ExxonMobil, Chevron, and Petronas undertake a $4 Billion petroleum development and pipeline project

in Chad, which presented a unique opportunity to stimulate Chad’s economic development, and yet

entailed environmental and social risks. Field development was the less risky part of the entire project

for the sponsors, because upstream operations including field development and production was one of

the core business areas where they were very strong at. This reduced the cost of bearing these risks

themselves since they were better equipped than anyone else. Project financing for a field development

project would also not be a viable financing option, as the lenders generally would be reluctant to

finance until after all reserves are proven and capable of production.

World Bank involvement also ensured that sponsors did not abandon the project due to huge political

risks and looked instead for safer opportunities in other countries, leading to a missed opportunity for

Chad. Without the WB, the Gov’t might turn to neighboring countries such as Sudan and Libya for

partnering in oil export. This potentially would have adverse consequences in case the project revenues

were utilized to finance non-developmental purposes such as war. Such an alternative would mean

longer and hence more expensive pipelines. The project’s exposure to social risks would increase, as the

pipelines would inevitably cross the northern part of the country with social unrest and upheavals.

The following subjects were up for opposition:

1. The environmental and social impacts were claimed to be irreversible.

2. The revenue management plan was claimed to be flawed and to lack effective oversight.

3. Gov’t claimed to “have little intention of allowing the plan to affect local practice”. Criticism on

oversight committee’s composition and power.

4. The RMP was a concept untested. According to Harvard Law School, “Oil will not lead to

development in Chad without real participation, real transparency, and real oversight, none of

which currently exists”.

 5. The revenue management plan also regarded as “infringement of sovereign rights”. The

sovereign rights controlled by undemocratic rulers versus people.

6. The beneficiaries of the project were claimed more to be the corporate sponsors and

commercial banks, as opposed to people of Chad.

7. Valuable funds could have been used in alternative causes, rather than potentially

strengthening a corrupt Gov’t

The realization of the opportunity for economic development strictly dependent on Government’s

commitment in implementation of RMP. RMP is claimed to lack credible oversight and enforcement

mechanisms, which would work against the people of Chad due to undemocratic and oppressive Gov’t

in power. RMP was a concept yet to be tested with the project; even WB admitted the project to be an

“experiment”, which increases people’s exposure to risk

Chad has to put its only natural resource into the project under project finance structure and RMP,

which considerably eliminates sovereign discretion and flexibility. Impositions on the allocation of

revenues may turn out to be constraining for a future democratic government who wants to implement

other projects to the benefit of people of Chad. Government’s compliance to RMP is a requirement for

future WB loans, which extends the potential influence of the project-specific impositions and

commitments to non-project specific areas, increasing Chad’s exposure to risks

The presence of WB/ECA/IFC along with participation on governments in equity financing significantly

reduced political risk exposure. The Project might have helped portfolio diversification. The Low

construction risks (sponsors’ expertise and reputation in the industry) as well as low operating risks and

low financial risks, considering the DSCR (as high as 2:1) and low breakeven finding and development

costs compared to price. The presence of WB/ECA/IFC in the deal, alignment of Gov’t interests via equity
ownership through project finance structure, the linking of installment of future development funds to

Government’s compliance to the RMP significantly reduced political risk exposure.

References:

Hargrave, T. J. (2009). Moral imagination, collective action, and the achievement of moral

outcomes. Business Ethics Quarterly, 19(1), 87-104.

Pegg, S. (2005). Can policy intervention beat the resource curse? Evidence from the Chad–Cameroon

pipeline project. African Affairs, 105(418), 1-25.

Utzinger, J., Wyss, K., Moto, D. D., Tanner, M., & Singer, B. H. (2005). Assessing health impacts of the

Chad–Cameroon petroleum development and pipeline project: challenges and a way

forward. Environmental impact assessment review, 25(1), 63-93.