Commentary: This Clean Oil Project Is Tainted Already

By Paul Raeburn

In October, ground was broken on an oil project that promised to transform the way investments are made in the developing world. Exxon Mobil Corp. (XOM ), the lead investor in a $3.7 billion effort to extract a billion barrels of oil from southern Chad, asked the World Bank to join the project as a lender because it wanted some political cover: The oil will be extracted in Chad and sent by pipeline across Cameroon to the sea. Both countries are ruled by authoritarian leaders, and Exxon Mobil didn't trust either one of them. The World Bank could prod both to honor their agreements or face the loss of international aid.

In return, the Bank had demands of its own. It wanted Exxon Mobil to help guarantee two things: first, that the project would spare the environment and protect the rights of the people of Chad; second, that Chad's government would distribute its oil wealth fairly among its people, rather than let it fall into the hands of its authoritarian ruler, President Idriss Deby.

"BAD SIGN." This marriage of convenience between the World Bank and Big Oil was seen as a new model for international development: It would rewrite the all-too-common script in which global projects that pledge to create wealth in developing countries merely enrich an entrenched, undemocratic elite. Sadly, though, the project has failed its first test. And the failure raises disturbing questions about whether such projects can be done in a fair and responsible way.

It turns out that about $4.5 million of the first payment to Chad--a $25 million signing bonus marking the project's groundbreaking--has been secretly spent on weapons, in violation of agreements with the Bank and its sister agency, the International Monetary Fund. Officials of the bank and the IMF are incensed at this betrayal by the Chadian government. Chad argues that it needed the money for its battle with rebel forces in the north, but the bank rejects that argument--particularly because the money was spent without approval by Chad's Parliament. The bank says the money was supposed to help the desperately poor citizens of Chad, where the per capita income is about $230 per year.

The bank and the IMF have suspended Chad from a program to help developing countries erase foreign debt. That has cost Chad $12 million to $15 million in debt relief, according to Mary Barton-Dock, the World Bank's representative in Chad. Some $30 million in loans to Chad are on hold, as are other support programs. "It was a major disappointment," says an IMF official who would speak only on background. "The first time they got oil money, they did not spend it as they promised. It was a bad sign for the future."

Exxon Mobil, meanwhile, continues to move forward. Chad's action "hasn't made any change in on our plans for the project," says Tom Cirigliano, a company spokesman. "We're still encouraged that the project will benefit the people of Chad."

The arms purchase bolsters the position of the many Western environmental groups that opposed Exxon Mobil's experiment on the grounds that Chad had a dismal human-rights record and was unlikely to change. "The government has shown once again what it really is--an oppressive dictatorship," says Korinna Horta, an economist with Environmental Defense in Washington, who has just returned from a visit to Chad.

PRESSURE. There is some cause for hope here, though. The World Bank has, after all, reacted swiftly. "If there was any doubt that the world would be looking at what Chad would be doing, [it] was dispelled," says Robert Calderisi, the World Bank's country director for Chad and Cameroon.

Chad already seems to be responding to the pressure. It has agreed to freeze the rest of the $25 million payment until it sets up a parliamentary committee to monitor the agreements. "I feel we have made a breakthrough," says Piroska Nagy, IMF's Chad mission chief in Washington.

Breakthrough or not, the Chad-Cameroon pipeline project will succeed only if Western countries and the oil companies--Exxon Mobil and its partners, Chevron (CHV ) and Petronas, the Malaysian national petroleum corporation--make sure Chad continues to honor its agreements. Chad's 8 million people are among the poorest on earth; if the oil project fails to deliver prosperity, they have few alternatives to improve their lot. The Chad pipeline could yet prove a turning point in Africa's story--or turn into a sad symbol of globalization's failed promise.

Senior Writer Raeburn traveled to Africa last year to report on the Chad-Cameroon project.

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