US embassy cable - 05NDJAMENA1431

C O N F I D E N T I A L  NDJAMENA 001431 
 
SIPDIS 
 
 
DEPT FOR AF, EB; DOE FOR CAROLYN GAY AND GEORGE PEARSON, 
TREASURY FOR OTA, LONDON AND PARIS FOR AFRICA WATCHERS 
 
E.O. 12958: DECL: 09/23/2015 
TAGS: ECON, EFIN, ENRG, PGOV, CD, Oil Revenue Management 
SUBJECT: CHADIANS SEEK GREATER FLEXIBILITY WITH NEW OIL 
ROYALTIES 
 
REF: NDJAMENA 1357 AND PREVIOUS 
 
Classified By: Economic/Consular Officer Jitu Sardar for reasons 1.4 (b 
) and (d). 
 
1.  (C) SUMMARY: The GOC has formally asked Esso to deposit 
revenues from its new satellite field directly into the 
Government's Public Treasury, rather than follow the existing 
revenue management process, which stipulates placement in an 
escrow account.  Esso has declined to adhere to this request, 
and has formally informed the World Bank of this development. 
 The IMF Representative has asked the Government to reverse 
this decision.  While revenues from the new field are 
technically not covered by the petroleum law governing the 
project, the Government's request sends a negative signal 
about its intentions for managing revenues from future 
discoveries.  END SUMMARY. 
 
2.  (C) On September 22, Esso Public Affairs Advisor Miles 
Shaw informed E/C Officer that Minister of Petroleum Oumar 
Hassan had sent a formal request to the Consortium to deposit 
all royalties from the new oil fields in the Doba region 
directly into the Public Treasury, rather than follow the 
current revenue management process that required Esso to 
deposit royalties into the CitiBank escrow account.  Shaw 
stated that the Consortium would not agree to the 
Government's request, as Esso was already committed to 
following the current financial mechanism, and could not 
deviate from its current arrangements at this time.  Esso has 
also formally informed the World Bank of the Minister's 
letter.  Shaw noted that the company is extremely concerned 
about the implications of this request for the revisions of 
the petroleum law in 2006. 
 
3.  (C) On September 23, IMF Resident Representative Wayne 
Camard stated to E/C Officer that he was able to confirm this 
request after speaking to representatives in the Public 
Treasury and members of the President's economic advisory 
team.  According to Camard, he asserted to all the officials 
that the GOC should reconsider its request to Esso, as the 
international donors would begin to question the Government's 
commitment to the transparent measures stipulated in the 
revenue management process.  All GOC officials told Camard 
that they would look into the matter, and that the Government 
respected the revenue management laws.  Camard said that he 
suspected certain GOC officials were trying to take advantage 
of the absence of Finance Minister Abbas Tolli (who is head 
of the Chadian delegation at the IMF-World Bank meetings in 
Washington) to exert control over the new royalties. 
 
 
4.  (U)  The revenues at issue come from the Nya field that 
was brought online in June.  The field consists of four wells 
and is adjacent to the Miandoum field, one of three that have 
been producing since the project got underway in 2003. 
Chad's petroleum law governing oil revenues strictly applies 
only to those three existing fields.  Esso is also working to 
develop the much larger Moundouli field to the west.  These 
efforts are part of a push to increase production.  Average 
daily production this year has been only just over 180,000 
barrels per day, much less than the over 200,000 barrels per 
day originally forecast. 
 
5.  (C) COMMENT: Chad, strapped for cash as always, is 
chaffing at the constraints imposed by the current petroleum 
law.  While funds pile up in the escrow accounts waiting to 
be spent on projects in the designated priority sectors, 
civil servants are going unpaid and the Government feels 
under pressure to address needs in other sectors.  But by 
attempting to circumvent the existing arrangements, the GOC 
sends a negative signal concerning its intentions for future 
oil revenues, and verifies some of the concerns that NGO 
groups have been highlighting.  While the dollar amount of 
the royalties being considered is small, the symbolic effect 
of the Government's actions is tremendous.  It is not clear 
who within the Government initiated this process.  It is 
possible that new GOC officials, who are still educating 
themselves on the Oil Revenue laws and are inexperienced on 
the political implications of such a decision, pushed this 
request forward without considering the ramifications.  In 
our recent meetings (septel), the new petroleum minister as 
well as the National Coordinator of the oil project have 
 
 
assured us of Chad's intentions to manage revenues from new 
fields "in the spirit" of the current arrangements.  However, 
if the GOC is truly committed to altering the flow of oil 
revenues, its decision does not bode well for negotiations in 
2006 on revisions to the petroleum law.  The Embassy will 
continue to highlight our concern over any deviation from the 
current process.  We believe the Chadian delegation in 
Washington should also hear from Treasury and State officials 
that we are concerned with its latest request to Esso. 
WALL 
 
 
NNNN