Sunday, October 08, 2006

Chad and the Curse of Oil?

Chad Settles Oil Taxes Dispute
Oil Wealth Fails Chadian Villagers
Oil Politics Fuel Chad Violence

The African country of Chad has settled a dispute with two foreign oil companies after they agreed to pay more than $280 million in overdue taxes. In August, Chadian President Idriss Deby threatened to expel Petronas, a Malaysian company, and Chevron, an American firm, from the country saying they owed more than $500 million in overdue taxes.

However, on Friday, the two firms signed an agreement that will allow them to continue operations in the country. Chad also agreed to waive a $64 million charge as a gesture of goodwill. Both Chad’s finance minister, Abbas Mahamat Tolli, and the African director of Chevron, who represented both companies, signed the agreement.

Under the agreement, the money must be paid within the next seven days. It will also render the original tax agreement, signed in 2000, as invalid. One unresolved issue is Chad’s desire to join the oil consortium in producing oil. President Deby believes Chad should have a 60% stake in the consortium - the same share that the two firms hold between them. (Exxon Mobil hold the remaining 40%.)

Chad has been exporting oil on a significant scale since 2003, after the construction of a 1,000 mile pipeline from Chad through Cameroon to the coast. That project was given crucial backing by the World Bank, which lent money and support on the basis that much of the income would go to alleviate poverty in the region.

The World Bank insisted on setting up a group called the 5% Committee - which allocates extra oil revenues to the oil-producing region. But despite being set up almost two ago, the committee has yet to finish a single project. Giant electricity pylons and gas flares dominate the landscape in southern Chad, but the people living amidst the oil fields do not receive any power in their villages.

In early 2006, the Chadian government changed its laws, giving itself greater discretion to spend oil revenue as it saw fit. Some of the money has been spent on arms. The World Bank subsequently froze large sums of development aid to Chad as a mark of its displeasure.

1. Is Chad’s mineral wealth contributing to the country’s instability and making life worse for most people, rather than bringing them higher living standards?
2. How can the World Bank ensure that income generated by projects it funds will go to poverty alleviation?

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