Oil and the Horn of Africa

By IndepthAfrica
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Oct 15th, 2012
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By Tedla T.

The larger Eastern Africa or the Horn in particular as one of Africa’s most restive, volatile and poverty stricken regions is also endowed with untapped natural resources. In addition to ethnic, religious, land, and foreign induced conflicts, natural resources have been also causes of trouble often than seldom. Until recently, the exploration and discovery of oil in Eastern Africa has been just in two countries: The Sudan and Uganda. New and existing International mineral companies that have been engaged in the exploration of minerals in the region have now shifted into investing and exploring oil. Some of these oil boom countries are:  South Sudan, Uganda, Mozambique, Tanzania, Kenya and possibly now Ethiopia.

In March 2012 Canada’s Africa Oil Corp and Ireland’s Tullow Oil had announced that they have found oil in Kenya, the first of its kind in the country that has solely been engaged in the export of teahorticultural products, coffeefish and cement and “spent US$4.1 billion on oil imports, which is equivalent to 100,000 barrels per day in 2011”.  Tullow said then that it was working closely with the Kenyan government to “unlock the oil potential in the region.”

 

With the separation of South Sudan from the North, and the discovery of oil in the Rift Valley region of East Africa mainly Kenya and Uganda, international petroleum companies have now starting working in full gear to explore and drill oil from the whole Eastern Africa region. Ethiopia’s Ministry of Mines, the Ministry for Energy & Minerals of Tanzania, National Oil Corporation of Kenya, and Mozambique’s Petromoc had co-organized and supported an international oil meeting called East Africa Oil & Gas Conference in London, 1-3 October 2012. The Conference brought together more than 300 top executives, decision-makers and leaders in the field from countries around the region and internationally. The involvement of countries like Ethiopia signals that the Horn of Africa’s energy rich states are now increasing and the prospects of oil find are becoming palpable. A poster prepared for the Conference had listed the oil potentials of each country in the region as such:

Uganda: Uganda’s energy ministry and Tullow Oil both estimate that the current reserves alone could generate over $2 billion in annual revenue for more than 20 years. Experts say Uganda’s oil reserves could rival that of the Gulf of Guinea countries. The Lake Albert basin holds over a billion barrels of proven reserves and possibly twice that in potential finds.

Tanzania: Tanzania has approx.7.5 billion cubic feet of a gas reserves. Tanzania, East Africa’s second-biggest economy, is expected to see an increase in revenue of up to $3-billion a year gas discoveries in the country. BG Group and Ophir Energy said they had found more gas raising hopes that the country will become a major new gas supplier. Statoil’s recent gas find alone is estimated to hold almost a billion barrels of oil equivalent. East Africa; Tanzania and Mozambique could have some 28 billion barrels of oil, 440 trillion cubic feet (12 trillion cubic meters) of natural gas and 14 billion barrels of natural gas liquids, according to a recent assessment by the U.S. Geological Survey.

Ethiopia: SouthWest Energy, an Ethiopian oil-exploration company, said it’s optimistic about the results of a seismic survey in the Ogaden basin and has met oil majors to discuss a possible partnership in the Horn of Africa country, according to a news report by Bloomberg in May 2012. The initial findings from the survey completed in February are “very encouraging,” Chairman Tewodros Ashenafi said. “Discovery could very well possibly happen next year.” Similarly, Tullow and Africa Oil have various projects in Ethiopia. Africa Oil Corporation has three projects in Ethiopia consisting of blocks 7 & 8 in the Ogaden Basin of eastern Ethiopia, the Adigala Block close to the border with Somalia and Djibouti and the South Omo Block which lies in the Omo Rift Valley of south-western Ethiopia. The South Omo Block is within the Tertiary age East African Rift, just north of Lake Turkana, Kenya and within the same petroleum system as the Company’s Kenya Block 10BB and Tullow’s Uganda discoveries, according to Africa Oil Corporation.

 

South Sudan: Total oil production in the region (excluding Sudan) could reach 210,000 bpd in 2015 and nearly 389,000 bpd by 2020.  These discoveries have brought mixed feelings in the region. As there are many who are full of high hopes of seeing a region that is prosperous, peaceful and bellyful, there are many of those especially pundits and elites who are worried of an “resource curse” of corruption, government abuse and influence and interference from “big powers”. The resource curse theory was developed by Paul Collier and means that many developing countries that recently found crude oil or other precious resources tend to overly depend on the single resource for their economy by starving the rest of their economy.  Countries like Angola, the Sudan, the DRC, Gabon, Equatorial Guinea, Sierra Leone, Liberia and many other African countries exhibited the resource curse symptom. It is time for the Eastern African countries of new oil find to learn from Western African countries and prevent them from the curse.  Competition between the West and the East mainly China to scramble the crude oil resource of the region is feared to be a cause of another conflict in the already staggering region.

 

Lack of transparent contracts and better terms are some of the immediate problems that are being remarked as issues needing to be immediately dealt with. Corruption is the other major issue. In Tanzania a government audit led a parliamentary committee that had dealt with issues of corruption of energy related revenues.  In Uganda, during the heated parliamentary debate in October 2011, documents were revealed by a young parliamentarian alleging that Tullow Oil bribed Prime Minister Amama Mbabazi, Foreign Minister Sam Kutesa, and former Energy Minister Hilary Onek some 17m Euros ($23m; £15m). Rumors have spread few years ago regarding the secrecy and changes in the contracts of oil and gas fields in the Ogaden region of Ethiopia between the government and companies.

“The major risks facing investors is entrenched corruption in Kenya and Tanzania, arbitrary taxation in Uganda and piracy along the Indian Ocean,” said Robert Besseling, Senior Africa Forecaster for Exclusive Analysis, a London-based risk consultancy firm in a recent interview.

Eastern Africa that is seeing the sprouting buds of oil has a lot of challenging questions to answer before it fully becomes an ethical and professional oil exporting region. Countries of the region have to make a feasibility study and assessment of the local people that would be affected due to the exploration, production and commercialization of the oil. Especially indigenous people that have made their life dependent on the natural environment should be consulted and supported as well as the wild life and the ecosystem of the regions. Many foreign investors that have come with the promise of building infrastructure, supporting local businesses and creating employment have implemented few of their promises due to either lack of regulation or corrupt practices. Upcoming investors learning from the past must make sure that their promises are real. As in the Niger Delta, unless taken care of, the perils of oil spills could cause the most damage to the region’s water and land resources. There is also the risk of rebels and opposition forces. Mombassa Republican Council, a secessionist movement, which wants autonomy from Kenya, the Ogaden National Liberation Front (ONLF) in Eastern Ethiopia and rebels in South West region of Ethiopia are most likely to be pain in the investment prospects.

Understanding the current political landscape, and if this is likely to change is important for potential investors. Most countries of Eastern Africa and mainly the Horn is dominated by ruling parties and leaders who have been on power for more the two decades, most becoming despotic rulers. There is huge public discontent in most of these countries, where democracy and freedom have been stifled. The possibility of political unrest in most countries of the region is inevitable; for these international companies investing in the entrenchment of democracy in addition to corporate social responsibility guarantees the sustainability of their businesses

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