US embassy cable - 05NDJAMENA1357

C O N F I D E N T I A L  NDJAMENA 001357 
 
SIPDIS 
 
 
LONDON AND PARIS FOR AFRICA WATCHERS, TREASURY FOR OTA, 
ENERGY FOR GPERSON AND CGAY 
 
E.O. 12958: DECL: 08/18/15 
TAGS: ECON, EFIN, ENRG, EPET, PGOV, CD, Oil Revenue Management 
SUBJECT: CHAD'S OIL REVENUE MANAGEMENT PROCESS: SHOWING 
SIGNS OF STRAIN 
 
 
Classified By: Political/Economic Officer Kathleen FitzGibbon for reaso 
ns 1.4 (b) and (d). 
 
1.  (C)  Summary: The recently released report of Chad's Oil 
Revenue Management College's verification of projects 
highlights some of the issues now arising over the use of 
petroleum funds.  The College found numerous deficiencies 
such as non-delivery or significant delays in delivery of 
items, poor quality of services provided, and some instances 
of fraud as it inspected projects approved in 2004.  The 
College made recommendations to the various ministries 
responsible for the priority sectors, but the responsibility 
for follow-up and accountability to their recommendations is 
unclear.  We have also learned of examples of encroachment on 
the College's mandate including the Prime Minister's requests 
for exceptions to the regular contracting process and 
President Deby's request for use of the stabilization fund in 
order to pay salaries of civil servants, who are about to go 
on strike.  Growing pressure to use petroleum funds for 
additional "priority areas" makes it a foregone conclusion 
that the government will seek to revise the law governing use 
of funds. The international community, including the World 
Bank and major donors should be seeking to shape the debate 
so that any changes are consistent with the goal of poverty 
reduction.  The transparent expenditure of the oil revenues 
and reform of the budgetary process requires close 
examination and will benefit from the presence of a resident 
U.S. Treasury Advisor.  End Summary. 
 
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REPORT FINDINGS 
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2.  (U)  Chad's Oil Revenue Management College recently 
published its report on its visits to projects approved in 
2004.  The report highlights a number of serious problems and 
makes recommendations to the various ministers responsible 
for the priority sectors (Education, Water Resources, 
Agriculture, Health, and Infrastructure).  Some of the 
deficiencies identified in the educational sector include 
lack of delivery or poor quality of contracted items such as 
desks and books, delays and/or non-construction of 
classrooms, and lack of a point of contact within the 
Ministry to answer the College's questions about these 
issues.  Contract delays, non-delivery of motor-bikes and 
communications, and lack of contact with local government 
authorities in Moissala, Bousso, and Wadijigui about proposed 
projects in their areas were identified in the Water 
Resources sector.  According to the College report, 
contractors only constructed two instead of four water 
distribution points.  In the agriculture sector, the College 
identified corrupt practices, including double charging for 
transport, dubious quality of pesticides, and materials that 
never arrived at intended sites.  The College also questioned 
use of funds by the research institutions, such as the 
University of N'Djamena and the government research center at 
Farcha.  In the health Sector, the College questioned the 
abandonment of a health center project at Abdi, in Ouaddai. 
The two roads projects visited were moving ahead, but not yet 
completed. 
 
3.  (U)  The College recommended an increase in the number of 
verification visits to project sites and public awareness 
campaign to explain the role of the College to Chadians 
throughout the country.  The College also called for 
discussions among each of the priority sector ministers to 
discuss project deficiencies and work to resolve the 
disconnects between the Minister of Finance and the 
institutions of financial control (dispensing).  It 
recommended that the university accounts be audited for fraud 
and that contractors be penalized for failure to execute the 
contracts properly.  Other recommendations included the need 
for priority sector ministries to involve and inform local 
authorities in projects and resolving a lack of understanding 
among local populations about price of oil and management of 
the oil revenues. 
 
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MIXED GOVERNMENT REACTION 
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4.  (C) P/E and E/C officer met with Dobian Assingar, 
representative of human rights groups on the College, on 
August 18 to discuss the report and its likely consequences. 
According to Assingar, when the report was presented to 
President Deby and his immediate advisors, their first 
reaction was one of anger and disappointment over the 
non-execution of projects by government ministers.  However, 
they also noted to the College that the government should 
have seen the report prior to its public distribution. 
 
