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Analysis: Chad exemplies oil corruption

disclaimer: image is for illustration purposes only
by Carmen Gentile
Washington DC (UPI) Nov 13, 2008
An oil pipeline running from Chad to Cameroon that generates more than a billion dollars annually for the Chadian government is being touted as an example of World Bank and International Monetary Fund failures to foster "fundamental measures of transparency in the oil, gas and mining industries," according to a joint report by two watchdog groups with a particular eye on the international lenders.

The report by the Bank Information Center and Global Witness says that while the World Bank and IMF "have made numerous commitments to strengthen transparency in the extractive industries in order to combat corruption, their application of these measures has been highly inconsistent and not comprehensive."

Among those relationships best exemplifying both institutions' failures, according to the report, is Chad, one of Africa's growing oil producers whose fortunes were aided with World Bank and IMF loans, along with private oil firms like ExxonMobil, the leading investor in a Chad oil consortium that includes Malaysia's Petronas and Chevron.

Ignominy over Chad's use of oil revenue on weapons and security -- when it promised international lenders those profits would go toward social programs -- has prompted the bank to withdraw its support for the pipeline after Chad repaid $65.7 billion in loans much earlier than planned.

The pipeline runs through areas with delicate environments and indigenous groups already wary of their governments. By agreeing to support the project, the World Bank catalyzed finance for the construction of the pipeline, turning Chad into Africa's newest oil producer, according to the report.

"Facing stiff resistance from civil society, the Bank went to great lengths to promote the pipeline as a model for using revenues from high-risk projects to reduce poverty," says the report, "and instituted an unprecedented, elaborate system for ensuring that revenues were devoted to social spending."

However, promises by Chad to dedicate revenue to social spending were not kept, and lenders failed to insist on transparency in the Chadian government's handling of its newfound oil wealth.

Chadian leaders contend they have spent some of the pipeline revenue on hospitals and schools in the country's oil-producing region.

"Once the project was online, there was little the World Bank could do to ensure that the revenue was going to be used for poverty reduction, as promised," Joshua Klemm, an associate with the Africa Program at Bank Information Center, told United Press International.

"Now that the pipeline is actually built, they are in charge of that ... and generating huge amounts of revenue," said Klemm. "There's nothing the World Bank can do."

This isn't the first time Chad's handling of its oil sector has come under fire.

Earlier this year, Chadian rebels rampaging through the capital hoping to dispose President Idriss Deby on political grounds also expressed their disdain for his administration's handling of the country's oil revenue.

Its short record of petroleum extraction is already a tumultuous one.

Chad first began extracting its estimated 2 billion barrels in reserves following the opening up of the country to foreign oil investors in 2000. Oil production did not come online until 2003. That same year, a 650-mile pipeline from southern Chad to the Atlantic coast nation of Cameroon was completed with the help of $365 million in World Bank loans to complete the $3.5 billion project.

In 2004, Chad began exporting petroleum. According to 2005 estimates, Chad produces some 225,000 bpd and sets aside a tiny fraction of that for domestic use. The World Bank loan was contingent on an agreement that Chad set aside a portion of its oil revenue for health and education.

But in late 2005, Deby upset international lenders by deciding to rewrite the World Bank agreement so its oil money could be spent however the government deemed necessary. The decision followed the emergence of rebel groups in neighboring Sudan that began launching attacks on eastern Chad. Most analysts speculate the government intended to divert its oil for social spending revenue to bolster up its defenses against the rebels.

The World Bank then suspended some $124 million in loans slated for Chad. By April 2006, with oil prices reaching $75 a barrel and Chad threatening to shut off its oil valves, World Bank President Paul Wolfowitz lifted the suspension and wrote a new agreement with the Chadian government.

Institute for Policy Studies fellow Daphne Wysham said Chad's threats at the time to cut off production, combined with near-record oil prices, prompted the World Bank to allow Chad to break its initial agreement, leaving the country's poor without the social programs they had been promised.

"Because the price of oil is so high, the United States and other nations want to see it flow at any cost," Wysham told UPI.

"This is what you get when you do business with a corrupt country, and Chad is one of the most corrupt countries in the world," she said.

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October OPEC Oil Output Reduced
London, UK (SPX) Nov 12, 2008
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