January 2019: ISSUE 117

Africa’s oil and gas scene has This issue of the Oxford Energy Forum AFRICA'S OIL & GAS undergone dramatic changes over explores the aftermath of Africa’s SCENE AFTER THE BOOM: the past two decades. In 2000, the energy boom. It draws on contributors continent was producing nearly 8 from industry, academia, and civil WHAT LIES AHEAD million barrels per day (b/d). A society to offer multiple views of the decade later, largely on the back of opportunities and challenges that lie new production from Angola and ahead for oil and gas development on Contents Sudan, output rose to above 10 the African continent. The issue Introduction 1 million b/d. This came at the same examines continuities and changes in Luke Patey & Ricardo Soares de Oliveira time as a sharp rise in global oil the African energy landscape since oil Prospects for African oil 4 prices, generating enormous prices fell from record highs after 2014. James McCullagh and Virendra Chauhan revenues for African oil producers It focuses on the politics and The political economy of decline in Nigeria and Angola 6 and setting off exploration activities economics of seasoned producers in Ricardo Soares de Oliveira in largely unexplored regions. As sub-Saharan Africa and the birth of new Angola after Dos Santos 8 prices rose to over $100 per barrel oil and gas producers and up-and- Lucy Corkin on average from 2010 to 2014, comers, and shows that while old Nigeria’s oil reforms in limbo 10 Africa enjoyed an unprecedented oil political and security challenges persist, Eklavya Gupte boom. new governance and regional risks are The rise of regional risk also impacting the development of new in East Africa 12 In recent years, however, Africa’s oil and gas industries. Luke Patey oil fortunes have fallen. Due to Oil politics and stoppages in Kenya 14 conflict in Libya and South Sudan, The outlook is not good. The key Charles Wanguhu as well as stagnating production in producers in sub-Saharan Africa, Mozambique: Algeria, Angola, and Nigeria and Angola, face ageing bankrupt before the bonanza 16 oilfields and a lack of new investments, Anne Frühauf Nigeria, output dropped to 8 million b/d in 2017, and prices averaged not to mention the need for Challenging prospects for upstream considerable reform. Meanwhile, in up- contracting in Tanzania 19 roughly $50 per barrel from 2015 to Peter Bofin and 2017. A price recovery could spark and-coming producers in East Africa, Rasmus Hundsbæk Pedersen renewed interest in exploration, but Uganda and Kenya, although the Resurgent resource nationalism in the past three lacklustre years have relatively small reserves discovered to Tanzania’s petroleum sector 22 date will not displace Africa’s main had a damaging impact on the Rasmus Hundsbæk Pedersen & production centres, future output is still Thabit Jacob continent’s oil and gas industry. important in the development of Even with sustained high oil prices, Oil, politics, and risk in Ghana 25 domestic economies in the region. But Monica Skaten it will take time to recover. long delays from a failure of The new African energy landscape 27 Lapo Pistelli January 2019: ISSUE 117 – AFRICA’S OIL & GAS SCENE AFTER THE BOOM

neighbouring countries and price recovery, this neglect will now Nigeria’s oil reforms in limbo international oil companies to take its toll on Africa’s overall Militancy, ageing oilfields, the need for cooperate on a regional pipeline have production. governance reforms, and a lack of new stalled these industries from moving to investments have all hampered the production stage. In gas, falling The political economy of decline in Nigeria’s oil industry, Africa’s largest prices and governance challenges have Nigeria and Angola producer. Eklavya Gupte examines stalled Mozambique and Tanzania from Ricardo Soares de Oliveira looks at the how insurgency in the Niger Delta may developing their considerable offshore legacies of the 2004–2014 oil boom once again heat up. President Buhari assets. and the manner in which the post-2014 has pushed for a new amnesty program bust has impacted Africa’s oil Oil and gas developers in Africa will for fighters in the Delta, but the stakes producers. Zooming in on Angola and soldier on. Some new producers, such will only grow higher as Nigerians head Nigeria, he shows that different as Ghana, will continue to provide to the polls in 2019. Nigerian light patterns of macroeconomic bright spots on the continent. But sweet crude attracts a large number of management and sector governance, political and security risks will also buyers, particularly in Europe and India. as well as dissimilar political pressures, continue to drag down Africa’s energy But amidst the threat of militancy, the have led to differences in outcomes for potential. The priorities of national long-awaited Petroleum Industry these leading producers. However, leaders and international oil companies Governance Bill must be passed before Soares de Oliveira’s analysis will clash around the development of the oil industry gets the boost it needs. new resources. And consequently, the emphasizes the shared patterns across these and other oil-rich states in sub- The rise of regional risk in East selectivity shown by domestic and Africa foreign investors will narrow, Saharan Africa. In the absence of particularly if global energy prices are economic diversification in the boom Moving to up-and-coming producers in years, dysfunctional sector institutions, volatile in the coming decade. The East Africa, Luke Patey finds that the combined efforts of government and and continued dependence on foreign interaction between domestic and industry will be needed to mitigate the oil expertise, states across the board regional risk has done much to shape have suffered significantly in fiscal political and security risks in oil and the future of individual oil industries. gas, win new investment and finance, terms as well as with the drying up of Despite aspirations to cooperate on a and drive forward the next stage of corporate investment in the oil sector. new pipeline with Kenya, South Sudan, Africa’s energy development: the Angola after dos Santos: taking in the midst of civil war, will remain growth of renewables and local energy stock dependent on negotiating access to markets. pipelines heading through its northern One country struggling with stagnating neighbour, Sudan. Landlocked Uganda Prospects for African oil production levels is Angola. Lucy has started the process of developing a Corkin examines how Angola’s change James McCullagh and Virendra new pipeline through Tanzania, but this of political leadership in 2017, with Chauhan begin the issue with a sober regional cooperation continues to be Eduardo dos Santos stepping down forecast on the coming years for the delayed by President Museveni’s hard after 38 years of rule, will impact its oil African oil business. Africa has never bargaining with international oil industry. The new leader, João Manuel really stood out as a significant oil companies. Finally, after years of Gonçalves Lourenço, has, to some region, with only 9 per cent of total discussions, a failed bid to cooperate surprise, started to dismantle the proven reserves, and that trend is likely with Uganda has dashed Kenya’s patronage network established under to continue. Up-and-coming producers, hopes of acting as a regional hub for dos Santos. He has also initiated much- such as Uganda and Kenya, have East Africa’s oil. After losing Uganda’s needed reform of the oil sector, relatively small reserves, and it will be support for a new regional pipeline, particularly by starting to eliminate the usual suspects—Nigeria, Angola, Kenya will now have to fend for itself in conflicts of interest in Sonangol, the Libya, and Algeria—that make up the attracting investors in a stand-alone powerful state oil company, and the majority of future production. But these pipeline from its oilfields in Turkana to country’s regulators. This is already large producers will experience sagging the coast. results over the next three to five years. helping to draw in new investment. Yet Low oil prices in recent years have the persistence of graft and nepotism under Lourenço demonstrates that discouraged new investment in their maturing oilfields. Despite the 2018 even with a change in leadership, not everything will be made new in Angola.

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Oil politics and stoppages in Kenya: largely out of sync with the downturn in Voltaian Basin. Political polarization agreeing to disagree again soon? global markets. New regulatory bodies between Ghana’s two main political Kenya’s drive to become an oil exporter have led to institutional crowding, and parties, however, could undermine the in the near future has been slowed by restrictive legislation has resulted in the industry’s long-term development. more than just regional competition. government not playing a productive Changes in government result in Charles Wanguhu examines how role in the industry’s development. changes in economic policy, key international oil companies operating in President Magufuli’s State House is personnel in state-owned companies, Kenya’s north-western region of now the primary place where large and contract recipients in the domestic Turkana have struggled to navigate international oil companies are private sector. negotiating access and terms and longstanding tensions between national The new African energy landscape: leaning on their home governments for and local politicians as well as to catching the changing tide maintain amicable relations with local help. The interventionist president adds The issue ends with a look to the communities. Several stoppages due to a fair amount of unpredictability to the future. Lapo Pistelli sees Africa’s protests and violence, most recently industry’s future development. broader economic development being stalling a trucking scheme for early oil Resurgent resource nationalism in held back by a widespread lack of production, have been costly affairs. Tanzania’s petroleum sector energy access. Booming populations Temporary solutions in which oil Looking at the recent policies of the and urbanization demand that this companies offer new jobs and contracts Tanzanian government, Rasmus change. Energy costs are to local businesses, without the Hundsbæk Pedersen and Thabit Jacob extraordinarily high, particularly for poor development of a genuine governance find resource nationalism resurfacing. and isolated communities. Instead of system, can delay but not prevent the President Magufuli’s ‘economic warfare’ focusing simply on developing oil and next disruption. against international mining companies gas for export, African governments Mozambique: bankrupt before the has sparked a re-evaluation of and energy companies need to give bonanza Tanzania’s contracts in the gas immediate attention to the development industry. With populist undertones, the of commercially viable local energy Mozambique, another up-and-coming country’s legal and institutional markets. Harnessing Africa’s abundant Africa producer, is struggling to framework on extractives has natural gas reserves and expanding off- establish its offshore gas industry. undergone a major revision to leverage grid renewable energy programs are Anne Frühauf argues that the benefits for the national government. crucial for industrial development. combination of falling energy prices and But these moves should not come as a Overcoming Africa’s energy challenge high levels of debt, much of it entered surprise. They are rather continuities of is essential in developing internal into secretly, will drag down efforts by the ruling party, the Chama markets and attracting domestic and Mozambique’s budding gas sector for a Cha Mapinduzi (Party of Revolution), to international investors to lift hundreds decade. Maputo can now ill afford any ensure a larger role for the state in of millions of people out of poverty. further delays in the development of its economic development. Rovuma natural gas reserves, crucial to the country’s effort to reduce its debt. Oil, politics, and risk in Ghana While the socio-economic and political Crossing the continent to West Africa, climate has its risks, LNG players enjoy Monica Skaten examines the interplay considerable influence over the current between politics and risk in the region’s government. new producer, Ghana. With offshore Challenging prospects for upstream discoveries and development underway contracting in Tanzania since 2007, the oil industry has steadily progressed in spite of the recent Peter Bofin and Rasmus Hundsbæk downturn in global oil prices. Along the Pedersen review the development of way it has endured a corruption Tanzania’s gas industry and its scandal connected to early investments governance issues. Here, large LNG and has largely resolved a border discoveries were made in 2010, but dispute with Côte d’Ivoire. With offshore policies advanced by the government of developments moving ahead, Ghana is President John Magufuli have been now aiming to explore the onshore

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Africa’s reputation as a land of new declines will need to be offset by new PROSPECTS FOR frontier oil plays has been dealt a heavy developments, but the latter are AFRICAN OIL blow by the low oil price environment of becoming smaller and more the past four years, leading to a dearth complicated. Well completions in 2017 James McCullagh and of new exploration and development. were half those of 2014. Angolan Virendra Chauhan Production—and exports—should be production has declined precipitously Africa offers tremendous potential for flat year-on-year in 2018, as legacy this year, falling below 1.5 million the development of new gas reserves, projects in Angola, Nigeria, and Congo- barrels per day (mb/d) over much of the as the rapid development of the Zohr Brazzaville offset natural declines at summer, which is around 20 per cent field in Egypt and Coral South in mature fields elsewhere, though there below its July 2015 peak of 1.8 mb/d. Mozambique have shown. But for oil, is plenty of downside risk to loadings Underlying field declines exceeded the story is less rosy. Africa has out of Nigeria and Libya, where 20 per cent in Q1 2018, but this is not a produced 127 billion barrels of geopolitical instability remains a near- new issue. Angola’s deepwater fields conventional oil to date, less than constant threat. are simply responding to elevated 10 per cent of the global total; and we depletion rates and investment drying Production should rise slightly in 2019, estimate that another 126 billion barrels up through the downturn in oil prices. but given high depletion and decline have yet to be produced, less than During the initial parts of the downturn rates, a thin project pipeline will make it 9 per cent of proven reserves (2015–2016), Angola was able to hold difficult for the continent to maintain worldwide. These numbers underscore production constant at 1.7 mb/d, even current production levels beyond Africa’s position in global oil markets: disguising underlying depletion. 2019. The empty project pipeline can rather than having the potential to be largely explained by the oil price Clearly this was not sustainable. With disrupt global trade, it will be a case of crash of 2014 and the consequent many fields in a post-plateau terminal more of the same—a story dominated disincentive to explore for high-cost oil. decline phase (which typically occurs by the West African giants, Nigeria and That picture is slowly changing, as when 45–50 per cent of reserves have Angola, and Libya in North Africa. evidenced by the recent uptick in been produced), these trends are New countries are emerging as oil Nigerian rig counts, but given the becoming more and more apparent. producers, with Senegal, Uganda, and typical length of exploration and Our analysis of 26 fields suggests that Kenya offering enticing prospects over development cycles, particularly in the almost 60 per cent of producible the medium term, though the resource deep offshore, new oil from these reserves have been depleted, and size and production potential are projects will hit the market in 2023 at Angola will have its work cut out unlikely to move the needle. The the earliest. So even if aggressive rejuvenating its ailing oil industry. Of decline in opportunities of sufficient enhanced recovery techniques are the fields analysed, we assessed scale has resulted in a number of asset deployed at existing fields, Africa’s underlying declines at an alarming reshuffles through the downturn, with production will struggle for growth 15 per cent. Reversing such steep both Shell and Total offloading assets between 2019 and 2022. decline rates will take time and money, to smaller operators. and with few major projects scheduled Angola, one of sub-Saharan Africa’s beyond 2019, Angola is facing the foremost oil prospect of terminal output declines. African crude oil production, historical and projected, mb/d producers, is a case in point. There is only one major project— 10 Existing fields Total’s 0.23 mb/d Kaombo project, are seeing which is being developed in two base declines separate phases, in Q4 2018 8 of 15 per cent; (inaugurated in November) and Q1 the figure 2019—underpinning our 70,000 barrels below shows per day (b/d) year-on-year growth 6 declines for the forecast for Angolan oil production in CLOV (Cravo, 2019. However, we acknowledge Lirio, Orquidea downside risk to this forecast, given 4 and Violeta) that it assumes a complex field will field. These ramp up smoothly. Furthermore, it 11 13 15 17 19 21 23 25 27 29 31 33 35 Source: National agencies, IEA, EIA, JODI, Energy Aspects.