5.  (C)  According to Ahmat Saleh Bodoumi, a ruling Movement 
for Patriotic Salvation (MPS) deputy who represents the 
National Assembly on the College, the report should have been 
given directly to the Government for a response.  After 
fifteen days, the College transmits it to the Supreme Court 
and releases it to the public.  At this juncture, the Supreme 
Court has requested that the College submit a letter 
requesting it to take action on any deficiencies. 
 
6.  (SBU) During a courtesy by the Ambassador, DCM, and E/C 
Officer, the recently-appointed Minister of Finance, Abbas 
Tolli, stated that the Government continues to support the 
process established by the Revenue Management Law and the 
independence of the College.  Nevertheless, he noted that the 
priorities of the current Revenue Management Law required 
revisions, given immediate problems not foreseen by the 
drafters of the law.  Tolli indicated that the Government was 
planning to re-advocate the abolition of the Fund for Future 
Generations, as the resources of the fund needed to be 
utilized for present social needs. 
 
7.  (SBU) On August 25, during a meeting with E/C officer, 
Director of Cabinet for the Ministry of Petroleum, Abdelkarim 
Abakar, said that the Ministry was concerned by the 
deficiencies highlighted by the College's report.  However, 
he explained that while the shortcomings were worrisome, a 
matter of greater concern was the World Bank's 
ineffectiveness to generate the means to correct these 
deficiencies.  Abakar argued that the failure of the Bank to 
deliver on capacity-building initiatives has resulted in the 
inefficient management of the oil revenues.  With regards to 
the Revenue Management College, he said that the Ministry is 
highly supportive of the independence of the College and the 
transparent management of oil revenues, but feels that this 
process demands enhanced international support if it wishes 
to be a success. 
 
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GOVERNMENT REQUESTS USE OF STABILIZATION FUND 
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8.  (C)  Assingar stated that prior to the recent cabinet 
reshuffle, former Minister of Finance Ngueyam Djaibe arrived 
at a weekly College meeting to request, on President Deby's 
behalf, 4 billion FCFA (approximately 8 million USD) from the 
stabilization fund to pay for outstanding salaries (the fund 
itself was established in July 2003 to manage external price 
shocks).  According to Djaibe, the Government was making the 
request to demonstrate responsibility to the international 
financial institutions and to avoid a series of potentially 
destabilizing strikes.  While Assingar himself raised 
concerns about an apparent circumvention of the Revenue 
Management Laws with Djaibe's request, the other members of 
the College approved the request without debate.  He 
expressed to P/E and E/C officers his concern that this 
request is the first of many to come. 
 
9.  (C) Bodoumi said that the stabilization fund can be used 
for situations to absorb external shocks.  He said the 
College approved the Government's request because the current 
dire financial situation of the government constitutes an 
urgent situation and a potential government-wide shock.  He 
agreed with Assingar that there is a high likelihood the 
Government will continue to make such requests.  Bodoumi is 
also a member of the Petroleum Committee in the NASS and has 
backed the College since its inception.  He said the 
Government has yet to explain to the National Assembly where 
the budgeted funds and monies from donors have gone for 2004 
and 2005.  Bodoumi is particularly concerned with corruption 
surrounding the funds spent on the public referendum, 
particularly those off-budget monies.   According to several 
 
 
sources within the ruling party, each Governor was given at 
least 400,000 USD.  Several ministers were fired for their 
failure to deliver the vote and account for money given to 
them late last year for the registration and referendum. 
 
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OTHER CONCERNS 
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10.  (C)  Assingar and Bodoumi also described attempts by GOC 
officials to circumvent normal contracting procedures in 
order to give projects to friends and allies.  For example, 
Prime Minister Pascal Yaodimindji requested exceptions to 
normal contracting methods.  According to Assingar, the 
College can approve exceptions in the case of extreme 
urgency, or contract specific services which require a firm 
which specializes in a particular service, or in a case where 
money can be saved if a particular contractor is used. 
However, the Prime Minister allegedly tried to reward his 
friends with contracts for projects with the oil revenues. 
For example, one contract was issued for 800 million FCFA for 
a one kilometer road allegedly to a friend of the Prime 
Minister.  The road was constructed with oil revenues at the 
request of President Deby for security reasons.  Boudoumi 
told us that Deby needed a direct road to the airport that 
would not take his motorcade in front of two military 
installations (the Nomadic Guard and the Gendarmerie).  The 
College rejected a different request from the Prime Minister 
for another exception to the contracting procedures.  The 
Prime Minister wrote back insisting on the contract, claiming 
that the College's refusal amounted to insubordination to 
President Deby.  College President Lamana Abdoulaye, who 
represents the National Assembly, complained when the College 
members questioned why the Prime Minister had resent the 
request.  According to Dobian, Lamana said that if the 
College refuses the Prime Minister's request, it would create 
a "crisis between the two institutions (namely, the College 
and the Prime Minister's office)".  The World Bank issued a 
statement expressing its concerns about the circumvention of 
contracting procedures. 
 
