Chad and World Bank settle oil-money dispute

Jul 17, 2006 02:00 AM

by Paul Blustein

The World Bank and Chad have resolved a dispute over the use of Chad's oil revenue, defusing a clash that has tested the anti-corruption credentials of the bank's president, Paul Wolfowitz.
The agreement, announced by the bank, was made possible in part because the soaring price of oil presents Chad, one of Africa's most impoverished nations, with an unanticipated windfall. The pact concerns a 650-mile pipeline that the bank helped finance in 1999 so landlocked Chad could export its oil.

Sceptics warned that riches from such projects almost always line the pockets of corrupt elites, but the bank vowed to make Chad a showcase for how it could help African nations use their natural-resource wealth to help the poor. Under the accord, Chad has promised that 70 % of its budgetary resources in 2007 will go for poverty-reduction purposes -- a wide range of programs including health, education, infrastructure, de-mining and rural development.
"This is a huge step forward," Wolfowitz said, because the government of President Idriss Deby is pledging that all its oil-related revenue will go to those programs, not just the royalties specified in previous agreements.

But Ian Gary, a policy adviser for the anti-poverty group Oxfam America and long-time critic of the project, said that with the government now likely to reap far more petrodollars than previously assumed, he is more concerned than ever about the danger of waste and pilferage.
"There's a huge windfall that wasn't expected, wasn't planned for, and certainly is going to test the budget system in a country where that system is already broken," Gary said.

Battles with the Deby regime over its use of oil money presented Wolfowitz with one of his biggest challenges since taking the bank presidency in June 2005. Having vowed to crack down on corruption, he was obliged to take a tough line but concerned about causing the collapse of Chad's government, which would risk turning the country into a failed state and haven for terrorists.
Until late last year, most of the royalties paid by oil companies to the government went into a special fund in London, where they were earmarked for such projects as schools and health clinics.

But Deby unilaterally ended that arrangement, saying he needed more money for his security forces as rebellions flared and refugees poured across the border from Sudan. Wolfowitz responded on Jan. 6 by effectively blocking the government's access to the London fund.
An interim accord in April, intended to last three months, freed some of that money.

The new agreement could be the foundation of a more permanent arrangement, and is an attempt to deal with additional taxes that the government is getting from the oil companies because of high petroleum prices.
While about $ 400 mm in royalties went into the London account from the start of production in 2003 through 2005, indirect taxes on higher-price oil -- which weren't subject to any controls -- will give the government an estimated $1.5 bn next year.

Source: The Washington Post
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