CHADS

BILLION-BARREL OIL FIELD: RAGS TO RICHES?

FROM

Draft case

This case was written by Francesca Gee, Research Associate, and Olivier Cadot, Associate Professor of Economics at INSEAD.

A project to pump petroleum in Chad, a war-torn central African country, and build a pipeline through neighbouring Cameroon to an export terminal on the Atlantic coast faces the World Bank with a delicate choice. Three oil multinationals have approached the institution, asking it to back the project by providing development financing at extremely low rates of interest (called concessional in the Banks jargon). The Banks initial response was cautiously positive, considering that the oil will bring much-needed fiscal revenue to the country, one of Africas poorest, and has the potential to kick-start economic development. However, non-governmental organisations (NGOs) have formed a coalition against the project which they fight through high-profile campaigns in Europe and the United States.

Chad: Poor, Landlocked, Devastated by War

Deep in the heart of Central Africa, Chad is over 1,000 km away from the nearest sea port. Much of its 1.28 million sq. km area (two and a half times that of France), is covered by desert, and in 1998 Chad is home to only 6.5m people. A patchwork of over 100 ethnic groups, countless dialects and three main religions (Islam, Christianity, animism) brought together by colonialism, Chad is riven by deep-seated mistrust between nomadic, semi-nomadic and sedentary groups; between cattle-herders, traders and agriculturists; between Saharans, Sahelians and southerners. In the 1970s and 1980s, Chad was ravaged by civil war, and resentment remains deep, particularly between animist or Christian small farmers in the tropical south and nomadic Moslem herdsmen from the Saharan north. Nearly half the population lives in a relatively small cottongrowing area of the south, where standards of living are comparatively higher. The north however currently dominates national politics, leading to southern demands for federation or autonomy.

From French Colony to Emerging Democracy Before French colonisation of Chad (from 1905), social relations in the south were governed by kinship and mutual support among brothers and sisters. There were

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no village chiefs to exercise political or judicial authority: decisions were made by consensus of the clan. Slave raiding, in which Arabic-speaking northerners attacked southern tribes to seize slaves, created a pervasive sense of insecurity and distrust. From the early colonial period, French administrators and missionaries

concentrated development efforts on the more densely populated south, which was also more fertile, and which the French named le Tchad utile, or useful Chad. In order to supervise villagers more easily, French administrators forced them to form compact settlements along footpaths and appointed local chiefs who had to provide food, porters and taxes. With no traditional basis of authority, these chiefs resorted to force. The region of Doba, where oil would later be discovered, used to be part of German Kamerun; after World War 1 it came under French administration. In the 1920s, France forced working-age people in the south to grow rubber, and later cotton. Meanwhile Protestant and Catholic missionaries established churches, schools and hospitals; the cotton-growing region became the best educated and most developed part of the country. A 1968 survey found that nearly half the southern Chadians were Christians (compared with 5% Moslems and 47% animists). The French made little attempt to change traditional structures in the mainly Muslim north. This gave southerners a formidable advantage at independence in 1960, and Chads first president, Franois Tombalbaye, was a southerner from the Sara ethnic group. Tombalbaye used armed repression to impose Sara culture, including tribal initiation, on all Chadians. This led to rural insurgency, which broke out in central Chad in 1965 and spread to the north and east. For over 20 years the country was ravaged by civil war, ethnic conflict and economic chaos. In 1982, a northern-led guerrilla movement overthrew the southern elite, and northerners have ruled just as brutally over the south ever since. In the absence of an effective government, guerrilla forces fought back and forth across the south, destroying villages and forcing many people to flee to the neighbouring Central African Republic. Supported by France and the U.S. as a bulwark against Libya, Hissne Habr ruled the country for several years, but as relations with France soured, Idriss Dby, an officer of the Moslem Zaghawa minority in the north-east, overthrew

