Chad Sees First Trickle of Cash From Pipeline

WASHINGTON — The government of Chad received the first trickle of revenue from a $3.7-billion oil pipeline last month when an international consortium led by ExxonMobil deposited $6.5 million in a London bank account.

It was a moment of triumph for Chadian President Idriss Deby, a former warlord who seized power 13 years ago. But the opening of the 670-mile pipeline, which carries oil from southern Chad through Cameroon to the west coast of Africa, has been greeted with dismay in some quarters.

World Markets Analysis, a business publication for global investors, responded by increasing Chad’s political risk rating. It predicted political infighting over oil money and even greater corruption in a country already notorious for graft.

In Chad, a coalition of independent groups called the pipeline’s official inauguration in the fall a “national day of mourning.” The groups said Deby had “sold off our little wealth to reinforce the criminal power of the government” and that oil revenue would “constitute another weapon in the hands” of the regime.

Controversy has surrounded the project since construction began three years ago. The pipeline is expected to generate $2.5 billion for Chad over the next 25 years. Oil began flowing in July.

Proponents of the project, including the U.S. government and the World Bank, say it will transform Chad, one of the world’s poorest countries, with per capita annual income of about $270.

But a coalition of international and Chadian groups opposed the pipeline from the beginning, predicting that the Deby regime would squander oil money and fail to deliver promised political and economic reforms.

Such fears have increased recently as Deby has launched a crackdown on his opponents and taken steps to entrench his rule.

In September, the government banned a peaceful protest against the pipeline by human rights groups. A month later, the Public Security Ministry suspended Radio FM Liberte, an independent station with close ties to rights groups, after it broadcast a report critical of Deby.

At the same time, the president has moved to consolidate his personal grip on power. He appointed his nephew prime minister. Then, his political party announced a plan to overturn a constitutional provision that bars presidents from serving more than two terms.

The change would allow Deby to run for reelection in 2006, the year he had pledged to retire. Barring a rebellion by Deby’s opponents within the ruling party, passage of the amendment is considered a near-certainty; the party controls more than the two-thirds majority in parliament needed to alter the constitution.

A study by the Human Rights Clinic at Columbia University in New York said that recent developments “suggest that the flow of oil from the ... pipeline and the oversight of the World Bank have done little to improve the human rights situation in Chad.”

Gilbert Maoundanodji, a founder of Radio Liberte -- which resumed broadcasting in mid-December -- said the opening of the pipeline has emboldened Deby.

“He wants to stay in office as long as possible in order to control oil rents to the detriment of the people,” he said. “He believes he has the blessing of the United States since the major oil companies exploiting Chadian oil are American.”

Donald Norland, a former U.S. ambassador to Chad who has been an outspoken advocate of the project, expressed concern about Deby’s recent conduct.

“I thought Deby would understand the tremendous stakes that everyone has in this project -- especially the president under whose tenure it was realized -- but he has been taking some very unhelpful steps,” he said.

Past African energy projects have generated huge profits for multinational companies but little benefit for the poor as corrupt rulers pilfered much of the revenue. To prevent that from happening with the Chad-Cameroon pipeline, the World Bank drew up a plan that requires most proceeds of Chad’s oil sales to be spent on health, education, poverty reduction and other social programs.

The government of Chad also promised to earmark 5% of the money to develop the desolate southern oil field region, which the Deby regime had neglected.

Matthew McManus, a State Department energy expert, told a Senate committee in October that the U.S. was working closely with Chad to ensure the success of the project. He called the pipeline a “good example of sustained cooperative efforts among various entities ... to balance economic benefits, transparency, and humanitarian and environmental concerns.”

The project’s economic impact is already evident. Chad’s 2004 budget includes $100 million in pipeline revenue, which is expected to help produce economic growth of 40%. The pipeline is now carrying 100,000 barrels of oil a day. When it reaches its maximum capacity of 225,000 barrels in 2004, Chad will be sub-Saharan Africa’s fourth-largest oil producer.

The independent Revenue Oversight Committee is supposed to monitor the government’s use of oil proceeds. Before the committee began operations, the Deby regime used $5 million of a $25-million bonus from the oil consortium to purchase weapons.

A government audit found that the regime routinely used the bonus for purchases made “contrary to the law of public procurement.”

It spent about $478,000 to import 35 Peugeot automobiles from France for members of the regime. Other expenditures paid for catering and lodging for an educational conference and to renovate the Ministry of Foreign Affairs. The head of the National Assembly was given $41,000 to be used at his discretion.

The nine-member oversight committee has rejected a number of proposed government expenditures, and it is demanding that contracts be bid competitively to prevent cronyism.

“The [committee] is ready to fulfill its role,” said Greg Binkert, the World Bank’s country manager in Chad. “The offices are fully equipped, the technical staff has been hired, and some initial training has been carried out.”

But there are doubts about the panel’s long-term effectiveness. Five of the members are appointed by institutions close to the Deby government. Independent groups appoint the remaining four. All the current members have full-time jobs, and the committee must review thousands of government spending requests every year.

“The [committee] seems to be independent, but it has not really started to manage revenues,” says Boukinebe Pemgouba Barka, president of an independent Chadian group monitoring the pipeline. “We doubt its capacity to continue to work effectively given the pressures that will be exerted on it by the government.”

Moreover, the committee has oversight only of proceeds from the sale of oil. Taxes, customs duties and other indirect revenue from the pipeline -- which could amount to almost half the project’s estimated $2.5 billion direct revenue -- will go into Chad’s general budget, beyond the committee’s purview. Deby can spend that money however he chooses.

There is also concern about whether the money earmarked for local bodies in southern Chad will actually reach the oil region. The problem is that there are no local bodies to take the money.

During the project’s early stages, the World Bank, which helped finance the pipeline, appeared to have some leverage over Deby. In 2001, security forces detained six opposition candidates after a presidential election. They were freed after World Bank President James D. Wolfensohn phoned Deby to demand their release.

But with his treasury soon to be filled with oil revenue, Deby may be less responsive to outside influence.

“The World Bank will lose leverage as Chad has less need for external financing,” said Ian Gary of Catholic Relief Services, which monitors the pipeline. “The leverage that will remain is the Chadian regime’s desire to have good relations and maintain its legitimacy with the U.S.”

*

To see an interactive map and videos about the Chad-Cameroon pipeline, please go to latimes.com/chad.