Bank freezes pipeline funds to Chad

20 January 2006 | Resource

Versión español

Fears over government corruption have already got the better of the landmark Chad-Cameroon pipeline, which the Bank had pioneered to prove that “petrodollars can benefit the poor” (see Updates 47, 48). Civil society activists, who have put forward strong warnings against the project since its inception, are largely in support of the Bank’s move to withdraw support to Chad following its serious breach of a loan agreement. However they hope that such a lesson will prevent the Bank from funding other high-risk extractive industry projects in the future, and hold the Bank responsible for addressing social and environmental problems resulting from the controversial mega-project.

The Chad-Cameroon pipeline, developed by an Exxon Mobil-led consortium was opened in 2003. In the first test of Bank president Wolfowitz’s strong anti-corruption rhetoric, on 6 January the World Bank announced that it would withhold new loans and grants to the government of Chad and suspend disbursement of International Development Association(IDA) funds of approximately US$124 million. After several months of failed negotiations between the Bank and Chad’s president Edriss Déby, Chad’s parliament approved legislation to amend the Bank-backed petroleum revenue management law at the end of December. This law, introduced in 1999, was crucial to the Bank’s support of four percent of the $3.7 billion pipeline. It directed the bulk of government revenue from the project to agreed priority sectors such as health, education and rural development, and also created a Future Generations Fund (FGF), which diverted ten per cent of the oil profits for the benefit of future generations after Chad’s oil wells run dry.

in the first test of Wolfowitz's strong anti-corruption rhetoric

Amendments to the revenue management law include:

  • increasing the amount of petroleum revenues deposited into general government coffers from 15 to 30 per cent;
  • bypassing the joint government-civil society revenue oversight committee;
  • (FGF) and using the money accumulated (more than US$36 million) for immediate expenditures; and
  • redefining “priority sector” expenditures to include spending on security.

Following Chad’s actions, its oil revenues deposited at the London branch of Citibank were automatically frozen as per its agreement with the Bank. The Bank’s decision is also supported by the IMF. An IMF loan programme with Chad went off course early 2005 after Chad failed to meet agreed budget targets.

Trying not to say ‘I told you so’

Many civil society activists, both inside and outside of Chad contend that recent events show that their doubts about the project were well founded. “I’ve tried not to say ‘I told you so’ ” said Ian Gary from Oxfam America. “We had always feared that the leverage of the World Bank and other donors would decrease substantially once these oil revenues started to flow, and that’s what’s happening.”

Delphine Djiraibe, from the Chadian Association for the Promotion and Defense of Human Rights agreed with the World Bank’s decision: “new money would mainly be used for military purposes and increasing repression of the Chadian people. But we regret that the Bank did not listen to the warnings of civil society organisations earlier.”

On going responsibility

Poverty, public health, human rights abuses and environmental problems continue to increase as the Exxon-Mobil led consortium running the project expands drilling activities in both existing and new oilfields. The International Advisory Group, established by the World Bank to monitor project implementation, states that the oil consortium is taking land from poor subsistence farmers without ensuring that compensation payments will make up for lost livelihoods. Local authorities and the military are known to extort money from villagers when they receive cash compensation from the oil companies. Chadian human rights organisations report that human rights activists trying to defend local peoples’ rights often receive death threats and have to flee the region. Pollution is taking a toll on the health and crops of some of the poorest people on earth, but none of the project sponsors are even studying it, let alone resolving the problems.

“The World Bank bears responsibility for the project and must press Exxon-Mobil to vigorously address these problems,” said Korinna Horta, of US NGO Environmental Defense. Delphine Djiraibe added, “We hope that the World Bank Group will work with other donors and the private sector to tighten sanctions until the Chadian government agrees to implement the revenue management law and show greater respect for human rights and the environment”.

Nancy Birdsall of the Center for Global Development points out that the Bank is now powerless to do anything about Chad’s recent actions. She concludes that sound institutions in resource-rich developing countries should be created and that in the meantime anti-corruption and transparency legislation should be agreed on by rich country members of the Bank and OECD .