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him in December 1990 with support from France, Libya and Sudan. For several years Dby struggled to impose his authority. Under French pressure, he established a multiparty system in 1992, followed by a national sovereign conference. Presidential elections were held four years later and Dby was elected with nearly 70% of the vote, although opposition parties alleged serious irregularities. The same charges were repeated at parliamentary elections in 1997, which gave Dbys party 68 seats out of 125. In 1996 the south nearunanimously rejected a referendum over a new constitution which made Arabic Chads official language along with French. Clearly, Chad has been enjoying greater stability since 1996: leading opposition figures, in particular Saleh Kebzabo, a southern Muslim and the current minister of petroleum, have rallied Dby since 1996; moreover, most guerrilla movements have lost ground. The main rebel movement still active in the south, FARF (Front dAction pour une Rpublique Fdrale), led by Laokein Frisson Bard, signed a peace agreement with the government in April 1997. However the peace is still extremely fragile: just six months after the agreement, government forces looking for Bard went on rampage in the southern capital, Moundou, killing nearly 100 people including 52 civilians and 42 FARF members. This raid and others contribute to a deep sense of insecurity among local people, many of whom see the armed forces as the chief source of violence. Dominated by Dbys Zaghawa clan, the army takes up about 40% of the national budget. A programme to reduce it from 60,000 to 25,000, funded by France in the early 1990s, then by the World Bank, has failed to reduce overall numbers significantly; however, a few thousand demobilised soldiers have become bandits or joined guerrilla groups. An Amnesty International report in June 1997 charges the army with widespread human-rights abuse, especially in the south. Much of the violence takes place right under the eyes of French troops, some 850 of whom are stationed in Chad in early 1998. France has two Mirage fighters at an airbase in Ndjamena from where it conducts operations throughout central Africa; but in spite of continued military presence, French influence in Africa has been steadily declining, with a string of setbacks that culminated in 1997 with the overthrow of long-term ally President Mobutu Sese Seko in the former Zaire. Meanwhile, U.S. interest in Africa has been growing; Presidents Clintons twelve-

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day tour of six African countries in March 1998 signalled this renewed interest in a most visible way.

The Chadian Economy Chad is one of the poorest countries in the world. Only eight out of every ten infants survive. Life expectancy at birth is 47 years, and only a third of the population has access to safe water. A total of 80 Chadian doctors are said to be practising in their homeland. Adult illiteracy was estimated at 89% in the 1993 census (although the UNDP quoted a 47% rate in 1994). The national university has about 1,500 students. Civil war in the 1970s and 1980s claimed between 200,000 and 400,000 lives many from epidemics, and that also prompted a massive exodus of rural populations. In 1998, about 21% of the total population lives in cities and towns. Between 1994 and 1997 GDP grew by an estimated 6%, while population increased by 2.4% a year. In 1998 GNP per capita stands at $200 ($700 on the basis of purchasing power parity).

Table 1 Chads external financing

(million dollars) Official Development Assistance Bilateral (of which France) Multilateral (of which IDA) Total (of which grants) External debt Total (of which long-term) (of which concessional) Total debt service paid Debt service/exports (%) 1991 1992 1993 1994 1995

140 83 126 46 266 179

148 90 92 32 241 180

148 89 79 24 227 180

104 65 110 36 215 166

129 72 112 40 239 187

634 565 503 11 4.6

727 676 546 11 4.8

771 717 599 17 8.4

824 755 675 18 9.3

908 839 743 16 5.9

Source: World Bank, African Economic Indicators 1997, and Economist Intelligence Unit.

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Ndjamena is the main centre and transport hub in Chads little integrated economy. Home to one in nine Chadians, it contrasts with the thinly populated Saharan desert to the north, where there is little formal economic activity. The east has cattle-herding, nomadic pastoralism, and an informal smuggling economy. In the densely populated south-west (52 people per sq. km), some 200,000 peasants are involved in cotton farming (but those deriving direct or indirect earnings from cotton number at least one million). However the periodic outbursts of violence also inhibit regional development, despite the presence of hundreds of local grassroots organisations and NGOs, many with international funding, trying to make up for the central government shortcomings. Chads poor road network (300 km of paved roads in 1998, complemented by 7,000 km of laterite roads and about 25,000 km of tracks, mostly unusable in the rainy season) makes it difficult for farmers to get their crops to market. For example, the roads from the Central African Republic and Cameroon borders to Moundou and other southern market towns have not been maintained since 1968, except for minor repairs. Energy production and consumption is extremely low; final consumption was less than one million tonnes of oil equivalent in 1996. Fewer than 5% of all Chadians have access to electrical power, the worlds most expensive at over CFA200 1 per kWh (or 33, compared with about 10 in France and an average of 8 in the United States). Wood, charcoal and biomass fuels are the main sources of energy, playing a major role in rampant deforestation and desertification. Cotton and Livestock In 1998 Chads only significant exports are cotton and livestock products. The cotton industry, which provides up to 65% of export earnings, was set up by the French to make the colony pay for itself. Farmers grew cotton to pay taxes and buy a few necessities. The decline of international cotton prices between 1930 and 1970 forced them to produce more: in 1930, 5kgs had been enough to pay the poll tax; in 1947 21kgs were required, and 30kgs in 1970. The trend later reversed; by the 1980s the price of cotton was four times higher than in 1970. Farmers increased their production, acquiring equipment and buying luxuries such as bikes, radios and medicine. By 1996, eight kilograms were enough to pay for the poll tax.
1