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assumes that CLOV, Angola’s largest could not agree on a Annual depletion rates at Angola’s CLOV field, fiel, will continue to operate at utilization development plan. 2014–2018 rates above 90 per cent, an ambitious Sonangol insisted on assumption if history is any guide. a stand-alone FPSO tying the three fields The Angolan government has looked to together, while BP accelerate reform and restructure the wanted a cheaper oil sector, which remains the heartbeat scheme. We do not of the economy, in an attempt to revive envisage first oil from investment. The industry has PAJ until 2024. responded positively, with Total recently making the first final Angola is not an investment decision in Angola since isolated case. We 2015, by approving the 40,000 b/d have observed Zinia-2 project. Additionally, Eni’s similar trends in 25,000 b/d Ochigufu satellite in block many other African Source: Company reports, Energy Aspects. 15/06 ramped up to capacity in May, in oil producers, less than two months. But while new including Nigeria, including 1.7 billion barrels of legislation has started to pay dividends, Algeria, Gabon, and Equatorial Guinea, recoverable oil in the Albert Basin of it is a baby step on a long and winding all of which predominantly produce western Uganda and 750 million barrels road. crude grades prized for their low of recoverable oil in the Lokichar Basin sulphur content and high yields of clean The challenge is not only bringing fields in the Turkana region of Kenya. The petroleum products. Demand for such online to offset declines; the complexity Lake Albert discoveries in Uganda have grades will rise sharply in 2020 and of future developments also matters. in turn prompted interest in the potential beyond as the global shipping industry The Kaombo project will involve tying for finds around Lake Tanganyika and adapts to the International Maritime back production from six fields (Caril, Lake Eyasi. Organization’s new 0.5 per cent global Gengibre, Gindungo phase one, bunker sulphur cap, which comes into Together, Uganda and Kenya are set to Canela, Louro, and Mostarda phase 2) force on 1 January 2020. add over 0.3 mb/d of medium low to two FPSO (floating production sulphur crude production in the early storage and offloading) vessels. Aside Competition for light sweet West 2020s, but precise time frames remain from their location in very deep water African grades will be all the more fluid—and subject to political and (1.4–2.0 km), these fields are small and fierce given that Nigerian crude exports infrastructural challenges, including the spread over almost 1,200 square will nosedive by around 14 cargoes per construction of lengthy heated pipelines kilometres. The distances between the month when Dangote’s 0.65 mb/d to evacuate the waxy crude to export fields will require a large number of refinery, the largest single-train refinery markets. Front-end engineering and wells—59 are planned—to be in the world, comes online (which is design as well as engineering connected via 300 km of subsea lines. likely to occur in late 2021). In procurement and construction have At such distances, flow assurance particular, Dangote plans to run a been completed for the Ugandan becomes challenging. combination of locally produced pipeline, though project financing and Escravos, Forcados, Antan, and key land agreements with the To decisively alter the trajectory of Bonga—crudes currently processed by Tanzanian government have not yet Angolan oil production in the refiners all over the world, though been sealed, suggesting that the final medium term will require the European plants often predominate. investment decision, targeted by the sanctioning of stand-alone project’s joint-venture upstream megaprojects of the scale of CLOV or In the medium to long term, East Africa partners for late 2018, may be delayed Kaombo. The reserves exist, but holds the greatest promise as a source until 2019. The pipe will run from the of net crude production increases. project economics are challenged by Hoima region in Uganda to the Exploration dates back to the 1950s in reservoir complexity. For example, BP’s Tanzanian port of Tanga. 0.13 mb/d Palas, Astraea, and Juno Kenya and Tanzania, and even earlier (PAJ) scheme was originally tipped for in Uganda, but it is only in recent years Development of the Lokichar Basin in a final investment decision in 2010 but that companies have made Kenya is at an even earlier stage of was delayed after BP and Sonangol commercially viable discoveries, development, and arguably subject to

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even greater challenges given that the ‘Africa Rising’ decade of high growth, the MPLA (Movimento Popular de 900 km Kenyan crude pipeline especially pronounced in the largest oil Libertação de Angola/People's terminates in Lamu, close to the volatile producers, did not provide durable Movement for the Liberation of Angola ) border with Somalia. The pipeline is solutions to the continent’s dependence and President José Eduardo dos currently slated for start-up in 2022, but on commodity exports and the price Santos and a strategic partnership with that time frame could easily slip. The variations therein. The optimistic period China, to which Angola became a top wider challenges of developing onshore of growth that seemed to end Africa’s oil supplier. oil fields in locations with high country dismal late-twentieth-century economic Nigeria’s boom decade was rather risk were laid bare in July when Tullow performance came to a close, leaving more turbulent. It needed to navigate Oil was forced to halt a 2,000 b/d Early many of the challenges facing these remarkably fragmented politics Oil Pilot Scheme when local people economies essentially intact. Nowhere intensified by Nigeria’s return to blocked roads to prevent trucks from did the apparent achievements of the electoral democracy in 1999, and moving the oil to the coast for export. boom years prove more brittle than in debilitating outbreaks of violence in the Africa’s two largest oil producers, Africa was supposed to be a vanguard north, the Middle Belt, and the oil- Nigeria and Angola. province, propelling global supplies producing Niger Delta. Through forward. But the oil price crash has left These two countries presented different endemic disruption of production and producers with some serious questions patterns of macroeconomic oil ‘bunkering’ (theft by tapping into to answer if the continent is to live up to management and sector governance pipelines), production in the Delta was that label. Stung by low oil prices, cash- during and after the boom, as well as kept below potential throughout this strapped governments in sub-Saharan dissimilar political pressures that led to era. While Angola’s oil sector, and Africa have been forced to try to partly contrasting outcomes. However, especially the national oil company simultaneously maximize output at the shared patterns across Nigeria, Sonangol, seemed partially insulated mature fields and bring new field output Angola, and other oil-rich states in sub- from the worst forms of graft (or, online. Although this has halted Saharan Africa, sometimes extending alternatively, graft was conducted in a declines in production, our analysis to soon-to-be producers affected by a more rule-bound manner), the Nigerian suggests that this may only be a so-called pre-curse, are noteworthy. National Petroleum Corporation, and temporary respite from what is looking These include a lack of economic Nigeria’s oil sector governance more like a steady downtrend in African diversification during the boom years, generally, were widely seen as chaotic output after 2019. perennially dysfunctional sector and made many investors averse to institutions, and continued dependence significant new commitments to the We see African crude oil production on foreign oil expertise. Since the drop country’s upstream. falling to 7 mb/d by 2025 and to below in prices, Angola, Nigeria, and other 6 mb/d by 2035. Without major While the two countries differed in African states have suffered in fiscal exploration and production, the oil- these aspects, for both economies this terms as well as with the drying up of dependent economies of West Africa in was the most favourable period since corporate investment in the oil sector, particular are on a fast-track to terminal the 1970s. Optimism about their and now face manifold pressures on production decline, and the production economic potential resulted in a return their ability to maintain the status quo. profiles will be all the more to the sort of rhetoric about state-led disconcerting for future governments Both economies experienced development not heard for three given the continued lack of economic exceptional growth during this period. decades. Nigeria and Angola were able diversification in many countries. Angola’s GDP grew from $12 billion in to pay off their Paris Club debt, 2002 to $126 billion in 2014, while accumulate considerable hard currency Nigeria’s increased from $59 billion in reserves, and gain plaudits for THE OIL BUST SINCE 2014: 2002 to $208 billion in 2008. Angola’s macroeconomic management under THE POLITICAL ECONOMY trajectory was arguably the more the stewardship of internationally OF DECLINE IN NIGERIA spectacular of the two, as it emerged recognized technocrats. Both saw AND ANGOLA after four decades of civil war with a exponential growth in the size of their domestically designed and resourced banking sectors. Ricardo Soares de Oliveira national reconstruction agenda. This What did not happen at all during this The end of the commodities boom in took place in conditions of political boom decade was a structural 2014 was a painful reminder that the stability under the authoritarian rule of economic shift away from dependence

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on oil, especially as a source of not added to, and that average daily oil In addition to the oil price downturn, government revenue. (Oil contributes production fell slightly from close to 1.9 other dynamics have contributed to only about 10 per cent of Nigeria’s million barrels in 2008 to under 1.7 Nigeria’s economic crisis since 2014. GDP, but it accounts for two-thirds of million barrels in 2017. The political turbulence around the last government revenues, and almost all year of President Goodluck Jonathan’s In view of the degree of oil dependence export earnings.) A 2018 report co- tenure was sharpened by conflicts in both countries, subsequent policy authored by a former minister and across the country, especially the Boko choices could at best ameliorate what vice president of the World Bank, Haram insurgency in the north and the amounted to a massive systemic Obiageli Ezekwesili calculated that continuing conflict in the Niger Delta. shock. In the event, decision-makers Nigeria had wasted almost one trillion Far from accelerating the much-needed mostly failed to tackle the worst dollars in oil revenues without reform of the oil sector, the notorious consequences of the crisis and may significant long-term gains or structural Petroleum Reform Bill continued to limp well have magnified its impact through transformation of the economy. Nigeria through many drafts (a compromise flawed, but also perverse and self- and Angola experienced the boom version did not surface until 2018 and serving, policies. The reaction of years as emancipation from their was promptly sidelined by President Angolan decision-makers to the post- economic limitations and pressures, but Muhammadu Buhari). Buhari’s election 2014 downturn in some ways this cash-fuelled respite was temporary. in 2015 had raised hopes of a fight compared positively to Nigeria’s, as The decline in oil prices from $112 per against graft, but soon resulted in well as their own crisis management barrel in mid-2014 to a brief low of $28 erratic economic policy and the initial during the earlier (2008–2009) brief but in 2016 soon led to a fiscal crisis, with refusal to engage in some of the most sharp reduction in oil prices. The massive infrastructure, agri-business, basic measures to stabilize the currency was devalued (though not and industrial projects conceived in economy (e.g. the long-delayed quickly or significantly enough to previous years no longer affordable. devaluation of the naira). In late 2018, prevent the re-emergence of a parallel the prospect of a fractious and very Almost overnight, the expensive currency market), fuel subsidies were competitive electoral contest between development plans drawn up in the rolled back, and public expenditure was President Buhari and former Vice boom years were rendered utopian, curtailed. President Atiku Abubakar has added while few if any of the projects that had From the vantage point of 2018, further unpredictability to the materialized proved profitable or even however, the running of Angola’s management of Nigeria’s economy. viable without major state subsidies. economy from 2014 to 2017 looks Very soon, the drop in revenues also As the World Bank has noted, Africa’s problematic. After toying with a jeopardized the government’s less oil-rich economies face two major rapprochement with the International flexible commitments, particularly the challenges. The most urgent is the Monetary Fund, President dos Santos civil service salary bill, which had need for macroeconomic stabilization in turned instead to China as a more increased massively over the boom the wake of the shocks brought about opaque (if hardly concessional) source decade. Moreover, the downturn was by the significant drop in revenues of loans. Access to scarce hard matched by hesitation on the part of since 2014. Both countries’ track currency became a politicized foreign investors to commit to records are patchy in this regard, due prerogative of the few. Following the significant exploration in view of the partly to their sheer dependence on oil accession to the presidency of João price scenario, with some corporations revenues, which would always hamper Lourenço, well-supported allegations even selling their African concerns. coping strategies, and partly to the have also emerged regarding the This dearth of foreign investment was flawed character of the policies that accelerated plundering of the Angolan aggravated by the withdrawal of the were implemented. Of the two, Angola state by dos Santos’s circle as his United States as a major importer of oil seems like the more manageable, with departure in September 2017 grew from the region on account of its own a hegemonic ruling party under a new closer. This included a variety of fracking revolution, leaving Asian incumbent able to push forward the sort allegations regarding the country’s powers such as India (in Nigeria) and of stabilization that Nigeria’s national oil company, then run by dos China (in Angola) in a dominant competitive clientelism and deepening Santos’s eldest daughter, and the position as a buyers of African oil. For political fragmentation render very sovereign wealth fund, then run by his Angola, this reduction in foreign interest difficult. eldest son. meant that its relatively modest proven reserves of under 9 billion barrels were

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The second challenge is the need for of a different mentality by rulers, or reshuffle, aimed squarely at removing broad-based growth underpinned by exogenously by real-world recipients of dos Santos’ patronage economic diversification away from the transformations that they can scarcely from key posts. This extended to volatile oil sector. This is made more control—we can expect Nigeria and members of the former first family. urgent by dwindling oil reserves, at Angola to continue to suffer from Dos Santos had never made any least in the case of Angola, and the unpredictable fluctuations in the price of serious attempt to install one of his political salience of the youth bulge. oil. children as his successor, as none of Only such a shift could durably change them has a credible political pedigree the postcolonial pattern of or the requisite support within the more underdevelopment experienced by ANGOLA AFTER DOS powerful party factions. However, dos these resource-rich but poor societies. SANTOS: TAKING STOCK Santos had instead ensured that his Beyond lip service to the need for Lucy Corkin children were well placed enough to economic diversification and allow his influence to be felt beyond his development, Nigerian politics on the Angola’s 2017 national elections may official retirement. Isabel, his eldest, eve of the February 2019 election are have been among the most anticipated had been appointed chair of state oil not generating anything like a blueprint on the continent, despite the outcome company Sonangol, and his son Jose for transformation. In Angola, President being all but certain. On 26 September Filomeno ‘Zenu’ was set up in the João Lourenço is reengaging with the of that year, João Manuel Gonçalves Angolan Sovereign Wealth Fund, which International Monetary Fund, loudly Lourenço, or JLo as he is sometimes has a $5 billion investment mandate. denouncing corruption, and known, became only the third Angolan Lourenço removed both within the first discontinuing some of the more ruinous president since the country’s few months of taking office. Zenu dos pre-2014 capital-intensive projects—all independence from Portugal in 1975. Santos was also charged with of which are potentially positive steps, if He had been hand-picked the previous corruption when it emerged he had arguably contradicted by Angola’s deep year as the successor to Eduardo dos attempted to transfer $1.5 billion from continuities in policy and personnel with Santos, who after 38 years as the head the Central Bank to a Swiss bank the dos Santos era. But no alternative of state announced his retirement from account as a guarantee for fraudulent MPLA development agenda has yet government office in March 2016. Most investment projects. This also emerged. observers judged Lourenço to be a implicated the governor of the Central custodian of the political status quo, In thinking through the dire need for Bank, Valter Filipe da Silva, whom assuming that dos Santos would systemic reform in both Angola and Lourenço summarily replaced with remain a kingmaker and head of the Nigeria, an excessive focus on the veteran José de Lima Massano. The Popular Movement for the Liberation vagaries of policy would make us miss funds have since been returned; of Angola (MPLA). Consequently, the the bigger picture. There is no doubt unusually where the Angolan political sweeping changes that Lourenço has that, say, the settling of the vexed elite are concerned, Zenu dos Santos implemented in his first year in office Petroleum Reform Bill in Nigeria or a was arrested in September 2018 and have come as something of a surprise, reduction in graft in Angola would be the case will go to trial. albeit a welcome one—particularly in positive steps. However, in countries terms of oil sector reform and much- Much of the new president’s energy that have seen very different policy needed clarity on the role of Sonangol, has been directed at revitalizing regimes over four decades, all with the state oil company, going forward. Sonangol. Isabel dos Santos’s removal dismal outcomes, it is clear that the from the parastatal’s helm in November problem is structural and not just policy- Lourenço’s praise singers style him as 2017 was accompanied by a complete specific. In sum, the governance of a decisive leader who does not overhaul of the company’s board and Africa’s two leading oil producers has consider himself above the law and is the appointment of Carlos Saturnino never primarily concerned with serious about dismantling the country’s Guerra Sousa e Oliveira, who had been economic diversification and patronage networks. However, despite serving under the new president as development, however defined. Unless the promise of his actions, admittedly, secretary of state for petroleum, to that a sea change occurs in elite nothing as yet distinguishes them from position. This was a direct snub to the approaches to the political economy the routine purge by a new leader of his former president’s daughter, who had and the long-term vision for their long-standing predecessor’s support previously removed Saturnino, then countries—a change that could be base. Lourenço was swift in serving as chair of Sonangol Research sparked endogenously by the adoption implementing a monumental cabinet

