamena
Cable title:  

CHAD: OIL REVENUE MANAGEMENT AND THE PRICE OF

Tags:  EFIN ECON EAID EPET PGOV PREL KDEM KCRS CD 
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VZCZCXRO8593
RR RUEHGI RUEHTRO
DE RUEHNJ #0908/01 1851139
ZNR UUUUU ZZH
R 041139Z JUL 06
FM AMEMBASSY NDJAMENA
TO RUEHC/SECSTATE WASHDC 4017
INFO RUEHUJA/AMEMBASSY ABUJA 1203
RUEHDS/AMEMBASSY ADDIS ABABA 0817
RUEHBP/AMEMBASSY BAMAKO 0683
RUEHGI/AMEMBASSY BANGUI 1206
RUEHDK/AMEMBASSY DAKAR 1119
RUEHKH/AMEMBASSY KHARTOUM 0268
RUEHLC/AMEMBASSY LIBREVILLE 0881
RUEHLO/AMEMBASSY LONDON 1470
RUEHNR/AMEMBASSY NAIROBI 0597
RUEHNM/AMEMBASSY NIAMEY 2738
RUEHFR/AMEMBASSY PARIS 1867
RUEHYD/AMEMBASSY YAOUNDE 1263
RUEHGV/USMISSION GENEVA 0761
RUCNDT/USMISSION USUN NEW YORK 0824
RUEHBS/USEU BRUSSELS
RUEHTRO/AMEMBASSY TRIPOLI 0262
RUEATRS/DEPT OF TREASURY WASHINGTON DC
UNCLAS SECTION 01 OF 03 NDJAMENA 000908 

SIPDIS

SENSITIVE
SIPDIS

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

E.O. 12958: N/A
TAGS: EFIN ECON EAID EPET PGOV PREL KDEM KCRS CD
SUBJECT: CHAD: OIL REVENUE MANAGEMENT AND THE PRICE OF
REGIME SURVIVAL

REF: NDJAMENA 893

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

UNCLAS SECTION 01 OF 03 NDJAMENA 000908

SIPDIS

SENSITIVE
SIPDIS

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

E.O. 12958: N/A
TAGS: EFIN ECON EAID EPET PGOV PREL KDEM KCRS CD
SUBJECT: CHAD: OIL REVENUE MANAGEMENT AND THE PRICE OF
REGIME SURVIVAL

REF: NDJAMENA 893

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


1. (SBU) The ten-day intensive talks between a Multi-Donor
Mission and the Government of Chad (GOC) ended June 29. A
good start was made on revisions to Chad's Poverty Reduction
Strategy Paper (PRSP),and on defining urgent actions needed
to improve public finance management. The World Bank's
measure of success for talks over the next three months to
September 26 will be progress made on reaching an agreement
on oil revenue management. World Bank negotiating leverage
-- a requirement for automatic servicing of its IBRD lending
through the oil revenue management scheme -- could disappear
under a windfall of oil tax and customs duties revenues in

2007. The GOC will be weighing its need for international
approval and development assistance against its survival
instinct in the face of armed rebellions when determining the
level of transparency it will accept in the control of Chad's
oil wealth. END SUMMARY.

--------------
ROYALTIES, DIVIDIENDS, TAXES
ALL FLOWING AGAIN
--------------


2. (SBU) World Bank team leader Marie Francoise Marie-Nelly
(Program Manager -- Chad-Cameroon Pipeline Cluster) briefed
Ambassador June 30 on the outcomes of the World Bank/IMF-led
Multi-Donor Mission to Chad to discuss a global agreement on
public finance reform and poverty reduction strategy
revisions. Marie-Nelly confirmed that, in keeping with the
Bank's interim agreement with the Government of Chad (GOC),
the first tranche of back payments of royalties from the
frozen CitiBank "transit account" had been approved for
disbursement. This meant that the GOC received on or about
July 1 USD 56.7 million in un-frozen royalties and share
dividends, and June royalties and dividends. In addition,

the GOC collected a quarterly payment of USD 14 million in
taxes and customs duties (not controlled through the World
Bank-GOC oil revenue management program),for a total
end-June lump-sum incomes received of USD 70.7 million.


3. (SBU) The Bank's team leader said that further un-frozen
royalty and dividend back payment disbursements are scheduled
for July 26 and August 28, amounting to roughly USD 40
million per tranche. She reported that the "transit account"
currently held roughly USD 100 million in frozen
royalties/dividends, and that the petroleum consortium would
deposit another USD 20 million to the account on July 22. A
last tranche of unfrozen back-payments is to be made on/about
26 September -- the current deadline for the Bank and GOC to
reach a final, "global" agreement on oil revenue management.


4. (SBU) Marie-Nelly stressed that, during this three month
negotiating period, the "transit account" remains technically
frozen. However, the Bank has told CitiBank to proceed with
disbursement of successive back-payment tranches unless
otherwise instructed. She noted that there were no specific
criteria or benchmarks of GOC performance governing the
Bank's disbursement decision, which would be based on an
assessment of GOC good faith in negotiating toward an
acceptable oil revenue management program.

