African governments have a penchant for spooking foreign multinationals operating in natural resource sectors, especially in mining and oil and gas. Senegal, the newest entrant to the league of oil producers, is also the latest to unleash consternation.
The government of new President Bassirou Diomaye Faye has set up a commission to audit Senegal’s natural resource agreements, with the aim of “reexamining and rebalancing” them to match the West African nation’s interests.
The move comes just weeks after Senegal officially became an oil producer. In June, Australian operator Woodside Energy announced the first oil extraction from Sangomar offshore field, a project in which it has invested $5.2 billion and controls an 82% share; state-owned Petrosen holds the remaining shares.
Woodside is one of numerous multinationals with natural resource interests in Senegal, the others being BP, Kosmos Energy, Total, Oranto, Endeavour, Managem, and Dangote. BP, operator of the $4.8 billion Greater Tortue Ahmeyim gas project, is on course to make its first delivery this year. Senegal is on the receiving end of an expected $1.4 billion petrodollar windfall annually.
For the multinationals, which hope to recoup their massive investments, the overall motive and endgame of the review remain a mystery and cause for worry. But in theory, it could enhance transparency and strengthen trust between the government, multinationals, and the public, notes Catherine Lena Kelly, associate professor of Justice and Rule of Law at the Africa Center for Strategic Studies in Washington.
“Senegalese people want tangible benefits from natural resources and demand efficient use of profits,” she says.
The government has said categorically that it has no plans to nationalize projects. But, coupled with the destabilizing effects of recent regime changes in Africa, the Senegalese audit will strengthen foreign companies’ resolve to tighten arbitration clauses in their contracts, says Kenya-based energy and mining expert Patrick Obath.
“Expect arbitration clauses to become watertight, because investors abhor the uncertainties of regime changes,” he says. Going by the experiences of other African governments that have recently ripped up existing agreements, like Tanzania, close observers caution that Senegal could be walking a dangerous path.