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and Production, in June 2016, citing with precious reserves, which have production at 1.5 million bpd for the gross fiscal mismanagement. In an reportedly halved to $14 billion since next five years, which is almost ironic twist, the Angolan attorney 2014. 7 per cent less than the country’s general is now investigating the current OPEC quota. Without a spike in Shortly after the announcement of the Sonangol administration under Isabel fresh investment, production is removal of the currency peg, Finance dos Santos, which reportedly made expected to fall to 1 million bpd by Minister Archer Mangueira announced illicit transfers to a bank in Dubai after 2023, according to the Ministry of the intention to negotiate a restructure having been dismissed. Lourenço also Mineral Resources and Oil. of Angola’s foreign debt. A exercized his executive prerogative to rapprochement with development The political wrangling centred on appoint KPMG as Sonangol’s auditors, finance institutions also appears to be Sonangol in recent months was effectively revoking Isabel dos Santos’s in play. Afrexim Bank announced symptomatic of the country’s volatile previous appointment of PwC, citing a intentions to extend a $2 billion facility environment. Lourenço has also conflict of interest. to Angola, and the International followed through on long-promised Lourenço cannot pursue dos Santos Monetary Fund announced US$ 3.7 reforms to Sonangol itself so as to directly. Either by agreement or sheer billion in three-year credit under an address the financial underperformance luck, three months before leaving Extended Fund Facility. Presidential and sectoral bottlenecks in the office, the former president was granted Decree 164/18 enacted regulations parastatal, through which the majority a seat on the Council of the Republic, a relating to Law 10/14, which effectively of government revenues are generated. presidential advisory body whose provides tighter controls on public debt. Sonangol’s accounts have been members enjoy immunity from Among such measures is a cap, the lacklustre for the past few years. The prosecution. However, Lourenço has kwanza equivalent of $10 million, on company missed its budget target by clearly been on a campaign to reduce the Ministry of Finance’s authority to 15 per cent in financial year 2016—due the elder statesman’s influence. negotiate and sign loans; larger in part to the low oil price, which has Tellingly, when dos Santos himself agreements require the president’s since recovered, but also to attempted earlier this year to extend his signature. Both these reforms will go a administrative mismanagement and leadership of the MPLA until 2019, he long way to easing dollar liquidity, collusion. In August 2018, Lourenço was forced to announce his retirement which will in turn alleviate pressures on announced via presidential decree the from party politics altogether. Lourenço the economy, notably the hard- creation of Angola’s National Oil and finally succeeded him as head of the currency-driven oil sector. Gas Agency, which will assume full ruling party in September 2018, management of the country’s oil Indeed, a key focus for the new confirming a decisive shift in the concessions by December 2020. It will president since taking office has been balance of power. bid for new oil concessions, manage reform in the oil sector, so as to boost production-sharing contracts, and The new president appears to have investment. Predictably, Angola’s oil represent the state in sharing oil profits tacit approval to push through much- production has been in decline, with in oil concessions. This effectively needed but painful reforms. With a average barrels per day (bpd) dropping disintermediates Sonangol from total newly appointed Central Bank by more than 300,000 over the last two control of the oil sector, and removes Governor Massano in place, , it was years. This is due in no small part, as the long-standing conflict of interest announced that the kwanza’s long- admitted by Oil and Mineral Resources between its roles as sole industry standing dollar peg would be abolished Minister Diamantino Azevedo, to the concessionaire and participant in in favour of a ‘trading band’ and driven lack of investment in recent years in Angola’s oil exploration. more by primary market demand. surveying, prospecting, and Although this precipitated a more than exploration. The oil majors have been In a bid to turn around company 40 per cent devaluation against major understandably wary of such finances, Saturnino announced in currencies in the eight months after its expenditure during a low-oil-price February 2018 that the company will implementation, it has narrowed the environment. A severe lack of foreign open its 70 per cent stakes in blocks gap between the official and black- currency liquidity and the financial 21/09 and 20/11 to tender. (These market rates, which had been distorting vulnerability of Sonangol further blocks had been the subject of dispute the economy in recent years. It has blighted Angola’s attractiveness for with Cobalt International, resolved also released the Central Bank from investment. There is concern that when Sonangol bought out Cobalt’s having to further defend the currency Angola will struggle to maintain stakes for $500 million in December

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2017.) Furthermore, holdings in non- case heard in Angola, where Vicente, except for some apocalyptic threats. core investments—such as domestic as a former vice president, has However, the din in the Delta is airline Sonair and five Angolan banks, immunity from prosecution. Portugal gradually growing, and the chances are including an 8.5 per cent stake in agreed in May 2018 to allow the case high that the Avengers, along with a Angola’s largest bank, Banco Angolano to be taken up by Angolan courts. handful of other militant groups, will de Investimentos—are being reviewed. While this could be seen as diplomatic plan attacks on oil infrastructure. Crucially, this will also allow the sabre-rattling at Angola’s former The government has pledged to parastatal to focus on its core activities colonizer, Vicente, who counts the prevent fresh outbreaks of militancy while releasing Angola’s economy from current CEO of Sonangol, Saturnino, as and violence in the Niger Delta. It has Sonangol’s formerly monopolistic grip. his protégé, is also reported to have found ways to keep the militants quiet inveigled his way into the circle of Such efforts to restore clarity to through a combination of promises of Lourenço’s closest oil and gas investors appear to be bearing fruit. In development, money, and a shaky advisors. This somewhat dampens the May 2018, Total and Sonangol amnesty program. The amnesty outlook for a complete break with announced a final investment decision program was started in 2009 by then Angola’s political past. on Zinia II deepwater offshore President Umaru Musa Yar'Adua to development, which will have a Lourenço has made an encouraging fight militancy in the Niger Delta by production capacity of 40,000 bpd. start to his administration and has in his offering incentives to youth of the Total has also signed a partnership first year wrought changes which are region to give up oil theft and sabotage. agreement with the national oil undeniably positive for the investment It worked briefly, but critics argue that it company to jointly explore Block 48, as environment, particularly the oil sector. has morphed into an unsustainable well as to develop a network of service However, there are limits to the money-for-peace model. New militants stations across Angola. country’s purported reforms, and it is have emerged over the past decade, not completely a case of ‘out with the replacing the old ones, and the Delta While these developments are inspiring old, in with the new’. remains just as fragile. cautious optimism in investors, particularly in the way graft and Nigeria’s oil industry can best be nepotism are being tackled, several described as mercurial. It produces NIGERIA’S OIL REFORMS controversial figures have remained probably the best quality of crude in the untouched. One of these is former IN LIMBO world in abundance, yet this very oil Vice President Manuel Vicente, a figure Eklavya Gupte has created deep fractures in society, well-known in oil industry circles, who fuelling militancy, corruption, and ‘We are ready to bring it down. It won't at one time was tipped to succeed dos mistrust, which have unfortunately drill a barrel of crude,’ tweeted Mudoch Santos. CEO of Sonangol from 1999 to thrived in a country beset by economic Agbinibo, the leader of the militant 2012, Vicente accumulated significant and regulatory uncertainty. group Niger Delta Avengers, which in government influence. He is widely 2016 brought Africa’s largest oil Despite these challenges, Nigeria seen as having been instrumental in producer to its knees with brazen remains a key global crude-oil exporter, furthering Angola’s economic attacks on the Delta’s oil facilities. and with its vast oil and gas reserves, it diplomacy, especially through will continue to be a crucial player in Sonangol’s international expansion. In The tweet threatened an attack on the the energy markets. February 2012, Vicente was minister of floating production storage and economic co-ordination, and in offloading unit of the 200,000 barrels Calm before the storm? September of that year he was per day (b/d) Egina field, which is due Nigeria’s crude and condensates elevated to vice president. A raft of to start up by end-December and is output, which in mid-2016 plummeted corruption scandals, both local and expected to increase Nigeria’s oil to a 30-year low of around 1.1 million international, rendered him unsuitable output by over 10 per cent. Sent in b/d due to militancy in the Niger Delta, for presidential candidacy. Sensing a February when the unit first reached has been climbing gradually. It change in the political wind, Portugal Nigeria from a South Korean shipyard, averaged just around 2 million b/d in initiated corruption charges against it was the last time Agbinibo appeared October and November 2018, in spite Vicente this year. However, Lourenço, on social media; the Niger Delta of pipeline sabotage affecting popular calling the charges an ‘offense against Avengers, a little-known group, has export grades like Bonny Light and the state of Angola’, sued to have the basically been dormant since then Forcados – partly due to the

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government’s efforts to maintain peace Recent announcements by the state- revolution. US shale oil is similar in in the Delta. But the country faces a owned Nigerian National Petroleum quality to Nigerian crude oil, and as stiff challenge as it heads into a volatile Corporation (NNPC) that it will start oil more and more shale basins were campaign season ahead of the exploration in the Lake Chad basin, discovered in its own backyard, the February 2019 presidential elections. along with plans to build a new refinery United States, once the largest buyer of Maintaining Nigeria’s oil production at near the Niger border, have helped Nigerian crude, did not need it any full capacity (2.2 million b/d) has been a support this narrative. more. struggle for every government in the However, despite its oil potential, the But light sweet crude could stage a past decade, and it isn’t going to get north remains dominated by the Boko comeback as the International Maritime any easier. Haram insurgency, limiting its Organization’s low sulphur cap on Nigeria’s new breed of militants have a prospects. This is also a sensitive time marine fuels comes into effect in 2020. penchant for hyperbole and biblical for the country, when the fragility of This will drive demand for lower-sulphur references, the latter somewhat belied Christian–Muslim relations is being crudes and increase their profitability. by the ferocity and brazenness of their exacerbated by the spiralling farmer– The resurgence of Nigeria’s light sweet attacks on the country’s export herder violence in Nigeria’s Middle Belt. crude barrel could be around the terminals and oil pipelines. The If this violence and the instability in the corner. militancy in the Niger Delta is Delta intensify, Nigeria’s future looks A major goal for Nigeria’s oil marketers omnipresent and a real threat to bleak due to the sharpened ethnic, and oil ministry is to increase the production levels. regional, and religious polarization. popularity of Nigerian crude. Currently, The quandary for President But President Buhari, along with Vice the bulk of Nigerian crude goes to Muhammadu Buhari is that his rivals, President Yemi Osinbajo and oil Europe and India. Oil demand is largely along with some Niger Delta politicians minister Emmanuel Kachikwu, pushed stagnant in Europe, which is also and militants, have found a common for a 30 per cent increase in amnesty awash with so many different types of cause in undermining Niger Delta program payments this year, along with crudes that Nigerian crude, which is security. Most analysts expect a sizable increase to the budget of the generally more expensive, finds it tough disruptions of around 300,000 b/d to Niger Delta ministry to keep militants on to compete with cheaper heavy sour Nigerian oil output leading up to the side. In the past two years, the Buhari varieties. 2019 elections. government has found ways to keep Nigeria needs to find innovative ways to the militants quiet through promises of ‘While large attacks on oil infrastructure attract buyers from countries or regions development, money, and amnesty. But remain unlikely, the volume of oil theft where crude oil demand is rising— it faces a stiffer challenge as it heads and minor disruption is likely to especially China, the world’s largest into a volatile presidential campaign increase . . . and may push crude oil importer—as exporters of US season, with the danger that supply [international oil companies] to declare crude have recently done successfully. disruptions in the Niger Delta might force majeure on Nigerian crude Nigeria has taken some steps to do escalate and lower Buhari’s chances of streams,’ consultancy Rapidan Energy this, but it needs to do more. winning another term. said in a recent analysts’ note. The 2018/2020 NNPC crude oil term Light and sweet Some analysts have also said that the contracts, which were awarded a few Despite the unrest, Nigeria’s crude oil, incumbent president’s deep pockets months ago, went to more than 60 which is light and sweet and of high mean the opposition will need to recipients, the largest list Nigeria has quality, could face a brighter future. It is finance a sizeable campaign, which it ever allocated. Officials have cited this mostly low in sulphur and yields a will do in part with revenue from oil as a demonstration of NNPC’s efforts to generous amount of diesel, jet fuel, and theft. broaden its customer base and to gasoline, which are generally the most include more domestic companies, The attacks are also likely to fan the profitable products for global refineries. which is expected to help Buhari ahead flames between the Christian south and The light, sweet barrel, which until just of the election. Many of the domestic Muslim north and reinforce the under a decade ago was every refiner’s awardees are new to the world of southern narrative that Buhari is doing most sought after, has recently lost its international oil trading and will be more to grow the oil industry in the lustre, and has emerged as the swing transferring their allocations to bigger north than in the Delta, which remains barrel. Nigerian oil was one of the trading companies that have more the heart of the country’s oil sector. biggest casualties of the US shale

