Terrie O'Leary
Executive Director for Canada
World Bank, Room D12081
701 19th Street
Washington, DC, 20433

May 20, 2000

Dear Ms. O. Leary,

First, on behalf of the Halifax Initiative Coalition and our international allies, thank-you very much for meeting with us, following the Spring meetings. We appreciate every opportunity to exchange views on issues with you.

I am writing today to formally express our concerns over the proposed Chad-Cameroon Oil and Pipeline project, due for Board consideration on Tuesday, May 23rd. As you know, Directors have been asked to request that the Board be given one more month to review issues and documents related to this project.

The Canadian consultant report analysing the EIA was only received Tuesday, May 16th. One more month would allow time to review this analysis, understand the potential implications of renewed conflict in Chad and the Inspection Panel report on the Western China Poverty Reduction Project on the project, and identify information on areas not addressed by the PAD. These areas include corruption, ethnic conflict and existing government capacities. We urge you to work with other Directors to delay Board consideration of the project for one month.

If the project goes to the Board next week, we call on the Canadian government to act prudently and approve only the capacity-building projects. The submission by the Bank staff of the capacity-building projects, at this time, is a recognition of widespread skepticism regarding the capacity of the governments to direct revenue towards poverty alleviation and to ensure that the environment, indigenous peoples and local communities are adequately protected.

The Bank should monitor the implementation of the capacity-building projects closely and bring the oil and pipeline project for approval when capacity is improved, not only, when the projects are completed. There is broad agreement among development aid agencies that capacity and institution-building efforts require long-term sustained efforts. The rationale against this, expressed by Canadian government officials, is that this move will anger the governments and the oil consortium to the point they may decide never to exploit the oil in Chad or to build a pipeline in Cameroon to get the oil to market. If it makes business sense now, it will certainly make business sense in the future. Chad and Cameroon are dependent on the Bank and will not sever their relationship.

The Bank cannot be driven by a desire for good relations or act out of fear that a potential opportunity for development will disappear. The Bank must use its resources only when it is sure that a development opportunity will result in poverty alleviation. Recognizing your role as a Director of the Board in ensuring that the Bank minimize risks and uphold its policies, we note that the sequencing of these projects - putting capacity-building first - will help minimize risks and allow time for the Bank to ensure policy compliance.

The attached memo is a summary of the risks and policy violations associated with the Chad and Cameroon Oil and Pipeline project. It is for the reasons outlined in this memo, and the attached documents, that we call on the Canadian government to reject the Chad and Cameroon Oil and Pipeline project until there is increased confidence, particularly among the local people, that the project will indeed result in poverty alleviation. There are too many reasons for concern at this time to approve this project and hope for the best. All efforts must be made to prevent, rather than monitor, negative impacts.

We look forward to learning from you at the earliest regarding the actions you are considering.

Sincerely,

Pamela Foster

Coalition Coordinator

cc. Minister Paul Martin

MEMORANDUM OF CONCERNS

Chad-Cameroon Oil and Pipeline Project
RISK # 1
Governments currently lack capacity/will to protect people and the environment.

Neither the World Bank, nor the environmental assessment studies provide a detailed analysis of the existing capacity of both governments to deal with a project of the complexity and magnitude of the Chad/Cameroon Oil & Pipeline project.

Chad
The PAD assessment of Chad's governance is: "Chad has successfully put in place democratic political institutions" (PAD, p. 121, 46). It is unlikely that many Chadian citizens would agree with this statement. The US State Department describes the situation in Chad: "State security forces continue to commit extrajudicial killings, and they torture, beat, abuse and rape persons& The government threatened journalists with legal retaliation for publication of antigovernment articles& . Authorities banned demonstrations critical of the government despite being notified in advance as required by law." (US Department of State, 1999 Country Reports on Human Rights, February 25, 2000).

Chad is in the midst of civil war, with armed conflict in the north and a growing rebellion in the south. According to the State Department, "The Government remained unable to retain effective control over the northwestern region of the country where former Defense Minister Youssouf Togoimi began a rebellion in October, 1998". Massacres of hundreds of civilians that took place in the oil bearing region of Chad in 1997 and 1998 have never been investigated. There has been inadequate attention by the World Bank to the risks involved in developing oil in the midst of war. This risk is not mentioned or evaluated by Bank staff in the project appraisal document. This issue is noted as a "significant gap" by the Canadian consultant hired to analyse the EIA (EMP Review, p. 1).

