Bassirou Diomaye Faye, the newly elected president of Senegal, has wasted no time in setting his agenda. In one of his first announcements, he promised to conduct an audit of the country’s mining, oil, and gas sectors, as well as to renegotiate contracts that he and his mentor, Prime Minister Ousmane Sonko, believe to be unfavorable to the country.
However, this approach has been deemed “risky” by many experts, as reported by Le Monde.For Senegal, one of the 25 least developed countries in the world, tapping into its recent oil and gas discoveries has the potential to greatly boost its economy. According to the state-owned oil company, Petrosen, the combined revenues from the two main oil fields are expected to average 700 billion CFA francs (1.06 billion euros) per year over a period of 30 years.But for the current administration, the contracts signed by former President Macky Sall with oil companies are far from advantageous for the country. Ousmane Sonko, a vocal critic of the previous regime, has accused “intellectuals with inferiority complexes” of claiming that contract renegotiation is impossible, as reported by AFP.On the other hand, the oil companies assert the “sacrosanctity of contracts”.
“The best results come from states that work in partnership with the industry, respect the sacrosanctity of contracts, and create certainty for investment,” argues Christine Forster, spokesperson for the Australian company Woodside Energy, which operates the Sangomar oil field.Former President Macky Sall has also warned against any attempts to renegotiate contracts. “Honestly, thinking that we can change contracts that have already been signed with companies is not possible. It would be disastrous for Senegal,” he stated to Bloomberg in mid-March. According to the former administration, the state would receive up to 60% of the future revenue from the exploitation of the oil fields.According to Ibrahima Bachir DramĂ©, former Petrosen executive, “there are no explicit clauses in the oil contracts that allow for renegotiations.”
As for the Grand Tortue Ahmeyim gas field, which is being developed with Mauritania, “the Mauritanian share must inevitably be taken into account,” he reminds AFP.
Renegotiation may be easier for projects in the development phase, such as the Yakaar-Teranga gas field, which does not have large investments already in place, according to DramĂ©. However, economist Papa Demba Thiam asserts that “the majority of mining and oil contracts are renegotiated” around the world, citing 40 to 92% of contracts being renegotiated within 1 to 8 years in Latin America and the Caribbean.
“The fear of risks is often used as a political and moral threat on underdeveloped countries,” he states to AFP.In Senegal, the Constitution states that “natural resources belong to the people”. With the impact of COVID-19 and the ongoing conflict in Ukraine, Thiam argues that all conditions are in place to justify renegotiation. However, a source from the IMF reassures that the government’s intention is to ensure that contracts comply with the country’s codes, and not to conduct a “witch hunt”.If renegotiation does occur, DramĂ© emphasizes the need for careful preparation to avoid hefty fines, as companies can take legal action through international courts in case of disputes.In conclusion, the new Senegalese government’s pledge to audit and renegotiate contracts in the oil and gas sector has sparked a fierce debate between the current administration, the former regime, and experts. While the potential benefits for the country’s economy are significant, it is crucial for any renegotiation to be conducted carefully and with full consideration of the legal and financial implications
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