Chad's President Idriss Deby opens a spigot in 2003 on part of the 665-mile pipeline linking his country to Cameroon's Atlantic coast © AFP
In slamming an ExxonMobil-led oil consortium with a $75bn fine this month, Chad’s government sought to flex its muscles against one of the world’s largest oil companies at a time of economic crisis. But in moving against a project that has returned more than $13bn to the government since 2004, Chad’s President Idriss Déby is also showing signs of the pressure he is under.
Analysts say it is unlikely that Exxon will pay even a small fraction of the fine — equivalent to seven times Chad’s gross domestic product. Even before the penalty was awarded by Chad’s High Court, the Exxon-led consortium had taken the case to the International Court of Arbitration in Paris, the forum both sides had agreed would settle disputes.
But Mr Déby appears to be gambling on the Chadian court’s judgment providing some political and economic value for his government, according to analysts who have studied the president’s use of oil revenues as a tool to control the army, elites and the wider population.
“The government wants to show to people that there is money out there and that the companies are responsible for the financial crisis that Chad is in right now,” said Delphine Djiraibe, a Chadian lawyer and rights activist.
The subject of the dispute is an oil production and export project that was once touted as a model for responsible natural resource development in Africa, but has since been tarnished by controversy. An Exxon-led consortium started work in 2000 to develop oilfields first discovered in the 1970s.
With support from the US, the World Bank and the European Investment Bank, the consortium developed the Doba field in southern Chad, estimated to hold more than 1bn barrels of crude. It built a 665-mile pipeline across Cameroon to the Atlantic coast, so the oil could be shipped to markets around the world.
Chevron, one of the original partners, sold its stake to Chad’s government in 2014, and Exxon’s current partners are Malaysia’s Petronas and Société des Hydrocarbures du Tchad, the state-owned oil company.
The production agreement signed by the consortium and Mr Déby in 2005 stipulated that the oil exports would be free of duties. But in March 2014, the finance ministry brought a case arguing that the consortium should have been paying a 2 per cent export duty.
The high court awarded the government about $816m in back duties — plus the spectacular $75bn fine.
Exxon says the dispute is not about Chad’s ability to levy taxes, but rather about the government’s original promises that exports would be duty free. The company said it disagreed with the court’s decision and was “evaluating next steps”.
The move against a project that has been providing roughly half of Chad’s oil production is a risky step for Mr Déby, who rules over one of the world’s poorest countries.
Ms Djiraibe said the government was trying to distract Chadians from the “horrible social and political situation” the country, which is in recession, faces due to corruption and bad governance.
Activists say the judiciary is controlled by the executive. The presidency has not commented on the ruling.
“The economy is not diversified and in this context the only cash cow to turn to is the oil and gas industry,” said Jean-Baptiste Bouzard, analyst at Wood Mackenzie.
The government wants to show there is money out there and that the companies are responsible for Chad’s financial crisis
He said the government’s struggle with an economic crisis, sparked by collapsed oil revenues, “was definitely a factor” in the imposition of the fine.
Mr Déby took power in a coup 26 years ago and has survived several attempts to oust him. He won elections for the fifth time earlier this year but is under growing pressure on several fronts.
Chad produces about 120,000 barrels of oil a day and the fall in crude prices sparked a fiscal crisis for the government, which depends on petrodollars for 70 per cent of revenues. Austerity measures including cuts to student stipends have sparked street protests and civil servant strikes.
Berny Sèbe, an expert on francophone Africa at Birmingham University, said Mr Déby’s decision to strike out against Exxon was “a way of strengthening his own power by rallying the population behind a common enemy”.
“The companies are an easy target and a good rallying cry for the president,” Mr Sèbe said.
Chad’s history of oil production should be a lesson about the risks of resource extraction in fragile states, said Korinna Horta, a senior adviser at Urgewald, a German non-governmental agency.
She represented Chadian communities lobbying against the World Bank’s support for the pipeline project before construction began in 2000. The World Bank pulled out of the project in 2008, accusing the government of mishandling the oil windfall that was meant to develop the country, illustrating how awry the scheme went.
“The big tragedy is that, after all the promises that oil production would have a positive impact, things have gotten much worse for the people in oil-producing regions,” Ms Horta said.
The article has been amended to correct that Ms Horta no longer works at the Environmental Defense Fund. She is a senior adviser at Urgewald.
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