In the case of Chad, a Petroleum Management Law is to ensure that oil revenues are used for poverty alleviation purposes. The PAD states that "The Government. s strategy enjoys broad political support from the country's leadership and legislature, takes into account the expectations of civil society and the need to associate it with the process& " (Pad, p. 7). Chadian NGOs have expressed serious doubts about the government's will to implement its own laws. Similarly, annex 11 of the PAD refers to surveys carried out in the country which found that "Chadians remain skeptical about the expected benefits of petroleum development& Chadians fear that oil revenue will accrue primarily to privileged groups, or to foreigners" (Pad, p.122). An analysis of the law prepared by staff and students of the Human Rights Program at Harvard Law School does not share the PAD's optimistic view of the Revenue Management Law as a mechanism to ensure that the oil revenues will be used for social programs. It states:

"The current law cannot be considered in isolation from the conditions in which it has been adopted. Even where capacity exists, transparency and good revenue management cannot be legislated where no will exists. & the authorities have demonstrated particular intolerance with regard to those rights most important to guarantee equitable fulfillment of its commitments under the Revenue Management Plan" (Human Rights Program Harvard Law School, Managing Oil Revenues in Chad: Legal Deficiencies and Institutional Weaknesses, October 13, 1999).

Cameroon
Although Cameroon has earned the distinction of being listed as the most corrupt country in the world for two years in a row by the Corruption Perception Index published by Transparency International, the word "corruption" does not appear in the PAD. Despite many years of World Bank structural adjustment lending which tried to get the country's own oil revenues integrated into the national budget, Cameroon's oil income continues not to be fully accounted for. The PAD confirms this when it refers to a government objective "& to ensure the full transfer of oil revenues from the National Hydrocarbon Company (SNH) to the budget and to increase transparency" (PAD, p. 9-2). SNH is the lead agency for the project in Cameroon.

The PAD largely appears to ignore well-known conditions in Cameroon and to be unaware of the recent case study of the World Bank's Operations Evaluations Department (OED) on Cameroon. s forest sector. The study documents in some detail the lack of environmental credibility of the Cameroonian government (OED "Forest Sector Development in a Difficult Political Economy: An Evaluation of Cameroon's Forest Development and World Bank Assistance" October 29, 1999). In a recent letter to the Rainforest Foundation in London, the leader of the OED team writes that "Cameroon is in a particular disadvantage relative to other forest-rich countries because it lacks strong and diversified institutions for accountability of the government" (February 25, 2000). Forests are at high risk due to the construction of roads to build the pipeline.

Since the project will lead to the loss of biodiversity in the semi-decidious and coastal rainforest areas of Cameroon, the project sponsors have been required to compensate for the destruction of biodiversity by supporting the protection of two new national parks. The areas to be protected are the Mbam-Djerem (353,000 hectares) and the Campo Ma'an National Parks (300,000 hectares). The latter, previously known as the Campo Ma. an Reserve, has been part of the Global Environment Facility's biodiversity protection activities in Cameroon for several years. According to the PAD, an endowment of US $ 2.9 million paid for by COTCO (oil consortium and Cameroonian government) is to finance the establishment and management of the parks. Conservation organizations, such as WWF, believe that the annual income from the endowment will be insufficient to cover the costs of protecting these areas.

In addition, there is urgent need for clarification: Logging operations are spreading on the borders of the Campo Ma'an Reserve, which include the building of roads and a bridge. The government of Cameroon is reported to have recently stated that the Campo Ma'an area is to be much diminished and has called for additional funding from the international community to protect the area. These allegations need to be investigated promptly.

Within an overall context of human rights violations, the situation of Cameroon's indigenous peoples is especially bleak. The US State Department reports: "The security forces (under the effective control of the President and the Minister of Defense) continued to commit serious human rights abuses& .Security forces committed numerous extrajudicial killings; reportedly were responsible for disappearances, some of which may have been politically motivated, and tortured and often beat and otherwise abuse detainees and prisoners, generally with impunity. & Journalists continued to be subject to serious official harassment& . Discrimination against indigenous Pygmies continued& .Widespread corruption in government and business also impedes growth." (US Department of State, 1999 Country Reports on Human Rights, February 25, 2000). A statement from the Bakola people is attached.

