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Chads Oil: Miracle or Mirage? |
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Chad's Oil: Miracle or Mirage? Following the Money in Africa's Newest Petro-State.
February 17, 2005
With the growing boom in African oil, all eyes are on the Chad-Cameroon oil pipeline project, Africa's first attempt at defying the "resource curse." But, after its first year of implementation, this World Bank-financed project to transform oil revenues into poverty reduction in Chad is hanging by a thread.
Research report available at The Catholic Relief website
Contact: Caroline Brennan
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The United States is expected to receive as much as 25 percent of its oil from Africa within the next ten years. Given that Chad is Africa's newest petro-state, the success of the pipeline project is of great importance not only to Chadians and the World Bank, but to prospective consumers of the continent's growing supply of "black gold."
Despite the support received from the World Bank and other donors, the country remains unprepared to manage the complexities of an economy increasingly dominated by oil, adding to concerns about the stability of African oil-exporting countries.
A "Model" Project?
Not quite. Critical loopholes hamstring the fundamental principles of the Chad-Cameroon pipeline project ? those of revenue transparency, accountability and management.
Chad's oil revenue management system fails to apply requirements regarding transparency, accountability and pro-poor expenditures to all oil developments in the country. The pipeline has spurred the growth of the country's petroleum sector, but the critical regulations don't apply to developments outside the first three fields (designated in the project) in southern Chad. Operated by a consortium of ExxonMobil, ChevronTexaco and Petronas, exploration is expanding with growing interest from foreign oil companies. ExxonMobil plans to produce from new fields by the end of 2005 or early 2006.
This ultimately affects revenue oversight. Revenues coming in from new fields, combined with taxes on oil production that fall outside the revenue management system, may dwarf the income that is covered by the country's transparency rules. In addition, the new revenues will fall outside those monitored by the project's innovative government-civil society oversight committee.
The Need for Transparency, Accountability
Chad is a country marked by corruption, instability and human rights abuses. Everything in the project model rests on the enforcement of laws and sanctions for violators in a country with a history of neither. The project depends heavily on the political will of the government to respect the rule of law, develop accountable institutions and encourage democracy. While transparency is essential for oversight, it alone does not lead to accountability.
For all the attention given to the pipeline project's transparency innovations, much remains hidden concerning the oil sector and revenues generated from production. Confidentiality clauses continue to shield key contracts between oil companies and the government, which are negotiated in secret by a handful of select officials.
While Chad has achieved a degree of transparency over oil revenues not seen in some other oil-rich countries, reports of mismanagement or corruption must be followed-up by government action. It is the only way for the petroleum revenue oversight committee, the independent press and civil society groups to play an effective watchdog role over the use of the money.
The Role of the World Bank
The World Bank bears significant responsibility for the fate of the project, given its catalytic role in the project's funding and implementation. It is too early to declare Chad's oil project a failure or a success. But, the experience to date confirms the danger of investing in the extractive industries before a country is shown to meet minimum conditions of respect for human rights, fiscal transparency, and demonstrated government capacity to implement pro-poor programs.
At a time of heightened awareness of the resource curse, the World Bank has justified its involvement in this project on the ability of it to transform Chad's economy and benefit the country's poor. The propriety of World Bank support for the extractive industries is riding on the outcome of this experiment.
Lessons Learned
The lessons learned from the country's experience to date offer insight into what can be expected in Chad's future, what should be avoided elsewhere, and what role international actors should play to promote the interests of the poor in Africa's unfolding oil boom.
Unless urgent attention is given to close loopholes in the revenue management system, to support active public involvement in tracking oil spending, and to increase external pressure for adherence to the rule of law and democratic freedoms, there is little hope that Chad will escape the corruption, conflict and poverty of its oil-rich African neighbors.
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