The renegotiation of mining, oil and gas contracts announced by the new Senegalese president so that they benefit more local populations would be a “risky” option for investment and would create a gray area in the future partnership with companies, believe players in the sector.
The start of hydrocarbon exploitation is expected this year in Senegal, which also has gold, phosphate and zircon mines. The combined revenues of two of the main gas and oil fields are estimated at an annual average of 700 billion CFA francs (or more than a billion euros) over a period of thirty years, according to Petrosen, the Senegalese state-owned oil company.
The West African country, among the twenty-five least developed in the world, is banking on these resources to achieve an economic leap, but the new Senegalese authorities believe that the contracts signed by the former power are “very unfavorable” to Senegal. . An assertion that has always been denied by the former power and most experts in the sector.
The new elected president, Bassirou Diomaye Faye, promised to renegotiate them and announced among his first measures an “audit of the mining, gas and oil sector”. His mentor Ousmane Sonko, whom he appointed prime minister, attacked during the campaign “certain self-conscious intellectuals [who make] people believe that it is impossible to renegotiate” these contracts.
“The sacredness of contracts”
The Australian group Woodside Energy, which operates in the Sangomar oil field (Central-West), “respects the right of States to determine the legal and regulatory frameworks which govern the exploitation of oil and gas”, affirmed to the Agence France-Presse (AFP) Christine Forster, a spokesperson. But, according to her, the best results are with States “which work in partnership with industry, respect the sacredness of contracts and create certainty in terms of investment”.
Former President Macky Sall (2012-2024) estimated that the contracts “can be improved, but frankly thinking that we can change the contracts already signed with the companies is not possible. It would be disastrous for Senegal,” in an interview on March 19 with the American financial group Bloomberg. According to the former power, up to 60% of revenues from future gas and oil exploitation would go to the Senegalese state.
For oil expert Ibrahima Bachir Dramé, former head of Petrosen, “there are no explicit clauses which provide for renegotiations in oil contracts”, but “clauses which regulate possible disputes”.
Citing the example of the Grand Tortue Ahmeyim (GTA) natural gas deposit, on the border with Mauritania, developed by the British BP with the American Kosmos Energy, the Mauritanian Hydrocarbons Company (SMH) and Petrosen, whose start of exploitation is planned by the end of the year, it reminds us of the limits of renegotiation. “We must inevitably take into account the Mauritanian side,” he recalls.
“The scarecrow of risks”
For certain less advanced fields, such as the Yakaar-Teranga gas field, renegotiation “is simpler, because it is in the development phase. There have not yet been any major investments,” explains Mr. Dramé.
Conversely, international economist and industrial development specialist Papa Demba Thiam assures that “most mining or hydrocarbon contracts are renegotiated” in the world and cites the example of the Latin America-Caribbean zone, where, according to him, “40% to 92% of contracts” are “renegotiated over a period of one to eight years” after their signature.
“We brandish the scarecrow of risks by saying that the country which does it will not be considered safe and it will scare away investors. It is a form of political and moral blackmail on underdeveloped countries,” he believes.
In Senegal, the Constitution states that “natural resources belong to the people and must benefit them.” Since 2021, with Covid-19 and the war in Ukraine, “all the conditions have come together to justify a renegotiation of these contracts,” adds Mr. Thiam. If there is a renegotiation, it must be well prepared to avoid heavy fines, insists Mr. Dramé, recalling that in the event of a dispute, “oil companies resort to international courts”.
When questioned, a source at the International Monetary Fund (IMF) told AFP that the Senegalese authorities had assured that the country would “respect its international commitments. They want to ensure that signed contracts comply with mining and petroleum codes. We don’t take this as a witch hunt.”