Chad Oil Revenues: Watching How the Money is Spent

June 6, 2005--July will mark the second anniversary that oil has started to flow through the Chad-Cameroon Pipeline, a project partially financed by the World Bank Group. The pipeline has been operating under unprecedented safeguards that are making sure the oil revenues are properly managed and used to reduce rampant poverty in Chad.

Four of the committee members meet with Gobind Nankani, World Bank Vice President for Sub-Sarahan Africa.

This independent oversight committee, the first such body in Africa, is the lynchpin in the structure to ensure that oil revenues are used to reduce poverty.

But since the pipeline was constructed a full year ahead of schedule, this novel system of oversight and accountability was put to test sooner than expected.

Critical First Year

The first Collège members were chosen in late 2001, but the first test of the committee's mettle came in 2004 when in July of that year revenues began to be repatriated to the country. Calendar year 2004 was the first budget cycle to take in and plan expenditures for those revenues.

As an embryonic institution overseeing resources from petrol--a totally new industry in Chad, the committee faced some challenges. It needed to define from scratch its oversight function, learn all about the oil industry-from pricing to exploration issues--and follow the government's budget management that itself was developing its capacity to handle a new source of important revenues.

"It was not an easy year, but yes, we are up and running," said Thérèse Mékombé, Vice President of the Collège.

The Collège's first task was to review the first government budget that included oil money and to provide overall comments on whether allocations to the different ministries were in line with the law that enforces the Revenue Management Program. This was a new budget challenge for the government, since oil revenues represented about 40% of the government's budget. It was also the first time that most members of Collège were involved in the budget process.

The Collège gave its approval for nearly $68 million (80% of the expected $84 million in net revenues) to be spent on priority sectors such as health, education, and transport (see table).

Over the course of the year, the Collège logged on regularly to a Citibank website to check that oil companies were making payments to the government's escrow account. Committee members also traveled to various regions to meet with local civil society organizations (CSOs) and media to ensure that the general population was informed on the overall revenue management program and the Collège's role.

Ministries' Different Spending Capacity

In 2004, different government ministries that were to receive the funds started moving forward in implementing projects identified under the specific allocations.

This proved easier for some ministries than for others. For example, the Ministry of Transport had two major road projects ready to go when funds were allocated. Chad needs to pave many roads to open up commercial routes and facilitate access to schools and clinics.

Challenges Ahead

The Collège is concerned with the government's ability to absorb future funds. One challenge this year is to clarify roles between the ministries and the Collège in identifying viable projects, and to help the ministries with the process of submitting their project proposals through the Collège.

Another challenge will be to step up the monitoring of the use of outlays once the number of approved projects increases. The 2005 budget has foreseen $175 million in priority sector spending, compared to last year's $68 million.

As the Collège reflects on its independence, it is now looking for ways to assure sustainable financing for its operations. Currently, its budget is financed by the Chadian government while some training, equipment and technicians' salaries are funded through World Bank Group support. The Collège is also exploring other sources and structures of funding to ensure its decisional independence will be supported by its financial independence.

During a recent visit to Chad to check first hand on the progress in the oversight of oil revenues, World Bank Vice President for Africa Gobind Nankani reassured the Collège members by saying "the Bank is here to support the country and its institutions during this phase of transition to a petrol era. The process must be led by Chad, but we are here to accompany you."

The Composition of the Collège

The nine-member Collège is composed of four civil society representatives (each one different aspects of civil society -- local NGOs, unions, human rights groups, and religious groups), two parliamentarians, the head of the Central Bank, the director of the Treasury, and a member of the Supreme Court.

It is supported by administrative staff and four technical staff specializing in accounting, economics, budgetary procedures and public procurement.

• The Collège has three main functions:
• Monitor that oil revenues deposited in an offshore account correspond with the declared production, and the terms of the sales contract,
• Ensure that the government allocates the oil revenues according to law, with 10% invested for future generations. Of the rest, 80% goes to priority sectors, 5% to community-driven projects in the oil-producing region, and 15% to the general budget,
• Approve the outlays-project by project-of the priority sector allocations, and verify that projects are satisfactorily executed.