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familiarity with and connections in end- This is cited as one of the reasons #7BigWins agenda. But big words consumer markets. Buhari has stalled its progress, showing without action can only get you so far. how central oil is in the corridors of Nigeria’s oil sector needs a boost, and This policy might mean that there is a power in Nigeria. soon. larger pool of people involved in Nigeria’s crude oil term contracts, but it Nigerian oil’s downstream sector also also means that the murky oil business needs attention. Its four refineries, THE RISE OF REGIONAL in Nigeria, which is already riddled with which have a capacity of 445,000 b/d, corruption, could get messier, have barely been functioning in the RISK IN EAST AFRICA especially as political manoeuvring past five years, due mainly to sabotage Luke Patey begins ahead of the elections. of pipelines carrying crude to the plants One of the most defining characteristics and technical problems arising after Big words, less action of oil development in East Africa over years of neglect. Nigeria’s oil sector urgently needs a the past decade has been the complete overhaul, but comprehensive Given the underperformance of these interaction of domestic and regional reforms are unlikely in the current refineries, there is a pressing need for risk. Regional integration was originally political climate. The state of the Nigeria’s policymakers and the seen as a means to energize budding country’s key energy legislation, the government to rethink current policy on oil industries. Uganda discovered oil on Petroleum Industry Governance Bill, is domestic fuel pricing. Lake Albert in 2006, some of the almost a metaphor for the problems in largest onshore finds in Africa for The oil ministry is wooing private the industry. decades, and in 2012, neighbouring investors for its domestic refineries, but Kenya followed up with its own finds in progress has been slow. Industry analysts say this bill will bring its northwest Turkana region. That much-needed order to the petroleum For now the country and region are year, the leaders of Kenya, South sector, in particular its revenue-sharing pinning their hopes on the 600,000 b/d Sudan, and Ethiopia gathered at the model, which has been vulnerable to Dangote refinery in Lagos, which is Kenyan coast to launch a $25 billion corruption. They argue that the bill will expected to be online in the next two to megaproject, the Lamu Port–South better regulate upstream agreements, three years. This is poised to be the Sudan–Ethiopia Transport Corridor, in fiscal terms, and production-sharing largest refinery in Africa; besides which a pipeline linking South Sudan’s contracts. The bill also aims to create reducing Nigeria’s hefty import bill, it producing oilfields to Kenya’s fresh efficient governing institutions with clear could curb Nigeria’s crude oil exports finds would help anchor the massive objectives, so as to diminish the powers and affect the flow of oil products into infrastructure initiative. Not long after, of the NNPC behemoth. Its passage the region. But the project has been Kenya began talks with Uganda to add has been seen as an urgently needed riddled with delays, and it could take another pipeline link to the regional oil first step towards overhauling Nigeria’s some time before a big impact is infrastructure endeavours. With oil dysfunctional oil sector and achieving observed. prices above $100 per barrel at the its long-term oil production targets. time, hopes were high that an Policymakers have been calling for the But the bill has been stuck in interconnected regional pipeline was privatization of refineries and removal parliament for more than eight years, within reach. of the cap on motor gasoline, but have held up by political wrangling and not delivered on the promise of But 12 years after the initial euphoria objections from foreign oil companies to reforms. Taking steps to address these over East Africa’s emergence on the the significantly higher taxes envisaged issues will need to be a priority for the African oil scene, the three would-be in recent drafts. Progress recently next administration. partners in regional infrastructure— stalled again when President Buhari South Sudan, Uganda, and Kenya— The oil ministry has set itself an almost withheld his assent in August 2018 and have gone their separate ways. South impossible target of ending gasoline sent it back to the National Assembly Sudan became mired in late 2013 in a imports by 2019, which is another for review. civil war that has grounded any new promise that the government might fail The bill would curb the powers of the investment plans and substantially to keep. Nigerian president and oil minister to lowered its production through pipelines award lucrative oil contracts on a Emmanuel Kachikwu, the country’s oil north to Sudan. Uganda has turned to discretionary basis and to run the three minister, has said all the right things to Tanzania, where onshore oil has still new entities to be created from NNPC. reform the country’s oil industry with his not been found, to monetize its oil

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resources through a regional pipeline. The most promising prospects for new countries in 2012. This could come in And Kenya, once an aspirational discoveries in South Sudan lie in the form of settling long running architect of East Africa’s regional Jonglei state. But this massive, isolated disputes on, among other issues, the integration, finds itself struggling to find region, unstable even without the civil shared border between the two investors in a stand-alone pipeline from war, is hardly a desirable destination for countries. Sudan became more its landlocked oilfields in Turkana to the low-cost exploration or potential oil involved in South Sudan’s peace coast at Lamu. development. France’s Total has been process partially to extract new circling a possible exploration deal for economic benefits from the increased For oil companies invested in the decades, and most recently was production in oil. It is very likely that if region, including the independent negotiating in partnership with Tullow the economy in Sudan continues to Tullow Oil, oil major Total, and the before the latest potential breakthrough falter, Sudanese leaders will seek to state-owned China National Offshore went nowhere. A smaller Nigerian extract further economic and political Oil Corporation, it gradually became company, Oranto, with little experience concessions that may upset their South clear that monetizing East Africa’s new in onshore exploration of the magnitude Sudanese counterparts. resources was a far larger challenge required, holds rights for one than expected. The centre of gravity for Uganda concession in Jonglei but has made regional cooperation shifted south to Uganda is the region’s leader in new oil little progress on the ground. the Uganda–Tanzania pipeline deal production, with 6.5 billion barrels of oil and represents a downsized version of At the same time, the civil war has in place. President Yoweri Museveni what was originally planned. What overshadowed the naturally declining has been highly involved in the oil happened? In South Sudan, Uganda, production of South Sudan’s oilfields. industry’s development. He has won and Kenya, a mix of domestic and First exploited in the late 1990s, these several drawn-out disputes with regional risk upended regional small and medium-sized oilfields are international oil companies over capital integration plans. ageing, a condition accelerated by gains tax and has thus far held on to a closures due to political intervention plan to develop a domestic refinery, South Sudan and armed conflict. In the wake of a albeit dropping his preference for a South Sudan’s domestic political and number of broken pacts, the new peace large refinery to process both Uganda’s security environment snuffed out the agreement signed in 2018 has been and the region’s oil, and is looking to potential for regional integration with its met with considerable scepticism. If the develop an export pipeline by the early East African neighbours to the south fighting does simmer down and some 2020s. and, thus far, necessitates its continued stability holds, new cooperation with cooperation with Sudan despite testy Landlocked, Uganda is dependent on Sudan may boost production in the relations between the two countries. its neighbours to transport its oil to the short run. Production will gradually rise, The start of civil war in late 2013 ended Indian Ocean and international but some oilfields are uneconomical to markets. Its focus for this was originally any hope that, after splitting from reopen, and without large investments Kenya but has shifted to Tanzania. The Sudan in 2011, the new country would in enhanced oil recovery, overall output pipeline as originally planned would take in large new investments or is projected to drop to below 100,000 have linked Uganda’s Lake Albert oil to advance large-scale regional b/d before 2030. Kenya’s oil resources in Turkana and infrastructure projects in its oil industry. then continued to the coast at a new Instead, the conflict represented South Sudan won political freedom port in Lamu. But rivalry and mistrust another severe political disruption, after from Sudan in 2011, but its economic resulted in Uganda turning to Tanzania the 15-month oil shutdown that decision-making remains limited by instead. occurred in 2012 in a dispute with Sudan’s control of the only oil export Sudan over pipeline transit fees. This pipeline routes. For the past decade, Widespread concern remains in time around, oilfields were immediately relations between South Sudan’s ruling Uganda about overdependence on closed in Unity state and slowed down party, the Sudan People’s Liberation Kenya as a trade route to international in Upper Nile, South Sudan’s two oil- Movement, and the National Congress markets, and increased cooperation producing regions. Oil production went Party in Khartoum have been anything with Tanzania will ease that concern. from 325,000 barrels per day (b/d) at but stable. Recent rapprochement will Equally concerning is the potential for South Sudan’s independence to around need to demonstrate perseverance for land disputes in Kenya to slow and 109,000 b/d in 2017. investors to overcome concerns fuelled disrupt pipeline construction, as well as by a short border war between the two progress at the port. Kenya was

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unwilling to seriously consider the cost Kenya Regional politics and security advantages of a central Left in the lurch, Kenya now faces the Across East Africa’s evolving oil scene, pipeline route to Mombasa, and placed need to develop its small-scale oil political and security challenges at the priority on developing its northern resources, still measured at less than 1 domestic level increasingly influence, region through oil and infrastructure billion barrels, on its own. Rising global and are influenced by, regional projects. oil prices, and the attractiveness of low- relations. This is not an isolated cost onshore oil, may yet give Kenya phenomenon. Border disputes are also The Tanzania route faces challenges of hope. But if political and security risks prevalent in West and Central Africa, its own. Running from Lake Albert down the western edge of Lake Victoria around the early development of its and should the industry move further and crossing Tanzania to the port at Turkana oilfields are any indication, inland, regional infrastructure deals will Tanga at a length of 1,443 km, the outside investors might see more need to be made. National decision- pipeline will come with a price tag of potential in backing the neighbouring makers and domestic and international about $3.9 billion. There is less pipeline in Uganda and Tanzania, investors should not ignore these new potential for land acquisition delays in rather than a stand-alone one in Kenya. regional dynamics unfolding in Africa, because regional politics will set the Tanzania, as well as lower security Sharp divides between national and tone for both progress and setbacks. risks compared to Kenya. But Yoweri local politicians and communities Museveni’s ongoing battles with continue to impede oil development. international oil companies may yet Nairobi’s decades-long neglect of the delay the pipeline’s completion beyond OIL POLITICS AND Turkana region has fostered a deep- the early 2020s. Wrangling continues STOPPAGES IN KENYA: seated resentment of outside politicians over how much oil will be sourced by among local communities. At the same AGREEING TO DISAGREE Uganda’s refinery, Museveni’s main time, competition has arisen among AGAIN SOON focus, and how much will be left for the local leaders and their affiliated export pipeline, an amount international Charles Wanguhu businesses over economic resources oil companies wish to maximize. After decades of on-and-off-again made available through oil exploration, Kenya’s 2012 discovery of The leading company in Uganda’s oil development. As a result, there have commercial quantities of oil was a industry, Total, has shown a strong been multiple suspensions of Tullow’s breakthrough for the country. But many preference for the Tanzanian route exploration and development activities. civil society leaders worried about what despite having entered Kenya’s oil Political and security risks have also led was next. In the capital, Nairobi, Hamza industry through its 2017 purchase of to delays in what will likely be an Ahmed, a community organizer in one Mærsk Oil. But the oil major, now the unprofitable venture of trucking early of the biggest informal settlements, dominant player in East Africa after production to market. Tullow’s farmout, has shown patience said, ‘Kenya needs leaders not in waiting for political winds to blow in Losing the Ugandan pipeline link will be dealers.’ Ahmed was expressing its favour in what are still relatively costly for Kenya. The resulting higher frustration with individuals who he saw small elements in its large international tariffs from the potential presence of as self-serving and exploiting portfolio. two pipelines in East Africa are community grievances for personal estimated by the Kenyan government gain. No doubt, community organizers Relations between Uganda and to amount to losses of over $3 billion. in the Turkana region, where oil was Tanzania also need to remain warm To make up the loss, Kenya will need found 544 kilometres north of Nairobi, over the long run. Tanzania promised to push exploration companies to would agree that they have been to charge a lower tariff and plans a gas expand their work, but recent results watching a similar problem unfold since pipeline to Uganda as part of the have not been promising. Progress 2012. A series of disputes have led to growing energy interconnections has, not surprisingly, been slow in the short-term-fix agreements that will in between two countries. These development of its planned Lamu the long term lead to increased commitments will need to be upheld for infrastructure corridor. Failing to disputes and costs to oil companies Uganda’s oil industry to develop persuade Uganda to take part in a operating in the country. smoothly, and an unsettled border regional pipeline will likely not leave dispute with the Democratic Republic of The Turkana region has seen several Kenya’s resources stranded, but could Congo may bring more regional stoppages of oil company activity due lengthen the time before large exports tensions should Uganda’s exploration to grievances articulated by local should be expected. expand further. leaders over the lack of water,

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environmental issues, and access to and reduced oil activity. However, in meetings led to concessions regarding economic opportunities. In 2013, led by 2017, with elections coming and a national legislation on revenue sharing, local members of parliament, proposed scheme to truck oil from the with the government ceding ground on community members stormed the site region to the coast, another closure the previous proposed cap on revenues where Tullow Oil, a British firm, was occurred. The local community took that would accrue to county and exploring for oil in Turkana. The over one of the sites designated for community levels. The government disturbances led to the closure of the waste storage by Tullow, and this allowed for 25 per cent of future camp, the evacuation of staff, and the resulted in a standoff. The initial petroleum revenues to go to county and alleged loss of millions of dollars in staff grievances were environmental, community levels without any further and machinery downtime. It took including the lack of licensing of the restrictions or capping. The community intense negotiations and hosting of area for waste management and bad leaders, on the other hand, conceded leaders from the region to resolve the odour emanating from the site. to a reduced share of revenue to the impasse and end the stoppages. community from 10 to 5 per cent. The MOU resulting from this particular A memorandum of understanding stoppage was directly between the However, less than two weeks into the (MOU) was signed between Tullow and company and the local community. Of trucking scheme, a blockage led by the Ministry of Energy and Petroleum, the commitments made by the local members of parliament at several setting out conditions to establish a company in the MOU, only one—to sites, the biggest so far, occurred. The safe, secure, and sustainable operating douse the pits with lime to prevent the grievance was insecurity—which, environment in Turkana. Among the smell—related to environmental although it had historically plagued the underlying issues to be addressed, two concerns. The company also Turkana communities, experienced a stood out: the need for shared committed to build two classrooms, spike in the number of incidents after prosperity amongst all stakeholders employ 34 people, undertake the launch of the trucking program. This and the need for transparency and hydrological surveys for sinking of included the shooting of community fairness in process and procedures in water boreholes, create business police officers, which resulted in the relation to sharing of opportunities. opportunities, and hire six vehicles from loss of lives. The preamble to the draft the community. In exchange, the MOU did in fact lead off with the The MOU specifically stipulated that the community agreed not to disrupt insecurity. However, the political company would furnish the national company operations. leaders who led the stoppages government with information on highlighted the economic opportunities employment and the utilization of local In 2018, Kenya’s president, Uhuru that came from trucking. In response, goods and services (including vehicle Kenyatta, launched an initiative to the company required its contractors, hire). The fact that vehicle hire was transport oil from Turkana to the coast, hired nationally, to seek out more local mentioned specifically suggests it was first by road to a central rail facility and businesses to share in the economic one of the key issues underlying the then by train to the port of Mombasa. opportunity. stoppages. A grievance mechanism The scheme promised to generate a was also established, and the company tidy sum for the fledgling railway at an The first impact of these stoppages was committed to increased social envisaged cost of $9.22 per barrel. The the cost. While all stoppage-related investment. initiative was fast tracked due to costs are recoverable, and Kenya will external factors, particularly Uganda’s bear the brunt of them, the first The timeline for the majority of these choice to site its crude pipeline in stoppage took two weeks to resolve, actions was in 2014. But when the Tanzania instead of Kenya. It therefore and the stoppage in June 2018 took sudden downturn in oil prices occurred, became a prestige project for Kenya to over a month. There was also a operational activity was reduced, and ensure that its oil reached the market noticeable escalation in the disputes, with it the use of local goods and before its neighbours and thus become and a loss of social capital for the services. Local businesses and officials the first country in the East African Kenyan government and oil companies who had prepared for opportunities in Community to export crude. with affected communities. The risk is the sector, including by purchasing that the parties concerned view vehicles for hire to the company, were In the build up to the launch of the stoppages as a genuine means of disappointed. trucking initiative, several high-profile negotiation, inevitably resulting in political meetings were held between After the downturn, a period of relative losses due to idle machinery and staff Turkana leaders and the national calm followed, with minimal stoppages costs. leadership, including the president. The