In early 1998, US$ = CFA600.

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In 1998 the cotton trading firm, CotonTchad, is 75%-owned by the government, and 19% by Compagnie Franaise pour le Dveloppement des Fibres Textiles; the IMF and World Bank are pressing for privatisation. Recapitalised with French help after the CFA franc devaluation in 1994, CotonTchad has improved performance at the lower exchange rate which makes Chadian cotton more competitive on world markets; output has increased year after year, encouraged by rising producer prices. The 1995-96 campaign saw turnover of CFA60bn, and investment of CFA5bn. Chad is also one of the Sahels major livestock producers, but herders have suffered from the dumping of European surpluses of low-grade beef in west African markets. The European Union has been using large subsidies (nearly $3 per kg) to dispose of its growing beef surplus in countries like the Ivory Coast, Ghana, Togo and Benin, the traditional markets of Chad and other Sahelian beef producers.

Government Budget and Outside Financing In 1996 the Chadian State had total revenues of CFA101.6bn ($ 170m) , including CFA58.5bn in fiscal revenues, while total expenditure amounted to CFA150.7bn. State finances are chaotic, and the salaries of civil servants are frequently paid two or three months late. In 1995 total external debt amounted to $908m (including $49m to the IMF), or 81.4% of GDP. Because nearly 82% of total debt was concessional, mostly from the World Bank, the IMF and the African Development Bank, debt service took up only 5.9% of export receipts. In exchange, the World Bank and IMF expect the government to put its finances in order and reform the state sector. Chad is also highly dependent on external aid. In 1995, it received nearly $240m in official development assistance2; more than two-thirds was from France, much of it in connection with the presence of French troops. Foreign investment, however, mostly in oil and cotton, remains negligible.

The Doba Oil Project

Official development aid consists of grants and of loans with at least a 25% grant element; it is used to promote development and welfare in the country.
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Oil exploration in Chad began in the early 1960s, but for many years actual pumping remained a distant prospect: it was unclear whether the quality and size of reserves justified the expense of building a 1,050-km pipeline to the West African coast. In 1969 Conoco, a U.S. company, found oil in the south; however it was of poor quality (very heavy). In any case civil war ruled out production. In 1988, Conoco sold its rights to a consortium made up of Exxon, the operator, Royal Dutch Shell, the worlds largest oil firm, and Chevron of the U.S. After Dby ousted Habr in 1990, Elf Aquitaine of France, rumoured to have funded the coup, replaced Chevron in the consortium. Encouraged by political stability, in December 1994 the consortium drilled exploratory wells at three sites in the south: Bolobo, Miandoum and Kom and signed an agreement on the pipeline with the governments of Chad and Cameroon a month later. In 1996, a seismic campaign found proven reserves of 800-1,000 million barrels of crude oil. The consortium is planning to develop the Bolobo, Miandoum and Kom oil fields and to build a buried pipeline to Kribi in Cameroon, as well as an offshore oil terminal. It will be sole owner of the field system, consisting of 301 oil wells and an operations centre; the pipeline will be owned and operated by two jointventure companies, COTCO for the portion located in Cameroon and TOTCO for the Chad portion. The consortium will own over 80% of the equity in the two pipeline companies; Chad will have a minority interest in both companies while Cameroon holds a minority interest in COTCO only.