Yet despite their known lack of capacity, the "& governments will have primary responsibility for the management of the indirect impacts and the monitoring and evaluation of the environmental management plans" (PAD, p.30-5). The two capacity-building projects are a recognition of a lack of capacity. The Canadian consultant report argues that "The Bank needs to seriously put in place measures to `guarantee implementation of the impact mitigation measures by the Consortium and the borrowers" (EMP Review, p.1).

RISK # 2

The Consortium may violate the rights of people and devastate the environment.
Shell and Elf-Acquitaine left the consortium at the end of 1999. They have been replaced by the Malaysian state-owned company PETRONAS and US-based Chevron Corporation. Petronas is also a partner in an oil project in neighboring Sudan, which, according to a recent study commissioned by Canada. s foreign minister, is intensifying the 17-year old civil war in Sudan (Reuters, April 7, 2000). Chevron, on the other hand, is facing a U.S. court case. Northern California District Judge Legge ruled at the end of 1999 in favor of proceeding with the suit against Chevron for human rights abuses committed in Nigeria. (See attached news release). ExxonMobil, the largest U.S. oil corporation, remains the leader of the consortium. Exxon's CEO was quoted as saying that poor developing countries cannot afford environmental protection. If they insist on such measures, he added, foreign investment might go elsewhere (Wall Street Journal, October 14, 1997).

At least one Bank staff expressed concern over future actions. Ian Johnson, Vice-President of ESSD at the Bank, in the now famous leaked memo states, "The objective would be to get some credit for having shifted the modus operandi of what is widely perceived to be a recalcitrant group of companies. It would be important to get them to make public statements that might protect our reputation with respect to follow-up exploration activities not funded by us."

"The primary responsibility for preventing, avoiding, mitigating, compensating and monitoring the environmental impacts for the PDPP will remain with the project sponsors" (PAD, p. 5). "COTCO will implement most of the safeguard measures" (PAD, p. 3). There is not sufficient assessment of capacity or legal safeguards to ensure that the private sector sponsors are capable or willing to meet the requirements of the World Bank, nor is there adequate description of the supervision and monitoring that will be required by the Bank.

A table presented in the PAD which lists project costs contains a blank space in the field provided for US$M for environmental mitigation, resettlement and compensation (PAD, p.12). The blank space is an indication of the overall lack of clarity of funding responsibilities for the social and environmental costs of the project between the governments and the oil consortium, which are partners in the pipeline companies TOTCO and COTCO.

Annex 4 of the PAD points out that the costs for the implementation of the Environmental Management Plan will be borne by the governments of Chad and Cameroon, including the mitigation measures of social impacts in the oil producing region. "The net present value (NPV at 10%) of these and other project implementation costs are estimated at about $ 15 million for Chad and the same amount for Cameroon & " (PAD, p. 76). Both Chad and Cameroon are highly indebted and poor.

Bank Policy Compliance

Public Consultations
"The Private Sponsors and Governments have undertaken extensive consultation with local NGOs and the public" (PAD, p.22). In a letter to Environmental Defense, the World Bank admits that "Between 1995 and 1997, the sponsors or their agents were accompanied in Chad by gendarmes for security reasons" (Letter from Serge Michailof to Korinna Horta dated December 17, 1999). Neither the massacres committed by government security forces in the oil producing region in 1998, which were documented by Amnesty International, nor the overall level of fear and intimidation are acknowledged in the PAD. Annex 17 of the PAD (Consultation Summary) describes an idealized consultation process which "& was initiated in 1993 with scoping of the corridor selection process and continued over the next six years" (PAD, p. 167).

Although informed about the matter, the World Bank does not acknowledge the extremely difficult conditions for local NGOs and the public. For example, the activities of one local NGO (EPOZOP- Entente des Population de la Zone Petrolière) were suspended by the local authorities after its extensive surveys showed that compensation payments for trees lost to the project were dismally low.

