Page 5 - AfrOil Week 41 2019

AfrOil COMMENTARY AfrOil
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He has also indicated that the government is more interested in a settlement than in a court battle.
“We have opened up a process of engagement between the parties,” Bloomberg quoted him as saying on October 14. “Whether those discus- sions will eventually translate to settlement, [or] whether it will translate to opening up of a full-blown negotiation process, is what we wait to see.”
He continued: “Taking into consideration the government’s need to attract investments, no possibility can be [ruled out]. The possibility of settlement is not out of sight.”
Indeed, a settlement is probably Abuja’s pri- mary goal. Nigeria’s government is currently looking for cash to cover some of the funding gaps that have emerged as a result of lower oil prices and production cuts. It has little choice but to look for money from the oil sector, since crude sales generate more than 90% of its for- eign currency income and at least two thirds of its budget funds.
It also has a precedent – and not just because of the 2018 Supreme Court verdict. Abuja has succeeded in extracting funds from foreign investors in the past: in 2015, for example, it imposed a fine of $5.2bn on the mobile tele- phone operator MTN Group and then accepted a negotiated settlement of nearly $1bn.
Likely results
The push for a settlement is likely to suc- ceed, though discussions on the exact size of the payments may stretch out for some time. This is because IOCs are likely to see pay-outs as a better option than a protracted legal battle that hinges on the interpretation of a 26-year-old law that addresses the question of what to do when crude oil prices top $20 per barrel, a level not seen since 2001.
The good news for Abuja is that companies as big as Shell, Eni, Total, ExxonMobil and Chev- ron can probably manage to scrape together a
few billion dollars to fill the government’s cof- fers and seek some security for the extensive asset bases they have built up in the region over a period of several decades. The bad news is that these same companies may now hesitate to expand their operations in Nigeria for fear of drawing further attention.
Additionally, smaller companies that have shallower pockets may have a harder time com- ing to terms with the government. If so, they may have to scale back their operations in Nige- ria or quit the country.
Meanwhile, the episode will not make a good impression on outside companies considering new opportunities in Nigeria. These potential investors may hesitate, owing to concern about the long-term stability of contract terms.
Policy problem
This hesitation is not misplaced, given that Nigeria’s government has recently taken a step that raises questions about its approach to the oil sector.
Last week, President Muhammadu Buhari presented a draft budget to legislators that was based on the assumption that oil prices will aver- age $57 per barrel in 2020, up from the current year’s benchmark price of $55 per barrel. Doing so will help raise the money needed to recruit 30,000 more military and civilian law enforce- ment personnel, he argued.
This seems like a noble undertaking, given that Nigeria could benefit from the additional security that these new officers would (in the- ory) provide. Nevertheless, it is also risky, given that oil prices have been trending lower in light of heightened trade tensions between the US and China, even in the face of geopolitical shocks such as the September 14 aerial attacks on key infrastructure in Saudi Arabia. That is, it puts Abuja in the position of anticipating more money from (and being even more dependent on) an industry that may not be able to perform as well as expected next year..™
Senegal postpones bidding round until November 4
“ has been an
President Nyusi
enthusiastic
supporter of investment in gas projects
INVESTMENT
SENEGAL
SENEGAL’S government was due to launch a new licensing round last week, but it has post- poned bidding by nearly a month.
Oil Minister Mahamadou Makhtar Cisse told Reuters last week that Dakar had decided to open up bidding on November 4 and not on October 9 as previously scheduled. Senegalese authorities took this decision because certain contract documents were not finalised in time for the original deadline, he said on the sidelines of an industry conference in Cape Town.
When asked whether a scandal involving
President Macky Sall’s brother had affected potential investors’ interest in the auctions, Cisse demurred. “We have not measured a negative impact,” he remarked.
The BBC reported earlier this year that Aliou Sall, the president’s brother, had been accused of fraud in relation to an offshore natural gas project that BP joined in 2017. Senegalese pros- ecutors began an inquiry into the allegations in June, and Aliou Sall has resigned from his posi- tion as the head of a government-run savings fund.
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Week 41 16•October•2019 w w w . N E W S B A S E . c o m
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