-
-
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MEMO FOR GEORGE WOLFE
FROM:
SUBJECT: CHAD CAMEROON PIPELINE
Here is some introductory material on the revenue management side of this pipeline
project.
I will get more details this afternoon.

-- ·-- -- ---------------------·---
Chad-CamerQon Petroleum Development and Pipeline Project -- -
Page 1 of 15
Questions and Answers
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The extensive debate on this project has raised several issues and
concerns. The following represent the 12 most critical questions and
responses to them.
(Last Updated: Wednesday, December 18, 2002)
JIIHOTOMO£OJd.BuM 1. Why is the Bank Group involved?
J;mm:msmm• ~2. How can we be certain the oil revenue will be used wisely?
I.JI4Q 3. What about the human rights situation?
"--------' 4. Will the project permanently damage the environment?
5. How will local people be protected against health risks,
particularly HIV/AIDS?
6. Is there enough funding for the environmental and social
protection measures?
7. Has there been enough consultation?
8. How do we know the companies and countries will honor their
agreements?
9. Who will supervise project implementation? Will there be
independent monitoring?
10. What project reports will be available to the public?
11. What benefits can be expected from the project in terms of
local employment and business opportunities in Chad and
Cameroon?
12. Do the agreements give unreasonable rights to the private
sector companies?
Rationale
1. Why is the Bank Group involved?
Chad is one of the poorest countries in the world. About 80 % of its
7.5 million people- or 6 million people- live on less than $1 a day.
Chad also has very high infant mortality rates, limited access to
basic social services, and extremely poor nutrition. Without oil, and
despite recent growth of 5% a year, it could well take 35 years to
double per capita income.
The country's harsh physical environment (90 % desert or semi-
arid), very narrow economic base, and lack of skilled people limit the
opportunities for growth in most sectors. This project provides Chad
with a unique opportunity to lift itself out of its extreme poverty. The
additional revenues could remove the bottlenecks that constrain
growth and create opportunity for the next generation of Chadians.
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Chad-Cameroon Petroleum Development and Pipeline Project Page 2 of 15
However, natural resource "booms" are difficult to manage. Drawing
on the Bank Group's global knowledge, the Bank wants to help the
country make certain that its new wealth will be invested for the
well-being of all Chadians. For this reason, the project is an
important element in the Bank's country assistance strategy for
Chad. The project will also generate new revenues for development
in Cameroon. ·
The project should help to increase Government spending on key
economic and social services. Rather than displace social sector
projects, it will support implementation of World Bank and other
donor-assisted projects in these sectors by generating additional
revenues to finance critical Government expenditures, such as
teachers' salaries. A related capacity-building project will assist the
Chadians in introducing sound public expenditure management and
to identify, prepare, and implement social sector investments.
Why now? Petroleum was discovered in southern Chad 30 years ago,
and the country has been waiting anxiously ever since for the right
combination of political strategy, international prices, and private
interest to develop the resource. Chad is not the only country with
untapped petroleum reserves. Exploration is underway right across
the continent to find new oil sources - which could prove cheaper
and more accessible. If Chad did not seize this opportunity, it could
well have passed the country by.
More needs to be done to build capacity within civil society to
participate fully in project implementation. This capacity building is
underway and will continue over the next three years before oil
revenues start to flow. Until the oil is developed, poverty will remain
deep and widespread. For example, each year 60,000 children die
before the age of five. Although the project by itself will not
eliminate early childhood deaths, it is certain that revenues from the
pipeline - linked to improved basic health and education programs -
will save a large number of these young lives.
Governance/Corruption I Human Rights
2. How can we be certain the oil revenue will be used wisely?
Chad and the Bank Group have applied the lessons of international I
experience to the proposed management of the oil resources. The
Government has already taken unusual steps to target most of the
oil revenues to poverty reduction and to ensure public oversight of
the use of these resources.
