January 1, 2000 - This project could transform the economy of Chad, if public revenues are managed properly and the natural and human environments are protected. At the moment, Chad is so poor that it cannot afford the bare minimum of public services necessary to allow its people a decent life. The pipeline project provides a unique opportunity for Chad to use its own resources to finance expenditures in health, education, infrastructure and rural development to reduce poverty.

Project Summary. The project would develop the oil fields at Doba in southern Chad (at a cost of $1.5 billion) and construct a 1,070 km pipeline to oil-loading facilities off Cameroon's Atlantic coast ($2 billion). The original sponsors were Exxon (the operator, with 40% of the private equity), Shell (40%) and Elf (20%), but Exxon is currently reconstituting the consortium. The project could result in about $2 billion in revenues for Chad ($80 million per year) and $500 million for Cameroon over the 25-year production period.

Financing. Almost all of the investment would be private. The World Bank Group would provide $90 million on IBRD terms (about $55 million for Cameroon and $35 million to Chad) to finance the governments' equity share in the project and a $100 million IFC "A" loan to the joint-venture pipeline companies. In addition, IFC plans to mobilize a "B" loan of up to $300 million from commercial banks. The remaining $3 billion would be provided by the companies themselves, commercial banks, and export credit agencies.

Status/Issues. There has been good progress in designing the project. The proposed pipeline route has been revised to reflect the views of the governments, local communities, and environmental specialists. The project will be considered by the Boards of the World Bank and IFC during the first half of this year, once the consortium has been reconstituted.

• Revenue Management. Natural resource "booms" are difficult to manage. In Chad, we want to make certain that the country's new wealth will be invested for the well-being of all Chadians. To this end, the Chad government has developed a far-reaching revenue management program that targets oil revenues to key development sectors that are at the heart of its poverty alleviation strategy. On December 30, 1998, Chad's Parliament approved a law that sets out the Government's poverty reduction objectives and details arrangements for the use of revenues from the project, including public oversight of the process. Under the law, more that 80 percent of the oil revenues will be devoted to education, health and social services, rural development, infrastructure, and environmental and water resources, or held in trust for future generations. There will be annual public expenditure reviews, as well as published audits of the petroleum accounts.

• Environment. A number of steps are being taken to minimize the impact of pipeline construction and operation. The pipeline will be buried, rather than above-ground. The final route will comply with World Bank policies on Environmental Assessments, Natural Habitats, Indigenous Peoples, Cultural Property, Resettlement, and Forests. Where sensitive habitats cannot be avoided altogether, offsetting measures (such as the establishment of new protected areas) will be implemented. The highest possible standards of environmental protection are being observed.

Is the Bank Group already committed to supporting this project?

We have completed our technical work on the project. As with any development project, we need to be satisfied that it will provide significant economic and social benefits, while improving or protecting the natural and human environments. Once the private financing is confirmed, we will recommend it to our Boards. The project will involve significant risks, but we believe the project design now contains adequate safeguards. Translating Chad's oil revenues into services which help the poor directly will be a difficult challenge - as it has been in many countries. But we believe it is a challenge which a development institution like the Bank Group must take up.

Why is World Bank involvement necessary?

World Bank involvement has already supported Chad in developing a sound revenue management program and triggered the application of our environmental and social policies, which has strengthened the design of the project. In addition, Bank participation has ensured broader consultation in the project development process. In fact, ensuring that this will be a development project rather than just an oil project, is the only reason the World Bank Group is involved.

Can anyone guarantee that the Government of Chad will devote its new resources to meeting priority development purposes (such as schools, clinics, and rural roads)?

In proposing special revenue management arrangements for the project, the Government of Chad has recognized the importance of public confidence on this point and will crate opportunities for public oversight and debate on the use of these funds. Economic and social policies have improved in Chad in the last three years. There has already been a significant reallocation of public expenditures towards development purposes; the share going to education, health, social affairs, rural development and transport has reach 72 percent. And, as a sign of how seriously the Government has pursued reforms, 45 out of 50 state-owned enterprises have been privatized or liquidated and the size of the army has been cut in half.

Actual revenues from the pipeline will not begin to flow for another four years. During that time, we will be working 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. This four-year period will also be used to prepare a specific development plan for the oil-producing region.

Why is it necessary to go ahead with the project soon rather than in a few years' time?

Chad is not the only country in the world with major untapped petroleum reserves. It must take advantage of current market circumstances to develop them in a way which is economically, socially and environmentally sound. Until it does, poverty will remain deep and widespread.

What are the key features of the project?

• It is a unique opportunity for Chad. It will allow for a marked increase in investments in roads, schools, clinics and other poverty-reducing services.

• Even with the project, Chad will still need development assistance. But the Government will now be able to pay its share of externally funded projects, unlocking additional resources.

• Public discussion of this project has been extensive and helpful.

• World Bank involvement has helped the countries and private sponsors improve the project design, drawing on experience with similar projects elsewhere.

• There are no major environmental risks but a series of smaller ones - which are real but manageable.

• The Government of Chad has already passed a law requiring public oversight of the use of the petroleum revenues.

• Most Chadians appear to welcome the project and World Bank involvement.

• It will be one of the two or three largest private investments in Africa in the next five years and a good example of the catalytic role of the World Bank Group in promoting foreign direct investment on behalf of the world's poor.

• Like most African countries, Chad and Cameroon are emerging democracies. Their Presidents and Parliaments have been elected, they have active Oppositions, and they have the beginnings of a free press. Sound economic and social development will help strengthen these institutions further.