ANALYSIS-World Bank experiment in Chad reopens debate over role

WASHINGTON, Sept 11 - After two failed agreements, broken promises, and escalating conflict in Chad, World Bank President Robert Zoellick this week ended the Bank's biggest experiment in trying to show that Africa's oil wealth can help the poor.

The withdrawal by the world's largest development agency from the Chad oil pipeline agreement reopens debate over its role in funding oil, gas and mining projects, especially in corrupt and volatile parts of the developing world.

The World Bank heralded the 620-mile (1,000 km) Chad-Cameroon pipeline as a model project when it backed an Exxon Mobil-led consortium to develop oilfields in southern Chad in 2001 and get the oil to market with the pipeline.

To the World Bank, it was an opportunity to help a land-locked, impoverished country develop its oil wealth responsibly and reduce poverty, while also saving for future generations.

From Angola to Nigeria and Sudan, oil wealth has lined the pockets of dictators and the ruling elite and incited conflict that exacerbated poverty.

The Bank's decision to back the pipeline was controversial, but Bank officials argued at the time that the project had more chance of helping the poor with Bank involvement than without.

Development and human rights groups appealed to the Washington-based institution not to be too hasty until proper systems were in place to address corruption and mismanagement in Chad, ranked by Transparency International as the most corrupt country in the world.

In the agreements, the Bank imposed conditions for its financing of the pipeline and set up an oversight committee represented by parliament and civic organizations, to ensure that oil revenues were spent on programs for the poor.

"There was so much pressure in the bank to approve this project that there was a detachment from local reality," said Korinna Horta, a senior economist at the Environmental Defense Fund in Washington.

"The question now is what kinds of lessons has the World Bank learnt?" said Horta. "If anything, people in Chad are a lot more impoverished because of the project."

The 170,000 barrels-a-day pipeline began operations in 2003, pumping the oil to markets through neighboring Cameroon.

Former World Bank President Paul Wolfowitz came under fire when he halted lending to Chad in 2006 as the government, under pressure from rebels, changed legislation to divert the oil profits from the promised social programs.

Wolfowitz's heavy hand was criticized by the Bank's member countries who argued he should work with Chad to fix the problems instead of stopping the loans as he negotiated a more ambitious agreement with the government of president Deby.

DOSE OF PRAGMATISM

Zoellick, known for his pragmatism, in August wrote to Deby laying out a case for ending the agreement as the situation deteriorated, while leaving the door open to keep working with the government.

In the letter, obtained by Reuters, Zoellick spelt out the bank's efforts over the years to make the agreement work and the failures of the government to comply, which undermined the purpose of the institution's involvement.

"Given the repeated failures and other good faith efforts on our part to rectify the situation, we do not believe we should continue to support this operation," Zoellick wrote.

He urged Deby to prepay the outstanding balance of $65.7 million owed under the $140 million agreement, which the government did on Sept. 5.

A separate $200 million agreement between the Bank's private-sector lender, the International Finance Corp, and the Exxon-Mobil consortium is not affected by the cancellation of the contract with the Chad government.

While efforts to use the government's oil profits for programs to help the poor failed, IFC has had more success in helping train Chadian firms and bid for Exxon-Mobil contracts.

Christiaan Poortman, director for Global Programs of Transparency International, said the bank's withdrawal meant that "a certain degree of oversight has been taken away".

Still, he said Chad's government was ultimately responsible for being transparent about how it uses its oil wealth.

"At the same time, I, and the organization that I represent, are strong believers in accountability, and accountability of governments towards the people as beneficiaries," Poortman said. "Whether or not it was appropriate to withdraw, I do believe that that responsibility still stands."

Deby's government has struggled this year with successive attacks by eastern-based rebels and half a million refugees from Sudan and Chad displaced by violence on both sides of theborder.

"The oil revenues enabled Chad's government to be in the conflict and purchase weapons," said Horta. "We probably wouldn't have had conflict of this magnitude without this project," she added.