World Bank announces final agreement with Chad on oil revenue management
24 July 2006
The Government of Chad and the World Bank signed a memorandum of understanding on July 14th regarding the use of the country's oil revenues. While the agreement has been heralded as a resolution to the protracted dispute between the two parties, some civil society observers remain skeptical that the government of Chad has any more will or capacity today to deliver on promises to use oil money for the poor than it did when the World Bank suspended lending to Chad in January of this year. The MOU, which will be in effect through 2007, leaves many questions unanswered and key details about oversight of spending and management of windfalls undefined.
The Government of Chad and the World Bank have announced the conclusion of a final agreement on the use of the country's oil revenues. The two parties signed a memorandum of understanding on July 14th and a high-level World Bank delegation visited N’Djamena last week to finalize details of the accord. The agreement, by which the Chadian government has committed to direct 70% of the national budget to priority sector spending, has been heralded as the end of a protracted dispute over oil revenue management that resulted in the Bank's suspension of loans to Chad in January of this year. However, the commitments in the agreement remain voluntary, as no changes were made to the legal framework governing the management of the country’s oil wealth since it was modified earlier this year.
Given the Chadian government’s failure to keep its word in the past, some civil society groups are skeptical about the significance of the agreement reached between President Deby’s administration and the World Bank on the use of oil revenues—a source of dispute since December 2005 when Chad reneged on its promise to devote most of its revenue from oil production royalties to poverty alleviation and to maintain a “future generations fund” for the post-oil era. When, in January of this year, President Deby approved an amendment to the country’s oil revenue management law that allowed it to redirect funds to security spending to quell increasing unrest in the country, the World Bank suspended its loans to Chad, triggering a freeze of the offshore escrow accounts holding oil revenue payments. Following government threats to halt oil production, the World Bank and Chadian authorities reached an interim agreement in late April that allowed the resumption of lending for approved projects and freed up the oil revenues blocked in the off-shore account until a final agreement was reached.
Although it is being called a resolution by some, the memorandum of understanding signed last week is not binding, and many civil society observers remain doubtful that the government of Chad is any more committed or capable today of ensuring that oil money is used to benefit the poor, than it was the day the World Bank suspended its lending in January. The law governing the use of oil revenues remains unchanged since its modification earlier this year.
Under the new agreement, Chad has agreed to direct 70 percent of its 2007 budget –including taxes, as well as royalties from the oil sector—to poverty reduction programs. While the inclusion of all revenues, including income taxes and duties from the oil sector which are expected to reach $1.5 billion next year, represents a potential significant increase in the funds that the government has committed to spend on priority sectors, the definition of “priority sector” in the agreement is extremely broad, including practically everything but security spending. The agreement is silent on oil sector transparency, making not one statement regarding the disclosure of tax revenues from the oil sector or production figures from new oil fields.
The World Bank also offered to strengthen the Collège de Contrôle et Surveillance des Revenues Pétrolières, the joint government-civil society oversight body responsible for tacking the investment of oil revenues in poverty reduction schemes. However, the agreement does not specify how the role of the College will change in the future, given modifications to the revenue management system, or what will be done to ensure that action is taken on findings of irregularities in oil revenue spending—a problem in the past. Furthermore, the memorandum of understanding references the creation of a special account for surplus oil revenues, beyond those budgeted, but the details of these modalities remain to be defined.
The turbulent experiences to date with the oil project in Chad raise fundamental questions about whether public financial institutions, like the World Bank, should support extractive industries in unstable countries without functioning democratic institutions. Will another promise from the Chadian government be enough to ensure that future oil revenues are utilized for the benefit of the country’s desperately poor population? The proof lies in the implementation of the agreement, but the track record to date suggests good reason for continued concern about the fate of the World Bank’s “model” oil project.
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