On December 30, 1998, Chad's Parliament approved a Jaw that set
out the Government's poverty reduction objectives and
arrangements for the use of the revenues. Under the law, 10% of
the royalties and dividends will be held in trust for future
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Chad-Cameroon Petroleum Development and Pipeline Project Page 3 of 15
generations, 80% of the remaining funds will be devoted to
education, health and social services, rural development,
infrastructure, and environmental and water resource management,
and 5% will be earmarked for regional development in the oil-
producing area (over and above its share of national spending).
In addition, the law created an oversight committee to monitor the
use of the oil revenues. This committee of nine members Includes
representatives of the Government, Parliament, the judiciary, and
civil society.
A related IDA capacity-building credit is supporting the work of the
oversight committee, as well as strengthening Chad's general
accounting office and the dissemination of information about
government expenditures.
There will be annual published audits of the petroleum accounts,
regular public expenditure reviews by the Government and the
Bank, and special arrangements for channeling and accounting for
the funds.
The Government has committed itself to observing the law as part of
the Bank Group's loan and credit agreements for the pipeline itself
and for the related capacity-building operations. Good performance
in this respect is also central to implementing the Bank's country
assistance strategy. Even with the project, Chad will need the
support of the international development community to achieve its
development objectives. The decree concerning the scope of work of
the oversight committee has been finalized.
In Cameroon, increased revenues from the project will be less
significant: only 3% of the national budget, compared with 45-50%
In Chad. Hence, earmarking .of the funds for poverty-related
spending seemed more cumbersome than practical. Public disclosure
of the use of oil revenues is already part of the Bank and IMF's
economic reform program In the country.
Actual revenues from the pipeline will not begin to flow until early
2004. During that time, the Bank will work with the two
governments to strengthen key institutions for implementing and
monitoring project activities. Three parallel capacity-building
projects - two in Chad and one in Cameroon - will help implement
an Improved public expenditure system in Chad and bolster both
countries' capacity to implement environmental protection
measures. The time until year 2003 is also being used to prepare a
specific development plan for the oil-producing region.
Also, see the Statement to the European Parliament's Development
Committee r (8 KB) and the Note on the Use of the Petroleum
Bonus J- (8 KB).
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Chad-Cameroon Petroleum Development and Pipeline Project
Page 1 of8
Project Overview
Project Summary 1 Rationale 1 Project Status I Description and
Financing I Project Benefits I Revenue Management I Environment I
Capacity-Building Projects 1 Maps 1 Chad at-a-glance I Cameroon at-
a-glance 1 Concept Paper
(Last updated: Wednesday, ·oecember 18, 2002 )
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Project Summary The project is to develop the oil fields at Doba in
southern Chad (at a cost of US$1.5 billion) and construct a 1,070
km pipeline to offshore oil-loading facilities on Cameroon's Atlantic
coast (US$2.2 billion). The sponsors are ExxonMobil of the U.S. (the
operator, with 40% of the private equity), Petronas of Malaysia
(35%), and ChevronTexaco of the U.S. (25%). The project could
result in nearly US$2 billion in revenues for Chad (averaging US$80
million per year) and US$500 million for Cameroon (averaging
US$20 million per year) over the 25-year production period.
Project Rationale This project could transform the economy of
Chad. The country is so poor at present that It cannot afford the
minimum public services necessary for a decent life. By 2004, the
pipeline would increase Government revenues by 45-50% per year
and allow it to use those resources for important investments In
health, education, environment, infrastructure, and rural
development, necessary to reduce poverty.
Bank Group involvement has improved the project In a number of
ways. It has supported the development of a sound revenue
management program, triggered the application of the Bank Group's
strict environmental and social policies, and ensured broad public
consultations - in the two countries and around the world.