Figure 1 Hypothetical output schedule

90 million barrils per year 80 70 60 50 40 30 20 10 1997 2000 2003 2006 2009 2012 2015 2018 2024 2021 0

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Total cost is estimated at $1.5bn for the field facilities and $1.8bn for the pipeline and export terminal. For one billion barrels, the initial investment will amount to about $3 per barrel, excluding financial costs. The consortium is to provide $2.4bn, Chad $45m and Cameroon $70m; the balance will be raised through debt. The consortium has repeatedly called for World Bank participation in the project. The Bank, which sees oil as a unique opportunity to improve development prospects in Chad and Cameroon, plans to provide concessional credits to the two countries (of $45m and $70m respectively); this will finance their share in the pipeline companies. Through its capital markets arm, the International Finance Corporation, it will also lend $100m to the pipeline companies (on commercial terms), and syndicate an additional $150m.

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Oil Revenue and Other Benefits for Chad According to the consortiums reference scenario, based on an average price of $20 per barrel (before adjustments for quality and location), Chad is expected to gain $4,718m in actual revenue over the projects 30-year life. This is about $6 per barrel in nominal terms, before discounting for the time in which payment is received. Revenue would be $1,696m assuming a price of $15 per barrel. Figure 2a: Hypothetical oil revenue schedule for Chad
1600 1400 1200 1000 800 600 400 200 0 1997 2000 2003 2006 2009 2012 2015 2018 2024 2021 -200

Chad's revenue Total Sales revenue

Note: revenue schedule based on a $15/barrel hypothesis; current (undiscounted) million dollars.

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Figure 2b: Hypothetical breakdown of Chads oil revenue by instrument

300 250 200 150 100 50 0 -50

Royalty revenue Tax revenue Total oil revenue

1997

2000

2003

2006

2012

2015

2021

Unfortunately, in early 1998 oil prices turn out to be much lower than originally forecast, due to recession in Asia and fears of an oil glut if Iraq is allowed to resume exports. In March 1998, the barrel of reference Brent oil dropped to $11 its lowest level, in real terms, since before the 1973 oil shock, and a 55% fall since January 1997. In the longer term, demand for oil is expected to increase, especially in developing Asia, which could prop up prices; but supply may rise even faster. Technological advances have already slashed the costs of finding, producing and refining oil: the average cost per barrel of crude has fallen about 60% in the last ten years. At the same time proven reserves are 60% higher than in 1985, and new engineering breakthroughs that reduce production costs will make it affordable to recover billions of additional barrels. For Chad, oil revenue will come in the form of royalties, a tax on the consortiums profits, and income from the pipelines operations. The agreement with the consortium provides for a 12.5% royalty, in cash or in kind, but actual payments will depend on many factors including the rate and timing of production, international oil prices, contractual terms for depreciation and transportation costs. All exploration costs since 1969 (which amounted to $703.3m at the end of 1996) will be deducted from the royalty payments3. Royalty payments will
The consortium will also exploit a smaller, but higher quality oil field at Sedigui, in the desert 350km from Njamena. The initial investment to exploit this oil, which will be used
3

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2024

2009

2018

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fluctuate over time, in line with production: they will increase rapidly at the start and then go down. The consortiums profits will be taxed at a progressive rate ranging from 40% to 65%, depending on world oil prices. Should world prices fall below a certain level, tax payments would stop. The consortium is virtually exempted from tax payments until 2005, and the government has sworn that oil revenue will go to priority sectors such as education, health and infrastructure. Aside from fiscal revenue, Chad expects other benefits from the oil project. Economist Robert Mott, a consultant to Exxon, said: The Chad/Cameroon Development Project will have substantial short-term as well as long-term benefits During the construction phase, enormous investments will be made in the region in the form of infrastructure improvements. In addition, the demand for local resources, including food, accommodations and jobs will also provide a near-term economic boost. Longer-term benefits will result based on government investments of the considerable royalties and tax revenues that the project will yield. According to the consortium, these indirect economic benefits are worth $3.5bn. They include: Improved Communications To develop the oil fields and build the pipeline, the consortium will have to bring 160,000 metric tonnes of material into Chad. Most of it will be carried from the port of Douala in Cameroon by rail, then by road, through a new border crossing on the Mbr River. An airfield capable of handling heavy cargo planes such as Antonov 124s will also have to be built. The consortium will build a new bridge on the Mbr river, as well as new sections of road to connect it with existing roads in Chad and Cameroon. It will also repair and improve existing laterite roads and improve drainage. Several bridges will be modified, strengthened or replaced with culverts. Employment Jobs are the main benefit expected by local people. The consortium will employ about 2,000 Chadians and 1,000 expatriates for three years, during construction and drilling. Once the fields are operating, about 320 Chadians and 230 expatriates will be needed. Total wages of $16m will be paid to Chadian workers
for domestic consumption exclusively, is estimated at $86m. It includes building a minirefinery, which some observes consider likely to be too small to be economical, especially given that cheap gas is regularly smuggled from neighbouring Nigeria. Should operations fail to break even, debt repayments would be deducted from the 12.5% royalty payments.

