US embassy cable - 05NDJAMENA866

UNCLAS  NDJAMENA 000866 
 
SIPDIS 
 
 
SENSITIVE 
 
LONDON AND PARIS FOR AFRICA WATCHERS; TREASURY FOR OTA, 
ENERGY FOR GPERSON AND CGAY 
 
E.O. 12958: N/A 
TAGS: ECON, EFIN, ENRG, EPET, PGOV, CD, Oil Revenue Management 
SUBJECT: CHAD'S OIL REVENUE MANAGEMENT: DEALING WITH THE 
FINANCIAL ISSUES 
 
REF: A. NDJAMENA 72 
     B. 04 NDJAMENA 2157 
 
 1.  (SBU)  Summary:  In a meeting with visiting Treasury 
advisors May 23, Chad's Minister of Finance explained his 
commitment to implementing Chad's oil revenue management 
system, but expressed concerns over the need to designate new 
priority sectors eligible for oil revenue financing.  He 
welcomed plans for a new resident Treasury Advisor and said a 
a provisional committee to oversee the expenditure of funds 
in the oil producing region would be installed soon.  The 
Treasury advisors also discussed the challenge of integrating 
Chad's new oil revenues into its overall budget process. 
Representatives from the World Bank and International 
Monetary Fund informed them that both institutions may also 
be sending resident budget advisors to Chad soon.  End 
Summary 
 
2.  (U)  Treasury Advisors Ken Torp and Eileen Brown visited 
Chad from May 15-26 as part of a series of periodic visits 
from the Office of Technical Assistance to strengthen the 
capacity of Chad's Oil Revenue Management College (the 
College).  Septel reports on their preliminary evaluation of 
the work of the College to date.  This message reviews their 
discussions with Chad's Finance Minister and the World Bank 
and IMF representatives. 
 
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MINISTER OF FINANCE: EVERY SECTOR IN CHAD IS A PRIORITY 
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3.  (SBU)  Minister of Finance Ngueyam Djaibe met with the 
Ambassador, the Treasury team, and P/E officer on May 23.  He 
was pleased to hear that the Treasury Department would be 
sending back a resident technical advisor.  The Treasury team 
emphasized the importance of constructing a strong 
relationship between the Ministry of Finance and the College. 
 Minister Djaibe described a "long tradition of cooperation" 
with the College and his view that it is important for the 
Government of Chad that management of oil revenues conforms 
with arrangements specified in the petroleum law. 
 
4.  (SBU)  Djaibe said that the College suffers from a 
staffing deficit which will be more pronounced as its 
workload increases this year.  He noted that the five-day 
deadline for the College to approve project proposals is 
already difficult to meet.  Djaibe also stated that the 
verification of the projects is also important and that it is 
in the interest of the GOC to have such an "organ of control" 
because a functioning independent monitoring entity helps 
improve the Government's credibility. 
 
5.  (SBU)  Djaibe views the role of the MOF and the College 
as complementary.  If the College detects deficiencies in a 
project, it is important for the ministries to correct them. 
He said that he is very interested in the outcome of any of 
the College's investigations.  He added that President Idriss 
Deby and Prime Minister Pascal Yoadimnadji share his 
interest.  It is the College that can let Chadian know where 
the oil revenues are being spent and dispel notions that the 
Government is hiding the money. 
 
6.  (SBU)  The Ambassador asked Djaibe how the revenues from 
the new oil fields will be handled.  Djaibe replied that on 
September 9, 2004, the Government announced it would apply 
the same law to the new fields.  However, he raised several 
issues with the current management system.  The first is the 
issue of the funds set aside for future generations.  He said 
that many Chadians are wondering when the future begins as 
they need salaries now as a means of reducing poverty. 
Second, he described the necessity of a strategy of good 
governance to enable the success of poverty reduction as 
outlined in the current law.  For example, the Ministry of 
Justice has asked that some petroleum revenues be set aside 
for the construction of the courts necessary to ensure rule 
of law.  The Ministry of Public Security argues that Chad is 
not safe for outside investments without law and order.  The 
Minister said that it is not possible to name a sector in 
Chad that is not a priority sector.  Third, the definition of 
 
 
what fits into the priority sectors is open to 
interpretation.  For example, communications and energy can 
be considered infrastructure, both of which are critical to 
poverty alleviation. 
 
7.  (SBU)  Djaibe also told the Ambassador that a provisional 
committee to oversee the five percent of oil revenues 
designated for the oil producing region has just been 
established.  It consists of three members of the National 
Assembly from the region, two traditional chiefs, two members 
of civil society, and the state-level representatives, such 
as the Deputy Governor and deputy state administrator for 
Finance.  This committee would remain in place until local 
elections are held in late June.  Talk of establishing this 
committee began in late 2003 and early 2004.  (Ref B.) (Note 
In January, we heard from more than one member of the 
College, that the provisional committee was hand-picked by 
President Deby.  The timing of its installation so close to 
the upcoming public referendum to remove presidential term 
limits is not a coincidence.  End Note.) 
 
