It has been less than two months since Senegal joined the club of oil-producing countries. Although such a short time has passed, the only active site in the country has already generated some chaos in Senegalese politics and society. There are three components that when put together seem to be almost always explosive: oil, politics and Africa. These three ingredients usually combine regular and The case of Senegal is another example. As the country’s legislative elections approach, clashes over the management of this crude oil field are intensifying. Perhaps it is very risky to make this prediction, but if the situation continues to worsen, it would not be unreasonable to think of a scenario in which the company that operates the field ends up leaving and the state oil company of Senegal leaves. I ended up taking charge of the site. The final result will be the lack of sufficient investment to maintain it and the waste of this valuable natural resource for one of the poorest countries in the world.
Senegal officially joined the ranks of global oil exporters thanks to the Sangomar field, operated by the Australian company Woodside. The project, which has cost $5.2 billion, currently produces 100,000 barrels per day of oil with a medium sulfur content. The country has already managed to export crude oil from this field during the summer. The Greek tanker Maran Poseidon, chartered by Shell International Trading, arrived at the export terminal to transport this summer the first shipment of Senegalese crude oil. This tanker, with a capacity of 1.06 million barrels, delivered this first cargo sold to Shell, an important milestone for Senegal on the global energy landscape. The joy did not last long.
A few weeks before the legislative elections on November 17 in Senegal, the economic climate of the African country is experiencing moments of tense debate due to uncertainty on contracts to exploit oil. Prime Minister Ousmane Sonko announced the creation of a commission to review strategic contracts signed by the State, especially those for the exploitation of natural resources, which has revived the eternal dispute over transparency and economic sovereignty in the country.
This announcement came in a context in which foreign investments, fundamental for the country’s energy development, are under scrutiny. “Every time there are disputes about the share that international companies should enter, we are not sending a good message to investors. The authorities are aware of these difficulties and will know how to negotiate with investors to make the necessary adjustments,” he highlights. EFE Pape Mamadou Touré, hydrocarbons analyst registered on the roll of honor of the National Order of Experts of Senegal (ONES).
Last June, Senegal took a giant step by becoming a hydrocarbon producing country. The announcement was made by the Australian company Woodside, which leads oil extraction in the Sangomar field, 100 kilometers south of Dakar. The project is managed through a floating production, storage and offloading unit (FPSO).
A beginning that was already bumpy
After a bumpy start, since exploitation was due to begin in 2021, the Sangomar field is expected to produce between 100,000 and 125,000 barrels of oil per day. Woodside owns 82% of the project, while the remaining 18% belongs to the Senegalese State through Petrosen.
“It is important to highlight that Senegal will not depend excessively on oil for its budget. This is because, contrary to popular belief, oil will represent between 4% and 5% of GDP. The rest of the budget will continue to be fueled by traditional sectors of the economy,” recalls Touré. For the expert, “having ruled out the risk of excessive dependence on tax revenues from oil (…), the State will be able to use these resources to solve some of its fiscal deficit problems.”
Last summer, Woodside was subject to a significant fiscal adjustment by the Senegalese Governmentwhich sparked speculation about the sustainability of its operations in the country. According to Libération, a local newspaper that reported on the case, the Australian company has been accused of possible tax irregularities related to its exploitation in Sangomar. The Senegalese Government imposed a million-dollar adjustment, generating concern about the impact of this measure on the project.
Oil creates tension
To calm tensions, in early October a delegation from Woodside traveled to Senegal to meet with senior officials of the Administration of Bassirou Diomaye Faye, who assumed the Presidency last April. The objective of the visit was to strengthen relations and clarify points of friction related to fiscal adjustment.
During the meetings, Woodside reaffirmed its commitment to Senegal’s energy development. However, uncertainty has not completely dissipated, especially due to Sonko’s proposal to review strategic contracts for the exploitation of natural resources, one of his electoral promises.
“If today the State wants to move towards a renegotiation, it is to really try to balance the interests between the two parties,” thinks Abdou Gueye, environmentalist and specialist in governance of the extractive industries (oil and gas). However, this expert on the subject points out, “it will be necessary to find the means, use the levers that allow the State to advance in that direction.”
Gueye highlights that, If negotiations fail, the dispute could be resolved through mediation by the International Center for Settlement of Investment Disputes (ICSID).a World Bank institution specialized in the resolution of international disputes related to investments.
In the case of Senegal, this institution has already intervened in the past. A recent example is the confrontation between the previous Administration and African Petroleum, whose owners accused the Government of violating the Petroleum Code by transferring its licenses to the French multinational Total.
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