Can Everybody Win in Chad?

Abstract: New oil revenues flowing into Chad are being strictly managed to benefit the African country as a whole, especially its poor. Can this ambitious socioeconomic scheme set the pattern for other developing countries?

Analysis: This week, the Esso Chad-Cameroon Oil Development and Pipeline Project, a subsidiary of ExxonMobil, began filling its 650-mile-long oil pipeline. The oil flows from first production in new oilfields in the Doba basin in southern Chad. It crosses through Cameroon and empties into offshore loading facilities in the Gulf of Guinea.

When the oil deliveries begin, revenue will flow into the purses of Chad and Cameroon. Because Chad will earn the bulk of the revenue, this article will focus on that country. The oil money will transform Chad from a largely desert, subsistence-level agricultural nation into a relatively rich mineral exporter.

Chad up to now has been one of the poorest countries in the world in monetary terms. Per capita income is $203 according to the U.S. Energy Information Administration (EIA). Ninety percent of the country is desert or semi-arid. Cotton is the major cash crop. There is little other industry. Infant mortality is high, nutrition poor, and there is limited access to basic social services.

Socioeconomic Planning
But the story in Chad is not just new money for another developing nation oil-producer, as significant as that might be: It is the story of an unprecedented effort to turn the oil revenues to the benefit of all Chad citizens, especially the poor. The effort grows out of lengthy and complex socioeconomic planning and public consultation involving Chad, Cameroon, the World Bank Group, three oil companies, dozens of public groups (referred to as nongovernmental organizations or NGOs), and thousands of citizens of Chad and Cameroon who were given input into the planning of the development.

Input and planning have been lengthy and complex. As a result, however, Chad and Cameroon should not see their new oil wealth leak away into the pockets of opportunistic or thieving rulers. Neither will the wealth sap incentive for overall economic development as it has in some other oil-rich countries. Revenue will accumulate in the vaults of a trustee appointed by the World Bank and be used for the benefit of the nations as a whole. The remarkable project may well be a model for the future of mineral projects in the developing world. The story of how it came about is equally remarkable.

The Framework
Discussions and consultations about developing Chad's oil began in 1993. It was clear that development of the country's oil deposits could provide Chad with a way to lift itself out of extreme poverty. But what World Bank calls the "lessons of international experience" also made it clear that "natural resource booms are difficult to manage." It was far too easy for revenues to end up squandered and in the pockets of a few, leaving the country poor.

In 1996, a consortium of ExxonMobil, Shell, and Elf Aquitane signed a deal with Chad covering the development of the Doba basin oilfields and the pipeline through Cameroon to the offshore export facilities. Later, Chevron and Petronas (Malaysia) replaced Shell and TotalFinaElf.

At the end of 1998, Chad's parliament passed a poverty reduction law, which contains detailed instructions for use of the oil revenues. The law requires that 10 percent be held in trust for future generations; 80 percent be devoted to education, health and social services, rural development, infrastructure, and environmental and resource management; and five percent be added to spending for regional development in the oil-producing area. Provision is made for annual published audits, regular public expenditure reviews by the government and World Bank, and for channeling and accounting of the funds.

The law also created an oversight committee. Their job is to monitor use of the oil revenues. Members consist of representatives of the government, parliament, the judiciary, NGOs, and civil society. A capacity-building credit from the International Development Association (IDA--an arm of the World Bank that focuses on the most impoverished of the developing nations) supports the committee. IDA also strengthens Chad's general accounting office and provides funds for dissemination of information about the project.

Then the bank, the oil company consortium, and the governments of Chad and Cameroon began consultations with outside advisors. They also held public hearings with literally tens of thousands of citizens and groups both outside and inside Chad and Cameroon. The result was a framework to guide and develop the project.

The framework set up a tough job: protecting everybody's interests and providing a transparent process.

Line Siting
Siting of the 650-mile pipeline commanded considerable attention. World Bank specialists and oil company consortium experts walked the entire proposed right-of-way, held public hearings, and created a 19-volume environmental impact assessment and management plan. This was made public in mid-1999, followed by an oil spill response plan. After 18 months of analysis, including regular discussions with local and international environmental groups, human rights groups, and other NGOs, significant changes were made in the proposed right-of-way. The decision was made to bury the pipeline rather than site it above ground. No families along the route needed to be moved, and only about 150 people had to be resettled in the producing oilfield, according to World Bank reports.

