Uganda Opts for Tanzania Over Kenya for Important Pipeline

The writing has been on the wall for a few days, but today came the definite announcement: Uganda will partner with Tanzania, not Kenya, to build a pipeline and export its crude oil production.This is devastating news to the Kenyan government, which had hoped to use the same infrastructure to export its own oil production and will cost both Uganda and Kenya a lot of money:

Uganda will lose $300 million every year due to an increase of $4.07 in tariff per barrel, and Kenya will lose $250 million per year due to the increased tariff of $6.96 per barrel.

The reasons for Uganda’s decision are complex. Some concerns voiced about Kenya’s proposal relate to the difficult terrain in the Rift Valley, which can be avoided by passing through Tanzania’s Lake Victoria Basin. But the most important factor seems to have been limited confidence in Kenya’s government.

Kenya’s northern and Eastern provinces are notoriously insecure, due to intercommunal violence and conflicts in South Sudan, southern Ethiopia and in Somalia. Militants linked to Al Shabab regularly stage attacks with high casualty rates in areas that the pipeline will pass through, for example. The pipeline’s financing is still unclear and the designated export port at Lamu is still far away from completion.

In addition, Kenya’s delegation to the final negotiations seems to have inspired little confidence that they are on top of these problems in their Ugandan counterparts:

However, it has also emerged that the Kenyan officials participating in the Kampala talks may not have had all their facts right as they tried to address the concerns raised by Uganda over the northern route for the pipeline.

In contrast, Tanzania can offer an existing port, Tanga, and a very stable political environment. French oil giant Total has offered to finance the construction costs of the pipeline, as well as 40 percent of the planned Ugandan refinery at Hoima, while Tullow oil, the UK company which runs the Ugandan oil fields, seems to prefer the northern route through Kenya because it has interests along that pipeline corridor as well.

For the Kenyan government, this decision is about more than just the pipeline. The pipeline project is linked to a whole slew of infrastructure projects, ranging from a standard gauge railway to a high-capacity power transmission line linking Kenya and Ethiopia. Uganda’s decision will make it even harder to finance these ambitious projects and keep them on schedule.

From Uganda’s perspective, short-term profit seems to have trumped long-term decision making. President Museveni has recently been reelected in a contested election that turned out to be the most expensive in the country’s history, largely due to the plundering of state coffers to finance Museveni’s campaign and his outsized security apparatus. Uganda’s economic and human development performance has been lacking behind neighboring countries in recent years and the frustration among the overwhelmingly young population with the government is palatable. Uganda is broke and Museveni needs a lot of money quickly.

This is not to say that Ugandan worries about the Kenyan government’s reliability are unfounded. President Kenyatta and Vice President Ruto have presided over a disastrous military intervention in neighboring Somalia and have been unable to curb intercommunal violence, especially in the cost area.

From a regional point of view, the decision as both its pros and cons. On the one hand the competition between Tanzania and Kenya has a potential to produce future political rivalry. But as Ken Opalo points out

All else equal, this is probably a net positive development for the future of the East African Community (EAC). It is obviously a big financial and political loss for Kenya (and for that matter, Uganda) but it will dampen the idea of a two-speed EAC — with Kenya, Uganda, and Rwanda in the fast lane and Tanzania and Burundi in the slow lane.

Grand corruption: Nigeria’s oil revenues

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The Nigerian government just released a Pricewaterhouse Coopers auditing report on one of Nigeria’s biggest corruption scandals of the past decade. Feyi Fawehinmi takes it apart:

So what did it find? That the total revenues for the period in question were $69bn and not $67bn as stated by SLS. It had also remitted $50.8bn and not $47bn as initially thought. So, there was still a gap of roughly $20bn to be explained as before.

[…]

But who or what gives NNPC the right to withhold nearly 30% of the money it receives on behalf of Nigeria and then spend it as it wishes? Here we have a goat locked in a room alone with a yam and no one to supervise what’s going on.

PwC’s opinion is that this practice of withholding money and then spending as it sees fit is highly dubious and that the NNPC act needs a legal opinion to determine whether it has the right to do this. What stops NNPC (the goat) from withholding 50% of revenues (the yam) and then telling us later that it spent it on one thing or the other? Based on this, nothing.

If you are interested at all in the political economy of Nigeria, be sure to read the whole piece, its great. Hat tip goes out to Alex Thurston of the Sahel Blog who has collected several other great resources on the scandal, if you are not up to date on it.