The PAD refers frequently to government and oil consortium consultations with NGOs and the public. The special conditions, often of intimidation and fear, of NGOs and the public in the countries concerned is not acknowledged. In Chad, even a prominent member of parliament was not safe when he referred to corruption in the context of the project: Yorongar Ngarléji spent eight months in jail and was only freed after international attention surrounding his case led the World Bank to intervene.

The consultations with the local people must be done well prior to decision-making on a project. To assume that the consultations can continue after the project is approved, as suggested by a Canadian government official, runs counter to the raison-d'être of consultations.

Indigenous Peoples Plan (IPP)
The Bakola people who live in Cameroon's Atlantic Littoral forest will suffer severe losses as a result of pipeline construction through their traditional territory. Much of the impact will result from the increased access to the areas by commercial wildlife poaching and logging. In order to mitigate some of the problems faced by the indigenous people, the project is establishing an endowment fund for both the Bakola and the Bantu people in the area whose total number is estimated at about 11,000 people: "A sinking fund with an initial capital of US$ 600,000 will be established by COTCO for the life of the project & .Interest on the endowment would be used each year to fund the IPP" (PAD, p. 164).

If the interest earned by the endowment is about 5%, then there would be an annual amount of $ 30,000 to finance"& health, education and economic development projects for this marginalized ethnic group" (PAD, p. 31-6). It is unclear what such an amount would finance. A salary for one staff person? A vehicle and gas? In the unlikely case of no overhead and expenses for administration, the amount to be spent per person would be less than US$ 3 per year. Over the life of the project this is equivalent to less than $100/person over 30 years, assuming he population remains stagnant.

According to the PAD, a board of trustees will decide on funding priorities and be responsible for the implementation of the IPP. Who will select the members of the Board of Trustees and which funds will finance the activities of the Board of Trustees and its administrative officer?

The World Bank's policy on indigenous peoples requires that a mechanism for the legal recognition of the rights of indigenous peoples be established and that the government designate an agency to deal with indigenous peoples issues (OD 4.20). Neither requirement has been met in the Indigenous Peoples Plan presented by the project.

Environmental Protection
Despite serious concerns about possible oil spills in the oil fields, along the pipeline both on land and in the ocean, and at the marine terminal, the 19-volumes of environmental assessment studies did not include a General Oil Spills Response Plan (GOSRP). In response to the request of some donor governments, such a general plan was finally submitted in late 1999. Specific area plans for the oil fields, pipeline sections and marine terminal are to be prepared at a later date. The PAD describes the plan briefly and appears to accept its contents as satisfactory (PAD, annex 14, p. 149). A review by the Dutch Commission for Environmental Impact Assessment, however, raises some serious questions about this plan. For example, it states that the plan's budget for investment in oil spill response equipment for the two countries is US$ 800,000 which does not reflect the needs in terms of equipment, operation and maintenance costs. On the basis of its assessment of the General Oil Spills Response Plan, the Commission estimates that an investment of US$ 29 million in equipment is necessary in addition to annual operation and maintenance costs of US$ 4.5 million.

Although the Commission considers that the GOSRP provides adequate information for the future development of an oil spill response system, it concludes that "& it does not provide an adequate basis for legal agreement on oil spill preparedness and response. In failing to do so, the GOSRP might not be in compliance with the World Bank requirements for an Environmental Management Plan" (Commission for Environmental Impact Assessment, Advisory Review of the General Oil Spill Plan, 22 February 2000).

"The project can also be expected to spur further oil exploitation and development in Chad and Cameroon" (PAD, p. 13,3). The London-based Energy Intelligence Group reports that three companies already have purchased 440,000 square kilometers in the vicinity of the Doba oil fields, which may contain more than 10 billion barrels of crude. One of the companies is Nigeria. s Oriental Energy Resources whose chairman "& Al-Hajji Mohammed Ndimi is also close to Deby, who controls all oil policy from his presidential office, which he acquired in 1990 in a military coup" (Energy Intelligence Group, The Other Chad Project, February 4, 2000).

The World Bank's Operational Policy on Environmental Assessment (OP 4.01) requires that sectoral or regional environmental assessments be carried out when its investments lead to potential cumulative impacts (OP 4.01, para. 7 and OP 4.01, Annex A, para.8).