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The oil curse, part 1

Latest update : 2008-10-10

The World Bank's decision in 2000 to issue Chad a loan for an oil pipeline against the promise that it would use its revenues to fight poverty was recently overturned. Read how a blue print for Africa's development became a World Bank embarrassment.

The World Bank released a communiqué last month announcing that it would “not continue to support” the development of the Chad-Cameroon oil pipeline, for which it had approved funding in 2000.

The tone contrasted with the celebrative mood that prevailed seven years before, when the World Bank had dubbed its cooperation with the Chadian government “an unprecedented framework to transform oil wealth into direct benefits for the poor.” These ambitious goals were to be achieved through a “first-of-its-kind program to direct new revenues to support economic and social development programs.”

After being notified that it had failed to comply with the Bank’s requirements last summer, Chad promptly paid back the loan for the 1,070 kilometer long pipeline connecting Chad to the Gulf of Guinea via Cameroon. It is now free to spend the revenues from its oil exports as it wishes.

“It is a disappointment, especially as the agreement on the use of petroleum resources to benefit the poor was the cornerstone of the project,” says Michel Wormser, director of operations for Africa at the World Bank.
But many among the Chadian civil society and international NGOs would rather call it “a predictable result,” arguing that the country wasn’t strong enough to resist the curse of oil and easy money.

The Chad-World Bank agreement, “the greatest event after Independence”

The breakup of the agreement is an “unfortunate precedent,” Nicolas Sarkis, editor of Arab Oil and Gas Magazine, says. But it was a significant initiative, he adds.

Chad had known for years that it was sitting on oil reserves, in particular in the southern region of Doba where an estimated 900 million barrels of oil waited to be pumped out. But with no outlet to the sea or money to invest in infrastructures to ship the barrels abroad, there was little it could do about it.

“Let’s not forget that before 2002-03 for a country like Chad, it was difficult to get the attention of foreign oil companies and have them invest hundreds of million of dollars to find oil at a time when the barrel price was low and oil companies were courted by many countries in the world at very advantageous prices,” Sarkis said.

Things changed in the late 1990s after oil companies realized that if they could get the help of international institutions to fund the construction of a pipeline from Doba to the Cameroon port of Kribi in the Gulf of Guinea and obtain the cooperation of national governments, then the investment could be worth it. The US majors Exxon-Mobil and Chevron Corp and the Malaysian Petronas got involved.

Chad’s gross national product per capita at the time didn’t exceed $230 and life expectancy at birth was 49 years. For President Idriss Deby, the pipeline was “the greatest event in the country’s history after Independence” as he told French daily Le Figaro in 2000.

Indeed, in 2004, the first full year of production, net oil revenues represented over 40% of a national budget that until then had mostly been financed through cotton exports. Oil revenues for 2008 so far amount to US$1.4 billion.

Oil buys weapons, not school books

Local human rights and environment activists had been sceptical from the start. Chad wasn’t ready to manage oil revenues and deal with the impacts of its sudden wealth, they argued. Their calls for a moratorium were ignored at first.

But the World Bank eventually agreed to put conditions on the loan so that the Chadian government would be held accountable for the use it would make of oil revenues. These conditions were drafted into a law in January 1999.

Under the agreement, some 80% of oil revenues were earmarked for the fight against poverty in five priority sectors. Ten percent were to be saved on a Future Generations Fund. A surveillance college, composed of members from both government and civil society, was established.
By all account, President Deby never really abided by his commitments. Local NGOs say that aside from a few education and health projects in the oil producing region, the population never saw the color of the money. The roads allegedly paid for by the oil revenues are already riddled with potholes, one of the many signs that much of it went to oil the constructors’ palms, says Gilbert Maoundonodji, a member of the N’djamena-based Group for alternative Research and Monitoring of the Chad-Cameroon oil project .

By 2006, the cost of an oil barrel was three times what it was six years earlier and Deby was in a much stronger position to renegotiate a more favourable agreement. As tensions with neighbouring Sudan over Darfur grew and as Deby felt increasingly threatened by various armed rebellions across the country, security was added to the list of priority sectors under the 1999 law – paving the way for the government to buy arms officially destined to make the country safer.

“The World Bank underestimated how much the Chadian government was going to make from oil,” says an international NGO worker who didn't want to be named because of the difficulty of working in Chad. The Bank had leverage as long as Chad wasn’t making much money from oil, but the situation changed revenues started growing.

With or without the World Bank, the oil keeps on flowing. The government continues raking in the profits with the oil companies’ silent approval and Chadians are still excluded from the bonanza. “It’s a fight of David versus Goliath,” says Maoundonodji, who wishes the World Bank would have continued assuming its responsibility towards the population. “But we must continue to talk about it. Natural resources belong to everybody.”

Read part 2 of FRANCE 24's report "The oil curse".


Date created : 2008-10-09