Chad and Exxon

Yesterday, Chad’s Tribunal de Grand Instance (Major Pleas Court) rendered a judgment against a petroleum consortium directed by Exxon. Seeking to end a legal dispute (French) that began in 2014, the court ordered the consortium to pay around $74 billion (44 trillion CFA) in allegedly unpaid royalties and associated penalties. That figure has shocked the financial press, and Exxon plans to contest the ruling.

One court document has been uploaded by Jeune Afrique (French). One central issue in the dispute is the rate of royalties that the consortium must pay: Chadian authorities say it is 2%, but the consortium has reportedly been paying 0.2% for years.

The consortium has two other members: Malaysia’s state-owned Petronas, and Chadian firm SHT* (Société des Hydrocarbures du Tchad, or the Chad Hydrocarbons Firm). There has been some ambiguity in the press about whether Chevron is a member of the consortium; I believe that it is not, given Chevron’s sale of its Chadian interest to the government of Chad in June 2014.

Most international reports have contextualized the ruling with reference to Chad’s current economic difficulties; in recent posts I have been noting the impact of budgetary austerity (due to low oil prices) on different constituencies in Chad, especially students and civil servants. The implication, then, is that Chad’s government is merely trying to extract more from international oil companies during a trying time. Bloomberg, in fact, hints that the government may be throwing out a large figure in order to scare the companies into paying a smaller fine:

The president of the court, Brahim Abbo Abakar, confirmed the ruling by phone on Thursday. “It’s correct, however, the provisional enforcement is lower than the amount demanded by the tribunal,” he said, referring to the sum of $669 million also cited in the document. He didn’t elaborate.

Apparently the first round of this dispute, in 2014, ended with direct negotiations (French) between the oil companies and the administration. Perhaps that will happen again now.

I also think there is a broader context to mention. That is the pattern of Chad’s government acting as a tough negotiator vis-a-vis the oil companies and the international community as a whole. As I mentioned in a previous post on Chad, much of that story is told in Celeste Hicks’ Africa’s New Oil.

Finally, for what it’s worth, I found it interesting that one of the featured news items on the official site of the Chadian presidency was about President Idriss Deby’s recent meeting (French) with the Vice President of China National Petroleum Corporation (CNPC). The readout of the meeting mentioned the “rich and fruitful discussions” the two parties had, but also noted that Chadian authorities expect that it would be a “difficult year” due to low global oil prices. For further context, CNPC has also paid large fees to Chad in the recent past ($400 million in 2014, negotiated down from $1.2 billion), and agreed to a higher royalty rate in 2015. The lesson seems to be that some companies, at least, are willing to pay fees in order to maintain access to Chad’s oil.

*Some reports listed the firm as SNT, but I believe that’s a mistake in transcription from court documents.

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