Oil struck in deep waters off Senegal in 2014
By Edward McAllister
DAKAR, Nov 4 (Reuters) – In a report last week detailing sub-Saharan Africa’s dire economic outlook, the International Monetary Fund singled out Senegal as a rare bright spot. One key reason: it does not produce oil.
While low crude prices have hobbled exporters Nigeria and Angola this year and African growth staggers to its slowest rate in more than two decades, Senegal’s economy will expand by over 6 per cent.
Today, however, Senegal is on the verge of its own oil and gas boom. With recent finds promising billion-dollar payoffs within a decade it would do well to learn from the mistakes of others.
“The oil and gas could boost the economy, but at the same time resources can turn into a curse,” said Ibrahima Aidara, an economist at the Open Society Initiative for West Africa.
In Africa’s top producer Nigeria, billions of dollars of oil revenues have vanished while many in the country remain impoverished. Long-time rulers in Equatorial Guinea, Republic of Congo and Gabon have long used patronage systems fed by oil wealth to help maintain power.
Already, claims of corruption and opacity in the government’s managing of the nascent sector have raised concerns in Senegal, one of West Africa’s rare, relatively stable democracies.
“You cannot hide in your office and make policy, because this affects everyone,” Aidara said.
Companies including Royal Dutch Shell, Exxon Mobil and ConocoPhillips spent 60 years exploring in Senegal before Edinburgh-based Cairn Energy struck oil in deep waters in 2014.
Cairn reckons it could be sitting on upwards of 1 billion barrels and plans to start production in 2021.
Dallas-headquartered Kosmos Energy boasts about 50 trillion cubic feet of gas reserves off the coast of Senegal and neighbouring Mauritania – the equivalent of nearly two years’ worth of U.S. production.
Senegal’s government forecasts that just one planned natural gas project will bring in at least $10-13 billion – almost equivalent to the country’s gross domestic product – over the next 25 years.
“We are experiencing the period before a new age for Senegal,” said Mahi Kane, a director at PricewaterhouseCoopers in Dakar who has seen the number of energy firms seeking advice on tax and legal issues rise five-fold in the last three years.
“WE NEVER BENEFIT”
When Ghana started exporting oil at the start of the decade on top of gold and cocoa it was considered one of Africa’s hottest investment destinations. But its oil sector development has been slower than some had anticipated.
A slide in crude prices since 2014 has meant oil has not brought Ghana the wealth some had hoped for and the West African country is currently receiving aid from the International Monetary Fund to reduce inflation and lower the budget deficit.
In Senegal, where the average annual income barely tops $1,000, not everyone is optimistic the looming oil boom will reverse their fortunes either.
Hundreds took to the streets in the capital Dakar last month arguing that the oil will only benefit international companies.
“The country only gets 10 per cent,” said Adama Seck, 50, the leader of a small independent political party, referring to the government stake in some contracts.
“We never benefit from our resources,” he said, as police fired tear gas and demonstrators scattered.
Despite its relatively high standing in anti-corruption rankings, Senegal has not been immune from high-level graft.
Karim Wade, the son of former president Abdoulaye Wade, was jailed last year for illegally hiding away funds in offshore companies in the British Virgin Islands and Panama.
Wade was released by presidential pardon this year but remains in the spotlight as the Senegalese Democratic Party chose him to run in presidential elections in 2019, though it is unclear whether he is still eligible to run.
“Despite its strong institutions, persistently high levels of government corruption leave Senegal vulnerable to the so-called resource curse,” said Anaïs De Meulder, Africa Analyst at global risk consultancy Verisk Maplecroft.
LACK OF TRANSPARENCY
Critics of the government’s handling of the oil portfolio so far point to one high-profile deal involving President Macky Sall’s brother, Aliou Sall.
In 2012, Aliou Sall was a director of Petro-Tim, a company created that year and registered in the Cayman Islands, that won a 90 per cent stake in two offshore permits.
In July 2014, Timis Corporation – run by Australian-Romanian businessman Frank Timis – bought Petro-Tim’s stake. A month later, Timis Corporation farmed out 60 per cent of its stake to Kosmos Energy, which runs the project now.
“The lack of transparency is worrying,” said Mamadou Diallo, an opposition member of parliament who believes state oil firm Petrosen should have exercised its right to increase its 10 per cent ownership. “There is a use of political positions so that the deal is not favourable to the people of Senegal.”
Aliou Sall stepped down from his post at Petro-Tim last month, citing a “campaign of demonisation” against him by critics. He took a job at Timis Corporation.
The government says it will ensure oil benefits Senegal. The oil ministry is rewriting its 1998 petroleum code to update tax laws, strengthen the environmental code and add legislation about hiring local workers.
Many oil contracts and company royalty payments have also been made public as Senegal seeks to join the Extractive Industries Transparency Initiative (EITI).
President Sall last month set up a commission to oversee how the new resources will be managed and plans are being discussed to funnel some 30 per cent of oil revenues into Senegal’s Sovereign Fund for Strategic Investments (FONSIS), the fund’s CEO Amadou Hott said.
Still, Cheikh Toure, a national coordinator for the EITI in Senegal, believes civil society must play a bigger role in managing the sector.
“How do we make sure that we put in place good laws and conditions that will convince investors that they will be operating in a safe environment and that the country will benefit?” he said. “We have a long way to go.”
(Editing by Joe Bavier and David Clarke)