Project Status On June 6, 2000 the Board of Directors of IBRD,
IDA (the World Bank's lending arm for the poorest countries), and
IFC approved lending for the Chad-Cameroon Petroleum
Development and Pipeline Project and two related Capacity-Building
projects, one project each in Chad and Cameroon for petroleum,
environmental, and social aspects associated with petroleum
development and export. An IDA credit for revenue management in
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Chad-Cameroon Petroleum Development and Pipeline Project
Page 2 of8
Chad was approved by the Board in January 2000.
Physical implementation of the project is proceeding faster than
planned. Construction of the pipeline is ahead of schedule and
capacity-building activities are building up momentum. In order to
provide effective support for implementation of the pipeline and
related projects, the World Bank Group has reinforced its project
managem.ent team and established full-time presence with
additional staff in the field.
By the end of September 2002, according to the project sponsors'
management team, about two-thirds or 700 km of the 1,070 km
long export pipeline had been welded and buried 1 meter
underground. About 3 kms per day of pipeline were being laid each
day. All of the required pipe has been delivered to storage yards
along the pipeline route. Clearing of the 30-meter wide construction
right of way at the oilfield end of the pipeline in Chad was started. In
the oilfields in southern Chad, all five of the oil well rigs are working
and a total of 26 wells {19 of these for crude oil production) had
been drilled. Some of the wells are being used to inject water or well
clean-up/test fluids back into the deep underground reservoir and to
explore the limits of the oilfields. One of wells is expected to yield
enough clean-burning natural gas to fuel one of the oilfield's
electricity generators. About 265 wells will be needed to complete
development of the oilfield area. Work began on laying flow line and
gathering system pipes that will collect crude oil from wells and
move it to the central oilfield facility for treatment. In addition, steel
erection and cement foundation pouring was underway for storage
tanks, pipe support, and the building component of the central
oilfield facility and the crude oil gathering station at Miandoum. Over
half of the 48 pipeline "block" valves, which make it possible to shut
down sections of the line for maintenance or in the event of an
emergency, had been welded into place along the pipeline.
Telecommunications crews started to install solar-powered
equipment for the valves so they can be remotely controlled from
the pipeline's central control room. A fiber optic cable that is to
serve as the backbone for the project's telecommunications systems
for voice and data service to manage the pipeline and control pumps
and valves is being installed alongside the pipeline.
Construction of the offshore marine terminal near Kribi, Cameroon
was more than 60% completed. Work on refitting the Floating
Storage and Offloading (FSO) vessel was proceeding at Singapore,
from where the refurbished tanker will move under its own power to
its mooring location near Kribi. Logistics planning was completed for
the installation of the 12 km undersea pipeline that will transport
crude oil on the final leg of its journey from southern Chad to the
FSO vessel.
The number of workers employed by the project at the end of the
third quarter of 2002 was over 12,000 of whom about 80% were
nationals of Chad and Cameroon; 4,166 from Chad and 5,796 from
Cameroon, according to the project sponsors. About 60% of these
workers were employed in skilled and semi-skilled jobs. Another 4%
were in supervisory positions. Wage payments to Cameroonian and
Chadian workers during the third quarter amounted to about $5.7
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Chad-Cameroon Petroleum Development and Pipeline Project
Page 3 of8
million and $4.4 million, respectively.
Over 2,400 training sessions were held during the third quarter of
2002 in an array of categories, including new worker safety, health,
environment, and orientation sessions, classes in construction trade
crafts, and high-level skill training in carpentry and electrical work.
The number of training sessions was about 16% higher than in the
last quarter mainly due to the greater demand for higher skills, so
that this kind of training accounted for 1,472 training sessions.
Maintenance technicians have been trained in Cameroon at the
University in Ngaoundere. One of the project's facilities contractors
commissioned skill training for workers at six existing schools in
Chad in welding, electrical work, and vehicle mechanics, among
others. Another school, CETIN in Sahr, Chad, teaches students to
become electricians. Those who complete the course successfully,
with tuition paid by the contractor, are potentially eligible for
project-related jobs. A total of 3,944 persons, 2,914 from Cameroon
and 1,030 from Chad, received training in high skills In 1,472
training sessions. A total of 5,746 workers in both countries received
basic training orientation in safety, health, and environmental
matters as well as in standard project policies during this quarter.
