Senegal’s Renegotiation Of Oil, Mining Contracts Is ‘Risky’: Experts

The renegotiation of mining and oil contracts announced by Senegal’s new president to benefit local populations would be “risky” for investment and future partnerships, industry players have warned.Bassirou Diomaye Faye, who became Africa’s youngest democratically elected president on a promise of radical reform, vowed on the campaign trail to prioritise renegotiating oil and gas contracts.

A key figure in Faye’s election, Ousmane Sonko — who was appointed prime minister — during the campaign called out the “hung-up intellectuals (who) make you think it is impossible to renegotiate”.Among one of Faye’s first announcements as president was to conduct an “audit of the mining, gas and oil sector”.

According to Senegal’s state-owned oil company, Petrosen, the combined revenues of the two main deposits of gas and oil are estimated at an annual average of 700 billion CFA francs ($1.1 billion) over 30 years.The West African nation, among the 25 least developed countries in the world, is betting on these resources to make an economic leap.

However, the new government believes that the contracts signed by those previously in power are “very unfavourable” to Senegal.

This claim was always dismissed by the former government and experts in the sector.Australia’s Woodside Energy, which operates in the Sangomar oil field in central-western Senegal in association with Petrosen, “respects the right of governments to determine the legal and regulatory frameworks that govern oil and gas development,” a spokesperson for the company, Christine Forster, told AFP.

But she added: “Our experience has shown that the most successful jurisdictions have been those that work in partnership with industry, respect contract sanctity, and create investment certainty.”In an interview with Bloomberg on March 19, Senegal’s former president Macky Sall said the contracts “can always be improved, but frankly, thinking that we can change the contracts already signed with the companies is not possible. That would be a disastrous turn for Senegal”.

According to the previous government and documents published to the Extractive Industries Transparency Initiative (EITI), up to 60 percent of the future oil and gas revenues would go to the Senegalese state.For oil expert Ibrahima Bachir Drame, former communications manager of Petrosen, “explicit renegotiation clauses do not exist in oil contracts” but “clauses that regulate potential disputes”.It restricts the possibilities for renegotiation citing the example of the Greater Tortue Ahmeyim (GTA) liquefied natural gas field.

Senegal and Mauritania share the GTA on their maritime border, jointly developed by British energy giant BP, the American company Kosmos Energy, the Mauritanian hydrocarbons company SMH and Petrosen.Production at the gas field, on which the two neighbours are pinning their hopes for development, is scheduled to begin later this year.

In this case, “the Mauritanian side will inevitably have to be taken into account,” Drame said.He added that a renegotiation of contracts “would be a risky business” and “the reputation of Senegal around the world of investment could put off potential suitors”.

For some less advanced fields, such as the Yakaar-Teranga gas field located in Senegal, the renegotiation “is simpler because it is in the development phase. There haven’t been any major investments yet,” he added.But international economist and industrial development expert Papa Demba Thiam said that “most mining or PPP (or hydrocarbons) are renegotiated” in the world.

He cited an example of the Latin-American Caribbean zone where, according to him, “40 to 92 percent of contracts” are “renegotiated over a period ranging from one to eight years” after they are signed.”We are brandishing the spectre of risk, saying that the country that does it won’t be considered safe and that’s going to scare investors away. It is a form of political and moral blackmail on under-developed countries,” he said.In Senegal, the constitution declares that “natural resources belong to the people and must benefit them”.Since 2021, the Covid pandemic and the war in Ukraine have created a “precarious situation. All the conditions are in place to justify renegotiating these contracts,” he said.

Drame warned that in the case of a dispute over a renegotiation that “the oil companies have recourse to international tribunals”, adding that Senegal could face large fines.The authorities “have made it clear to us that Senegal will respect its international commitments”, a source at the International Monetary Fund told AFP.”They want to make sure that the contracts signed comply with the mining and petroleum codes. We’re not taking this as a witch-hunt.”