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IMF PRESENTS ITS OWN ASSESSMENT 
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11.  (C) On August 21, Ambassador and E/C officer met with 
IMF Representative Wayne Camard and Technical Assistance 
Deputy Director Pierre Van Den Boogaerde, who is leading a 
joint IMF-World Bank mission to assess Chad's PRGF progress. 
According to Van Den Boogaerde, Chad's Revenue Management 
Process is experiencing operational difficulties, rather than 
transparency issues.  The major problem with the process, 
noted Van Den Boogaerde, is the complexity of the system 
(which currently separates the budget of the oil revenues and 
the national budget), which prevents the government from 
accurately ascertaining its revenue and expenditure levels. 
Complicating matters are the lower-than-expected revenues 
associated with oil production, and a continuation of 
spending at the end of FY 2004 by the GOC even when they 
lacked the adequate financial resources.  According to Van 
Den Boogaerde, spending on military operations in Darfur and 
the June referendum had little impact on the revenue 
shortfalls.  Both officials said that the burden of the 
budgetary system would be eased by the creation of a single 
treasury account that combines the regular budget and the oil 
budget.  They also pointed out that this system could still 
safe-guard the role of the College, allocate resources for 
the oil-producing regions and the Fund for Future 
Generations, emphasize the theme of social expenditures of 
the existing Revenue Management Laws.  They noted that the 
team was discussing the possibility of proposing this idea in 
the beginning of 2006 when the Revenue Management Laws would 
be up for revision. 
 
12.  (C) The Ambassador then raised some of the concerns 
highlighted by Assingar to Camard and Van Den Boogaerde.  Van 
Den Boogaerde said that he did not understand how the 
government could take resources from the Stabilization Fund, 
as currently the Fund lacked resources.  He and Camard 
pointed out that the recent expenditure of salaries of 4 
billion FCFA actually conformed to the National Budgetary 
 
 
Law, for the Law permits the government to substitute oil 
revenues for a immediate social expenditure not accounted for 
in the creation of the national budget, such as salaries.  In 
return, the government is required to compensate the shortage 
in the oil budget by this expenditure by transferring 
resources from the regular budget to the oil budget.  Van Den 
Boogaerde assured the Ambassador that this process still 
upholds the mandate of the Revenue Management College, which 
makes the final decision on this initiative.  He also 
commented on the GOC's overall compliance with the spirit of 
the Revenue Management Process, saying that the Government 
has supported the Revenue Management Laws and the presence of 
the College.  The IMF did reject the GOC's request to 
eliminate the Fund for Future Generations, which, according 
to the two officials, is the only formal attempt by the GOC 
to seek amendments to the Revenue Management Process. 
 
- - - - 
COMMENT 
- - - - 
 
13.  (C)  Chad's oil revenues are protected by the Revenue 
Management Law to ensure their transparent and accountable 
use for poverty alleviation. Swift action by the various 
ministries in the priority sectors on the verification 
reports' recommendations could demonstrate the Government's 
commitment to the process.  The World Bank should also 
deliver on promised assistance to bolster the College's 
internal transparency measures. 
 
14.  (C)  The differences of opinion between the Government, 
international financial institutions, and civil society over 
interpretation of the law and the proper use of the revenues 
are to be expected as the system is finally being tested. 
Civil society representatives are particularly concerned over 
what they view as the Government's weakening commitment to 
poverty alleviation and mismanagement of other budget 
revenues.  The Government may also be misinterpreting signals 
from the international financial institutions on eventual 
revision of the law governing use of oil revenues.  The 
international community, including the World Bank and major 
donors should be seeking to shape the debate so that changes 
are consistent with the goal of poverty alleviation.  The 
transparent expenditure of the oil revenues and reform of the 
budgetary process requires close examination and will benefit 
from the presence of a resident U.S. Treasury Advisor. 
TAMLYN 
 
 
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