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Second, there is now likely, at every There is a risk of recurring conflict as manageable given the industry’s point of increased activity in the oil the oil industry moves to a production growing political clout in Maputo. sector, to be a stalemate over fair phase where increased opportunities Fresh LNG momentum distribution of opportunities. The sector are generated, resulting in political Development of the Rovuma natural provides a limited number of realignments. While initial lessons in gas reserves, which contain around 75 opportunities, and this will complicate Kenya point to the need for increased trillion cubic feet (Tcf) of recoverable power balances within communities interrogation of local content policy and gas in Area 1 and some 85 Tcf of gas and among their leaders. For instance, transparency and accountability in the in place in Area 4, has gotten off to a one local member of parliament has oil sector, it also shows that MOUs slow start owing to a host of global and been accused of trying to monopolize often serve as mere band-aids to larger domestic constraints. Initially touted to opportunities for his own personal gain, contestations that will only appear once come onstream in 2018, official with local residents accusing politicians the project reaches full commercial projections now expect LNG production of reserving opportunities for their development. Inevitably, we are to start in 2023, with gas exports relatives and cronies, short-changing agreeing to disagree again soon. the community they claim to be reaching 18 billion cubic meters around advocating for. Kenya’s devolved 2024. government further complicates the MOZAMBIQUE: BANKRUPT In 2018, fresh momentum has been power structure with an increased BEFORE THE BONANZA building in Mozambique’s upstream number of claimants, from the governor sector. The first and smallest of the region to the members of county Anne Frühauf development, Eni’s US$4.7 billion Coral assemblies. There is also conflict Since roughly 2012, the discovery of South floating LNG project, with a between the regional government natural gas reserves in Mozambique’s planned production capacity of 3.4 leaders and the members of parliament Rovuma basin has generated palpable million tonnes per annum, reached from the oil regions. industry excitement about what is financial close in December 2017. Third, community-based grievance sometimes billed the world’s next Onshore, Anadarko, the operator of mechanisms are ill placed to deal with Qatar. For Mozambique, one of the Area 1, has had a long marketing and political elites competing for economic world’s least developed countries, the financing campaign, and currently aims opportunities. As the various stoppages finds have promised to be a game to take a final investment decision on show, in the battle for economic changer. However, early hopes that two its Mozambique LNG project in Q1 opportunities, grievances around major LNG projects could come 2019. In Area 4, the entrance of US oil security and the environment are mere onstream in 2018 have been dashed by giant ExxonMobil, via its $2.8 billion placeholders. The communities’ deteriorating global conditions and deal to purchase a 25 per cent stake in grievances are likely to remain domestic factors. Domestically, Eni East Africa in March 2017, has unaddressed once the economic Mozambique’s critical misstep was to injected significant momentum into the opportunities are shared between the mortgage its LNG future through Rovuma LNG project. It aims to political elites. On the political front, excessive, secret borrowing well before conclude a final investment decision there is the question of how electoral a single LNG train was signed off on, around mid-2019 and to increase the transitions will be managed where let alone constructed. capacity of two planned LNG trains to politically connected individuals have 7.6 million tonnes per year, with a start access to economic opportunities. This While fresh momentum has been date in 2024. While further delays are not only raises the stakes in political evident in the upstream sector in 2018, possible, sometime in the next decade contests but also risks full-blown the long shadow of Mozambique’s debt Mozambique seems destined to enter conflict once new representatives seek scandals—which were revealed in 2016 the global league of LNG producers. to access these opportunities. and triggered a sovereign default—will shape the political risk outlook for the The Rovuma ventures are largely An additional challenge, expressed by upstream sector into the next decade. export-oriented, and the government’s the term ‘local local content’, is the Mozambique’s ‘muddle-through’ initially ambitious plans for midstream demand that oil-related opportunities response to the crisis, as described by development look less certain given should be distributed not nationally or local economist Roberto Tibana, will be Mozambique’s economic crisis. A 2016 even regionally but at the level of the a source of political, policy, social, and government tender attracted 14 local community in which the operation security risks for upstream operators, proposals from companies including is taking place. although those risks may turn out to be Mitsui, Shell Mozambique, Yara, and

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Marubeni, but only Shell’s plan for a attorney general's office have yielded toll on development spending and—by 38,000 barrel per day gas-to-liquids little to date. The scandal clearly helping the government skirt deeper plant seems to be making tentative highlights the lack of accountability and investigation of the $2.3 billion debt— progress. Fertilizer production would the extent of corruption risks. on Mozambique’s institutional integrity. also make sense from a developmental perspective, given that 85 per cent of The crisis has severely dampened the Policy uncertainty? poor households earn their living in the economic growth trajectory of Could Maputo’s fiscal and governance agriculture sector, but much will depend Mozambique—once lauded by crisis create the conditions for a on gas prices and regulatory questions. International Monetary Fund chief backlash for upstream players? As Christine Lagarde for its rapid growth, Mozambique’s biggest source of Finally, beyond the Rovuma blocks, the poverty reduction progress, and sound revenue, the LNG players will have government in August 2018 approved economic management. Instead, tremendous influence over current and exploration contracts for the fifth government estimates now expect real licencing round, which commenced in future governments, while further GDP growth ‘to remain significantly October 2014 but was delayed by eroding an already weak accountability regulatory hurdles. As a result, fresh below historical performance, at an link between the government and the exploration off central Mozambique—in average of 3.4% over 2016–2022 vs. public with its tiny base of taxpayers, as the Angoche and Zambezi basins (by 7.4% over 2005–2015’. With growth is common in countries experiencing ExxonMobil and Eni)—and onshore in and investment in other sectors mixed the ‘resource curse’. the Mozambique Basin (Sasol) could at best, everything is riding on the LNG At present, crucial upstream players— commence as early as 2019. projects. From 2023, official forecasts ExxonMobil, Eni, and Anadarko—enjoy expect real GDP growth to reach 8 to Dependency on LNG revenues a favourable negotiating position as 10 per cent annually, while the value of Maputo cannot afford further delays to The country’s status as an emerging LNG net exports could reach $7.4 the LNG projects. More than any other LNG player will fundamentally reshape billion per annum. its political economy, all the more so commercial stakeholder, the LNG because the LNG ventures are the only The LNG boost will be crucial to help ventures seem to have the ear of hope of President Filipe Nyusi’s Mozambique extricate itself from its President Filipe Nyusi’s administration. government of resolving its fiscal and debt trap. However, the real revenue This has helped the companies secure debt conundrums over the next two windfall is not expected to occur before favourable policy outcomes (including decades. In 2013, the government of the early 2030s. It thus comes as no the LNG Decree, Law No. 2/2014) and then president Armando Guebuza, surprise that the government pledged regulatory approvals. sidestepping parliamentary approvals, to mortgage some of its gas revenues Nevertheless, the government’s fifth contracted about $2.3 billion of debt to to foreign commercial creditors as part licensing round, which was launched in create the Mozambique Tuna Company of an in-principle debt restructuring October 2014 but saw contract (Ematum), ProIndicus, and agreement announced in November approvals delayed until 2018, Mozambique Asset Management 2018. The deal includes Value highlighted regulatory uncertainties (MAM), three moribund state ventures Recovery Instruments worth 5% of over changes to the Petroleum Law, with barely feasible business plans Mozambique’s annual gas revenues including domestic market obligations involving tuna fishing, maritime security (capped at USD 500mn in total) for and local content regulations. Deals services (aimed at the upstream holders of the Ematum-related with ExxonMobil, Eni, and Sasol are sector), and shipbuilding and sovereign bond. The government also finally within reach after the maintenance. A debt scandal and a plans to return to the market for government agreed to amend sovereign default later, Mozambique’s upwards of US$ 2 billion to finance the regulations requiring upstream debt-to-GDP ratio was 112 per cent in stake of national oil company ENH in companies to list on the local stock 2017. A subsequent Kroll audit was the Rovuma projects. Even if the Nyusi exchange. unable to properly account for half the administration manages to defer its funds and was largely boycotted by debt obligations into the LNG-fuelled officials, while investigations by the future, its borrowing spree will take a

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Longer term, a tight fiscal and Presidential election results, 1994–2014 debt outlook into the late 2020s—combined with growing public pressure to spread the benefits of the LNG bonanza— could tempt the Nyusi and successor administrations to tap the country’s most important income source in the production phase. While Mozambique’s LNG Decree Law, passed specifically to provide security of tenure for the Rovuma ventures, is considered comprehensive, attempts to renegotiate contracts as well as tax disputes are possible, particularly as the public narrative grows that Source: African Elections Database; Jo Hanlon: Mozambique Election Results archive. Mozambique has been short- changed. Already, a In the October 2018 local elections, ability to mobilize the state apparatus in government-commissioned audit of while Frelimo still won the majority of election campaigns, even in austere Anadarko’s and Eni’s operating costs Mozambique’s 53 municipalities, its times. The disputed outcomes and the signals potential areas of future performance was markedly poorer than exclusion of high-profile leaders from disputes. in 2013. According to the Mozambique the 2018 local elections, combined with Political Process Bulletin, the number of growing intimidation of politicians and Will voters punish the ruling party municipalities under Frelimo’s control local media figures, all suggest an for the debt crisis? shrank from 50 to 44; another five erosion of democratic processes that is The degree of political instability facing Frelimo victories were disputed. all too common in resource-curse the industry will depend on whether the Frelimo’s declining share of the vote countries. ruling party—Frelimo, in power since (just under 52 per cent) signals a independence in 1975—manages to Under these conditions, Frelimo may worrying trend for the ruling party hold on to power in conditions of continue to win elections, but probably ahead of the 2019 ballot. bankruptcy and austerity. Ordinary with less legitimacy. Mozambicans have undoubtedly paid Despite this, Frelimo remains ahead in Will the operating environment the heaviest price for the debt crisis, the polls, for two reasons. First, it become more hostile? suffering the economic slowdown, benefits from a weak opposition. The Even if the political landscape remains inflation, and fiscal austerity measures, once promising Mozambique somewhat predictable, the social risk including cuts to fuel and wheat flour Democratic Movement is a spent force, context in which upstream companies subsidies and hikes to energy and as the 2018 municipal elections operate may worsen as inequality transport prices. Amid a sense that the demonstrated. The largest opposition sharpens. Even before the LNG government has made ordinary people party, Renamo, is making a comeback, bonanza kicks in, Mozambique’s socio- pay the price for the debt scandal while particularly in central Mozambique and economic indicators have begun to failing to hold officials accountable, key cities. However, it has lost its iconic deteriorate. The World Bank’s 2018 Frelimo seems to be aware that the long-time leader, Afonso Dhlakama, Jobs Diagnostic Mozambique fallout from the debt crisis could create and will struggle to overtake Frelimo’s emphasized that, while the national the risk of an electoral backlash. vote share at the national level. poverty headcount ratio fell from The biggest test of Frelimo’s staying Second, Frelimo has an inbuilt 68 per cent in 1996 to 48 per cent in power will be the 2019 presidential, advantage owing to the politicized 2014/2015, ‘the bottom 40% of income parliamentary, and provincial elections. electoral commission and the party’s earners has been left behind … the

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pattern of growth has become social conflict over the long term, as However, the political and socio- progressively less inclusive over the well as corruption and reputational risks economic context in which the last 20 years. It depends increasingly for companies. upstream companies will operate is on energy-related, export-oriented, likely to deteriorate, even if the A second, escalating risk to the capital-intensive “megaprojects,” which resultant project risks may still prove to upstream sector is insurgent activity have generated few jobs directly and be manageable from the companies’ associated with the Islamist extremist indirectly.’ perspective. group Al-Sunnah wa Jama’a, also Will the lack of inclusive growth result in locally referred to as Al-Shabab, which an increasingly hostile operating first staged attacks in Cabo Delgado CHALLENGING environment? Some conflict with local Province in October 2017. While some PROSPECTS FOR reports suggest involvement of communities over upstream UPSTREAM foreigners from Tanzania and Somalia, development in the remote northern CONTRACTING IN province of Cabo Delgado seems the Cabo Delgado insurgency—with an TANZANIA inevitable. In August 2018, farmers on estimated 350 to 1,500 members— the outskirts of Pemba, who were seems to have a homegrown element Peter Bofin and displaced to make way for the Pemba driven by unemployment and poverty, Rasmus Hundsbæk Pedersen particularly within the local Mwani Logistics Base intended to support Tanzania is East Africa’s first petroleum ethnic group, which has historically felt upstream operations, rioted to protest producer and has produced natural gas marginalized by the Maconde (to which their loss of farmland and poor financial in modest amounts for the domestic Nyusi and other key northern Frelimo compensation (in some cases market since 2004. It may become a leaders belong). reportedly as little as $35). significant producer if agreement can The targets of insurgent raids have be reached on the development of a There are obvious expectations that the been local police and villages in five liquefied natural gas (LNG) project upstream companies will create jobs coastal districts of Cabo Delgado following a series of deep-sea and commercial opportunities for local Province: Mocímboa da Praia, Palma discoveries that started in 2010. In the small and medium-size enterprises. (the district where Anadarko is early years, some maturation of the Anadarko stated at a conference in developing its LNG facility on the sector could be observed, driven by Pemba in August 2018 that it expects Afungi peninsula), Nangade, Macomia, international oil company projects but to employ 3,500 Mozambicans at the and Quissanga. To date, no attack has with capacity being built in the state oil peak of the construction phase and directly targeted upstream companies, company, the Tanzania Petroleum 1,500 over the 30-year production and it is unclear whether the insurgent Development Corporation (TPDC). period. It highlighted business groups, typically comprising 10–30 Since then, however, development has opportunities related to catering, men, have the capacity to attack slowed. TPDC hopes to licence a construction materials, electronics, and secured sites. Nevertheless, some of number of blocks in 2019, but other equipment, but local companies the attacks have occurred within less prospects for this are not good, given are rarely competitive due to high than 20 km of the Afungi peninsula. the political, legislative, and institutional certification, know-how, and scale This emerging threat forces companies conditions. hurdles. Responding to these concerns, to step up security, even if the President Nyusi proposed that local challenges might ultimately prove The deep-sea natural gas discoveries companies partner with foreign manageable for companies coincided with, and to some extent companies, which ‘sounds very much accustomed to operating in countries spurred, Tanzania’s adoption of a more like the encouragement of cabrito like Iraq. ‘resource nationalistic’ stance, which has been seen as one of the most capitalism, where the Frelimo elite uses The bottom line land titles, mining licenses or contacts radical in Africa. A number of reforms In 2018, there has been fresh have been passed, at times with little to make a deal where they trade their momentum in Mozambique’s fledgling regard to international competition and local contribution for 20% of a [joint LNG sector, thanks to improving global oil price cycles. We argue that venture] and the foreign partner does commercial conditions and regulatory this reflects delays in the state’s the work, as is happening in the mining approvals. Politically, LNG players reaction to market movements, with a sector’ (Hanlon, Mozambique News enjoy substantial leverage as the reluctance to fully reorient state reports & clippings 422, 20 August state’s only way out of its financial crisis institutions, some new, to manage its 2018). This has the potential to worsen over the next couple of decades. envisaged role in the sector.

