Opening the Chadian black box

The EITI process in Chad leads to traceability of oil payments for the first time.

Today, we can say with confidence that all oil payments from companies are entering the government budget and are appropriately monitored.” Mr Bedoumra Kordje, Minister of Finance of Chad, said on 21 May 2014 in N’Djamena during a meeting with the Chair of the EITI Board. Clare Short visited the newly created unit, called Cellule de Collecte et Centralisation des Recettes du pétrole (CCCR). The office is dedicated to tracking government revenues from oil, gas and mining companies to ensure that company’s payments are adequately recorded and the revenues flow to the right accounts. 

Fighting corruption doesn’t always mean catching the crooks, although that is part of it. Fighting corruption effectively means creating systems that do not allow corruption to fester in the first place.” said Clare Short, Chair of the EITI Board. “I am pleased to see the EITI strengthening government systems to ensure that Chad’s revenues are effectively managed for the benefit of its citizens” she added. 

The management of oil revenues in Chad was based on a clever design with a missing piece

Chad discovered oil in the 1970s, but the poor and unstable, landlocked country lacked infrastructure to export its oil to market. A three-decade long civil war from 1960 to 1990 ravaged the country and made it all but impossible for a single company to undertake the investment to develop the oil fields, the pipeline and the export terminals necessary for taking Chad’s oil out of the ground and transport it to oil refineries in Europe and North America. 

To address this issue, the Government of Chad and the World Bank reached an agreement, in June 2000 with a consortium of companies, led by Exxon, to share the risk of investing in the necessary infrastructure. The partners wanted to ensure that the government’s revenues from the oil sector would contribute in reducing poverty and pay back international creditors such as the World Bank (IBRD) and the European Investment Bank (EIB). As part of this agreement, all direct and indirect government revenues from oil and gas companies first flowed into a transit account held at Citibank in London. 

After the international creditors were paid, the remaining revenues moved to the government’s treasury account. This clever design reduced the risk borne by the international investors, as lenders did not depend on the weak legal and institutional structure in Chad to get paid. 

The problem with the design was that almost no one in Chad knew what company paid how much for what activity into this London transit account. In other words, the transit account at Citibank in London was a black box. 

Money started to flow into this transit account in 2003 when Chad started exporting oil. For the past ten years, there has been no record keeping system in the country to monitor the flow of oil revenues from companies to government accounts. The lack of oversight of revenue flows through the transit account represented a significant risk of corruption and mismanagement. Without adequate record keeping, the government was not able to monitor the extent to which companies paid what they were supposed to pay in accordance with their contractual obligations. 

The EITI reporting process identified this issue in 2012 and called for remedial actions. 

Starting fresh and strengthening governance

In order to produce reliable figures for the EITI Report, the government created the revenue-tracking unit, CCCR, at the Treasury with a robust mechanism for recording and monitoring effective payments from all oil and gas companies. As part of this reform, the government launched a project to computerise the record system of government revenues and expenditures to ensure real-time monitoring of the budget. This also improved the record keeping and audit system at the customs office to ensure that customs duties are correctly declared, assessed and paid in a timely fashion.

In the past, the secrecy which shrouded agreements between companies and government and the revenue flows arising from these agreements allowed corruption to take place. As Chad makes progress in implementing the EITI, the risk of corruption has been significantly reduced” says Dr. Hamit Ali Moutay, advisor to the President on mining, energy and oil, and member of the EITI Steering Committee in Chad.

Chad published its most recent EITI Report, covering 2012, in March 2014. The US $2 billion of government revenues from the oil, gas and mining sector accounted for 70% of the government budget in 2012.  The first reports (2007, 2008 and 2009), published in 2012, were not disaggregated. The reporting process, whilst limited, was effective in identifying weaknesses in the record keeping system, potential areas of reform and a more coherent system for revenue traceability.  

The 2010 and 2011 Reports published on 15 May 2013 were disaggregated by company and by revenue stream but did not meet EITI requirements for data reliability. 

Recommendations from the latest EITI report include closer collaboration between the revenue tracking unit and the national EITI Secretariat as well as the regular maintenance of a public cadastre of companies. In keeping with the new EITI Standard, Chad's next EITI Report must include a summary description of license registers and oil sales by the nationally owned company, SHT, in a bid to make the reports more comprehensive and useful to the public.

For further information about EITI in Chad, visit the country page on the EITI website.

See more pictures from the EITI trip to Chad on Flickr.