When it was time to begin drilling and construction in early 2000, the governments of Chad and Cameroon, the three-oil-company consortium, and the World Bank had in place what the World Bank calls "an unprecedented framework to transform oil wealth into direct benefits for the poor, the vulnerable and the environment." Project management began to issue quarterly public reports.

Estimated cost of the project is $3.7 billion to develop the first oilfields at Doba in southern Chad and build the pipeline. Almost all the investment in the project is private. The World Bank provided $93 million to finance equity shares in the project--$53.4 million for Cameroon and $39.5 million for Chad. The World Bank also handled a $100 million loan from International Finance Corporation (IFC – another arm of the World Bank Group) to the joint venture pipeline companies. IFC handled another $300 million in loans syndicated from commercial banks. The oil companies provided the balance.

When construction got underway in 2000, Chad's government could not afford to provide even minimal public services for its people. As its citizens began to earn money from jobs in the new oil sector, that began to change. The EIA estimates that Chad's GDP grew by 8.4 percent in 2001. In four years, the pipeline will increase government revenues by 45 percent to 50 percent and allow it to use those resources for poverty-reducing investments in health, education, environment, infrastructure, and rural development.

The World Bank board also approved two projects to strengthen capacities for environmental management and monitoring of the oil projects.

An international advisory group was established to monitor the projects, with particular attention to social and environmental safeguards. This board reports periodically, and their findings are discussed by senior management of the World Bank Group.

History and Human Rights
No energy project is without controversy, even this one which has taken such pains to listen to all interested parties and continues to hold hearings month after month. Chad appears now to be among the most stable of African countries, but as with many developing nations, its recent history is troubled. The World Bank notes that considerable progress has been made since the early 1990s toward a more inclusive and stable environment. A democratic process and a program of national reconciliation have been launched, but opinions differ on how much progress has been made. In 1998, the Mouvement pour la Democratie et la Justice au Tchad (MDJT) began to protest the government of President Idriss Deby, and fighting broke out in the north. Deby was reelected president in 2001. The government later signed a peace treaty and general amnesty with MDJT.

Human rights groups have taken up the case of tribes displaced along the right-of-way in Cameroon. These indigenous people were among the NGOs consulted in detail as the project began, and most were compensated for lost farming land and income and fruit trees. Still, one notable problem eludes solution: the Bagyeli ethnic group of pygmies, which lives along the pipeline route in Cameroon. These are nomadic people, and the line right-of-way cuts a wide swath through the forest that is their home. This remains an issue that needs to be addressed and settled. It is a difficult process since the nomadic Bagyeli share the forest with the Bantu who are settled tribes and have been compensated by the project.

By encouraging the free expression of community views and public commentary, the pipeline project itself has become a training ground for free expression and a mechanism for defusing tensions. Seminars involving local NGOs have encouraged traditional village authorities and farmers to speak out about the projects. World Bank says these exchanges have improved the project and strengthened the voices of civil society. In any case, confidence that civil order could be created and can be maintained has been fundamental in the go-ahead decisions for the entire project.

Revenue Projections
The oil from the first of the three Doba basin fields is providing the initial pipeline cargo. Drilling continues in that field and the two others in the basin under development. When all the wells are drilled and producing, the basin will reach an estimated 225,000 barrels per day.

World Bank revenue projections for the Doba project in 2002, cited by the EIA, show the process to be highly profitable. Based on a benchmark price of $15.25 per barrel, total receipts would reach $12 billion over a 28-year period. Net revenue would amount to $9.2 billion before debt servicing. Chad would earn $2.5 billion over the life of the project.

As production began, World Bank's country manager Gregor Binkert sounded a note of optimism from Chad's capital city of N'Djamena: "I am confident that the structures are in place to ensure that petroleum resources will result in visible poverty reduction over he coming years and improve living standards in the country. Chadian officials are keenly aware of the need to take advantage of this rare opportunity to make a difference in the lives of their citizens and are committed to avoid the problems that have beset other countries in converting oil revenues into lasting benefits for the population."