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The collaboration between state and Tanzania Electric Supply Company For these and future natural gas private sector that is required to create (TANESCO), and TPDC—was in development projects, TANESCO’s markets for natural gas has proved charge of the Dar es Salaam power indebtedness is the greatest obstacle. It challenging. A number of new plant and the onshore pipeline and was estimated by the World Bank at regulatory institutions have been processing infrastructure. In Mnazi Bay, $490 million in 2016. The following established, but with limited production began in 2006 by Artumas, year, according to the Ministry of development of the sector they later Wentworth, and from 2012 with Energy, it was $363 million—still much currently tend to contribute to Maurel et Prom as the operator, initially higher than 2015’s estimated $250 institutional overcrowding and supplying a power plant in Mtwara but million, mostly legacy debts to indecisiveness that often leave private also the National Natural Gas emergency power producers. Power actors in despair. Under President John Infrastructure Project (NNGIP) after its producers will remain the single Magufuli, decision-making power has finalization in 2015. Finally, the modest greatest purchaser of natural gas up to shifted to State House (the seat of the Kiliwani North came into production in 2045. In March 2016, President executive branch). This may allow for 2016, held by Ndovu Resources, Magufuli declared that TANESCO flexibility in terms for the bigger players, though production declined would be the only power generator in who are able to access the highest considerably in 2017 from 15 million the future. This has discouraged further level of government. However, it standard cubic feet per day (mmscfd) in development of known gas reserves threatens to undermine the stability and the first half of the year to less than 1 such as at Songo Songo and Mnazi transparency that the sector had been mmscfd in the second half. The bulk of Bay, as well as other resources. moving towards. supply to NNGIP comes from Mnazi Parallel to the development of these Bay, averaging 49.1 mmscfd over The development of Tanzania’s gas projects, substantial offshore 2017. sector discoveries started in 2010, first by BG As a petroleum-producing country, The two former projects typify the early (now owned by Shell), which became Tanzania matured significantly in the phase of petroleum sector development operator in the same year with Ophir first years after production began. It in Tanzania: both were long in and Pavilion, and later by Equinor saw considerable upstream investment gestation and initially required (previously Statoil) as operator with from 2000 onwards, both onshore and additional donor financing in order to ExxonMobil owning a smaller part. offshore, as well as on the littoral. This de-risk operations. They also differ Their potential boost to domestic gas was a response to reduced financial considerably in contractual, financial, supplies prompted an ambitious and geological risk, and rising prices management, and ownership National Natural Gas Utilisation Master attracting private upstream investments structures. Songo Songo has a Plan (2016–2045), which focuses on globally. Geological risk was reduced complex ownership structure, with industrial and power generation use in offshore by a 1999 2D seismic survey private management of upstream and Tanzania, as well as regional pipeline conducted on behalf of the TPDC. midstream infrastructure and state exports. The realization of these plans, Onshore, geological risk was less involvement in midstream. It has a mix however, depends on approval of the directly lessened through discoveries in of clients, selling power to TANESCO LNG project, and the domestic market the western spur of the Rift Valley in and natural gas to industry. Mnazi Bay obligation (10 per cent according to a Uganda (2006) and Kenya (2012). has a more orthodox contractual leaked agreement with Equinor) that Since 2008, licensing through structure. Despite expansion of offshore operators are contracted to competitive bidding has been the norm. production related to the NNGIP, a supply. With negotiations on the host more than 532 kilometre pipeline from government’s agreement to the project Only onshore and nearshore projects Mtwara in south-western Tanzania to making little progress, this will not are currently producing. The first small Dar es Salaam, the economic happen any time soon. With NNGIP littoral natural gas fields at Songo powerhouse of the country, the two gas operating below capacity, the National Songo began producing in 2004, with fields are yet to be fully exploited as Audit Office fears that failure to make PanAfrican Energy Tanzania Ltd risks related to payment from the repayments to the Exim Bank threatens controlling the upstream facilities at pipeline’s major offtaker, TANESCO, the viability of the state oil company. Songo Songo Island while Songas—a persist. The NNGIP is owned by the consortium consisting of Pan African In recent years, interest in exploration state, funded by a loan from China’s Energy, Commonwealth Development and production in Tanzania has Exim Bank. Corporation, Globeleq, the state-run subsided significantly. Of eight licences

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awarded since 2007 for onshore blocks Even in a high oil price environment, was involved in such activities until at away from the gaseous littoral, only these measures were an obstacle to least 2017, while PURA’s role in three remain active, with none yet in investment. The country’s most recent contractual oversight has also been development. Of 13 offshore licencing round was launched in 2013 usurped. The most significant reviews exploration licences awarded since at the height of the price boom, with thus far have been from the National 2001, only three are extant. The littoral bidding closed just before the price Audit Office in 2017 and an ad hoc saw six licences awarded, including for slumped, but it produced no new parliamentary committee that reviewed the only significant producing fields, agreements. all existing Production Sharing Songo Songo and Mnazi Bay. Yet the Agreements (PSA) and in June 2018 After the decline in oil prices in 2014, region’s largest petroleum project also declared a loss to the state of $130 the statist trend was if anything involves Tanzania. Work is expected to million, a claim that has led to the reinforced through a new Petroleum Act begin soon on the privately owned and review and renegotiation of contracts to in 2015, and three acts in 2017 that financed East Africa Crude Oil Pipeline bring them into line with the 2017 greatly extend the state’s power to (EACOP), the export route for Ugandan legislation. arbitrate disputes and review contracts. crude. To attract the project, Tanzania The Petroleum Act of 2015 was the first The Natural Wealth and Resources is understood to have granted overhaul of the sector’s legal and (Permanent Sovereignty) Act 2017 considerable fiscal concessions to the institutional framework since 1980. It explicitly removes the right to Total-led consortium developing the makes significantly stronger demands international arbitration in the case of project. for local content, calling not only for disputes, and allows for renegotiation of Institutions and markets local procurement but also for contracts on instruction by parliament. The fall in global oil prices has significant local ownership of Competitive bidding for exploration contributed to the diminution in interest procurement companies. In addition, for blocks, institutionalized from around in Tanzanian gas, but restrictive the midstream and downstream it 2008 and a requirement under the legislation and a toughened approach assigned ownership and operation of Petroleum Act 2015, is also under to terms play an even bigger role. ‘major gas infrastructures’ to TPDC. It pressure. Minister for Energy Medard Institutional reforms introduced over also created two new bodies, the Kalemani in his budget speech for this period strengthened the state’s Petroleum Upstream Regulatory 2018/2019 announced that TPDC is position in the market, but initially not in Authority (PURA) and the Oil and Gas searching for partners to develop a prohibitive way. The Petroleum Act Advisory Bureau in the Office of the offshore blocks 4/1B and 4/1C. For 2008, which governs midstream and President. The former took on licencing onshore Eyasi-Wembere, TPDC itselfiin downstream activities, introduced the and oversight roles previously held by 2018/2019 is toapply for a licence, and Energy and Water Utilities Regulatory TPDC, while the latter has an advisory seek a partner. Similar plans are in Authority as the regulator for mid- and role for the cabinet. place for Mnazi Bay North, another of downstream operations. The same TPDC’s blocks. In the same speech The division of responsibilities makes year, fiscal terms were tightened in a Kalemani spoke of model joint sense on paper, but in practice new model production-sharing operating agreements for TPDC blocks, oversight of the sector has become agreement (MPSA), somewhat late suggesting that future PSAs will be increasingly politicized. TPDC is freed after almost a decade of rising oil significantly different to existing ones. up to be more commercially focused, prices. An Additional Profits Tax, higher as regulatory responsibilities fall to The role of the president has also come royalties, and state profit share were PURA, presumably also drawing some to the fore. The negotiation of the inter- complemented by ambitions for state responsibilities away from the Ministry government agreement for EACOP involvement of up to 25 per cent. The of Energy. Having technical knowledge indicated the direction the sector is 2013 MPSA had much more stringent in State House has value in a taking. Direction from State House was terms, with a separate offshore royalty politicized sector. Yet PURA and the Oil clear, with negotiations led by the rate of 7.5 per cent reintroduced on top and Gas Advisory Bureau are yet to minister for constitutional affairs under of the higher royalties, state profit become operational. Some key close oversight from State House. The shares, and state involvement that had functions ascribed to PURA in the negotiations were seen as very much a first been introduced in the previous Petroleum Act 2015 are still under political process rather than a MPSA in 2008. TPDC in practice, such as prospecting technocratic one to be left to TPDC or and managing geological data. TPDC PURA. Direct intervention in the host

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government agreement for the LNG private project away from Kenya. No Conclusion project negotiations has been less transit fee will be levied, while both Unlike its ‘new oil’ neighbours, Uganda frequent, though at times critical. Only corporate tax and VAT have been and Kenya, Tanzania has a longer State House intervention in 2016 waived. history upstream and therefore the allowed land acquisition for the project The primary role envisaged for TPDC, potential to be considerably more to go ahead, after direct as a partner in jointoperations, is active. There has been considerable representations by Equinor to President unlikely to be realized to any larger de-risking of Tanzania geologically, and Magufuli, facilitated by the Norwegian extent. NNGIP has saddled the market conditions are again improving. embassy. The Danish and German company with unprecedented debt. The Presumably market conditions are what embassies have also helped open $1.2 billion borrowed from China’s Exim prompted TPDC to announce licencing doors for a fertilizer project involving Bank for construction costs was to be for Q2 2019. However, companies Danish Topsoe. Approval of the seeking to invest in the country face EACOP project was achieved by repaid from transit fees. With the notable political risks. The challenging lobbying of both President Magufuli and pipeline operating at less than political context, with politicians’ Ugandan President Yoweri Museveni 10 per cent capacity, and its primary constant meddling with limited by senior Total officials. Norway’s customer, the electricity utility, being a understanding of international markets, country-level meetings with President chronic debtor, this is not possible. The tends to undermine the country’s Magufuli are believed to have been government may come up with petroleum institutions. An critical in finalizing the site for the LNG additional funding, but with other huge interventionist presidency with project, getting approval for bilateral infrastructure investments underway significant executive power is an negotiations between Equinor and during a slow-down in economic unpredictable element. government for development of the activity, its ability to raise funds will be LNG project. Such lobbying has always limited. Topping the infrastructure had a role, but has become more agenda is Stiegler’s Gorge, a massive RESURGENT RESOURCE critical given the much greater hydropower project on the Ruvuma NATIONALISM IN centralization under President Magufuli River. This is now President Magufuli’s TANZANIA’S PETROLEUM compared to his predecessors. priority, a project he sees as possible to SECTOR complete within his term and on his Challenging upstream investments terms, unlike the LNG project. Rasmus Hundsbæk Pedersen and Upstream investment may prove to be Thabit Jacob slow, not only because of a ‘resource A more positive development is the nationalistic’ agenda per se. Rather, the reduction in onshore exploration and On 2 June 2018, Dustan Kitandula, confusion over old and new institutional production risks. TPDC remains chair of a special parliamentary mandates has delayed deals, and will optimistic that oil reserves can be found committee investigating Tanzania’s continue to do so, and put off investors and developed, particularly in the contracts with international companies not prepared to ride out the price cycle. Western Rift’s Lake Tanganyika and in the gas sector, reported that the Terms that have been tightened in the Lake Eyasi, and the company has country had lost $130 million due to face of falling oil prices are not likely to generated airborne survey data on contract irregularities. Subsequently, he be loosened. Instead, upstream both. EACOP—running across the recommended the contracts to be contracts are likely to veer away from country’s north to the Indian Ocean renegotiated. This process had been MPSAs as competitive bidding coast—will provide an export route for set in motion in the wake of a becomes less likely. This will mean that any new finds. Total could be well declaration of ‘economic warfare‘ on more terms will be up for negotiation, placed for any onshore opportunities in foreign-owned mining companies by potentially leading to protracted Tanzania. Negotiating EACOP at the the country’s president, John Magufuli. negotiations upstream. EACOP and highest level of government has likely Now it was the gas sector’s turn to get NNGIP have shown that Tanzania is given it an intimate understanding of an overhaul. prepared to be flexible in negotiations interests and incentives on the In many ways, developments in when the alternative is losing the Tanzanian side. TPDC is also Tanzania mirrored similar resource- project, and results can be seen contemplating expanding the natural nationalist tendencies that had quickly. Despite the requirement that all gas pipeline grid, including the emerged in Latin America in the 2000s. natural gas infrastructure be state construction of a pipeline to Uganda Over less than a decade, the country’s owned, it has been generous in along the EACOP route. entire legal and institutional framework providing incentives to attract this

