(World Bank News Release)

WASHINGTON (June 6, 2000) -The Board of the World Bank Group today overwhelmingly agreed to support the Chad-Cameroon Petroleum Development and Pipeline Project - an unprecedented framework to transform oil wealth into direct benefits for the poor, the vulnerable and the environment. In addition to the financing, the package of support includes a first-of-its-kind program to direct new revenues to support economic and social development programs in Chad, which is one of the world's poorest countries.

The project, which is expected to cost $3.7 billion, will develop the oil fields at Doba in southern Chad and construct a 1,070 km pipeline to offshore oil-loading facilities on Cameroon's Atlantic coast. The sponsors are ExxonMobil of the U.S. (the operator, with 40 percent of the private equity), Petronas of Malaysia (35 percent), and Chevron of the U.S. (25 percent). Depending on world oil prices, the project could yield up to $2 billion in revenues for Chad and $500 million for Cameroon over the 25-year production period.

Almost all the $3.7 billion investment will be private. The World Bank Group will provide $93 million on IBRD terms ($53.4 million for Cameroon and $39.5 million for Chad) to finance the governments' equity share in the project and a $100 million loan from International Finance Corporation (IFC) to the joint-venture pipeline companies. In addition, IFC will mobilize up to $300 million in syndicated loans from commercial banks. The remaining funding will be provided by the oil companies themselves, commercial bank loans supported by export credit agencies, and possibly project bonds.

James D. Wolfensohn, President of the World Bank Group, while acknowledging the international debate surrounding the project, expressed strong support for it:

"The Chad-Cameroon project reflects an unprecedented collaborative effort between the Bank Group, the consortium of private companies and the two governments. While some may still have doubts, I believe that the hard work of specialists from the Bank Group, the private companies and the two countries, combined with the strong participation of civil society within Chad and Cameroon and around the world, have made this a better, stronger project. The real challenge is about to begin. We intend to pursue it, with our partners, with the same openness and thoroughness we have brought to the process so far."

This project represents an unparalleled opportunity for creating a much brighter future for Chad. At present, the country cannot afford to provide the minimum public services necessary for ensuring a decent life for its people. In four years' time, the pipeline would increase annual Government revenues by 45-50 percent per year over current levels and allow it to use those resources for poverty-reducing investments in health, education, environment, infrastructure and rural development.

In addition to the IBRD and IFC investments in the pipeline project, the Board approved two projects to help strengthen Chad's and Cameroon's capacities for environmental management and monitoring of the petroleum sectors. These would be supported by US$23.7 million and US$5.8 million equivalent credits from the International Development Association (IDA), the World Bank's lending arm for the poorest countries.

An International Advisory Group consisting of independent international experts will monitor the projects, with particular attention to social and environmental safeguards, and will report to Mr. Wolfensohn. Their findings will be discussed by the Senior Management and Board of the Bank Group and then made public.

Additional information on the project, including arrangements for protecting the environment and ensuring the proper use of the oil revenues, is attached.

The Chad-Cameroon Petroleum Development and Pipeline Project Background Information

Why the Project?

Chad is one of the poorest countries in the world. About 80 percent of its 7 million people - or 5.6 million people - live on less than $1 a day. Chad also has very high infant mortality rates, limited access to basic social services, and extremely poor nutrition levels. Without oil, and despite recent growth of 5 percent a year, it could well take 35 years to double Chad's per capita income.

Ninety percent of the country is desert or semi-arid. Its very narrow economic base and lack of skilled people limit the opportunities for growth in most sectors. This project provides Chad with a unique opportunity to lift itself out of its extreme poverty. The additional revenues could remove the bottlenecks that constrain growth and create opportunity for the next generation of Chadians.

However, natural resource "booms" are difficult to manage. Drawing on its global knowledge, the Bank Group is seeking to ensure that the country's new wealth will be invested responsibly, for the well-being of all Chadians.

The project would increase Government spending on key economic and social services. Rather than displace social sector projects, the pipeline would support implementation of World Bank and other donor projects in these sectors by generating additional revenues to finance critical Government expenditures, such as teachers' salaries.

Why now?

Petroleum was discovered in southern Chad 30 years ago, and the country has been waiting anxiously ever since for the right combination of international prices and private interest to develop the resource. Chad is not the only country with untapped petroleum reserves. Exploration is underway throughout the continent to find new oil sources - which could prove cheaper and more accessible. If Chad does not seize this opportunity, it may well pass the country by.

More needs to be done to build capacity within Government and society to participate fully in project implementation. This will start immediately and continue for at least the four years before oil revenues start to flow. Until the oil is developed, poverty will remain deep and widespread. For example, each year 1 in 5 children die before the age of five. Although the project by itself will not eliminate early childhood deaths, it is certain that revenues from the pipeline - linked to improved basic health and education programs - will save a large number of these young lives in the future.

