Where do things stand in the World Bank’s relations with the Government of Chad? Representatives from the World Bank and the Government of Chad signed a memorandum of understanding on July 13, 2006 under which the Government of Chad has committed 70 percent of its 2007 budget spending to priority poverty reduction programs. In the course of 2007, the country will develop a new Poverty Reduction Strategy with the participation of all relevant stakeholders which will form the basis for determining future expenditure priorities and be enacted into law. The agreement also provided for long-term growth and opportunity by creating a stabilization fund. The Government will also enhance transparency and accountability through short- and medium-term measures to strengthen budget management and oversight, and has reaffirmed the importance of the Collège de Contrôle et de Surveillance, Chad's independent oil revenue oversight authority, and has pledged to work with all relevant stakeholders on procedures and resources to strengthen the Collège. The agreement followed an interim accord reached in April which began a return to normalcy in the partnership with the Government of Chad. Ties had been interrupted in January 2006, when the Bank suspended the Government of Chad from future loans, and from continued disbursement under most ongoing operations. The decision followed passage of legislation in Chad that departed from the Chadian government’s original agreement to use the bulk of Chad’s oil revenues to finance development and poverty reduction. The new law amounted to a breach of contract with the World Bank. The suspension triggered a freeze on the movement of certain of Chad’s oil revenues within the Citibank escrow account structure in London. How is the new arrangement different from the original Petroleum Revenue Management Program? The Petroleum Revenue Management Program (PRMP), an agreement between the World Bank and Chad which underpinned the World Bank’s support for the project, stipulated that 10% of direct petroleum revenues (royalties and dividends) be set aside in a fund to be spent when oil resources would no longer exist; 72% be earmarked for priority sectors such as education, health and social services, rural development, infrastructure and environmental and water resource management; 4.5% go to community-driven projects in the oil-producing region, and the remainder (13.5%) would go directly into the general budget. The PRMP also called for the establishment of a petroleum oversight committee to monitor the use of petroleum revenues, called the Collège de Contrôle et de Surveillance des Ressources Pétrolières (CCSRP or Collège), The new memorandum of understanding (MoU) between the World Bank and Chad is different in that it provides explicit rules for the preparation of the 2007 budget and gives the Government time to prepare a revised poverty reduction strategy, in close consultation with major stakeholders, which will form the basis for a permanent framework for government spending. In particular, the MoU states that: In 2007, 70% of Chad’s entire budget (including indirect oil revenues and other sources of government revenue) will go to poverty-reducing sectors. These sectors have been extended to include spending to improve governance. Chad will develop a Medium Term Expenditure Framework to guide annual budgetary expenditures. Resources in excess of these agreed annual needs will be reserved in a stability fund for future use. During the 2007 period of budget implementation, the Government of Chad will develop a new Poverty Reduction Strategy Paper by 2008, in close collaboration with national stakeholders and international partners, which will form a solid basis for determining future expenditure priorities and enacting a revised law, in accordance with these development priorities. The Government will strengthen the Collège to ensure effective oversight, public confidence and transparent implementation of projects financed with oil revenues. The Government of Chad agreed with donors short- and medium-term steps to be undertaken to strengthen budget management within a comprehensive plan for the modernization of public finances. These steps include quarterly publication of budget execution data and regular audits of procurement contracts.
What is the status of the World Bank’s portfolio in Chad? The interim accord reached in April [see “Where do things stand in the World Bank’s dealings with the Government of Chad? ”] lifted the January 2006 suspension of US$124 million in undisbursed IDA loans to Chad. Currently there are nine active World Bank projects in Chad for a total of $306 million, of which $113.4 million are undisbursed. Here is the list of active World Bank projects: Current World Bank Operations (PDF 45 KB) What were the Bank’s main objections to Chad amending the revenue management law? The 1999 Petroleum Revenue Management Law was a deciding factor in the World Bank Group's support for the Chad-Cameroon Oil Pipeline Project, which represented a unique opportunity for Chad to use its oil revenues to finance desperately needed poverty reduction. The law required that the bulk of direct revenue to the Government from the Chad Cameroon Pipeline Project to agreed-to "priority sectors," such as health, education and rural development, that are linked to improved living standards and poverty reduction. The law also created a Future Generations Fund, to ensure there would be some benefits to the population once the oil reserves are exhausted. The January 2006 legislation put forward the following changes to the original law: - it broadened the definition of priority sectors to include, among other areas, territorial administration and security; and allowed for further changes in the definition of priority sectors to be made by decree;
- eliminated the Future Generations Fund, allowing the transfer of more than US$36 million to the general budget;
- increased from 13.5 % to 30% the share of royalties and dividends to be allocated to non-priority sectors, not subject to oversight and control.
The Bank considered that taken together, these changes to the revenue management program substantially weakened the poverty focus of the program, undercutting the basis for the Bank’s original support. How much of Chad’s oil revenues has gone to poverty reduction so far? As of June 30, 2006, Chad had earned $537 million in cumulative direct revenues from the export of 160 million barrels of Doba crude since production began in 2003. Of those cumulative revenues, $295 million was allocated to the priority sectors. These monies have been invested in road rehabilitation, schools, and health programs among other programs. An additional $18.8 million has been allocated to the oil-producing region itself to support regional and community-driven development projects to benefit to the local population. For more detail on how these revenues have been allocated, please see the 2006 Revenue and Allocation Table. Do the latest difficulties in the relation between the Bank and Chad over its management of oil revenues mean that the Bank’s approach on extractive industries isn’t valid? The approach taken in Chad is less a model for all oil-producing countries than a unique solution to a unique challenge. The basic principles underlying the approach taken in Chad—greater transparency and accountability in the use of oil revenues—remain central in the Bank’s dialogue with a range of oil-producing countries. Some 20 countries have embraced the Extractive Industries Transparency Initiative, which is a highly constructive trend. |
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