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RR RUEHWEB

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: 
--------- 
 
¶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