VZCZCXRO7590
RR RUEHTRO
DE RUEHNJ #0867/01 1731533
ZNR UUUUU ZZH
R 221533Z JUN 06
FM AMEMBASSY NDJAMENA
TO RUEHC/SECSTATE WASHDC 3964
INFO RUEHUJA/AMEMBASSY ABUJA 1183
RUEHDS/AMEMBASSY ADDIS ABABA 0799
RUEHBP/AMEMBASSY BAMAKO 0667
RUEHDK/AMEMBASSY DAKAR 1102
RUEHKH/AMEMBASSY KHARTOUM 0250
RUEHLO/AMEMBASSY LONDON 1450
RUEHNM/AMEMBASSY NIAMEY 2720
RUEHFR/AMEMBASSY PARIS 1844
RUEHYD/AMEMBASSY YAOUNDE 1240
RUEHNR/AMEMBASSY NAIROBI 0581
RUEHGV/USMISSION GENEVA 0743
RUCNDT/USMISSION USUN NEW YORK 0806
RUEHBS/USEU BRUSSELS
RUEHTRO/AMEMBASSY TRIPOLI 0252

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 
 
 
--------- 
SUMMARY: 
--------- 
 
¶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 
 
----------------------- 
OPENING THE MONEY TAP 
----------------------- 
 
¶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. 
 
-------------------------- 
PRSP REVISIONS, 
PUBLIC FINANCE MANAGEMENT 
-------------------------- 
 
¶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. 
 
------------------------- 
OIL REVENUE MANAGEMENT 
SPARKS LIVELY EXCHANGES 
------------------------- 
 
¶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. 
 
-------- 
COMMENT 
-------- 
 
¶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