VZCZCXRO7263
OO RUEHGI RUEHMA RUEHROV
DE RUEHNJ #0099/01 0821419
ZNR UUUUU ZZH
O 231419Z MAR 09
FM AMEMBASSY NDJAMENA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 6802
RHEHNSC/NSC WASHDC IMMEDIATE
INFO RUCNFUR/DARFUR COLLECTIVE
RUEHDS/AMEMBASSY ADDIS ABABA 1022
RUEHKI/AMEMBASSY KINSHASA 0194
RUEHTRO/AMEMBASSY TRIPOLI 0565
RUEHBZ/AMEMBASSY BRAZZAVILLE 0022

UNCLAS SECTION 01 OF 03 NDJAMENA 000099 
 
SIPDIS 
SENSITIVE 
 
STATE FOR AF/C AND AF/SPG 
NSC FOR MGAVIN AND CHUDSON 
LONDON FOR POL -- PLORD 
PARIS FOR POL -- GD'ELIA AND RKANEDA 
ADDIS ABABA ALSO FOR AU 
 
E.O. 12958: N/A 
TAGS: PGOV ECON PREL EPET EFIN AU SU LY CD
SUBJECT: THE SIX BILLION DOLLAR DEAL:  UPDATING THE CHAD 
PETROLEUM SECTOR AND CHAD GOVT HARD BUDGET TIMES WITH ESSO 
CHAD 
 
REF: NDJAMENA 0079 
 
NDJAMENA 00000099  001.2 OF 003 
 
 
------- 
SUMMARY 
------- 
 
¶1. (SBU) ESSO-Chad's General Manager Stephane de Mahieu told 
Ambassador March 18 that falling oil prices had devastated 
the Government of Chad's budget picture for 2009: the GOC 
earned USD 1.2 billion/billion in revenue in 2008, but would 
get as little as USD 150 million/million for 2009, largely 
because ESSO would turn no profit and so pay no taxes and pay 
only reduced royalties and export fees this year.  The GOC 
had responded initially by "inviting" ESSO to defer calling 
back a fourth quarter 2008 overpayment of royalties, which de 
Mahieu said ESSO was considering doing. Even so, he estimated 
that the GOC would run out of money by May or June.  De 
Mahieu acknowledged that the GOC was fortunate to have in 
hand for 2009 upwards of USD 400 million in 2008 budgetary 
surplus and the possibility of drawing on a USD 260 million 
line of credit from its regional Bank of Central African 
States (BEAC).  But even that would not get Chad to the end 
of 2009.  De Mahieu and Ambassador agreed that the GOC might 
be successful in increasing non-petroleum revenues by more 
efficient collection of taxes and by undertaking 
belt-tightening measures like retiring a bevy of senior army 
generals and "bancarising" state salaries by depositing wages 
directly into bank accounts to eliminate corruption and 
malfeasance.  De Mathieu said that he doubted that a 
Chinese-built refinery (the first brick was laid last year) 
would ever be operational in Chad:  its planned capacity was 
far too big -- 20 thousand barrels/day, one-sixth of ESSO's 
total current production; it would cost too much -- USD 
500-750 million -- to justify its construction; and with the 
economic downtown, China's short-term demand for fuel was 
greatly reduced.  Also, China was interested in other 
potential fields in Niger and was unlikely to try to develop 
more than one regional location. 
 
¶2.  (U) The U.S. investment in Chad's oil sector is the 
single biggest American private enterprise investment in 
Sub-Saharan Africa.  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 
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. 
 
¶3.  (SBU) De Mahieu plans to travel Washington in early 
April.  We recommend that his meetings in AF be at least at 
the DAS level and that AF consider putting him on the Acting 
Assistant Secretary's schedule if possible.  We also think 
that a meeting at the NSC might be useful.  ESSO Chad's 
impact on the U.S. economy is substantial -- see para 10 for 
details.  In addition, de Mahieu is a sophisticated, 
well-informed player in the world of Chadian macroeconomics, 
which gives him considerable insight into Chadian political 
dynamics as well.  He is acutely aware of the security 
implications for the ESSO-led consortium's USD six 
billion/billion investment for Chad's geopolitical situation 
and the GOC's financial strength. 
 
¶4. (SBU) Chad's oil revenue, on which its ability to pay its 
military rests, is a major factor in Chad's stability and 
especially its willingness and capacity to cooperate 
productively with the humanitarian assistance effort on 
behalf of Darfur refugees and the reinforced MINURCAT PKO 
designed to protect civilians in eastern Chad.  If 
developments in Sudan trend negatively, eastern Chad likely 
will become the theater for dramatic events that will require 
intense cooperation between the GOC with the international 
community represented here. END SUMMARY. 
 
NDJAMENA 00000099  002.2 OF 003 
 
 
 
--------------------------------------------- --- 
FALLING OIL PRICES LEAD TO GOC BUDGET DIFFICULTY 
--------------------------------------------- --- 
 
¶5. (SBU) Falling oil prices have had an impact on the 
Government of Chad's budget and its agreements with the oil 
production company, Esso Exploration and Production Chad 
Inc., which is an ExxonMobil-led consortium including 
Petronas and Chevron.  Stephane de Mahieu, Esso's General 
Manager, told Ambassador March 18 that the GOC had earned USD 
1.2 billion in revenue in 2008.  With the drop in oil prices, 
de Mahieu estimated that the GOC would earn only USD 150 
million in revenue for 2009 -- oil royalties would be greatly 
diminished and Esso would likely not turn a profit, thus 
denying the government any tax revenue either.  Those 
circumstances had led the Minister of Finance to "invite" 
Esso to defer calling back a fourth quarter 2008 overpayment 
of royalties and to ask whether Esso would consider spreading 
out credit over a longer period than called for in the 
renegotiated agreement, according to de Mahieu.  (NOTE: 
Under the prior GOC-Esso agreement that sunsetted at the end 
of 2008, Esso prepaid royalities quarterly, on the basis of 
the prior quarter's dollar-per-barrel price of oil.  With the 
significant drop in the price of oil during the October - 
December 2008 timeframe, Esso "overpaid" its fourth quarter 
royalties to the GOC and is due a refund.  END NOTE.) 
 
