Oil contracts in Africa: the trap of leonine agreements (By Malick CISS)

Senegal does not rule out arbitration against the international oil multinationals Woodside and Bp to renegotiate the exploitation contracts for the Sangomar oil field and the Grand Tortue Ahmeyim (Gta) cross-border gas project.

This determination to go to the end of the standoff is proportional to the imbalance which leans in favor of these multinationals. Like many African countries, Senegal has fallen into the same trap, reinforcing the belief in a “resource curse” or “Dutch disease”. This is how the euphoria of announcements of deposit discoveries quickly gives way to disenchantment. Energy rent has rather benefited a small elite, aggravating corruption, widening inequalities and dependence. The exploitation of mining and energy resources (oil and gas) in Africa seems, based on experience, to leave little room for “win-win” partnerships.

Instead of the high expectations placed on this immense economic potential, these contracts ultimately prove to be a structural trap for our States, given the inequitable nature of the sharing of the revenue generated. According to a recent report from the NGO Oil change international and the think tank Power shift Africa, entitled “Pipe dreams: How oil and gas fail to deliver economic development in Africa”, the structuring of the oil and gas economy, with accounting arrangements and sophisticated leonine contractual clauses, puts the sector at the service of the export of wealth with a disproportionate share of revenues that escape the continent. For example, in Mozambique the government will have to wait until the mid-1990s. 2030 to receive consistent revenues from the Coral South project, which has been producing gas since 2023.

The fault lies in the contractual clauses affecting a good part of the revenues to foreign companies during the first years. The document cited by the Ecofin agency evaluates the experience of 13 African oil and gas producing countries to arrive at the following conclusion: none of them, after decades of exploitation, has succeeded in reducing poverty, let alone boosting economic growth. Another observation is that the sector generates few jobs, with 0.01% of the workforce in Nigeria, 0.3% in Angola and 0.1% in Congo.

The oil industry in Africa, like most of the continent’s raw materials, is more focused on export than on meeting domestic demand or developing a petrochemical industry. Until recently, a country like Nigeria, the continent’s leading crude producer, was regularly faced with fuel shortages while it exported 90% of its oil and imported refined products such as gasoline or diesel at often exorbitant prices.

Local infrastructure, such as refineries, is lacking, poorly maintained or has limited capacity, exposing the country to surges in world prices. The commissioning of the Dangote mega-refinery has alleviated the situation. What about massive fertilizer imports?

Failing to transform its gas into fertilizers, due to lack of infrastructure and investments, the continent is also forced to import 80% of the fertilizers it uses for its agriculture. This situation has once again plunged an entire continent into vulnerability, following the crisis in the Middle East which caused the blockage of the Strait of Hormuz.

Africa’s challenge to breaking this “curse” involves better negotiation of contracts by surrounding itself with proven expertise, to neutralize the gargantuan appetites of multinationals. Once a contract is signed, changing it is very risky and could expose you to complex international legal proceedings or investor flight.

Sometimes too, you have to dare, while surrounding yourself with all the guarantees of winning your case against multinationals and their armies of experienced lawyers. [email protected]