Wednesday, January 04, 2006

Take from the poor, give to the guns

Finance: Chad Dilutes Oil-for-Development Pledge Inter Press Service (Johannesburg)

NEWSJanuary 2, 2006 Posted to the web January 3, 2006
By Emad MekayWashington

Tension is rising between the World Bank and the African nation of Chad, one of the world's poorest countries, over the latter's decision to seize funds from a controversial Bank-funded oil pipeline and not spend the money on social sectors.

Last week, the Chadian National Assembly, the country's legislature, passed amendments to the so-called Petroleum Revenue Management Law (PRML), a legal agreement governing its oil wealth written with the Bank in exchange for investment funds.

The changes now allow the government in the capital N'Djamena to more fully control oil revenues from the high-profile Chad-Cameroon pipeline, and take greater profits to meet increasing budgetary demands.

But the World Bank, whose support was crucial for the start of the project in 2000, and a number of watchdog groups say that the changes will almost certainly weaken the poverty reduction agenda mutually agreed to as a condition of lending.

The original law was the centrepiece and main governance "safeguard" of the World Bank-supported pipeline, designed to guarantee that oil revenues benefit the poor by allocating most of the revenues to "priority sectors" like health, education, social services and rural development.

The law also required that 10 percent of proceeds from oil sales be set aside in the Future Generations Fund (FGF), an escrow account for the post-oil era.

The new changes, however, include an increase from 15 percent to 30 percent of revenues deposited into general government coffers. They also cancel the fund that saves money from the project for future generations and use the money accumulated for immediate expenditures, as well as to redefine "priority sector" expenditures to include spending on security.

The case is particularly important to the Bank because it has marketed its participation in the project as a model for its work to fight global poverty.

The Bank's decision came despite loud protests from non-governmental organisations and anti-poverty campaigners who said oil projects tend to lead to corruption and mismanagement.

The controversial four-billion-dollar oil facilities, which include a 1,000-kilometre pipeline designed to carry oil from Chad to the Atlantic coast of neighbouring Cameroon, were predicted to fatten state coffers by at least two billion dollars over the next 25 years, or 80 million dollars per year.

The pipeline transfers 225,000 barrels of oil a day. It is a joint venture between the U.S. oil giants ExxonMobil (which holds 40 percent of the private equity) and Chevron (25 percent), and Malaysia's state oil company Petronas (35 percent).

The World Bank was quick to condemn the recent move, which still awaits ratification by Chad's President Idriss Deby. The Washington-based public lender says it is in consultations with a number of parties over the appropriate reaction.

"If these amendments become law, it will harm the well-being of Chad's poorest and most vulnerable citizens and represent a material breach of the original agreement," said World Bank President Paul Wolfowitz. "I am consulting with other partners and our shareholders on the appropriate next steps."

Among the options that the Bank can invoke in retaliation is the possible suspension of new credits or grants to Chad; a halt in disbursement of funds under some or all ongoing agreements; and an accelerated repayment of loans extended to the government of Chad.

The Bank says it understands the difficult financial circumstances the government is going through. It has offered to assist with the country's fiscal policy.

But Chad accused the World Bank of acting like a coloniser and of failing to take note of the increasing pressures on its budget.

The country now faces rising security costs in protecting its eastern borders with the neighbouring Darfur region of Sudan, where thousands of refugees are fleeing militia violence.
Last week, Chad said it was in a "state of belligerence" with Sudan and accused Khartoum of giving aid to Chadian rebels.

The country has a population of nearly nine million, with 80 percent living below the poverty line of less than two dollars a day. According to the World Bank, most of Chad is desert or semi-arid land, with a harsh physical environment and a very narrow economic base.

The latest spat between the Bank and Chad vindicates earlier warnings from civil society groups that the massive pipeline project could actually lead to a worsening of socioeconomic conditions in the Central African country, while strengthening its corrupt ruling oligarchy.

The Chadian government ranks among the most corrupt and most abusive of human rights in the world. The government used the first 4.5 million dollars of the signing bonus that it received from the oil companies to buy arms to fight its northern rebels.

Critics have said the World Bank's record of favouring corporations, along with the continued corruption and lack of capacity in the Chadian government, cast doubt on the effectiveness of any mechanism to help govern the country's oil wealth.

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