Additional skill training was carried out in on-the-job mentoring
situations on location.
A number of Chadians and Cameroonians have been hired and
trained for technical and engineering positions for the operations
phase of the project. Some 22 Chadians have recently been offered
employment as technicians and 13 previously hired technicians, who
completed their formal technical training in Canada, are now being
assigned jobs in the U.S. to gain on the job experience.
Local businesses in both countries continued to benefit from project
expenditures. These totaled over $50 million each in Chad and
Cameroon during the third quarter of 2002 for a total of $100.8
million, according to the project sponsors. These figures represent
an increase of 20% in Chad, due largely to the increasing level of
construction activity at the central oilfield facility and along the
pipeline route. The level of project expenditures In Cameroon
remained the same in the third quarter as in the previous quarter.
The project gives priority to host country subcontractors and
suppliers who meet competitive standards of quality, cost, reliability,
schedule, and payment terms. An outreach program has been
carried out to recruit host country businesses through advertising,
one-on-one contacts, seminars, and workshops. Potential local
business contractors are identified and those that qualify are
registered with their qualifications in a searchable database so bid
invitations can be extended to companies based on their areas of
expertise. Jobs are broken into smaller increments when possible to
provide host country businesses a better chance to compete and to
help assure that opportunities are distributed fairly. Data on local
business development practices are compiled to monitor their
adherence to the project's Environmental Management Plan and
contractor Socioeconomic Action Plans.
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Chad-Cameroon Petroleum Development and Pipeline Project
Page 4 of8
In order to increase the capacity of local entrepreneurs and
businesses to take advantage of contracting opportunities offered by
the project, the Bank Group has launched an initiative to strengthen
the capacity of small- and medium-scale enterprises (SMEs),
especially in Chad, to compete for business contracts. Besides
training and technical assistance, offered through the local Chamber
of Commerce and in collaboration with others, supported with a
Bank grant and by IFC, a local micro-finance facility and credit for
SMEs are being supported. In 2001, IFC approved a sum of
$150,000 as an initial package to support SME strengthening and
the Bank's grant approved in the first half of 2002 totals $460,000.
IFC has placed a full-time SME Coordinator in N'djamena to: (i)
coordinate SME development activities with the project sponsors,
donor organizations, local business organizations, the Bank, and the
Government of Chad; (ii) develop projects and programs In
collaboration with partnering organizations to promote long-term
linkages between SMEs and the project companies; and (iii) provide
a platform for further IFC investment in the financial and
manufacturing sectors.
IFC has funded a feasibility study and is now reviewing a potential
equity investment in FINADEV, a micro-finance bank in Chad which
began operations in July 2001. IFC is supporting FINADEV's
expansion to Moundou, in the oilfield area. In collaboration with two
Chadian private banks and the European Investment Bank, IFC Is
seeking to fadlitate the provision of term credit to SMEs. A feasibility
study on setting up leasing companies in Chad has been completed
together with a study of the fiscal and regulatory framework needed
to create the appropriate operational environment. The successful
Support and Training Entrepreneurial Program (STEP program) in
Nigeria, which provides basic business management counseling and
training to micro and small entrepreneurs, has been replicated in
Chad. An information campaign to encourage the flow of critical
SME-related information concerning contract opportunities (relating
to the pipeline project as well as other business opportunities),
training, and financing has been launched. IFC is also supporting a
project, being implemented by the NGO Africare, to assist local
agricultural producers and herders in the oil producing area to
establish viable, profitable, and sustainable agricultural and livestock
marketing enterprises.
No significant environmental problems (critical non-compliance
situations, Level 3) have been reported so far. Significant progress
was made in the preparation of the project's six area-specific oil spill
response plans which will be subject to public review. Public
information and consultation meetings to discuss the plans are to be
held In communities throughout Chad and Cameroon in the next
quarter, according to the project sponsors.
