By Emad Mekay
WASHINGTON, Jan 10 2006 (IPS)

The World Bank’s decision to suspend loans to Chad after the country said it would divert revenues from an oil project intended to alleviate poverty is a symbolic gesture that dodges meaningful action by the Bank in similar mining, oil and gas projects, watchdog groups say.

Last week, the Washington-based public lender made good on threats to suspend 124 million dollars in loans to Chad, one of the world’s poorest nations, after the government amended a law that controls the country’s oil revenues, against the Bank’s repeated advice.

In a letter to the Chadian authorities, the Bank said that it will freeze work on any new grants or credits to Chad and will suspend disbursements on all eight projects that the World Bank has in the African nation.

World Bank funding for these projects is 297 million dollars, of which approximately 124 million dollars are yet to be disbursed.

“We have a responsibility to ensure that money generated from this oil project is used to help meet the needs of the poor people in Chad,” said World Bank President Paul Wolfowitz, as he announced the unusual step.

Wolfowitz said that Chad has refused to engage in dialogue with the Bank or allow it to assist with the country’s budgetary concerns, the main motive cited by the government for changing the law.

The law was designed to guarantee that oil revenues benefit the poor by allocating most of the revenues to “priority sectors” like health, education, social services and rural development, and setting aside 10 percent of the proceeds for the post-oil era.

The project was hailed as a World Bank model in using extractive industries to fight poverty and boost development in one of the world’s most impoverished nations.

However, the amendments passed in late December would increase from 15 percent to 30 percent the amount of revenues deposited into general government coffers, cancel the future fund and use the money accumulated for immediate expenditures in areas like security and border control.

Civil society groups, which were instrumental in generating support for the original law, welcomed the World Bank’s decision but insisted that its position fails to lessen the damage to local people and remains insignificant relative to the Bank’s overall global role in similar oil projects elsewhere.

The N’Djamena-based Chadian Association for the Promotion and Defence of Human Rights (CAPD) and the Washington-based group Environmental Defence said Wolfowitz’s decision did not address problems of social disruption, public health and environmental damage resulting from the project in the country.

“We agree with the World Bank’s decision to suspend funding for Chad because new money would mainly be used for military purposes and increasing repression of the Chadian people,” said Delphine Djiraibe of CAPD in a statement.

“But we regret that the Bank did not listen to the warnings of civil society organisations earlier because now we face greater poverty and severe environmental problems as a result of this mega-project.”

The groups, which have been monitoring the pipeline for years, say that poverty, public health and environmental problems continue to dog the country as the Exxon-Mobil-led consortium that runs the project expands drilling activities in both existing and new oilfields.

Critics say that pollution is taking a toll on the health and crops of some of the poorest people in Africa, but none of the project sponsors are even studying it.

“The World Bank bears responsibility for the project and must press Exxon-Mobil to vigorously address these problems,” said Korinna Horta of Environmental Defence.

The groups’ criticism has rekindled a debate about a high-profile Bank-initiated study that recommended in 2004 that the institution phase out its investments in oil, gas and mining, and re-channel the funds into developing renewable energy sources.

At the time, the Bank said that it would accept some of the recommendations in the Extractive Industries Review, but remained opposed to ending investment in oil and gas projects because that would do more harm than good to the developing nations that rely on cash from those projects.

But the Chad episode shows how quickly revenues from such projects can be used for reasons other than poverty reduction – one of the major justifications for World Bank involvement in many projects around the world – even with strong World Bank safeguards, watchdog groups said.

“Wolfowitz’s decision to suspend payment to Chad is a bit like closing the barn door after the horses have fled,” said Daphne Wysham of the Washington-based Institute for Policy Studies. “It’s a nice gesture, but is largely symbolic.”

“If Wolfowitz really wanted to take meaningful action, he would implement the recommendations contained in the World Bank-initiated Extractive Industries Review. Anything less is inviting similar scenarios to play out in the future – with the poorest paying the highest price.”

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