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governing the extractive sector has Legislative changes driven by Around the historically competitive been reformed to maximize the electoral politics 2010 elections, the party undertook country’s benefits from its natural When forming the special gas sector internal reforms that aimed to more resources. Recent interventions also investigation committee, the clearly separate money and politics. increasingly reflect the advent of more parliament’s speaker, Job Ndugai, Implementation was slow, but with the populist impulses in the relation referred to a set of acts that had been choice of an outsider, Magufuli, as a between the state and foreign passed earlier in 2017 aimed at compromise presidential candidate in petroleum companies, which had reclaiming the country’s sovereignty the 2015 elections, it received renewed hitherto been dominated by the over its natural resources. The acts attention to re-examine party-business bureaucracy. were introduced after a conflict with the relations. The newly elected president country’s biggest mining company, clamped down on the influential party But these changes do not necessarily Acacia, which had been accused of not financiers and some of the country’s signify that successive Tanzanian paying its share of taxes. The Written richest men. Also around 2010, thinking governments have achieved the Laws (Miscellaneous Amendments) Act on the mineral sector, and eventually promised improvement in transparency was a reform of the Mining Act 2010. Of the economy as a whole, began and accountability in the gas sector. greater concern for the petroleum changing towards more state There is, in fact, more continuity than sector were the Natural Wealth and involvement after decades of change in how the sector is governed. Resources (Permanent Sovereignty) liberalization and generous terms to First, recent events are part of a Act and the Natural Wealth and foreign companies. broader shift in political power and Resources (Review and Re-negotiation The more state-led agenda was economic thinking in Tanzania’s ruling of Unconscionable Terms) Act. The amplified by the new president’s party, the Chama cha Mapinduzi (CCM) former directs that commercial dispute populist tendencies. As a candidate or Party of Revolution, towards resolution be undertaken in Tanzanian who was not part of CCM’s inner circle, advocacy of a bigger state role in the courts only, denying access to he sought to build a connection to country’s economic development. It international arbitration. The latter ordinary Tanzanians and grass-roots reflects impatience, spurred by allows for the renegotiation of natural party members that could help him stay increasing electoral competition starting resources contracts, including in power. Despite the rapid expansion around 2010, with the development production-sharing agreements, on the of foreign direct investments before his model driven by foreign direct direction of the National Assembly if ascent to power, the extractive sector investment. This makes Tanzania an terms are deemed to be provided a perfect platform for such early resource-nationalist mover among ‘unconscionable’, a term that remains activities. His repeated attacks on what the ‘new oil’ countries that emerged in undefined. he called the corrupt and ineffective the wake of high global commodity Change in the governance of the practices of the past were hugely prices in the late 2000s. extractive sector has been underway popular. Foreign companies, Western Second, the direct involvement of for some time. The 2000s saw growing ones in particular, could easily be parliament so far does not reflect a criticism of the government for not depicted as a new type of colonizers, major change in the governance of the getting enough out of the country’s and referrals to Tanzania’s first sector, which continues to be mining resources. Initially raised by civil president, Julius Nyerere, and his dominated by the executive branch. society organizations and soon taken emphasis on anti-colonial and socialist Rather, there is a centralization of up by what would become the country’s state-centric policies were common. power around a president with populist main opposition party, Chama cha The involvement of the parliament in tendencies in which the parliament is Demokrasia na Maendeleo the governance of the sector fits into used strategically to further specific (CHADEMA) or Party of Democracy this image of improved downward goals. This signifies a new politicization and Development. The allegation of accountability, but it has not occurred in of the sector, in which domestic politics corruption and shady contracts in the practice. In a presidential system like increasingly take precedence over mining sector became one of Tanzania’s, the parliament’s power to adaption to international competition CHADEMA’s main agendas and a check the executive is limited, and it and commodity cycles. threat to CCM, which had been in has so far appeared more as a pawn in power since 1961. This affected CCM the president’s game than an thinking in significant ways. independent watchdog. The provisions

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to disclose gas contracts in the reintroduced. The first plan prescribed actors could receive preferential Tanzania Extractive Industries the recapitalization of the state-owned treatment in the upstream sector. (Transparency and Accountability) Act mining and petroleum enterprises. Conclusion of 2015 have never been implemented, Since then, and in particular since the Recent signs of the emergence of despite parliamentary pressure. In 2017 election of Magufuli in late 2015, the resource nationalism in Africa have legal provisions allowing parliament to revival and strengthening of state- received much attention. However, approve of new petroleum contracts owned enterprises has spread to rest of based on the Tanzanian case, we were established but revoked two the economy as a means to drive would argue that the toughened months later. The speaker of the industrialization. regulation and taxation and increased parliament has made no secret of his The more resource-nationalist stance in emphasis on national ownership of close collaboration with the president, the petroleum sector also related to the resources may have deeper roots. In for instance in the case of the gas major offshore deep-sea finds from Tanzania, where electoral competition sector committee. Indeed, it is hard to 2010 onwards, which led to rising is increasing, the governance of natural imagine the parliament’s ruling-party expectations among decision-makers resources has become a hot political majority going against the president on that gas could help develop the topic. The renewed emphasis on these issues. In addition, the firing of country. A new model production- resource sovereignty is hugely popular, managing directors of key petroleum- sharing agreement in 2013 toughened evoking the struggle for political and sector institutions like the Tanzania fiscal terms to the extent that sector economic decolonization immediately Petroleum Development Corporation insiders think it unlikely that Tanzania before and after independence, which (TPDC) and the Energy and Water will attract new bids for exploration. The is often seen as a golden age in Utilities Regulatory Authority suggests 2015 Energy Policy changed the focus Tanzania. that their autonomy is limited. from using Tanzania’s energy In this atmosphere, the strengthening of Pursuing state-led development in resources (previously believed to be state-owned enterprises is also a the petroleum sector minimal) to reduce dependency on promise to give ordinary Tanzanian The increased emphasis on direct state imports to developing natural gas (now citizens a bigger slice of the country’s involvement in the economy marked a known to be abundant) to promote natural resource wealth through job shift from liberalization, introduced in socio-economic improvement. creation and their perceived co- the late 1980s, in which successive The reform effort also resulted in a ownership through the state. This is administrations had seen foreign direct complete overhaul of the legal and important politically in a country with a investments as the main way to drive institutional framework through three relatively weak private sector that tends economic development. This began in new acts. The Oil and Gas Revenues to be dominated by Tanzanians of the extractive sector but has since Management Act of 2015 and the Asian origin. Some of these spread to the rest of the economy. A Tanzania Extractive Industries interventions have the potential to new model production-sharing (Transparency and Accountability) Act improve the lot of many Tanzanians. agreement in 2008 increased state of 2015 reformed the management of The early contracts signed in the interest in petroleum operations from revenues the extractive sector. More extractive sector had to be lucrative to ‘up to’ 20 per cent to ‘not less than’ 25 substantial innovations were included in attract investors in a context of high per cent, though this was probably the Petroleum Act, which introduced operational, fiscal, and political risk. more a reflection of improved detailed provisions for all aspects of Tougher terms are thus not completely bargaining power due to rising global oil petroleum operations, from CSR over off the mark. The tougher local-content prices than of increased resource local content to a gradual separation of provisions will also provide new nationalism. commercial and regulatory functions in opportunities for Tanzanian A more significant shift occurred in the governance of the sector. The act businesses, including TPDC. 2010 when a new Mining Act, among also provided for state ownership of However, resource nationalism comes generally tougher terms, provided for major gas infrastructure and with a price tag. In the petroleum active state participation in mining strengthening of TPDC as the state’s sector, the ambitions are clear, but so investments, a provision that had been commercial arm. With the 2017 far implementation has been limited done away with in the more liberal Sovereignty Acts, TPDC could get a due to the slowdown in activity. This is Mining Act of 1998. In 2011, five-year further boost from the renegotiation of partly due to falling global oil prices, but economic development plans were contracts, and Tanzanian private-sector a hostile investment environment has

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also played a role. The government most other producers on the continent, suspicion of corruption. The other must maintain a difficult balance Ghana’s industry has advanced at a international companies working in the between maximizing Tanzanian steady pace in recent years despite a Jubilee field also received a thorough benefits and continuing to attract drop in international oil prices. Since introduction to the political challenges foreign direct investment. It clearly the discovery of the Jubilee oil field in of operating in Ghana. The new party in struggles to get that balance right. 2007, Ghana has seen three offshore power, the National Democratic Grandstanding towards foreign projects come onstream. With some of Congress, stirred conflict and investors may be popular politically, but its initial challenges solved, such as the suspended contracts, including Aker to the extent that it discourages maritime border dispute with Côte ASA’s exploration licence in the South investment, it also undermines the d’Ivoire, the industry is expected to Deepwater Tano Block. Both Aker and fulfilment of the economic promises that retain its position as a key driver of Kosmos Energy were accused of the ruling CCM party has made. growth in the domestic economy. This dealing with corrupt political patrons as is expected to generate revenue for the their local partners. The former chose In this respect it is worth noticing the government and to alleviate a long- to exit the country, while the latter different approaches that the standing electricity shortage. endured lengthy negotiations and government has taken in the mining rebuilt its relationship with the new and petroleum sectors. In the mining Despite the fall in prices from government just in time for the start of sector, interventions were initiated $100/barrel highs in 2014, and a production in the Jubilee field in late directly in 2017 by the president, and degree of political risk, Ghana has 2010. renegotiation of contracts began soon made steady progress in developing its after. But in the petroleum sector, the oil sector and attracting investors. In Ghana turned to the International assessment has so far been 2018, new contracts were signed by Tribunal of the Law of the Sea (ITLOS) outsourced to a parliament with limited both ExxonMobil and Aker Energy. The in November 2014, after a series of power in these matters, and no New Patriotic Party, which was in bilateral negotiations with Côte d’Ivoire concrete steps have been taken power during the initial oil and gas on the two countries’ maritime border towards renegotiation. This could still discoveries, returned to power in 2017 did not yield meaningful results. The change, but current conditions may and has created new momentum for dispute between Ghana and Côte reflect the fact that petroleum Ghana’s industry. Ambitious promises d’Ivoire lasted for three years and operations are technically and have been made, including new blocks significantly delayed projects in the financially so much more demanding for competitive bidding in 2019, Tano licence area. While Ghana that someone in the government has onshore exploration, and making ultimately secured the rights to the realized that the country will struggle to Ghana’s Western Region a regional Tano area in September 2017, the carry them out without help from the petroleum hub with integrated ports and process and the verdict showed that international oil companies. With a refineries. Some of the promises should Ghana had hastily developed along the strong executive under the current be understood for what they are: border without securing the legal rights, president, the power and independence attempts to attract more foreign ITLOS 2017. The dispute shed light on of parliament will be tested further investment and leverage for future the fact that Ghana’s border to the east when contract review resurfaces. elections. However, continued steady also lacks official demarcation, and as growth is likely, driven by foreign such, oil and gas explorations to the investment in the energy sector. east risk land claims by Togo. OIL, POLITICS, AND RISK Initial challenges in Ghana’s Offshore: progress in the Western IN GHANA industry Basin Monica Skaten The first decade of Ghana’s new Ghana has four petroleum basins, of The West African Republic of Ghana is petroleum industry has not been which three are offshore. While they all one of Africa’s new oil- and gas- without challenges. It gained have a history of petroleum activity, the producing nations. Compared to the international attention when a change Western Basin has led the industry to large African petro-states Angola and in government in 2009 led to an date. The Jubilee field, Ghana’s largest, Nigeria, Ghana remains a small investigation of Kosmos Energy (the is operated by a consortium headed by producer in the Gulf of Guinea with an American exploration company that had Tullow Oil. The field is positioned in a expected average of 200,000 barrels of discovered the Jubilee field) and its licence area that has been the site of oil per day in 2018. But in contrast to local partner, the EO Group, on additional discoveries, and the

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development of the Greater Jubilee the demand of the West African region, likely to happen again. Praised for its field is underway. Tullow’s second aided by new ship-to-ship and bunker peaceful government turnovers, the project as operator in Ghana is the zones near the ports of Takoradi and period of transition in Ghana always Twenneboa, Enyenra, and Ntomme Tema. The vision for the new entails changes in economic policy and (TEN) fields, which came onstream in petrochemical industry, and particularly replacement of key personnel in state- August 2016. However, TEN was the sustained government contribution owned enterprises. Entrepreneurs and delayed by the maritime border dispute, required to develop such infrastructure business owners who have had which restricted new drilling. The projects and processing plants, has to favourable contracts, access, or Sankofa field, operated by Eni, started be regarded with scepticism in Ghana’s positions with the outgoing government production in May 2017, and highly competitive political environment. have to adjust to the new regime. While exploration was projected to start in an national companies and individuals Onshore: the uncertain Voltaian adjacent block in 2018, allowing carry the largest risk during a change in Basin synergies and fast-track start-up if government, international companies The Voltaian Basin covers 40 per cent drilling proves successful. These three are not exempt, particularly if their local of Ghana’s land mass and is Ghana’s fields, all located in the Western Basin, partners can be targeted. most promising site for onshore oil and have seen the construction of gas production. The basin has been Across political party lines, there is infrastructure and development of the promoted by the Ghana National agreement about the need for a strong local service sector, all which aids the Petroleum Corporation since 2015 and state presence in the petroleum promotion of further exploration and has positive geological preconditions industry through Ghana’s National production in the Western Basin. for oil and gas deposits. The current Petroleum Corporation and National Hess had announced discoveries in president of Ghana, Nana Akufo-Addo, Gas Corporation. However, polarization Ghana’s Tano licence area before they has pledged to develop projects in the has led to different strategies for were halted by the border dispute. In basin in the next two years. However, developing national petroleum February 2018, Aker Energy acquired development of the basin carries companies, limiting their long-term the Hess shares, and the company has significant financial risk, and projects technical and financial stability. announced a sustained exploration and will rely on foreign investment. Polarization is not limited to state- production programme. Ahead of Discoveries in the basin have inspired owned corporations. With high Aker’s re-entry into Ghana’s oil and gas promises of prosperity during national interdependence and strong relations industry, ExxonMobil signed a deal with political campaigns and have fuelled between the business community and the Ghanaian government to explore in regional political tension. Current the political realm, party-loyal business Ghana’s Deepwater Cape Three economic resources in the area include owners in the service industry receive Points. With the growing momentum in fisheries and transportation networks government contracts when their party Ghana’s industry, the Ministry of that would be impacted by development is in power and remain dormant when it Energy has announced that it will in the basin. Petroleum activity would is not. While this does not apply to all award new blocks for exploration in the also require resettling of entire service companies, it is sufficiently Western Basin in 2019. These will be communities. This makes development widespread to diminish the long-term awarded through a mix of open significantly more challenging here than stability of the service sector. competitive tender and direct in Ghana’s offshore basins. Still, there Conclusions negotiation and have a favourable is a potential for oil and gas Ghana’s petroleum industry has seen location due to already existing offshore discoveries, and political will in Ghana steady growth despite declining infrastructure. to develop the basin. international oil prices in recent years. On the back of the development in the Risk: political polarization Having joined the league of oil- and Western Region, Ghana’s Vice Ghana has a vibrant democracy, with gas-producing nations with discoveries President Mahamudu Bawumia competitive elections and frequent in 2007, it can today boast of three announced that the government has turnovers in government. Polarization offshore oil and gas projects in the initiated efforts to make that region into between the two main political parties, Western Basin and continued interest a petroleum hub by 2030—bolstering the National Democratic Congress and in further exploration, confirmed by new capacity with up to four new refineries the New Patriotic Party, has led to agreements in 2018. With the Côte and additional storage, distribution, and review and reversal of industry d’Ivoire border dispute resolved and processing facilities that can cater for contracts in the past, and this is highly new licences to be offered in 2019,

