Let's play connect the dots!

[SackAttack]

http://www.cnn.com/2006/WORLD/africa...eut/index.html

Originally Posted by CNN.com

Chad ordered U.S. energy giant Chevron and Malaysia's Petronas on Saturday to leave the country within 24 hours for failing to honor tax obligations, in a move apparently motivated by a desire to earn more from its oil.

Under the 1988 agreement with the foreign consortium, Chad gets 12.5 percent of the wellhead value of total production, before quality discount and the cost of sending it through the pipeline to Cameroon's Kribi terminal.

Originally Posted by President Idriss Deby

"Despite the rise in the price of a barrel, now estimated at around $70, Chad doesn't get much from its oil revenues," Deby told the meeting with government ministers and political parties.

"In less than three years of exploitation the consortium has earned $5 billion for a $3 billion investment. In contrast, Chad has just received crumbs: $588 million, just 12.5 percent."

Originally Posted by CNN.com

A Transparency International survey last year ranked Chad the world's most corrupt state.

So, um. Let me get this straight. An 18-year-old agreement set 12.5 percent as the standard, which by Deby's own words, Chad has been receiving.

Presumably, since they've been receiving their commission, the issue of "corporate tax obligations" is a non-starter, unless they're supposed to be paying taxes on top of the 12.5%. Unfortunately, the CNN.com reporter really didn't do much in the way of outlining what these obligations are supposed to entail beyond the 12.5% commission, let alone whether they in fact do extend beyond that point.

So they made an agreement, which has apparently been honored over the years, but that's not enough for Chad. They've dismissed the ministers involved with the contract for telling the oil companies not to pay (huh?), they've booted two of the partners out of the country and called the original agreement a "fool's agreement." They want to renegotiate it (at the point of a governmental gun, I'd imagine, given the creation of a national oil company).

But this is an issue of Chevron not paying its taxes rather than the most corrupt government on the planet (according to the Transparency International survey) reneging on an 18-year-old contract?

[Vinatieri for Prez]

Hmm, sounds familiar to the U.S. reneging on some fronts of its trade agreements with other countries. Every country does it when they feel they don't like what's going on. No real news here.

[JPhillips]

Sack: Not trying to defend Chad here as I don't know much about the history of their agreements with the oil companies, but just because there is an agreement doesn't mean the current government should honor it forever. If the agreement was signed by an equally corrupt regime its almost certain there were payoffs to the oficials involved. The 12.5 percent seems awfully low on the surface and is probably a poor deal for the citizens of Chad. (I know that they probably don't see much benefit from the oil money, but the idea still applies)

A good example of this kind of agreement and cancelation can be seen in the Iran/Mossadeq vs. BP fights of the fifties. BP had an agreement with Iran that was signed by a corupt government that got kickbacks. When Mossadeq came to power he said the agreement wasn't good because it had been signed by a corrupt government that violated the rights of the people.

There really is a problem with corporate/state agreements that have a long or indefinite life. What right does a new government have to fix percieved wrongs of past governments or even wrongs of their own government?

[SackAttack]

JPhillips - the issue I have isn't with the government wanting the deal renegotiated.

The issue is with saying that Chevron isn't living up to the deal while at the same time saying that the deal isn't good enough anyway. I mean, that makes it difficult to have faith in the Chad government's motives.

[st.cronin]

There are many, many reasons not to have faith in Chad's government.

[Cringer]

Dang, I thought this was going to have a picture of Lindsey Lohan in it and we were going to see what kind of animals we could get by connecting her freckles.

[GabeRivers]

Originally Posted by JPhillips

Sack: Not trying to defend Chad here as I don't know much about the history of their agreements with the oil companies, but just because there is an agreement doesn't mean the current government should honor it forever. If the agreement was signed by an equally corrupt regime its almost certain there were payoffs to the oficials involved. The 12.5 percent seems awfully low on the surface and is probably a poor deal for the citizens of Chad. (I know that they probably don't see much benefit from the oil money, but the idea still applies)...

The 12.5% fee is the "royalty" payment, often referred to as the "concession" when the contract is with a nation state. This share normally comes off the top, and bears no costs. It is not an unreasonable figure, at least in terms of historical standards, although in recent years, the "standard" seems to be rising.

Keep in mind that the company bears all the risks and all of the development and operating costs. Concessions running much higher than 12.5% can push the ROI down to a point where the investment will not be worth the risk -- so no development goes forward in Chad.