12 September 2008
The World Bank’s request amounts to an admission of failure in one of its most controversial and disastrous projects – once touted as a “model” for high-risk projects - after the Chadian government repeatedly used its newfound oil wealth in contravention of its agreements to invest in poverty reduction.
The World Bank announced on September 9, 2008 that it was ending its support for the controversial Chad-Cameroon pipeline. The announcement came after the Chadian government repaid $65.7 million in outstanding loans to close out its debt to the Bank for the project.
This development comes as the tenth anniversary of the inauguration of a project that has attracted intense controversy since its inception, and the fifth anniversary of its first oil exports approaches. In 2001, the World Bank agreed to help finance the pipeline after ExxonMobil, the leader of the consortium of oil companies, requested Bank assistance as a precondition for pursuing the project, knowing that the project could become a serious reputational liability.
The pipeline, which constitutes one of the largest on-shore investments in Africa, is routed through areas with delicate environments and indigenous groups already wary of their governments. Both the Cameroonian and Chadian governments were widely considered corrupt and repressive dictatorships with questionable capacity to manage such large investments. By agreeing to support the project, the World Bank catalyzed finance for the construction of the pipeline, turning Chad into Africa’s newest oil producer.
Facing stiff resistance from civil society, the Bank went to great lengths to promote the pipeline as a model for using revenues from high-risk projects to reduce poverty. It instituted an unprecedented, elaborate system for ensuring that revenues were devoted to social spending. Since it was commissioned in 2003, however, the project has been fraught with persistent problems, and the financial system put in place to manage Chad’s oil proceeds never worked as intended. The bellwether for the system was President Idriss Deby’s use of a $25 million “signing bonus” for re-arming his military; civil society complained heavily, but the Bank ultimately decided that the signing bonus was not covered by the terms of its contract with the Chadian government.
In 2006, then-Bank President Paul Wolfowitz abruptly suspended the Bank’s lending to Chad after Deby orchestrated 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. In response, the World Bank suspended its loans to Chad, triggering a freeze of the offshore escrow accounts holding oil revenue payments. Facing a standoff in which the government threatened to halt oil production, the Bank backed off, signing an agreement that allowed the resumption of its lending and granting the government even greater discretion over the revenue than before.
As the conflict in the Darfur region in western Sudan has heated up, refugees and the conflict itself have spilled across the border into Chad, reigniting the same disputes that originally led to the coup that brought Deby to power. The Deby government has never been especially stable, and the reinvigorated rebel groups supported, apparently, by the Sudanese government, have markedly increased the turmoil in Chad. But many observers note that the conflict has equally been fuelled by the injection of oil revenues into Chad’s treasury, suggesting that the pipeline has been less a tool for development than an incitement to greater instability. Indeed, several of the civil society leaders who have played crucial roles in raising awareness of problems with the pipeline in Chad were forced to flee into exile earlier this year when the Deby government used a threatened rebel attack on N’Djamena to crack down on critics and political opponents. The Bank grappled to find an effective response but, as Reuters reported at the time, an unnamed analyst countered that “the World Bank can do nothing, their role has become almost nil in Chad.”
In announcing its withdrawal from the pipeline – which is misleading since the Bank is still invested in the ExxonMobil-led consortium to the tune of $100 million through its private investment arm, the International Finance Corporation, and presumably reaping significant profits - the World Bank appears to have come to terms with the fact that its only remaining move is largely symbolic, since its leverage and credibility have diminished: the $65-odd million that the government was asked to repay ahead of time is a pittance compared to the $1.4 billion in oil revenues expected during this year alone.
However, the Bank has been careful to emphasize its hope that the move will open the door to new negotiations with the government that could result in a more comprehensive engagement. According to the UN news agency IRIN, the Bank's operations director for Africa, Michel Wormser, has indicated that "if the Chad government changes tack and implements a plan to invest more from oil revenues to fight poverty, the Bank would be willing to revise its decision." The Bank's press release also notes that the country’s prime minister will be visiting Washington later this month, and expresses the hope that a meeting with the World Bank may constitute a new beginning. A confidential communication dated June 27 from the World Bank to the Chadian government indicates that the Bank set a number of preconditions before agreeing to the meeting, including that the government agree to repay the project loans, strengthen the oil revenue oversight committee, and request that the Bank "assist Chad in the area of good governance and management of the public sector." It remains unclear whether the government acceded to the Bank's demands, nor what the government seeks to achieve in meeting with the Bank.
Meanwhile, IRIN reports that while disappointed by the Bank’s decision to withdraw, long-time Chadian anti-poverty advocate Delphine Djiraibe notes that “the damage has already been done” since the “oil money has not contributed to improving…living conditions but rather to fuel armed conflict.” Gilbert Maoundonodji, an activist tracking government expenditure of oil revenues, told IRIN that civil society groups had predicted from the beginning the scenario that has played out between the Bank and the government. “At the outset we asked for management capacity to be strengthened so that the project could succeed, but these were considered by many to be hysterical demands… now we are in exactly the situation that we predicted.”
Now it seems that the Bank has finally taken these concerns to heart, as the World Bank plans to revisit the project in hopes of learning from its mistakes. The Bank’s own internal watchdog, the Independent Evaluation Group (IEG), recently indicated that it intends to undertake a broad review of the Chad-Cameroon pipeline project.
Resources
- World Bank statement on Chad-Cameroon Pipeline, World Bank, September 9, 2008
- Chad: Civil society disappointed by World Bank oil pull-out, IRIN, September 14, 2008
- President of Chad nullifies World Bank agreement to grab oil money and crack down on opponents, Bank Information Center, March 6, 2008
- World Bank experiment in Chad reopens debate over role by Lesley Wroughton, Reuters, September 11, 2008
- World Bank quits Chad plan by Matthew Green, Financial Times, September 11, 2008
- World Bank Ends Effort to Help Chad Ease Poverty by Lydia Polgreen, New York Times, September 10, 2008
- World Bank pulls out of pioneering oil deal with Chad by Xan Rice, The Guardian, September 11, 2008
- World Bank pulls plug on Chad Oil Pipeline agreement by Lesley Wroughton, Reuters, September 9, 2008
- World Bank Ends Funding for Chad-Cameroon Oil Pipeline Project by Karl Maier, Bloomberg, September 10, 2008