Chinese Refinery in Chad Hits a Major Snag

When Chad’s $60 million Djarmaya refinery, 25 miles north of the capital N’djamena, was opened on 29 June 2011 after two years of construction, President Idriss Deby Itno described it as a "gift from China."

As well Deby might – the United Nations' Human Development Index ranks Chad as the seventh poorest country in the world, with 80 percent of the population living below the poverty line on less than $1 a day.

In an earlier swipe at Western countries’ lack of interest in investing in his country Deby said, “In what manner has Africa progressed, in what sector? Whatever the good will of Africa’s old friends and the old partners in its development, it has not progressed at all.”

The Djarmaya refinery has the capacity to produce 20,000 barrels per day (bpd) of gasoline, kerosene, and heating oil. The Djarmaya refinery’s feedstock is supplied from the Ronier and Mimosa oilfields in Chad’s southern Bongor region via a 193 mile-long pipeline, which China also helped to finance.

Even better, the Djarmaya refinery also produces 40 megawatts of electricity, which are divided between the refinery and N'Djamena.

The icing on the cake?

The Djarmaya refinery turned Chad into an oil exporter. On 30 December 2011 Chad and the neighboring Central African Republic signed a memorandum of understanding for the export and sale of petroleum products from Djarmaya to the CAR. Chad’s Minister of Energy and Petroleum Eugene Tabe initialed the agreement with his CAR colleague, Minister of Water and Hydraulics Leopold Mboli Fatran.

Quite an accomplishment, as China and Chad only resumed diplomatic relations in 2006, after Chad switched its diplomatic recognition from Taiwan, which had had diplomatic ties with Chad since 1997, to the Peoples Republic of China. At the time Taipei stated that the reason for the switch was that Beijing promised to cut aid to rebel forces opposing the Deby regime.

But underneath the surface Chadian motorists began to have doubts about the quality of the gasoline produced by the Djarmaya refinery, as rumors began circulating that it was of lower quality and burned in the engine faster than imported gasoline.

Darker rumors began circulating in N'djamena that the Chinese had distributed nearly $10 million in bribes to Deby’s family members and close associates, including a former Minister of Petroleum and a Societe des Hydrocarbures du Tchad (Society of Petroleum of Chad, or SHT) former director, to build the Djarmaya refinery.

Alas, a dispute between over pricing the Djarmaya refinery’s products between the Chadian government and its Chinese owners, the state-owned China National Petroleum Corporation International (CNPCI), a subsidiary of the state-owned China National Petroleum Corporation (CNPC), led the government on 19 January to suspend production. Chad’s national radio announced simply, "The secretary-general of the trade and industry ministry has closed the Djarmaya refinery."

CNPCI owns 60 percent of the Djarmaya refinery, while the Chadian government holds the remaining 40 percent, which it paid for with a loan from Libya.

But it seems in fact that disputes over pricing dated back to the time of the inauguration of the refinery, as Deby had arbitrarily fixed the prices of petroleum products produced by the Djarmaya refinery, which caused the Chinese to protest that they would in fact lose money on the prices if the costs of the bribes received by Deby were factored in.

Deby then asked the Chinese to keep the prices for three months after which they could be raised.

But now this gentlemen’s agreement appears to have broken down completely. Speaking on condition of anonymity a Chadian government official told Agence France Presse, "There is a dialogue of the deaf between the government and the Chinese to the point where industrial units had begun to close down for lack of oil," adding that the Chinese Djarmaya refinery director general was now considered "persona non grata and must leave Chad."

It is unclear what leverage Beijing will now have to resolve its dispute with Deby, who has ruled Chad with an iron fist for 21 years.

Bribes didn’t work – perhaps Beijing resuming funding Chadian rebels with bases in Sudan might inaugurate a “Chadian Spring,” with a new regime promising to safeguard Chinese investments.

Or perhaps not.

By. John C.K. Daly of Oilprice.com