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IMF 
- - 
 
8.  (SBU)  On May 23, the Treasury advisors and Econ/Comm 
officer met with Jean-Luc Helis, a technical associate 
advisor who heads an IMF team that has been working with the 
Ministry of Finance on improving the Ministry's technical 
capacity.  Helis noted that the most difficult issue with the 
budgetary process was the lack of a single treasury account 
that consolidates all government revenues and expenditures. 
Currently, the fragmentation of government funds 
significantly undermines the efficiency and transparency of 
budgetary operations, and presents additional costs for a 
Ministry already hampered by a lack of technical capacity.  A 
single treasury account would streamline the budgetary 
process, and allow the Ministry to examine and evaluate the 
collective budget. 
 
9.  (SBU) To aid the development of a single treasury 
account, Helis announced the IMF's intentions to send a 
resident technical advisor to work with the Ministry of 
Finance.  The advisor would also work with the Ministry's 
technical staff to develop strategies for reviewing and 
assessing the values and risks of project proposals.  Helis 
and the Treasury team both agreed that the Ministry was 
hampered by the Francophone budgetary model, which placed 
strict regulations on the expenditures of purchases 
associated with a specific project.  As a result of focusing 
too much on the process accounting for all items delineated 
in the project's budget, the technical staff loses focus of 
the effectiveness of the project itself.  The resident 
advisor would help the staff of the MOF to shift their focus 
from process to results. 
 
10.  (SBU) Helis also noted two other concerns for the 
Ministry of Finance.  First, its inability to absorb the HIPC 
resources obtained from the recently-obtained IMF package. 
Second, its inability to monitor the oil revenues as they 
shift from the CitiBank escrow account to the GOC's account. 
On both counts, Helis pointed to the lack of capacity 
(stemming from both a lack of technical expertise and 
infrastructure) within the Ministry to adequately report and 
account for resources as they flow into the government's 
budget.  Helis and the Treasury advisors agreed that the 
resident advisor should be able to improve the capabilities 
of the MOF in these areas, and concurred that the IMF 
resident advisor should work closely with the Treasury 
technical advisor at the College to address issues of 
capacity-building in both the Ministry and the College. 
 
 
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WORLD BANK 
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11. (SBU)  At the World Bank, Charles Donang Ningayo, a 
senior procurement specialist, met with the Treasury 
 
 
Advisors, P/E officer, and P/E assistant on May 25. 
According to Ningayo, the Bank will continue to provide 
support for the College even though the World Bank's support 
program for the College expires at the end of May.  Bank 
officials will discuss the College's needs in the coming 
weeks to design a new project, such as the modernization of 
Chad's public finance system, including linking the College 
with the Ministry of Finance and National Treasury through an 
Integrated Financial Management System.  Ningayo described 
the College's key weaknesses as lack of experience with 
advanced budget systems.  Torp added that the College members 
and technical staff also lack an understanding of budget 
analysis and need help in setting up a strong monitoring and 
control system to evaluate the expenditure of the funds. 
 
12.  (SBU)  The Treasury team told Ningayo that is important 
to forge a better relationship between the College and the 
Ministry of Finance.  Ningayo informed the team that the 
World Bank has identified a resident advisor that will work 
with the College technical staff on public finance issues. 
The World Bank advisor will likely arrive in July.  On the 
question of how oil revenues from the new fields will be 
handled, Ningayo said that initially the Government wanted to 
put in place a new structure to manage them.  However, the 
World Bank insisted that the Government modify the existing 
law to add the additional fields and use the same College to 
monitor the expenditures.  Ningayo also said that the World 
Bank is interested in developing a system by which the 
College can quickly discover financial discrepancies and 
report them to the National Treasury.  For now, this is 
difficult to do because the accounting is done manually which 
leads to a high percentage of errors. 
 
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COMMENT 
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13. (SBU)  With new fields expected to begin producing as 
soon as the end of the year, pressure will grow to finance 
projects not currently allowed under the oil revenue 
management mechanism.  While plans for World Bank and IMF 
budget advisors in Chad are welcome, the World Bank's 
proposal for an Integrated Financial Management System may be 
too much for Chad to handle.  The scheme would theoretically 
provide quicker and more modernized accounting practices. 
According to the Treasury advisors, however, the World Bank's 
previous attempts to implement these systems in other 
developing countries have failed.  Implementing such a 
technologically sophisticated system in Chad (which lacks 
even a basic IT infrastructure) could create more problems 
than solutions.  End Comment. 
 
14.  (U)  Torp and Brown did not have the opportunity to 
review this message before their departure. 
 
WALL 
 
 
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