Watching Government - Transparency test

Oct. 13, 2003
The World Bank hopes that by tying transparency guidelines into its financing of the $3.7 billon Chad-Cameroon oil pipeline project it will mean other resource-rich developing nations will follow Chad's example and accept public accountability standards.

The World Bank hopes that by tying transparency guidelines into its financing of the $3.7 billon Chad-Cameroon oil pipeline project it will mean other resource-rich developing nations will follow Chad's example and accept public accountability standards. Bank officials said countries looking to secure loans must show a desire to translate resource revenues into sustainable benefits (see related article, p. 35).

Country discussions

The bank is talking with several other developing countries that, like Chad, might agree to follow transparency guidelines to get financing for lucrative energy deals.

The bank won't name names but says some discussions are "quite advanced." Its efforts also are linked with a UK-led voluntary anticorruption effort called the Extractive Industries Transparency Initiative that ties future development deals with specific transparency goals. Azerbaijan, Ghana, Trinidad and Tobago, Indonesia, Timor-Leste, and Nigeria are among the countries mulling an EITI-sponsored pilot program (OGJ Online, June 18, 2003). Human rights group Transparency International says EITI is flawed because it is hard to enforce. Yet the group concedes doing nothing is worse; corruption remains particularly virulent in Azerbaijan, Indonesia, and Nigeria.

Looking to Chad

In the case of Chad, pipeline revenues—pegged to future oil prices—are expected to represent about half of the country's budget. The bank gave Chad financial backing to hold an equity position in the ExxonMobil Corp.-led project only after it agreed to cede direct control of future revenue. The country meanwhile passed a law setting aside 10% of royalties and revenues from the pipeline for a "future generations" trust fund. Another 80% goes to economic and social services such as education, health, infrastructure, and rural development, and 5% is earmarked for regional development in the Doba oil-producing area. Petroleum accounts are to be published annually, audited by the government, the bank, and an independent oversight committee.

While acknowledging no system is "watertight," the bank says enough safeguards are in place to track the money coming in and how it gets spent.

"We entered into this project knowing there would be risks, but if we did not take some risk, we wouldn't get anywhere," said Rashad Kaldany, director of the oil, gas, and chemicals department for International Finance Corp, the bank's private-sector arm. "The next few months and years will be critical," Kaldany said.

It won't take long to start monitoring the money flow: The first oil revenue payment is expected to land in a dedicated offshore escrow account by mid-October.

Ultimately, Chad's is expected to earn more than $2 billion in petrodollars, with Cameroon receiving at least $500 million assuming the project lasts 25 years and world oil prices average $15/bbl. Given that oil prices may likely stay above that figure, the windfall could be even better for a land considered to be one of the five poorest countries in the world. Even under the original assumptions, the annual per capita income of the average Chad citizen is expected to double to $550 by 2005.