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Date of Original Release : 27/06/2001
The Chad-Cameroon oil pipeline forms part of a project to develop the oil fields discovered in the 1970s in Southern Chad, and transport the oil through the Cameroon to an offshore terminal off the Atlantic coast.
The oil fields are to be developed and operated by an oil consortium of ExxonMobil, Petronas and Chevron that obtained a 30-year concession from the Government of Chad. Two special purpose companies, TOTCO and COTCO, joint ventures between the oil consortium and the Governments of Chad and Cameroon, have been established to build and operate the transport component of the project - a 1 070 km oil pipeline from the Doba oil fields to the Cameroon coast near Kribi, three pump stations, one pressure reduction station and an off-shore storage and loading facility.
The project has been developed in close collaboration with the World Bank and other international institutions and agencies, as well as interested third parties.
Chad is one of the least developed countries of the world where over 80 % of the population of 7 million lives on less that US$ 1 a day; its harsh physical environment, narrow economic base and lack of a skilled workforce limit the opportunities for growth. The project will constitute a breakthrough by providing a unique opportunity for economic development and therefore create conditions for long-term political stability. Chad will receive substantial direct benefits from the project in terms of incremental fiscal revenues and foreign exchange. Over a 28 year period, the project is expected to generate average annual revenues equivalent to 10% of Chad's current GDP.
For Cameroon, the project will also provide significant similar direct development benefits, generating annual revenues equivalent to some 3% of its current budgetary revenues.
In addition, the project will have a catalytic impact on local business growth in both countries, which will lead to increased economic activity, and generate other indirect benefits in terms of improvements to infrastructure through the upgrade of roads, bridges, and railways leading to the project sites, as well as freight payments to the railways and road transport companies. The project is also a good example of inter-African co-operation.
In July 2000, EIB's Board of Directors gave its approval for the Bank to finance the project. The EIB's operations in Chad and Cameroon are part of the mandate given by the European Union's Member States within the framework of the Second Financial Protocol of the Lomé IV Convention. The EIB's financing of the project has the full support of the European Commission and the European Member States, who, through a committee of representatives, mainly from Development Ministries, were unanimously favourable.
Total cost of the project is EUR 4 billion. EIB will provide loans amounting EUR 144 million, according to the following breakdown:
Special efforts have been deployed to address the environmental and social issues associated with the project.
The pipeline route has been carefully selected to avoid physical resettlement of the local populations. No resettlement will be necessary along the 880 km pipeline section in Cameroon and in Chad a maximum of 150 households may be affected in the area where the oil is being produced. Compensation settlements have been the subject of extensive local and regional discussions, including involvement of local and international NGOs. This has been part of a long and wide-ranging consultation process that has included numerous public meetings organised from government down to village levels.
Comprehensive environmental studies, including Environmental Impact Assessments, and Environmental Management Plans (EMP), have been carried out. These were made available to the public in June 1999. Overall the project will have a relatively minor net effect on the natural and human environment, as the pipeline will be buried and for most of its route follow existing infrastructure. Mitigating action includes two biodiversity offsets being established in the Atlantic coastal forest and the Deng Deng forest areas to compensate for the residual impacts in the pipeline corridor. Stringent prevention and specific pollution emergency response measures, consistent with best industry practice, are being developed as an integral part of the project design, to limit oil spill risk. An External Compliance Monitoring Group will monitor the compliance of project companies with the EMP and its findings will be made public.
EIB's financing of the project is conditional on the relevant environmental and social precautions being implemented, in line with the European Parliament Resolution on the Chad-Cameroon oil pipeline project dated 20 January 2000. The Resolution "strongly recommends that the EIB not contribute to financing the project .…. under the Lomé Convention unless it considers that the social and environmental concerns have been met".
The overall design of the operation incorporates a range of control, management and institution-building mechanisms to provide for Chad's revenues to be channelled into poverty reduction and economic growth. Most of these are earmarked for the key Chad priorities of education, health, social services, rural development, infrastructure and environment and water resources.
To ensure greater transparency in revenue allocation, the Parliament of Chad passed a Law on Revenue Management (December 1998) that forms the basis for consistent monitoring and provides for an oversight committee, the Petroleum Revenue Management Commission, set up at end 2000. This includes four representatives from civil society and one opposition MP to ensure a wide representation in the management of the scheme.
To support this, a comprehensive monitoring and reporting structure is being put into place to supervise the different social and environmental aspects of the project's implementation and governance issues. This overview includes an International Advisory Group being set up to report and advise the World Bank and the Chad and Cameroon governments. At the same time additional resources are being made available by international development institutions for institutional-building in Chad to introduce sound public expenditure management and implementation of social and environmental protection measures. This will be further reinforced during, and beyond, the project implementation phase with an intensified dialogue with the authorities and civil society in Chad.
Update: 18 Jan 2006
Under the legal framework that was established as a condition for receiving funding from the international development finance community, part of the oil revenues from the project were earmarked for poverty reduction programmes and part were to be reserved for future generations.
In December 2005 the Chad Parliament, invoking budgetary difficulties, voted to change the legislation, relaxing previous restrictions on the use of its oil revenues for general budget expenditure. This was despite attempts by the international development finance community to establish a dialogue on the Chad's budgetary problems and to identify solutions. As a result the World Bank suspended disbursement on its loans to Chad for breach of contract.
The European Investment Bank has aligned itself with the World Bank, and in January 2006 informed the Chad Prime Minister, Mr. Pascal Yoadimnadji, that it was suspending co-operation on any new projects with the public sector in Chad.
The EIB's brief under the Cotonou Agreement's Investment Facility focuses on developing the private and financial sectors as well as commercially managed public infrastructure projects in ACP countries. Therefore, while the suspension of co-operation affects the EIB's identification, appraisal, negotiation and structuring of projects in the Chad public sector, for the time-being possible operations in the private sector are not affected.
Update 08 December 2008
Following the announcement by the World Bank that the Government of Chad had prepaid its IBRD loan, the EIB has been informed that the World Bank Group will remain involved in the project through its loan to the Government of Cameroon and through IFC's involvement as a senior lender in the project to ensure that the environmental and social obligations of the project companies are maintained under the established Environmental Management Programme.
In accordance with its contract, the EIB is considering a possible withdrawal of its Chad government financing for the project. The EIB has undertaken consultations with the World Bank and with the project's other stakeholders, the three private sponsors and its senior lenders, on the implications that the IBRD loan prepayment will have on the Petroleum Revenue Management Programme and on the related Memorandum of Understanding that was signed between the Government of Chad and the World Bank in 2006, as well as on the project's Environmental Management Programme. Consultations are also being carried out with Chad's traditional development partners such as the European Commission and the IMF. Following the outcome of this process, the Bank will decide on the measures it will take regarding its involvement in this project and inform the public accordingly.
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