CHAD: Row over pipeline revenue share-out

Controversy looms over how the government of Chad, soon to receive substantial new revenues from its oil pipeline, should spend the income. The bone of contention is that slice of revenues earmarked for future generations. Neil Ford has the details.

The Chadian government has announced that it plans to start spending the money from the Chad-Cameroon pipeline project that had been set aside for "future generations". Ministers argue that the country can decide to spend the money as it sees fit but critics argue that the move will undermine the basis of World Bank support for the scheme.

Given the scale of the revenues expected to be earned by the project, it is vital the Chadian government makes the correct decision on how to spend the money for the sake of both current and future generations.

Under the revenue agreement thrashed out with the World Bank, the existing Petroleum Revenue Management Law allocates set proportions of the government's income to current health, education and infrastructural investment, plus 10% for the future development of the country. However, the minister of communications, Hourmadji Moussa Doumgor, insists: "Chad is facing great financial difficulties. We need these funds now to assure development and peace in the country." The government's inability to pay the salaries of state employees has resulted in a series of strikes over the past year.

The move has worried non-governmental organisations (NGOs) that feared that revenues from the pipeline would not benefit the people of Chad. However, the Chadian finance minister, Abbas Mahamat Tolli, says that the claims of diverting money are not true. In an interview with Radio France Internationale, he said: "For us, the future of these generations is also a product of the efforts we make today. For the future generations we want to leave a solid health infrastructure, massive investments in education; these are efforts the government is undertaking... that in the end will guarantee greater and greater improvement of living conditions."

The World Bank believes that Chad is already beginning to see the benefits of the pipeline income from other strands of the revenue allocation and that the government would be wrong to change the revenue legislation at this stage. The World Bank country director for Chad, Ali Khadr, commented: "We will do everything we can to continue to work with the government and other partners to ensure that oil revenues are managed for the benefit of the poor." The cost of field development is estimated by the consortium at $1.5bn with the export facilities and pipeline costing an additional $2.2bn. In the run up to development, the Chad-Cameroon pipeline scheme was dogged by fears over its environmental, social and financial impact, particularly upon the primary rainforest lying along the route of the pipeline. Great efforts were made to overcome these objections in order to allow the World Bank to make its vital contribution to the project.

The Bank's financial backing was modest, equivalent to just 4% of total investment costs of $3.7bn, but provided the investment contributions of both the Chadian and Cameroonian governments. Moreover, the US Export-Import Bank approved a loan guarantee worth $300m within a week of the World Bank's decision.

The pipeline has been built to enable low sulphur crude oil from the Bolobo, Kome and Miandoum fields in the Doba Basin, in the south of landlocked Chad, to be pumped to the new export terminal at Kribi, on the Cameroonian Gulf of Guinea coast. It is then trans-shipped to a floating storage and offloading (FSO) vessel, lying around 11 kilometres offshore. The pipeline has been operational since 2003 and initial field development is complete, so production is expected to peak at 225,000 barrels a day (b/d) at the end of this year.

The pipeline is also important to Cameroon because of transit fees and the possibility of exploiting the previously untapped reserves of Cameroon's Logone Birni Basin using the pipeline.

The World Bank has calculated that the project will earn $12bn over 28 years, with net revenues of $9.2bn before debt servicing. Given that these calculations are based upon a conservative estimate of an average crude price of $15.25 a barrel over the lifetime of the project, there seems little financial risk to the investors and every chance that both the Chadian and Cameroonian governments will earn even more than expected over the lifetime of the project.

Apart from the consortium members and the World Bank, the financial backers include commercial banks and export credit agencies ($600m), French export credit agency Coface ($100m), the US Export-Import Bank ($300m) and the International Finance Corporation ($400m, including $100m in syndicated loans).

The objections to the ChadCameroon pipeline project have been far more publicised than the project itself and have been voiced around the world. It is therefore vital that the measures which have been put in place to overcome such objections are made to work and, perhaps more importantly, seen to work.