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during the construction phase. Even at the lowest proposed wage, unskilled workers on the project will earn more in one hour than field labourers make in a whole day (CFA200 a day, less than 50 U.S. cents); in total, about $5 million a year will be paid in wages. Each village in the project area hopes to have a minimum of one or two people hired; the villagers main concerns are that no single local group should be favoured over another, and that Chadians from other regions or foreigners would not be recruited for work that locals can perform. Local Business Opportunities Increased demand from foreign oil workers and engineers, and from local workers spending their wages, is expected to stimulate the local economy. According to the consortium, construction wages and procurements will have a multiplier effect equivalent to a $10m annual increase in a gross regional product estimated at $57m. At Bbedjia, a town close to the oil fields, the number of bigger businesses already increased by 54% between 1992 and 1994, while microbusinesses grew by 94%.

Potential Problems For all its economic benefits, oil is also expected to severely disrupt life in the south. Some 1,880 hectares of farmland and of actively exploited savannah and bushlands will be expropriated. (The consortium plans to return half that area to former uses once the construction phase is over.) Up to 150 families (about 1,000 people) will have to move. Working out compensation payments to them will not be easy. In Sara culture, individual rights are also communal rights and many social units can lay claim to property used by an individual. Sharing out compensation to everyone who can lay such claims to expropriated land will be a major headache. There are also major disadvantages in giving cash or paying annuities to compensate villagers: in a climate of insecurity and without any retail banking system, wealth is likely to attract trouble. The oil boom is also expected to create tremendous inequalities. The arrival of well-paid workers has already caused rents to skyrocket: a room in a straw and mud hut that once cost CFA300-500 a month in Bbedjia had gone up to CFA2,000 by 1997. Many secondary school students can no longer afford to live in town, and poorly paid civil servants have been asked to vacate their lodgings to make room for tenants who are able to pay in time. The price of foodstuffs has

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also gone up: an egg that used to cost CFA25 is now worth three times as much. Some local leaders worry about what will happen once construction is over, and workers are laid off. One side effect is already clearly visible: prostitution has picked up considerably, prompting local authorities to take drastic measures, including a curfew for women at Bbedjia. Health risks are high as condoms are unavailable and the government has no program for AIDS prevention. Demands on local resources, particularly on land, which is already used intensively, are expected to increase as people converge on the area hoping for employment. Aside from oil pollution, potential environmental damage includes clouds of dust over villages and fields as dozens of lorries race on roads topped with highly-volatile laterite (up to 70 daily truck movements are expected over the Chad-Cameroon border during construction). In Cameroon, the proposed pipeline route goes through sensitive tropical wetland forests and pygmy villages, and the planned site of the new offshore export terminal at Kribi is opposite the Lob waterfalls, one of Cameroons main tourist attractions (the consortium does not intend to use Cameroons existing oil terminal). More importantly, Chadian and international non-governmental organisations (NGOs) say that oil exploitation could result in environmental and political problems similar to those plaguing the Niger delta, in neighbouring Nigeria, where human rights abuse is endemic. In this major wetland, where Shell has been pumping oil for 40 years, elevated pipelines run across villages, fields and roads. Environmental damage from constant oil leaks, gas torching and inadequate waste disposal is widespread. Oil has not favoured local development either: the Deltas Ogoni region, the most industrialised in Nigeria, is also one of the poorest. Oil has had a minimal impact on employment, with local workers given only temporary jobs during seismic exploration and drilling. Compensation payments for damage to farmland, homes and infrastructure are low and encourage corruption, both among local communities and even, according to some NGOs, Shells own staff. As the economy deteriorated in the mid-1980s, demonstrations against Nigerias military regime and the oil companies were met with brutal repression. In October 1990, Shell called in the dreaded Mobile Police (also known as Kill and Go) to stop demonstrators at Umuechen; 80 people were shot and nearly 500 houses destroyed. Five years later, the execution of Ogoni leader Ken Saro-Wiwa