The Foundation for Development and Environment (FEDEC) In
Cameroon which is overseeing the project's Indigenous Peoples
Program (IPP) and conservation activities in Cameroon's M'bam and
Djerem and Campo Ma'an National Parks was established in late
2001. FEDEC has an Administrator and a Community Development
Facilitator to assist the Bagyeli/Bakola in identifying and selecting
programs for funding consideration by the Foundation. Construction
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Chad-Cameroon Petroleum Development and Pipeline Project
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of th~ pipeline through the Bagyeii/Bakola inhabited area was
completed by the middle of 2002. Board members visited some
Bagyeli/Bakola communities during 2001 and responded to their
request for additional consultation. The results have confirmed the
top four priority areas for the IPP: housing, education, health, and
agriculture. The IPP was formally launched during this quarter. In
June 2002, the FEDEC Board approved funding for four short-term
IPP initiatives in the amount of $17,000. In 2001 farming
implements were distributed to the Bagyeli/Bakola people and they
are to be helped further with instruction in improved agricultural
techniques and the provision of seeds. Also in 2001, educational
supplies were provided to nine schools attended by 250 of their
students. Building supplies were provided to support renovation
projects at two boarding schools in Kribi and Blpindi for
Bagyeli/Bakola students. A short-term education program is to be
carried out and to pay school fees and provide clothing to the
students attending these boarding schools and also to assist adults
who want to undertake secondary education.
FEDEC is sponsoring a program to provide national identity cards to
80% of the Bagyeli/Bakola people who do not have them and are
therefore unable to exercise their citizenship rights in the country.
The Ministry of Public Health is providing vaccinations against
diseases particularly common among the Bagyeli/Bakola, including
tuberculosis, polio, and tetanus among the Indigenous people,
medical staff to administer them, and vehicles for field work.
During this quarter the FEDEC Board chose the World Wildlife Fund -
Cameroon (WWF) to implement Its conservation, environmental
~ducation, and ecological research and monitoring programs in the
Camp Ma'an National Park. In its work plan proposal, WWF is to help
improve the capacity of the Government of Cameroon to manage
the new park, including anti-poaching measures, establishment of
guard surveillance posts, and doubling the number of game guards.
The FEDEC Board had earlier selected the Wildlife Conservation
Society (WSC) to implement the program for the M'bam and Djerem
National Park. The WSC will provide $350,000 in additional funding
to support environmental studies and to help establish the
conservation infrastructure in the park during the initial three-year
startup period. The WSC aims to build the park-management
capacity of the local authorities and work with local communities to
motivate them to play a role in the protection of the park's habitat
and wildlife.
Project Description and Financing The Petroleum Development
and Pipeline Project involves:
(a) development of Chad's Doba oil fields;
(b) construction of a buried pipeline (1,070 km in length, and 76 em
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Chad-Cameroon Petroleum Development and Pipeline Project
Page 6 of8
in diameter) from Doba to Cameroon's Atlantic Coast near Kribi,
related pumping stations, ancillary facilities, and infrastructure; and
(c) installation of an offshore moored floating storage, offloading
vessel llkm out to sea, associated marine pipelines, and related
facilities.
The construction period wiff take three years and oil could begin to
be exported by the end of 2003. Chad and Cameroon will benefit
from oil revenues over a 25-year production period, in amounts
totaling over US$1.8 billion (in royalties, dividends, and taxes) for
Chad and over US$500 million (in transit fees, dividends, and taxes)
for Cameroon.
The project also entails environmental management plans in Chad
- and Cameroon, a resettlement and compensation plan in Chad, and
a compensation plan as well as an Indigenous Peoples Plan in
Cameroon. In addition, Chad will carry out, with IDA support, a
revenue management program designed to target petroleum
revenues to the key poverty-alleviation sectors: health, education,
rural development, infrastructure, water resources, and
environment, in a transparent manner. IDA is also supporting
paraffel capacity-building projects to assist Chad and Cameroon in
managing the environmental aspects of the project, and strengthen
Chad's capacity to manage project revenues and the petroleum
sector in general.