¶6. (SBU) With the renegotiated agreement, ESSO will pay 
royalties on an ongoing basis and not under the former 
quarterly prepayment.  De Mahieu stated that the GOC owed 
ESSO a large refund and there were no more big upfront 
payments to offset it.  De Mahieu underscored that he 
appreciated the GOC's approach to dealing with the situation. 
 The GOC was honoring the agreement and coming to the oil 
company first, instead of unilaterally changing terms, he 
said.  ESSO was considering the GOC's request and would 
probably respond positively to help even out the GOC's 
revenue stream, but de Mahieu cautioned that the ESSO offer 
would probably not be as large as the GOC had hoped.  De 
Mathieu added that the three consortium companies might have 
to borrow funds themselves in 2009 from their parent 
companies to sustain investment -- critical for continued oil 
production. 
 
¶7. (SBU) With the fall in oil prices, de Mahieu said that he 
had figured the GOC's budget would run out by May or June, 
including some USD 400 million in 2008 budgetary surplus, at 
the government's current spending rate.  The Ambassador noted 
that World Bank reps (reftel) had told us that the GOC had a 
USD 260 million line of credit from its regional Bank of 
Central African States (BEAC).  De Mahieu wondered about 
BEAC's ability to provide assistance when many of the six 
member states of the monetary union were heavy oil-producing 
countries.  Ambassador stated that the GOC was also pursuing 
budget-tightening measures, such as retiring army generals 
and removing them from payrolls and "bancarising" state 
salaries by depositing wages directly into bank account in an 
anti-corruption measure. 
 
¶8. (SBU) De Mahieu made clear that without a significant 
increase in oil prices, he could not see any opportunity for 
the GOC's budget to recover.  He noted, however, that OPEC's 
oil production cut was helpful to Chad since the majority of 
OPEC's cuts were focused on heavy crude, the type of oil Chad 
exports.  With OPEC's cut reducing competition in the market, 
coupled with high demand for heating oil due to cold winters 
in Europe and North America, heavy crude was trading only at 
a USD five per-barrel discount to Brent crude, compared with 
a USD 20 per-barrel discount last year.  Putting the sale and 
revenue of oil in context, Mathieu estimated that every USD 
ten per barrel change in brent crude prices was equivalent to 
USD 300 million in annual revenue for the GOC. 
 
---------------------------- 
CHINESE REFINERY NOT LIKELY 
---------------------------- 
 
 
NDJAMENA 00000099  003.2 OF 003 
 
 
¶9. (SBU) Turning to the issue of a potential Chinese 
refinery, Mathieu offered a variety of facts and figures to 
support his belief that a Chinese-built refinery would 
ultimately never be operational in Chad.  He noted that the 
refinery would operate at 20K barrels per day, which was 
one-sixth of ESSO's current production capacity in the south. 
 Using the ESSO model of USD six billion/billlion in 
investment to reach that level of production, he figured that 
a refinery near N'Djamena would need USD 500 million of 
investment, at least.  He flatly denied that there was 
anywhere near that level of investment by China or any other 
entity in Chad.  Further, he postulated that with the 
economic downtown, China's short-term demand for fuel was 
greatly reduced with the lowered demand for Chinese exports. 
Additionally, he noted that there were potential fields on 
the Niger side of Lake Chad and elsewhere in Niger that 
seemed more promising than the Chadian deposits.  He said he 
thought that the Chinese would ultimately only choose to 
develop in one location, not both.  Even if the Chinese 
project continued development, de Mathieu estimated five 
years before the refinery would be producing refined fuel for 
local consumption.  He noted that the GOC had recently 
requested talks with ESSO to produce some heavy product for 
GOC use in its southern Chad facility -- a "Topping Plant" 
there could refine some oil to be taken by the GOC in lieu of 
tax and other revenue. 
 
 
------------------------------ 
ESSO CHAD AND THE U.S. ECONOMY 
------------------------------ 
 
¶10.  (U) The U.S. investment in Chad's oil sector is the 
single biggest American private enterprise investment in 
Sub-Saharan Africa.  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 
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. 
 
-------- 
COMMENT 
-------- 
 
¶11. (SBU) De Mahieu plans to travel to be in Washington in 
early April.  We recommend that his meetings in AF be at 
least at the DAS level and that AF consider putting him on 
the Acting Assistant Secretary's schedule if possible.  De 
Mahieu is a sophisticated, well-informed player in the world 
of Chadian macroeconomics, which gives him considerable 
insight into Chadian political dynamics as well.  He is 
acutely aware of the security implications for the ESSO-led 
consortium's USD six billion/billion investment for Chad's 
geopolitical situation and the GOC's financial strength. 
 
¶12. (SBU) Chad's oil revenue, on which its ability to pay its 
military rests, is a major factor in the nation's stability 
and especially its willingness and capacity to cooperate 
productively with the humanitarian assistance effort on 
behalf of Darfur refugees and the reinforced MINURCAT PKO 
designed to protect civilians in eastern Chad.  If 
developments in Sudan trend negatively, eastern Chad likely 
will become the theater for dramatic events that will require 
intense cooperation between the GOC and the international 
community represented here.  END COMMENT. 
 
13, (U) Tripoli minimize considered. 
NIGRO