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and eight companions was met with international reprobation, and Nigeria was suspended from the Commonwealth organisation.

Figure 3 Oil output and GDP per capita in Nigeria, 1989-97

Oil output (million barrels per day) 2.4 2.2 2 1.8 1.6 1.4 1.2 1 450 GDP per capita (dollars) 400 350 300 250 200 150 100

Oil production (m. b./ day) GDP/ capita ($)

1989

1990

1991

1992

1993

1994

Source: Financial Times; original data from Datastream, BP, and the EIU.

In Chad, NGOs fear that fighting between governmental troops and FARF guerrillas could intensify, as oil wealth could encourage southern secessionist demands, and oil installations would be a tempting target for armed rebels. The presence of Exxon has already prompted a security clampdown, and soldiers have executed dozens of villagers. In February 1998, four Frenchmen were kidnapped a few hundred kilometres from Moundou. They were released unharmed, but the abduction nevertheless prompted bloody reprisals from the military. Were Chads oil money to be redistributed in a way that southerners perceive as fair, oil-induced tensions might be minimized. But government assurances that oil receipts will appear in the general budget and come under parliamentary scrutiny are generally met with scepticism. Yorongar Ngarjly, opposition MP for Bbedjia, and one of the projects critics (he was the only MP not to vote in

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1997

1995

1996

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favour of the project) is the object of a procedure to strip him from parliamentary immunity and fears for his life.

The Bank's Dilemma

The World Banks objective in Chad, where it has several programmes, is to alleviate poverty and build a basis for sustained growth with equitable income distribution. The Bank sees the Doba oil project as a unique opportunity for Chad to lift itself out of its present destitute poverty, and officials in charge of the project believe that the concerns of NGOs, while legitimate, can be handled by careful management and monitoring of the project. But a few questions remain.

IDA or IBRD Financing? The World Bank plans to make interest-free credits available to Chad and Cameroon through its concessional lending agency, the International Development Association (IDA), set up in 1960 to finance poverty-eradication programmes in the worlds poorest countries. IDA credits are aimed at improving standards of living and at achieving faster, environmentally sustainable growth. They are only made to governments, with very low interests and a repayment period of 35 to 40 years, typically for health, education, and basic infrastructure projects. The bulk of IDA resources is contributed by about 30 donor countries that meet every three years to decide on the amount of funds they will contribute and how these funds should be used. In the July 1993-June 1996 period, IDA gave out over $17bn in credits. Nearly half of this went to African countries, but the amount was less than originally planned, due to poor policy performance and civil conflicts in some countries. In Chad, in particular, new World Bank projects have been held up by fiscal and other constraints. NGOs contest the choice of the IDA as the appropriate lending window for a project such as Doba, arguing that loans for a commercial project such as this should be made either through the International Bank for reconstruction and Development (IBRD), which lends only to creditworthy borrowers for projects with high rates of economic returns, and has never suffered losses, or by the International Finance Corporation (IFC), which helps mobilise domestic and foreign capital to promote private sector growth in developing countries.

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But poor countries like Chad are not considered creditworthy for IBRD loans and only qualify for IDA credits; moreover, the Bank does not see financing the Doba project as crowding out any other useful program, because IDA funds are so much underspent in Chad. Thus, as pointed out by the Chadian government, the main consequence of shifting the lending window from the IDA to the IBRD would be to raise the cost of credit to Chad, which certainly does not need this.

