Editorial: The Chadian experiment

Feb. 13, 2006
The Chadian experiment is faltering. Landlocked, poor, and fractiously governed, Chad was supposed to refute the paradox economists call “the resource curse.

The Chadian experiment is faltering. Landlocked, poor, and fractiously governed, Chad was supposed to refute the paradox economists call “the resource curse.” It was supposed to show that oil development, subject to proper control, can relieve chronic poverty. It might yet do so. But the challenge grows.

The experiment began well enough. With help from the World Bank, the 670-mile pipeline that carries crude from Doba basin fields of southern Chad across Cameroon to the port of Kribi started up in 2003. The next year, Chad’s gross domestic product grew 31%. According to resource-curse theory, much of the wealth should have disappeared through corruption. But the World Bank linked its assistance to unprecedented controls aimed at ensuring transparency and proper use of funds.

Economic growth slowed last year but is estimated to have amounted to a respectable 10%. Although production from the three main Doba basin fields-Kome, Miandoum, and Bolobo-fell below projections, rising crude prices kept total project revenue ahead of plan. Partners Esso Exploration & Production Chad Inc., Petronas, and Chevron Corp. have been bringing new fields on stream and pressing other efforts to lift production.

Strained government

But the government of President Idriss Deby isn’t satisfied. Financially strained and facing an array of political pressures, including bloody problems along its border with Sudan, the government last year began to balk at the World Bank’s controls. In late December, the National Assembly passed amendments to the 1999 law upholding the project. The bank said the changes would “substantially weaken the poverty-reduction agenda mutually agreed to as a condition of lending.” On Jan. 6 it announced it was withholding new loans and grants to Chad’s government and suspending disbursement of $124 million of International Development Association funds allocated to eight Chadian projects. Deby signed the amendments into law anyway.

Chad’s changes to the Petroleum Revenue Management Law are fundamental. Among other things, they add territorial administration and security to a list of “priority sectors” to which most of Chad’s share of petroleum revenues are supposed to flow. The changes also eliminate a reserve called the Future Generations Fund and transfer $36 million in it to the general budget. They allow future changes to “priority sectors” to be made by decree and more than double the share of royalties and dividends that can be allocated to nonpriority uses.

Representatives from the bank and government met at the end of January but reported no resolution to the impasse. Since then, according to press reports, Deby has called for renegotiation of the 1988 oil agreement with the ExxonMobil group, under which the government receives a 12.5% royalty channeled through a London bank. He says he inherited the agreement from a former regime and shouldn’t have to honor it.

Difficulties appeared before a desperate government began this formal looting of its country’s economic future. The latest report of the International Advisory Group set up to monitor program progress for the World Bank wasn’t encouraging. During a visit to Chad and Cameroon last September and October, inspectors found that technicians at the Chadian finance ministry “still do not fully master oil revenue calculation.” Then this: “The legal and regulatory framework instruments for managing the oil sector are still lacking.”

Immediate hunger

It’s tempting to blame these troubles on a scofflaw government. Outside Chad, however, it’s probably impossible to appreciate how bad things are inside the country, which even after current growth has one of the world’s worst economies to go with the border violence, lingering tensions of a long civil war, and a growing population of Sudanese refugees. To cultures motivated by immediate hunger, the promise of future wealth can mean little, and rule of law can seem like an abstract luxury of societies elsewhere.

No one should give up on Chad or the World Bank project. Two realities lie beneath the current drama. One is that if Chad has hope, oil production must continue and grow. The other reality, that Chad may in fact have no hope, is too horrible to tolerate.