--------------
LITTLE LEVERAGE LEFT

NDJAMENA 00000908 002 OF 003


--------------


5. (SBU) Marie-Nelly noted that discussions with the GOC were
firmly rooted in achieving the goals of (a) ensuring that oil
revenues are devoted to poverty reduction, and (b) building
commitment within the GOC to sound public finance management.
However, the Bank's leverage in the talks was based at least
in part on its own requirement that the IBRD
(non-concessional) portion of its lending to Chad for oil
exploitation be serviced through the oil revenues management
program.


6. (SBU) She admitted that this leverage might not be
especially strong, given the financial flows from un-captured
tax and customs duties streams. These were set annually,
looking backward to reflect the price of oil for the previous
year, and collected quarterly. For 2006, the amount received
per quarter, reflecting the price of oil in 2005, was set at
USD 14 million. The Bank, Fund, and donors have been well
aware for some time that, given the price of oil for 2006 had
averaged much more than it had in 2005, Chad's tax and
customs duties collections will skyrocket in 2007.


7. (SBU) The Bank will continue to insist that its lending be
automatically serviced from royalties through a
Bank-controlled off-shore transit account as part of any deal
with the GOC on a global agreement for oil revenue
management. The sanction for not achieving a global
agreement would be a continued freeze on the transit account,
as well as putting other Bank programs in jeopardy based on
what would essentially be GOC intent to default on the IBRD
loan.


8. (SBU) Marie-Nelly pointed out, however, that the GOC might
simply choose to eliminate this Bank negotiating leverage by
pre-paying the IBRD loan in full -- at a cost of "only" USD
32 million. Because the European Investment Bank's (EIB)
lending for the oil project is also serviced through the
transit account, the GOC would likely have to pre-pay that as
well, to the tune of roughly another USD 20 million. Such a
move would certainly not be seen as a wise use of resources,
but given the large tax and customs duties receipts expected
in 2007, the GOC might consider it money well spent if it
cleared away international financial institution obstacles to
unfettered GOC control of Chadian oil revenues.

--------------
OTHER THAN THAT, GOOD
PROGRESS IS POSSIBLE
--------------


9. (SBU) Marie-Nelly expressed considerable optimism that
outside the debate over oil revenue control there would be a
high probability for good progress over the next three
months. She reported that, on revisions to the PRSP, a work
program calendar had been established for the period through
June 2007, and a technical budget approved of USD 800
thousand, of which USD 200 thousand from the GOC.
Discussions on the Plan of Action for Modernizing Public
Finances (PAMFIP) had also made progress, with a set of
urgent actions defined, and a partial implementation calendar
set. Here, however, Marie-Nelly noted the interface between
overall public finance management and the oil revenue
question, pointing out that there is a need for much more
spending discipline in the budget. She said that the Bank's
team had worked hard during the Multi-Donor Mission to bring
the GOC technical experts to the same starting point on
seeking to equilibrate "lumpy" revenue streams and "smooth"

NDJAMENA 00000908 003 OF 003


spending programs. Especially important was the idea that
planning had to be done now for expected decline in revenues
in ten years. Marie-Nelly said that GOC respect of a
cash-flow plan over the next few months would be a key
short-term measure of its broad political will to manage its
financial resources for the medium term.

--------------
COMMENT
--------------


10. (SBU) Post's participation in several days of the
Multi-Donor Mission revealed an essential dichotomy in the
GOC approach to the discussions, and preparations for the
next three months of talks. On one hand, GOC technical
staff, and some political-level interlocutors, have a clear
understanding of the stakes in play in these negotiations.
They see that Chad's hopes for poverty reduction, financial
future, and international reputation are on the line. On the
other hand, when the question of who should control the
financial flows from Chad's oil wealth is discussed, there
appears in the GOC team a combination of economic
nationalism, and fear for the immediate survivability of the
Deby regime in the face of armed rebellions. Development
plans appear to quickly slide to second tier priority next to
the need for sufficient ready cash to pay for arms, logistics
-- and friends.


11. (SBU) In a scenario where talks with the Bank are
relatively constructive through at least early September, and
then sour as the deadline for an agreement approaches, Chad's
cash flow may be relatively thin through fourth quarter 2006.
The GOC will nonetheless have pulled in by end-August some
USD 120 million in unfrozen royalty and dividend payments.
Were the talks with the Bank to then break down and the Bank
refuse to allow a resumption of regular royalty and dividend
payments, the GOC would still collect roughly USD 28 million
in taxes and customs duties to the end of the calendar year.
First quarter 2007 might be pretty lean; and then, the first
quarterly payment of taxes and customs duties would arrive,
newly calculated on the basis of 2006 oil prices.
END COMMENT.


12. (U) Tripoli Minimize Considered.
WALL