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World Bank Guidelines and Mitigation Measures In exchange for the Banks participation, the oil consortium must comply with stringent environmental guidelines and go through a painstaking approval procedure. The Bank has issued detailed guidelines to assess the environmental and social impact of projects it funds, both in terms of policy and procedures. Borrowers are requested to take into account the views of affected groups and local NGOs. They are asked to quantify costs and benefits as precisely as possible, and to suggest measures to minimise adverse impacts. The exercise is aimed at highlighting a projects social and environmental impact, and to see whether proposed mitigation measures are acceptable to those affected. Consultations do not reduce the decision authority of the borrower, but they are a valuable way to improve decision making, to obtain feedback on the Environmental Assessment (EA) process and to increasing community cooperation in implementing the recommendations of the EA. Other criteria are aimed at protecting vulnerable groups. The World Bank says it will not assist development projects that knowingly involve encroachment on lands being used or occupied by vulnerable indigenous, tribal, low-cast or ethnic minority people, unless adequate safeguards are provided to at least mitigate the negative or adverse effects of such projects on these people, their cultures and their environments Key concerns in the Environmental Assessment relate to the preferences of indigenous, tribal, low-cast or ethnic minority people and their responses to development opportunities. Once an Environmental Assessment and other studies performed by independent experts have been released, the Bank performs its own independent evaluation on the basis of which it decides whether to submit the project to the Board. The Board, made up of 24 Executive Directors each of whom represent either a large donor country or several smaller ones, must endorse all investment decisions. As a rule, credit proposals whose endorsement is not guaranteed are never presented to the Board. Northern NGOs usually try to influence World Bank policy by lobbying the Executive Directors. According to the NGOs, Doba project falls short of meeting World Bank guidelines on several counts. The Consortium failed to adequately consult the local population. Exxon says that its experts held meetings in 60 villages; the NGOs point out however that because the experts were under military escort, villagers were afraid to talk;

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the environmental study has been performed by the consortium, not by the borrower itself, the Chadian government;

the consultants who carried out the Environmental Assessment failed to draw on local competencies and knowledge ; many of the NGOs they claim to have consulted were not active in the project area.

The World Bank however points out that its involvement significantly raises the sensitivity of both the consortium and the Chadian government to the projects environmental and social aspects. It will provide training to develop the governments competencies in managing fiscal revenues and the environment. Its participation has also resulted in greater public consultation and local participation, and its stringent standards force the oil companies to pay attention to the environment and to socio-economic issues.

The Stakes for the World Bank: A High-Visibility Project The NGO campaign on the Doba oil project highlights the sensitive nature of the World Banks relations with NGOs. Since the early 1980s, the Bank has intensified its collaboration with NGOs, quadrupling the number of projects in which they are involved. By 1990, NGOs participated in 50 projects annually, i.e. nearly 25% of all projects approved by the Board ; they are seen as giving better value-for-money than governments, especially when poor people have to be reached.4 But NGOs are not mere service providers, and in fact resist being reduced to such a role. Their increased collaboration with the World Bank does not stop them from submitting it to relentless scrutiny and criticism, with international campaigns such as Fifty Years Is Enough a campaign to celebrate the Banks 50th anniversary in 1994. In spite of the Banks increased awareness of people and the environment, they deem the effort still insufficient, and criticise what they see as a high failure rate of Bank-financed programmes. (Simultaneously, the Bank is under fire from conservative U.S. Republicans who accuse it of being wasteful; in response, it has launched a reorganisation effort aimed at cutting overhead costs.)

From the late 1980s, the Bank recognised the growing importance of private capital relative to public financing, and began to look at markets and private sector initiative as the most efficient solutions for achieving economic growth (imperfect markets and better than imperfect states). It actively explores ways to catalyse private investment in support of development.
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As part of its new agenda, in 1996 the Bank launched an open campaign against corruption in developing countries; at its annual meeting, Bank President James Wolfensohn stated that he would not tolerate corruption in any programme supported by the Bank. How does the Doba oil project fit in the Banks new agenda? If successful, it has the potential to be a showcase of the Banks increased awareness of broader issues than the ones traditionally considered in narrow cost-benefit analysis. But if it fails, it risks raising serious questions about whether the Bank is genuinely changing itself, and about its ability to effectively monitor sensitive projects. Is Doba worth that risk? Are the NGOs concerns sufficient ground to deny the Chadian people access to their underground wealth?

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