VZCZCXRO8048
OO RUEHBC RUEHBZ RUEHDE RUEHDH RUEHDU RUEHGI RUEHJO RUEHKUK RUEHMA
RUEHMR RUEHPA RUEHRN RUEHROV RUEHTRO
DE RUEHNJ #0471/01 2960857
ZNR UUUUU ZZH
O 230857Z OCT 09 ZDK
FM AMEMBASSY NDJAMENA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 7345
INFO RUCNFUR/DARFUR COLLECTIVE PRIORITY
RUEHEE/ARAB LEAGUE COLLECTIVE PRIORITY
RUEHZO/AFRICAN UNION COLLECTIVE PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RHEHNSC/NSC WASHDC PRIORITY
RHMFISS/HQ USAFRICOM STUTTGART GE PRIORITY

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 
 
------- 
SUMMARY 
------- 
 
¶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. 
 
--------------------- 
DEBY MTG:  PRODUCTION 
--------------------- 
 
¶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. 
 
------------------ 
DEBY MTG:  RESPECT 
------------------ 
 
¶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. 
 
--------------- 
CURRENT ISSUES: 
WORK PERMITS 
--------------- 
 
¶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. 
 
-------------------- 
CURRENT ISSUES: 
TAXES ON NON-REVENUE 
-------------------- 
 
¶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." 
 
------------------- 
PRODUCTION STEADY: 
120,000 BARRELS/DAY 
------------------- 
 
¶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. 
 
------------------------------ 
ESSO-CHAD AND THE U.S. ECONOMY 
------------------------------ 
 
¶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 
 
 
------- 
COMMENT 
------- 
 
¶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