In Washington: Marco Mantovanelli (202) 458 7571
In Paris: Anne Davis Gillet (33 1) 4069 3166
In N'Djamena: Edmond Dingamhoudou (235) 643 2256
WASHINGTON, January 6, 2006 — The World Bank will withhold new loans and grants to the Government of Chad and suspend disbursement of International Development Association (IDA) funds allocated to the country. The value of funds being suspended is approximately US$124 million.
This action follows passage of amendments to the country's Petroleum Revenue Management Law by the Chadian National Assembly. These changes would substantially weaken programs to improve the lives of poor people, which the World Bank has been supporting.
In a letter to the Chadian authorities, the Bank said that it will not present any new grants or credits to its Board of Directors for approval, and will suspend disbursements on all eight active projects that are part of the World Bank portfolio in Chad.
"We have a responsibility to ensure that money generated from this oil project is used to help meet the needs of the poor people in Chad," said President Wolfowitz. "We've been trying for some time to open a dialogue with the Government of Chad to see if the concerns they have can be addressed. Regrettably instead of engaging in dialogue they have proceeded to alter fundamentally the law which was the basis for our original agreement. We haven't given up on dialogue, and hope in fact that perhaps if they stop and appreciate how serious the issue is from our point of view and not only from theirs, we can find common ground that addresses the legitimate concerns of the government of Chad and our objective of ensuring Chad's oil revenues benefit that country's poor."
IDA funding committed for projects that are currently active in Chad is US$297 million, of which approximately US$124 million remains undisbursed and subject to the suspension. Standard caveats apply to funding for project expenditures committed but not yet paid prior to the suspension.
The World Bank had offered to assist the Government of Chad to address its financial difficulties by analyzing and helping to address issues including how public finances have been managed. It had also proposed a review of how the Petroleum Revenue Management Law has been implemented to identify which, if any, amendments to the law might be warranted. The World Bank remains open to dialogue with the Government of Chad on the best ways to address its current financial crisis while protecting poverty reduction programs.
The Petroleum Revenue Management Law, adopted by the National Assembly and passed into law by the President of the Republic of Chad in 1999, 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. As part of the loan agreement with the World Bank, the Government of Chad specifically undertook not to amend or waive any provisions of the law in ways that would "materially and adversely affect" the revenue management program established under the law. The law directed 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 amendments endorsed by the Government and passed by the National Assembly would, among other changes, broaden the definition of priority sectors to include, among other sectors, territorial administration and security, and would eliminate the Future Generations Fund, allowing the transfer of more than US$36 million already accumulated there to the general budget. In addition, further changes in the definition of priority sectors could be made by decree. Also, the amendments more than double the share of royalties and dividends that can be allocated to non-priority sectors. Taken together, these changes to the revenue management program substantially weaken the poverty focus of the program and constitute a breach of the loan agreement entered with the World Bank.
In the run-up to the passage of the amendments, the Bank expressed its concern about the revisions and urged the Government of Chad to abide by the commitments it made in the loan agreement with the World Bank.
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