October 10, 2003—Oil Production in Chad began in June and oil started flowing through the new pipeline in July. But today, the country’s president, Idriss Deby, will officially inaugurate the start of oil production in Chad by turning on the tap at Kome in southern Chad’s Doba Basin. This will also mark the launch of a new prototype of extractive program, one which is designed to carry oil wealth not to a few, but directly to the poor. DevNews spoke with Ali Khadr, Chad’s Country Director, about the project and its implications.

Why is the Bank involved in the Chad-Cameroon Pipeline Project?

There are two essential reasons for World Bank Group involvement: The first is to help ensure that Chad’s oil money is used for the well being of all Chadians, particularly the poor, by helping define and implement a comprehensive oil-management program.

Chad is a desperately poor country. It has an annual income of less than $250 per person. To give you just one example, life expectancy at birth in Chad is less than 50 years. Most people are lacking in the most basic education, health care, and social services.

Based on all this, the opportunity that oil income potentially affords to approve Chadians’ lives is one that, in our view, had to be seized. All parties—the government and the private sector—have an interest in ensuring that the revenues from the oil export do not fall into the hands of an elite, but benefit all Chadians.

The second reason is that World Bank Group involvement has helped ensure that the Bank Group’s rigorous safeguard policies were observed in order to implement the project in an environmentally and socially responsible manner.

In particular, the environmental management plan is among the most comprehensive and most meticulous ever for this type of project. The experience in the implementation of the plan in the construction phase of the project, which was completed in early summer, has been by and large a resounding success.

The pipeline’s sponsor is a consortium of ExxonMobil, Petronas, and Chevron Texaco. What is the Bank’s specific involvement?

Project costs for the pipeline are estimated at $3.7 billion. This breaks down to $1.5 billion for field facilities and $2.2 billion for the export system, which includes the 1,070-kilometer pipeline.

IBRD is participating in the latter component—but only with a small fraction amounting to a $39.5 million loan to Chad and a $53.4 million to Cameroon. Financing is being provided in this case on IBRD terms to an IDA country—called an “enclave” loan—because this is so clearly going to be a revenue-generating project. IFC has also provided an "A" loan for $100 million and a "B" loan for another $100 million.

Three IDA credits, two of them for Chad, are being provided in parallel to the pipeline project for capacity building and amounting to $41.2 million.

Of course, our assistance program to Chad is much broader than this project and the breadth of that assistance program also gives us a way to remain in close dialogue with our Chadian counterparts on the spending of oil revenues for priority programs.

This is an oil project being called a development project. What does that mean? 

What makes this an entirely new kind of extractive industry project is in the detail and care with which the revenue management program is formulated and set up.

The country has put in place a set of institutional arrangements that provide for  transparent accounting and accountable use of oil revenues. These institutional arrangements are enshrined in Chadian legislation and very much owned by the country itself.

They provide clear rules on the allocation of oil revenues: Oil money will be put in an escrow account subject to disclosure and audit, meaning that everyone will know what the country received in revenues. Of the money that comes in, part will go immediately to service debts to the World Bank and the European Investment Bank.

The remainder is for the Chadians. The rules specify that10 percent be set aside in a future-generations fund. More than 80 percent of the remainder will go into priority sectors, including education, health, infrastructure, rural development, water, environment, etc. Then, 5 percent goes to the oil-producing regions for special development projects, and whatever is left to general government operating expenditures.

An oversight committee has been put into place to monitor all the flows and actually approve the spending from the special petroleum revenue account (where the money goes after the escrow account). It will explicitly approve any proposed spending out of this account. The committee has members from the administration, the legislative branch, the judiciary, and civil society—specifically, human rights groups, and women’s groups. and faith-based organizations.

Part of what makes this program unique is that it is actually not about foreigners coming in, taking the money, and telling Chad how to use it. Rather, it is about setting up a structure wherein the Chadians put in place their own system of checks and balances. 

Is this a replicable model?

The principles of institutional transparency and accountability are certainly replicable. But no two countries are alike and verbatim transplanting of a specific model from one country to another is not a good approach. In developing this program, we recognized local circumstances and local needs. 

What does the Bank expect will be the impact of the project?

Already over the past two or three years, we have observed an impact on growth from the construction phase of the pipeline project. National income growth has averaged about 10 percent per year in real terms during that period.

Now that the project is coming upstream and oil production is commencing—2004 will be the first full year of production—there is an expected one-time jump in national income which could be in the order of 30 to 40 percent, depending on exact volumes and on oil prices. Thereafter we would expect growth to revert to more moderate levels.

But the most important impact of this project will be the use of oil revenues to improve education and health services, to improve infrastructure—roads, power, water—and to improve rural development, through small-scale community development projects, agricultural projects, etc.

We expect much faster progress toward the MDGs than there would have been without this project.

Click here for more on the Chad-Cameroon Petroleum Development Project.

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Ali Khadr, Chad’s Country Director