CHAD: ESSO-CHAD MEETS DEBY CRITIQUE AND HOLDS

UNCLAS SECTION 01 OF 03 NDJAMENA 000471

SENSITIVE
SIPDIS

STATE FOR AF/C AND S/USSES
NSC FOR GAVIN
LONDON FOR POL - LORD
PARIS FOR POL - BAIN AND KANEDA
ADDIS ABABA ALSO FOR AU

E.O. 12958: N/A
TAGS: PGOV ECON EPET ETRD PREF EINV US CD
SUBJECT: CHAD: ESSO-CHAD MEETS DEBY CRITIQUE AND HOLDS
PRODUCTION STEADY, AS IT RESOLVES REMAINING ISSUES

REF: A. NDJAMENA 338

B. NDJAMENA 194

C. NDJAMENA 099

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SUMMARY
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1. (SBU) ESSO-Chad Chief De Mahieu told Ambassador October
21 that ExxonMobil had successfully defended its management
of the petroleum project during a meeting with President Deby
in Washington last month, satisfying the skeptical Deby that
the consortium was not/not being pressured by third parties
(IFIs, the USG) to keep production lower than necessary and
that De Mahieu's own in-country leadership of the project was
effective and professional, and that he had the consortium's
full support. De Mahieu briefed also on two currently
contentious issues between the GOC and ESSO-Chad, the GOC's
desire to link the cost of work permits to the worker's
salary, and the GOC's attempt to convince ESSO-Chad to pay
taxes on revenue it had not earned, both of which the
enterprise will refuse to accede. De Mahieu believed that
both issues were soluble, with some peripheral concessions on
ESSO-Chad's part, but without conceding principle in either
case.


2. (SBU) De Mahieu said that current production was running
steady at just over 120,000 barrels per day, with some
fluctuations due to weather conditions, and that ESSO-Chad's
goal was to maintain that production level, which could be
accomplished only by additional capital investment and agile
technical adaptability. De Mahieu confirmed that the
consortium was prepared to make the investments necessary if
the work permit and added tax issues could be resolved.


3. (SBU) The U.S. investment in Chad's oil sector is the
single biggest American private enterprise investment in
Sub-Saharan Africa and the American economy has been a major
beneficiary of this huge investment. During its construction
phase, the project generated over 1,000 American jobs and the
current 260 American jobs generate over USD 83 million in
personal income. Over half of the project's material
purchases and contracted labor are U.S.-based, representing
USD 300 million in 2008. ExxonMobil and Chevron purchased 24
million barrels of Chad's crude oil in 2008 for distribution
and use in the United States. Finally, to date, over USD two
billion/billion of profit has been returned to U.S.
shareholders through dividends. Chad depends on its oil
royalties, taxes, and fees for most of its public revenues.
Reduced production or limitation of future capital investment
would have a minor negative impact on the U.S. economy but
would be devastating to Chad's public finances. The equities
of both the U.S. and Chad are protected by continued close
collaboration between ESSO-Chad and the GOC. END SUMMARY.

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DEBY MTG: PRODUCTION
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4. (SBU) ESSO-Chad Chief Stephane De Mahieu told Ambassador
October 21 that ExxonMobil had successfully defended its
management of the petroleum project during a meeting with
President Deby in Washington last month. The company's team
had told Deby that it was firmly committed to maximizing its
own profits, which implied maximization of production, and
that ExxonMobil would not permit of any pressure by any third
party to change that policy, in Chad or anywhere else it
operated. The ExxonMobil team told Deby that no such
pressure had ever been exerted by any third party.

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DEBY MTG: RESPECT
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5. (SBU) The ExxonMobil team had also strongly defended De
Mahieu's in-country leadership of the project as effective
and professional, and confirmed that he had the consortium's
full support. The team explained, apparently to Deby's
satisfaction, that personal criticisms of De Mahieu were

NDJAMENA 00000471 002 OF 003


unwarranted, citing the success of the project so far,
despite the extreme complexity of the technical and political
aspects of the project throughout its history. The team
noted that ESSO-Chad had never abandoned operations despite
Chad's past political instability, and had stayed in country
even during the rebel invasion of February 2008, which Deby
acknowledged gratefully. Finally, the team noted that there
were issues on the table between the GOC and ESSO-Chad: If
such issues could not be resolved in-country, then it would
be normal to have recourse to third-party conciliation,
mediation, and arbitration, if necessary.

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CURRENT ISSUES:
WORK PERMITS
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6. (SBU) The GOC's attempt to make firms pay for work
permits for foreign workers based on the worker's salary
rather than at a fixed rate (see Ref A) has been shelved
since August but is scheduled to be revived in January. De
Mahieu said that if the GOC does go ahead with its work
permit scheme, ESSO-Chad will reduce the number of foreign
workers, which will in turn reduce production, and the
consortium will reconsider plans to make capital investment
necessary for long-term production stability. Most of
ESSO-Chad's foreign workers are Americans, with Canadians,
British, and Australians also employed.

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CURRENT ISSUES:
TAXES ON NON-REVENUE
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7. (SBU) De Mahieu explained the GOC's latest scheme to
increase its revenues at ESSO-Chad's expense by demanding
"back taxes" allegedly owed by the consortium. The GOC wants
to apply the agreed system used for calculating royalties to
the system used for calculating taxes owed to the GOC. The
result of applying the same system would be that consortium
partners would be liable to pay taxes on revenue they had
never earned, which is a principle on which ESSO-Chad cannot
and will not concede. The issue has gone informally to the
International Chamber of Commerce in Paris for
"conciliation."

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PRODUCTION STEADY:
120,000 BARRELS/DAY
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8. (SBU) De Mahieu said that current production was running
steady at just over 120,000 per day, with some fluctuations
due to weather conditions. He said that ESSO-Chad's goal was
to maintain that production level, which could be
accomplished only by additional capital investment and agile
technical adaptability. He added that the consortium was
prepared to make the investments necessary if the work permit
and added tax issues could be resolved.

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ESSO-CHAD AND THE U.S. ECONOMY
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9. (U) The U.S. investment in Chad's oil sector is the
single biggest American private enterprise investment in
Sub-Saharan Africa and the American economy has been a major
beneficiary of this huge investment. During its construction
phase, the project generated over 1,000 American jobs. Even
now, under routine operations, the current 260 American jobs
generate over USD 83 million in personal income. Right now,
over 50 percent of the consortium's material purchases and
contracted labor are U.S. based, which represented USD 300
million in 2008. ExxonMobil and Chevron purchased 24 million
barrels of Chad's crude oil in 2008 for distribution and use
in the United States. Finally, to date, over USD two
billion/billion of profit has been returned to U.S.
shareholders through dividends.


NDJAMENA 00000471 003 OF 003


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COMMENT
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10. (SBU) Chad depends on its oil royalties, taxes, and fees
for most of its public revenues. Reduced production or
limitation of future capital investment would have a minor
negative impact on the U.S. economy but would be devastating
to Chad's public finances and might be source of political
instability. The equities of both the U.S. and Chad are
protected by continued close collaboration between ESSO-Chad
and the GOC.


11. (U) Minimize considered.
NIGRO