Managing the Oil Revenues

Chad and the Bank Group have applied the lessons of international experience to the proposed management of the oil resources. In fact, the Government has already taken unusual steps to target most of the oil revenues to poverty reduction and to ensure public oversight of the use of these resources.

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 the revenues. Under the law, 10 percent of the royalties and revenues will be held in trust for future generations, 80 percent of the remaining funds will be devoted to education, health and social services, rural development, infrastructure, and environmental and water resource management, and 5 percent will be earmarked for regional development in the oil-producing area (over and above its share of national spending). There will be annual published audits of the petroleum accounts, regular public expenditure reviews by the Government and the Bank, and special arrangements for channeling and accounting for the funds.

In addition, the law created an oversight committee to monitor the use of the oil revenues. This committee will include representatives of the Government, Parliament, the judiciary and civil society. A related IDA capacity-building credit will support the work of the oversight committee, as well as strengthen Chad's general accounting office and the dissemination of information about government expenditures.

In Cameroon, increased revenues from the project will be less significant: only 3 percent of the national budget, compared with 45-50 percent in Chad. Public disclosure of the use of oil revenues is already part of the Bank and IMF's economic reform program in the country.

Protecting the Environment

Any large project of this nature entails risks for the natural environment. From the start, the environmental risks of this project were seen to be significant but manageable. Numerous issues were identified, but in all cases adequate measures have been designed to deal with them. There was considerable work in studying alternative routings and induced - not just direct - impacts. National experts, Bank Group specialists, and consortium personnel walked the entire pipeline route to double-check data from aerial surveys. These analyses were summarized in a 19-volume Environmental Impact Assessment and Management Plan, the first draft of which became available in June 1998. The final version was made public in June 1999 and additional information regarding the oil spill response plan was made available in October 1999. These documents were the subject of regular exchanges of views with local and international NGOs. Those discussions were aimed at ensuring that the project planners were studying the full range of potential risks and applying the appropriate standards of environmental protection.

Following 18 months of analysis, significant changes were made to the proposed right-of-way. As a result, the project will have only a minor net effect on the natural and human environments. The pipeline will be buried, rather than above-ground. For most of the route, it follows existing infrastructure. No one will need to be resettled along the 1,070 km route - although a maximum of 150 families (probably many fewer) may be displaced where the oil itself will be produced. Construction may interrupt farmers' access to their land, but during a brief period. They will be compensated fully for lost income and lost fruit trees.

The final route complies with World Bank safeguard policies, including those on Environmental Assessments, Natural Habitats, Indigenous Peoples, Cultural Property, Resettlement, and Forests. Only a small amount of tropical forest (10-15 sq. km.) will be lost as a result of the construction. To compensate for this, two large new national parks (approximately 5,000 sq. km.) have been created in Cameroon, and will be managed for better biodiversity conservation in those areas.

Human Rights

Chad has had a troubled history. However, the country has made progress since the early 1990s towards a more inclusive and stable political environment. A democratic process and a program of national reconciliation have been launched. Opinions differ on how significant this progress has been. Military incidents in southern Chad two years ago and the temporary imprisonment of a parliamentarian from the project area created obvious concern. But everyone agrees - inside and outside Chad - that the success of the project will be enhanced by the free expression of community views. In itself, the preparation of the pipeline project has been a training ground for public debate. More information has been made available about this project than any other activity in the country. In addition, seminars organized by non-government organizations (NGOs) over the last three years have allowed local NGOs, traditional village authorities and farmer organizations to speak out about the project. These exchanges have improved the project - and also contributed to strengthening the voices of civil society.

HIV/AIDS

HIV infections are still relatively low in Chad, which has taken a proactive approach to controlling the disease. In Cameroon, the rate is rising and effective action at the national level is only starting. The project sponsors are coordinating with the national HIV/AIDS programs in both countries to ensure that the project does not adversely affect the surrounding communities or workers. The project will provide health education and immunizations to workers. Condoms will be made available at subsidized prices. Medical teams, including emergency medical technicians, will be on site during construction to provide treatment when needed and to supervise health and sanitation conditions in the construction camp.

Consultations

Public consultations on the project started in 1993. The initial aims were to share project information with the affected communities; determine project land needs; and establish a framework for reducing adverse impacts. Consultations since 1998 have focused extensively on the draft Environmental Impact Assessments studies and draft Environmental Management Plans. Information on the project has been widely disseminated, and hundreds of public meetings have been held in local languages. The World Bank country offices and local staff have been actively involved in improving the quality of the consultation process, and in helping to build the capacity for constructive engagement of local NGOs. In addition, Washington-based staff have participated in some of these consultations or facilitated discussions between the parties. The consultation process will continue during project implementation.