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Oil Investment in Chad

Petroleum exploration began in the 1970s. Oil was discovered in the Lake Chad basin and the Doba basin. Initially, Exxon, Chevron, Conoco, and Shell collaborated in oil exploration in Chad. Since then, there have been numerous withdrawals, and today the consortium is made up of ExxonMobil, Petronas, and ChevronTexaco. Exploitation activities were delayed during the civil war, which began in 1979, and final preparations for extraction did not begin until the 1990s.

The World Bank and the International Monetary Fund are involved in financing the project and monitoring how the Government of Chad handles profits. In essence, the Chad-Cameroon Petroleum Development and Pipeline Project consists of extracting oil from fields at Doba (southern Chad), and transporting that oil to the Atlantic coast via a pipeline through Cameroon. Cameroon shares in the profits of the project. Although the World Bank website puts the number of wells at three hundred, 391 wells had been drilled by June 2006. A recent independent report by Robert Barclay and George Koppert claims that “after lower than projected oil flows from the initial wells following project inauguration in October 2003, it was decided to increase the size of the well field in the OFDA to about 450 wells.”

In January of 2006, the Government of Chad modified the Petroleum Revenue Management Law without proper consent by the World Bank. An IMF Public Information Notice from December of 2006 outlines the event and the economic affects that followed.

Budget execution in 2006 has been affected by a number of factors. In January, the authorities' unilateral modification of the Petroleum Revenue Management Law agreed with the World Bank resulted in contractual remedies by the Bank, including the blocking of the offshore oil revenue escrow account. The loss of revenue was partly offset by the start of income tax payments by the oil companies in March 2006. The dispute with the Bank was settled in July and, in October, the settlement of an income tax dispute with two of the three companies in the consortium producing Chad's oil resulted in additional revenue equivalent to 8 percent of non-oil GDP. This allowed a further expansion in most categories of expenditure—including on exceptional security expenditure following heavy fighting with rebels—raising the non-oil primary deficit to 16.6 percent of GDP in 2006.

IMF directors said in a statement that “Chad’s temporary oil windfall should be used to promote the development of the non-oil sector so that it can support the continuation of the poverty reduction strategy when oil runs out.”

It seems that, to a certain degree, this is happening. Chad’s Provisional Committee for Managing the Producing Region’s Oil Revenues (CPGRP) has begun projects to develop the infrastructure. A World Bank article details projects conducted in the cities of Doba and Bébédjia. Projects include constructing and equipping new schools, building a water tower, erecting a water tower, and a new sports stadium in Doba. Nevertheless, the CPGRP faces much criticism for slow action.

Oil exploitation has also negatively affected indigenous populations. In early 2007, an independent review of land acquisition by Esso Chad (and affiliate of ExxonMobil) revealed a greater than expected negative impact. The study found that:

• Over 900 households may have been seriously affected by loss of land (loss of >20%), substantially more than the 60-150 households that the CRCP projected
• The evaluation study did not encounter any household that could recall being offered the option of resettlement. This is a non-compliance with the CRCP.
• The CRCP significantly underestimated the project affected population and in particular the number of those in the OFDA who would experience serious land losses.
• As of June 2006, the project had permanently acquired 1,243 hectares of land in the OFDA, exceeding CRCP estimates by about 65 percent. A further 1,698 hectares of land has been temporarily acquired, nearly twice the area estimated by the CRCP.
• In short the magnitude and severity of project impacts in the OFDA are far greater than envisaged in the CRCP. The livelihood restoration strategies proposed in the CRCP are not adequate to address the impacts of households left economically non-viable as a result of land losses to the project.
• The overall role of training in the livelihood restoration model needs to be rethought. Training is supplementing traditional agricultural activities for some households, but it is not an alternative to land replacement programs.

The World Bank reports that Esso Chad has formulated an action plan, which, “if implemented as planned…will minimize project impacts, help strengthen the restoration of livelihoods, and improve the way cumulative impacts are predicted and monitored.”

Oil money has been diverted to increased military spending. In July of 2006, the World Bank and the Government of Chad signed a Memorandum of Understanding (MoU) that committed 70 percent of the government’s budget to programs in the health, education, agriculture, infrastructure, environment, rural development, de-mining, and good governance. A multi-donor mission visited Chad in June of 2007 and found that “the 70 percent provision in the MoU may not be met in light of the security situation which led to high military spending over the past year.”

Statistics on the World Bank Chad section are outdated. Their latest project update gives income figures from late 2006. They report that, as of September 30, 2006, Chad had grossed $754 million in revenue since oil production began.

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