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Ghana’s industry might just see have been replaced by African order for the continent’s enormous expansion of current projects as well as companies, others have doubled down. potential to be fulfilled. new projects in the next few years. Most majors, moreover, have partnered According to some estimates, with others to the extent that today The country is renowned for its stability moreover, Africa is the only world there are few licenses and projects of both its democracy and its business region where sustained economic developed entirely by a single environment in the African context. growth in the coming years will not company. Because of the necessary With the usual caveats about political result in meaningful poverty reduction; reduction in the break-even costs of predictions, the current New Patriotic on the contrary, poverty is projected to upstream projects, companies have Party government could be in power for rise. become more selective in their choice two terms. This would provide stability of projects while striving to raise their Today, about two-fifths of Africa’s for international and Ghanaian explorative performance. population is under the age of 15, and petroleum companies. However, nearly one-fifth (19 per cent) is age 15– polarization between the two main On the financial side, large traditional 24. Almost half of the continent’s political parties will continue to impose bank lenders to the oil and gas industry population is under 18 years old, and risk in operations, impact institutional in Africa have retreated—starting children comprise the majority of the stability, and limit the long-term during the 2008 financial crisis and population in around one-third of the 55 potential for state-owned enterprises in continuing after 2014—and new African Union member states. The the petroleum industry. sources of finance have emerged, number of Africa’s children is projected including African and Chinese banks, to top 1 billion by 2055. Whether these the latter even investing in non-Chinese young people are able to join the labour THE NEW AFRICAN ventures. ENERGY LANDSCAPE: market and benefit from inclusive CATCHING THE Some traders and service companies economic growth will have key CHANGING TIDE have invested in exploration and implications for Africa and its production ventures, taking more risks neighbours. Lapo Pistelli on development projects to bolster A crucial role in bringing about a more Sub-Saharan Africa’s development orders for their specialized services. positive outcome must be played by potential is being significantly held back Although the crisis has not reshaped private investors in the energy sector— by mass energy poverty and lack of the geography of African production, not only because there is no access to modern energy services, new oil and gas regions have emerged, development without energy, but also which is seriously affecting the health as in East Africa (Uganda and Kenya because the most effective answers to and welfare of hundreds of millions of for oil and Tanzania and Mozambique today's compelling questions can be its citizens as well as the environment. for gas) and in the West (Ghana, found in the long-term strategies typical This is all the more regrettable given Mauritania, and Senegal). of energy investments and their ability the continent’s huge renewable and to raise the necessary long-term conventional energy resources, the Finally, lower prices have deeply investment funds. latter of which have mostly bypassed its impacted the state budgets of energy- citizens on the way to industrialized producing countries, which have had to It is perhaps redundant to list the many nations of the West and East in the consider greater diversification of their reasons access to energy is a critical form of exports. economies, and have reinforced the ingredient for development and human impetus towards free trade between well-being; that argument has been But the imperative of decarbonisation, African nations. exhaustively and convincingly and above all the 2014 collapse of oil documented. However, relatively few in prices, have added a large measure of The need for a new development the oil and gas industry and in uncertainty to Africa’s energy outlook model government have been willing to by forcing a wholesale reassessment of Although the changes in the African radically change course, and the results oil and gas company and bank energy landscape are significant, are plain to see. investment priorities. overall they have not shifted the continent’s fundamental development According to a report by the Africa While some oil and gas majors path—yet. A radical rethinking of the Progress Panel, Africa’s shortages of abandoned projects in Africa, and in development models promoted so far, electricity and system bottlenecks are certain cases—for example in Nigeria— above all by the West, is required in holding back economic growth by up to

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4 per cent a year. Businesses are energy systems. In Rwanda, local Market settings, fair market prices, and paying much higher prices for electricity governments and private companies multilateral finance guarantees can all produced by generators they are forced are collaborating to establish play a significant role in encouraging to buy in absence of grid power, and widespread off-grid solar energy investment in the local production and poor families are the hardest hit: systems providing electricity to distribution of electricity. International villagers in northern Nigeria are approximately 600,000 households in energy companies, which are of course spending 60 to 80 times more for their remote areas. Innovations in pay-as- motivated by profit, have until now most energy than residents of New York City you-go business models and payment often been awarded the right to develop or London. processing via mobile phones are resources on the basis of their ability to helping to expand opportunities for discover oil and gas deposits and To change this, there needs to be a Rwandan consumers to access efficiently line up an export supply Copernican reconfiguration of the logic affordable electricity. chain. Instead, African governments followed so far, by encouraging and multilateral finance institutions investments not just in exploration and The integration of mobile phones, their need to favour the creation of public– production for export but, just as charging points, and photovoltaic private partnerships to invest in profit- importantly, in development of generation units in rural areas has been generating local markets. commercially viable local energy one of the key drivers of the spread of markets, exploiting African energy for solar photovoltaic units. They have Access to energy as a human right African consumption. quickly integrated in East Africa—which In Africa, electricity access is highly accounts for 34 per cent of all varied. According to the International The task is enormous: closing the registered mobile accounts globally— Energy Agency and World Bank, while energy access gap, according to the and, together with a variety of smart- in North Africa less than 1 per cent of International Energy Agency, may metering technologies and mobile the population lacks access to require investment of over $49 billion a payments, have enabled the rapid electricity, that figure is over year to 2030. spread of a pay-as-you-go business 70 per cent in the Democratic Republic Fuelling the energy transition model for electricity, allowing of Congo; it is 8 per cent in South Africa Depressingly, in Africa in 2017, all non- customers to pay for electricity in small and 80 per cent in Somalia. The Africa hydro new power plant projects were increments. The World Bank estimates Development Bank says several fuelled by fuel oil or diesel or even coal, that by the end of 2016, there were countries—including Ethiopia, Gabon, losing an important bet on the energy 700,000 systems installed on the pay- Ghana and Kenya—are on track to transition of the continent. Coal is still as-you-go platform in Kenya alone. reach universal electricity access by the prevalent fuel in African electricity 2030. Although small off-grid solar power can generation. And the amount of natural be a solution for remote communities, Lack access to electricity is not only a gas burned off each year in Africa reliable grid-based electricity is likely to major impediment to development, it is because it is not commercially a humanitarian emergency. The be essential as a development catalyst profitable is equal to 30 per cent of the International Energy Agency estimates for a continent with explosive continent’s total gas consumption. Yet that by 2030, of the 674 million people demographic growth and urbanization Africa’s abundant natural gas reserves worldwide lacking access to electricity, and therefore the urgent need to create are its best bet to quickly wean itself off 600 million will live in sub-Saharan jobs in labour-intensive industries. the dirtiest hydrocarbons such as coal, Africa. The need is clear, as are the and to smooth the transition to greater African industrial development goals basic remedies. vary from agro-processing to mining use of renewables. A recent study that investigated energy and petrochemicals and have the A recent report co-published by Cornell access in nine East African countries potential to expand the manufacturing University, INSEAD, and the World found that most had been unable to base and increase employment, Intellectual Property Organization noted rapidly reach their goals for investment, and income generation that several countries in Africa, development of energy resources and throughout the value chain. So African including Côte d’Ivoire, Ghana, electricity access. The major governments need to link industrial roadblocks were the governments’ Rwanda, and Tanzania, are making policies with energy-access policies to insufficient financial capacity, notable progress in implementing off- spur economic growth. inadequate revenues for utilities, tariffs grid renewable energy programs to that were insufficient to cover costs, create distributed (decentralized) and a weak regulatory framework.

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This also calls into question the But even when provided with electricity connectors is increasingly effectiveness of subsidies. Reforming favourable market and institutional appreciated, as these can bestow fossil-fuel subsidies is necessary to settings, energy companies have to critical market mass to power achieve the large-scale abatement of want to change their business focus generation projects, supply excess greenhouse gas emissions required for from exports to, when possible, the electricity to neighbouring countries, climate change mitigation, because long-term creation of viable local and help mitigate the risk of subsidies in their current form reduce markets. intermittency inherent in wind and solar the effective price of carbon and are a power systems. One of the latest, African leadership disincentive to change of the energy announced last year, will connect four African governments appear to be mix. This is particularly true for oil- West African countries—Cote d’Ivoire, moving with renewed collective producing countries in West Africa (e.g. Liberia, Sierra Leone, and Guinea— purpose to boost local economic Nigeria), where there has been a long supporting economic development, activity by removing the substantial history of fuel subsidies which have reducing the need for expensive barriers to trade between African firms, weakened the national petroleum generators, and allowing existing and which more often than not incur higher industry, causing it to import refined future hydropower projects to benefit tariffs on their exports to other African petroleum products. In East Africa, the entire region. conversely, the absence of subsidies markets than on exports to outside the has stimulated creative solutions to continent. Lack of domestic trade is In Sierra Leone and Liberia, less than problems of energy affordability and often cited as a cause of African 5 per cent of inhabitants have access to availability via so-called smart countries’ inability to fulfil their growth electricity, and recent conflict in the technologies. Relatively simple potential. region has severely damaged innovations such as the use of prepaid infrastructure and hindered Indeed, faced with an increasingly meters in households—planned by development of new networks. The new protectionist international trade almost all East African countries—could interconnector is also expected to environment and an unfavourable offer benefits to utilities and consumers significantly reduce use of diesel and commodities cycle, which has in terms of payment collection and heavy fuel oil generators. substantially lowered revenues from flexibility, which will be a key driver of commodities exports and led to The transition away from hydrocarbons increased electricity access. ballooning and in many cases to renewables and natural gas is a high Investors and international oil unsustainable government debt, African priority for Africa, where the effects of companies need more certainty about governments are acting to radically climate change are already being felt in basic institutional, legal, and market boost trade within the continent. more severe droughts and floods. settings in order to commit the often huge sums required for resource and So the announcement in March of an The transition to hybrid market development. A PwC report of ambitious pan-African economic bloc— renewables/natural gas power 79 individuals from across 11 countries the African Continental Free Trade generation and distribution systems from upstream, midstream, Area—is a major milestone in boosting often requires an upgrade to so-called downstream, and oilfield service Africa’s development potential. If it intelligent distribution grids to attain companies highlighted the fact that takes shape as envisaged, it will maximum efficiency. In cases where no uncertain regulatory frameworks top the comprise all 55 African Union electricity supply exists at all, there is list of challenges to investment in members, making it the world’s largest therefore the opportunity to leapfrog to Africa’s oil and gas industry. free trade area by number of countries. the latest technological solutions. Just With a combined GDP in 2017 of as the mobile phone gave many International energy companies do not around $6.4 trillion on a purchasing Africans their first access to just bring investment capital and the power parity basis, and a population of telecommunications, so hybrid latest operational methods, capabilities, 1.2 billion, Africa is potentially very renewables/gas generation, smart and technologies—they can also help attractive to global enterprises anxious grids, mobile cash, and pay-as-you-go in local capacity creation through power contracts can connect them to technology transfer, education and to expand from mature markets. modern electricity services which make training, and local industrial The new African free trade zone should the most of Africa’s abundant natural partnerships, and thus can help create also encourage more links between resources and help curb current and permanent added value by increasing national energy markets. The future greenhouse gas emissions from the potential of host countries. importance of creating regional a continent which the United Nations

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Department of Economic and Social Affairs predicts will add another 1.3 billion people to its population by 2050.

Africa has the essential ingredients to rapidly progress—and even leapfrog— up the development curve: a young and rapidly urbanizing population, abundant resources, and notable examples of political, civic, and economic reform. But to do this it needs to grow its internal markets and attract domestic and international investors. As we can by now well appreciate, the outcome of its efforts to rise to this task will deeply influence both the hundreds of millions in Africa who lack the most necessities and the future of our planet. For energy companies, assisting Africa in its efforts is good business but also a moral imperative.

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CONTRIBUTORS TO THIS ISSUE

Peter Bofin is director at Martello Ricardo Soares de Oliveira, co-editor of this issue, is a professor of the Research. international politics of Africa at the Virendra Chauhan is an oil analyst at University of Oxford and associated Energy Aspects. senior researcher at the Christian Lucy Corkin is a business manager at Michelsen Institute, Bergen. He co- Rand Merchant Bank. directs the Oxford Martin Programme on African Governance. Anne Frühauf is a senior vice president with Teneo Intelligence. Charles Wanguhu is the coordinator of the Kenya Civil Society Platform on Oil Eklavya Gupte is senior editor for and Gas. Europe and Africa Oil News at S&P Global Platts.

Thabit Jacob is a doctoral researcher at Roskilde University.

James McCullagh is an oil products analyst at Energy Aspects.

Luke Patey, co-editor of this issue, is a lead senior research fellow at the Oxford Institute for Energy Studies and senior researcher at the Danish Institute for International Studies.

Lapo Pistelli is executive vice president and head of international relations at Eni.

Rasmus Hundsbæk Pedersen is a senior researcher at the Danish Institute for International Studies.

Monica Skaten is an associate professor at the Western Norway University of Applied Sciences.

Bassam Fattouh is editor, Oxford Energy Forum and director, Oxford Institute for Energy Studies

The views expressed here are those of the authors. They do not necessarily

represent the views of the Oxford Institute for Energy Studies or any of its Members nor the position of the present or previous employer, or funding body, of any of the authors'.