Chad May Soon Regain Access to Its Oil Funds

Compromise With World Bank Allocates Portion of Revenue to Anti-Poverty Projects

Four months after suspending all aid to Chad and freezing the country's oil revenue in a high-profile move against corruption, the World Bank reached a compromise that would restore Chad's access to some of its oil funds while requiring the country's leaders to spend much of the money on anti-poverty projects under close supervision.

The interim agreement was disclosed in a statement issued by the World Bank last night.

The move defuses, at least temporarily, a confrontation between Paul D. Wolfowitz, the World Bank's president, and Idriss Deby, Chad's president, that has emerged as one of the first major tests of Wolfowitz's avowed determination to take a hard line against corrupt governments.

At issue is a 650-mile pipeline that the World Bank agreed to help finance in 1999, enabling landlocked Chad to export its oil. The bank trumpeted the project as a showcase for how it could help poor African nations use their natural-resource wealth honestly and effectively by establishing an elaborate system to keep the money from being stolen or squandered. Most of the revenue went into a special fund in London, where it was earmarked for projects such as schools and health clinics.

But late last year, the Chadian government unilaterally amended the law governing the use of the petrodollars, saying it needed the funds to beef up its security forces amid a growing refugee problem on its border with Sudan. That presented Wolfowitz with a painful dilemma, because failing to crack down would undermine his anti-corruption campaign, while taking too tough a stance risked a collapse of the Deby regime that could turn Chad into a failed state and a haven for terrorists.

On Jan. 6, Wolfowitz announced that he was suspending about $124 million that was due to be disbursed on projects in Chad over several years, and more important to the Chadians, he effectively blocked the government's access to the funds in London.

In recent weeks, the security situation in Chad has deteriorated further, with Sudanese forces reportedly invading eastern portions of the country and rebels in the capital staging an attempted coup. Meanwhile, Chad was missing out on more than $100 million in royalties and dividends that it would have gotten under the original arrangement, a source of enormous frustration to Deby, who threatened at one point to stop the flow of oil through the pipeline.

The agreement finalized yesterday would give something to both sides. For each of the next three months, Chad would get access to a portion of its frozen oil revenue, while the government would have to take steps to ensure that it was honoring the spirit of the original agreement to channel much of the money into anti-poverty projects.

Chad wanted to double, to 30 percent, the portion of the oil revenue that it could use for whatever purposes the government wished, and the bank will go along on that issue. But Deby is retreating on some positions as well. Before getting any money, the government must revise its budget law to show how it will devote the remainder of the funds to projects benefiting the nation's poor. Chad's government is also agreeing to improve its public finances, including stricter audits of oil revenues.

"Our aim has always been to help the Government improve the basic services Chad's people desperately require," Wolfowitz said in the statement. "Suspending aid was a difficult decision but one the Bank had to take . . . to ensure that resources went to benefit the poor people of Chad."

Although a final agreement is yet to be reached, "We believe the steps outlined in this accord provide a way forward to ensure that the people of Chad see the benefits of the aid and oil revenue their country receives," he added.

The deal leaves some issues unresolved, notably whether Chad would restore a "future generations fund" that was established under the original agreement with the World Bank, the aim being to make sure that the country has money left over after its oil runs out.