7 March 2006
The recent collapse of the World Bank’s “model” petroleum development project in Chad underscores the vulnerability of the poor as the primary bearers of risk and highlights the pitfalls of promoting extractive industries in countries lacking political stability, history of respect for human rights, or functioning mechanisms of public accountability.
Until recently, the Chad-Cameroon pipeline project was the World Bank’s foremost example of how to beat the “resource curse” and harness oil production for poverty reduction. The breakdown of the project's much-vaunted revenue management system at the end of last year and the escalating tensions in Chad provide a reminder of the risks borne by the country's population in such an 'experiment' and the responsibilities of project proponents to ensure protection against the tolls that oil extraction can take on people and the environment.
The dispute between the World Bank and the Government of Chad over the latter’s decision to modify the legal framework for the management of oil revenues on which the project was staked, offers critical lessons for the Bank regarding its future support for oil, gas and mining development. In January 2006, the World Bank suspended its lending to Chad, triggering a freeze of the escrow account into which oil revenues were being paid before they were transferred to the country. The collapse of the agreement between Chad and the Bank has not kept the oil from flowing; the ExxonMobil-led oil consortium operating in Chad continues to pump nearly 200,000 barrels per day, contributing to the company’s recent record profits. While the “model” revenue management system lies in shambles, the Chadian population continues to bear the environmental and social impacts of oil production without seeing its benefits, and faces a growing threat of conflict between factions within Chad and with neighboring Sudan.
In 2000, the World Bank provided support for the Chad-Cameroon Oil Development and Pipeline project despite calls from civil society for a moratorium until government capacity was reinforced, democratic institutions strengthened, and the country’s human rights record improved. It did so upon the premise that oil was the key to the country’s future, and that a law regulating the use of oil revenues would help ensure that petrodollars would be used for poverty reduction. On December 29, 2005, the Chadian parliament amended this law, essentially stripping it of its strongest provisions by: eliminating the savings account for the post-oil era; increasing the portion of revenues that flow directly to state coffers, by-passing the government-civil society oversight body charged with controlling petroleum revenue expenditures; and including security spending among the “priority sectors” to which oil funds can be allocated. The World Bank considered this change a violation of its agreement with Chad and a threat to the Bank’s reputation, which was staked on the promise that Chad would be an example of how oil development could help the poor. As a result, in January of this year, it suspended over $124 million in outstanding loans to Chad and froze the Citibank account into which Chad’s oil revenues were paid. While the Bank deserves some credit for responding to civil society outcry about the modification of the law and taking a strong stance against the abandonment of the project’s lynchpin agreement on the use of oil revenues, it should not be forgotten that it was the Bank’s support for the project and its faith in the revenue management architecture that helped catalyze the development of the oil sector in Chad, contributing to the situation facing the country today.
Since it lost access to funds in the escrow account, the Government of Chad has demanded that ExxonMobil deposit its royalty payments directly into the country’s treasury. Until now, ExxonMobil has managed to avoid doing so by delaying the monthly payments that were due in January and February. But it is not clear how long this strategy will hold. A recent analysis by scholars at Columbia University Law School argues that ExxonMobil has the right under its contracts and agreements to refuse direct payments to the government of Chad, particularly when it has reason to believe the oil revenues will be used for military expenditures. Whether Exxon’s lawyers, or the Chadian government, will agree, remains to be seen.
In the meantime, urgent efforts are needed to de-escalate tensions within Chad to avoid the threat of violence, because without peace, even the resolution of the dispute with the Bank and the perfection of laws on paper will do little to help the poor. If conflict erupts, it is the poor who will suffer most. Furthermore, the World Bank needs to ensure that regardless of the outcome of its disputes with the government over the revenue management law and the status of its lending to the country, monitoring and mitigation of the social and environmental impacts of oil production in Chad will continue. After all, the promise that oil development would benefit – not harm – the poor, is not just an agreement the Bank made with the government of Chad, but a promise the Bank made to the people of Chad.
What can be gained from this otherwise disastrous situation? If nothing else, clear lessons about what to avoid in the future. The Chad-Cameroon experience illustrates that it is much easier to construct a pipeline than it is to engineer “good governance” through technocratic solutions like Law 001, and reminds us that these measures are not a substitute for a solid foundation of public accountability and rule of law. The collapse of the agreements on the use of oil money expose the danger in the Bank’s heavy focus on revenue transparency to the neglect of other essential components of good governance, such as an impartial judiciary, free and fair elections, and press freedoms. In countries like Chad, where the citizens have few means of holding their own government accountable, there is little guarantee that revenues from oil, gas or mineral development will benefit the poor.
Additional Resources
- Listen to the NPR clip National Public Radio, Morning Edition, Friday, March 3, 2006, (NPR website)
- Read the Memo on Exxon’s rights and obligations Columbia Law School Human Rights Clinic, February 22, 2006 (Acrobat pdf 123 KB).
- Also available, résumé en français (Acrobat pdf 29 KB)
- For more information from the World Bank, go to the Bank's webpage on the Chad-Cameroon Pipeline Project
- For further background information, go to BIC’s Chad-Cameroon webpage