27 October 2005
The government of Chad has announced its intention to amend the Petroleum Revenue Management Law—the much-vaunted centerpiece of the World Bank’s “model” Chad-Cameroon oil pipeline project—in order to increase revenues available for discretionary spending today.
The government of Chad has announced its intention to amend the Petroleum Revenue Management Law—the much-vaunted centerpiece of the World Bank’s “model” Chad-Cameroon oil pipeline project—in order to increase revenues available for discretionary spending today. The law currently earmarks most revenues for poverty reduction programs in priority sectors and requires that 10% of Chad's direct proceeds from oil sales be set aside in a special "future generations fund" to support sustainable development in the post-oil era. The proposed modifications would allow the government to access more than 20 billion CFAF (approximately $37 million USD).
In particular, the move would allow the government to direct funds to security and the military - needs the administration has expressed for some time but which are being felt more acutely now as threats against the present regime intensify. It will also increase the amount of oil revenues available to the Treasury for discretionary spending from 15% to 30% of direct oil revenues (defined as revenues from royalties and dividends).
Prime Minister Pascal Yaodimnadji stated that funds currently set aside in the "future generations fund" would be better spent today. "Maintaining this law will not allow us to optimize the use of our oil resources and would aggravate the frustrations of our citizens at a moment when our country faces grave financial difficulties and other daily challenges," he noted.
"In our opinion...people do not feel that they have benefited from the oil,” Oil Minister Mahamat Nasser Hassan remarked to Reuters. “During the period of oil production we've been having difficulty paying salaries, paying pensions, paying grants...Effectively we today are not able to serve the needs of our current generation. So the aim is to increase the level of cash in the treasury to help the state function.”
Civil Society Response
Civil society organizations in Chad have expressed their firm opposition to the modification of the law, stating that the problems facing the country do not stem from the text of the law but from poor governance, including mismanagement of funds and widespread graft. They have reaffirmed the importance of setting aside resources for future generations, not only to protect against potential harms resulting from management today but to allow those generations to decide for themselves what investments meet their needs. Rather than modify the law, civil society groups demand that steps be taken to address the current public expenditure crisis including, among others, a full audit of public finances and legal actions against those responsible for the misuse of funds documented in recent reports.
World Bank response
The World Bank has expressed concern about the government's intentions. In an official statement released on October 25, the World Bank stated that it “recognizes that the Government of Chad faces recurring financial problems, but is concerned that addressing grave weaknesses in public financial management which the government itself has acknowledged is essential to ensuring that the poverty reduction goals of the oil revenue management program are protected."
A test case
The Chad-Cameroon pipeline was developed by an Exxon-Mobil consortium with financing from the World Bank and International Finance Corporation. Heralded as a “model” extractive industry project by the World Bank, the project has been a test case of the extent to which oil development can be harnessed for poverty reduction. Despite widespread initial concerns about Chad’s ability to manage the project, donors were assuaged by the government’s assurances that it would use the oil revenues to reduce poverty and to prepare responsibly for a post-oil future.
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