Total project costs are estimated at about US$3.7 billion; US$1.5
billion for development of the oil fields in Chad (field facilities) and
US$2.2 biffion for the pipeline and marine facilities (the export
system). The project's private sponsors (led by ExxonMobil, the
operator, Petronas, and Chevron) are financing about US$3.0 billion
or 81% of the project costs from their own resources including
100% of the field facilities. About US$600 million in debt financing
for the export system has been obtained by the sponsors from
export credit agencies and commercial banks. The World Bank
Group Is providing US$92.9 million in IBRD loans (US$39.5 million
to Chad and US$53.4 million to Cameroon, amounting to about 3%
of project costs), for financing the two Governments' minority
holdings in the joint-venture pipeline companies (TOTCO in Chad
and COTCO in Cameroon). The World Bank's private sector affiliate,
the International Finance Corporation {IFC), is providing an A loan of
US$100 million (US$85.5 million to COTCO and US$14.5 million to
TOTCO), about 2.7% of the total debt, and has mobilized another
US$100 million (for COTCO and TOTCO) in commercial lending
under a B loan umbrella. Additional borrowing for the export system
has been obtained from U.S. and French export credit agencies. The
European Investment Bank (EIB) Is providing US$41.5 miffion to
finance Chad and Cameroon's equity in the two joint-venture oil
companies, TOTCO and COTCO (US$15 million and US$25.5 million,
respectively).
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Chad-Cameroon Petroleum Development and Pipeline Project
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Project Benefits:
The project is expected to generate substantial revenues and high
rates of return on investments: for Chad (US$1.8 billion-nominal or
over a 70% economic rate of return--EER) and for Cameroon
(US$540 million-nominal-about a 40% ERR) over the 25-year
operating period, assuming reserves of 917 million barrels and the
World Bank price projection for Brent crude of about
US$15.25/barrel. Other expected benefits are infrastructure
improvements in Cameroon as well as in Chad, some employment
generation in both countries, local project procurement, staff
training, a spur in further oil exploration and development, and
private investment in both countries.
Used properly, the project revenues could significantly benefit
Chad's largely poor population by increasing expenditure on
poverty-alleviation activities and promoting economic growth.
Additional private investment in Chad and Cameroon is also likely to
accompany and/or follow the sponsors' large capital investment in
the project. In Cameroon, the revenues generated by the project
could be used for priority public expenditures and help create an
environment conducive to attracting more foreign investment. In
both countries, project revenues should help ease financing
constraints for development and budgetary expenditures in general.
A regional development program for the population in the Doba
region in Chad and the Indigenous Peoples Plan for Cameroon's
Atlantic Littoral forest dwellers will help improve livelihoods, job
skills, and levels of education and health through improvements in
water supply, sanitation, and other socio-economic infrastructure
and services. The role of local NGOs especially will be strengthened
through their involvement in the project, both via
consultations/inputs during project implementation and as service
delivery agents and trainers in project-related activities for the
benefit of the local populations.
Revenue Management Well before the oil revenues will actually
flow, the Government of Chad has established a far-reaching
program for targeting the new revenues to key sectors at the heart
of its poverty-alleviation strategy.
Environment A wide range of steps has been taken to minimize the
social and environmental risks of pipeline construction and
operation. In consultation with engineers, environmental experts,
and local people, the pipeline route was altered to protect
biodiversity, human settlements, indigenous peoples, and cultural
heritage. The pipeline will be buried, rather than above-ground, and
mainly follow existing infrastructure. Only a small area of tropical
forest In Cameroon will be affected. To compensate for this, two
large new national parks have been created in Cameroon.
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