Source: This Yam, This Goat, This Country: PwC and NNPC – Part 1 | Agùntáṣǫólò

[Update]

Alex Thurston also just published a piece looking at the balancing act Nigeria’s incoming president, Muhammadu Buhari, will have to perform regarding corruption:

It has been to the APC’s political advantage to build a diverse coalition – it helped enable Buhari’s victory this year (whereas in 2011, he won only the far northern states). But when it comes to fighting corruption, the coalition will complicate matters, because some people have joined the APC expecting to profit, both politically and financially. If those people don’t get the rewards they expect, that could cause political problems for Buhari, whether in the legislature, with the states, or on the road to 2019.

Again, well worth your time.

Gulf of Guinea: who will win the oil battle?

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The disagreement began in 2007, when Ghana discovered the so-called Jubilee oil field located on the shared border. To avert any trouble, the Ivorian and Ghanaian authorities created a joint commission in 2008. However, this did not stop Ghana from continuing its offshore exploration and allowing Tullow Oil, a British company, to develop Jubilee in 2010. In 2013, Côte d’Ivoire responded by awarding French oil company, Total, a licence to operate in an oil field in the same zone.

[…]

The disputed maritime space could have been transformed into an area of common interest if the countries had signed a petroleum product-sharing contract with an agreed allocation, as Nigeria and São Tomé and Príncipe had done in 2001. The former received 60% of the production and the latter 40%. They could also have created a joint operating company like Libyan-Tunisian Joint Oil, which was founded in 1988 by Tunisia and Libya to resolve their maritime border dispute, and whose profits are divided equally between the two countries.

[…]

It is unfortunate that these two member countries of the Economic Community of West African States (ECOWAS) have instead chosen to confront each other in an international court. But the process is not irreversible, as Ivorian and Ghanaian authorities could still withdraw their requests and return to the negotiating table. If not, they are heading towards a sentence that could damage their peaceful history.

[…]

Source: ISS Africa | Gulf of Guinea: who will win the oil battle?

Taxing Resources, funding development

Africa is a rich continent. In 2010, the value of natural resources extracted on the African continent was $788 per capita. In comparison, development aid only contributed $30 to the income of the average African.

At the same time, the median income of an African is only $945, suggesting that a large part of the continent’s resource wealth isn’t benefiting the majority of the population. A good example is Equatorial Guinea, a country that has a GDP of $17.7 billion at a population of just 760,000 people, almost exclusively fuelled by oil windfalls. Despite this, 77 percent of the population lives below the national poverty line.

In fact, Africa is estimated to lose between 40 and 80 billion dollars per year to illicit financial flows, e.g. tax evasion, alone. Much of this money probably originates in the resource sector.

For resource rich African countries, answering the question of how to profit more from their natural resources is probably the political challenge with the highest stakes of our time.

The importance of the resource sector for the economic development of Africa will continue to grow in the coming years, thanks to rising prices and new discoveries. “We had a series of major oil and natural gas finds in Africa,” Todd Moss, a senior fellow at the Center for Global Development tells Contributoria. “Basically everybody with a coast has had a discovery.”

The OECD, the African Development Bank and the United Nations Development Programme agree. “With a comparatively high price level remaining for some time and significant expansion of production over the next years,” the organizations write in the 2013 edition of the African Economic Outlook, “Africa faces a window of opportunity to create economic structures that can provide employment and income for all on the back of its resource wealth.”

Read the rest on Contributoria!

Rich Links: Fishing in Namibia and GMOs across Africa

As always, the most interesting links from around the ‘net:

Fishing over drilling in Namibia

Namibia is planning to halt oil and gas companies from carrying out off-shore exploration for part of the year to protect the fishing industry.

This comes on the heels of an earlier memorandum on off-shore mineral exploration. Namibia makes an interesting contrast to other African countries, where the promise of oil often trumps all other concerns.

Why Namibia’s off-shore is under threat | African Mining Brief

GMOs in Africa

IRIN details a new report on the adoption of genetically modified organisms in African agriculture. The report is very positive, as is the article, and gives little consideration to the drawbacks of a GMO-reliant agribusiness:

A recent study published in the journal Food Policy, titled Status of development, regulation and adoption of GM agriculture in Africa, shows that heated debates over safety concerns continue to plague efforts to use GM crop technology to tackle food security problems and poverty.

Is Africa ready for GM? | IRIN

The need for good governance

Since African extractive industries are often shrouded in secrecy and lack clear revenue management and accountability mechanisms, good governance is essential for African countries to properly harness their natural resources for development.

UNCTAD African Oil and Gas Conference Focus on Governance is Spot On | Africa in Focus

Drilling in Western Sahara

Plans by Kosmos Energy and partner Cairn Energy to drill a well next year in a Moroccan-licensed block in the Western Sahara continue to provoke intense interest among oil companies excited by the disputed territory’s offshore potential, as well as political debate among the traditional protagonists.

Oil drilling plan stirs hornets’ nest in Western Sahara | African Arguments

Other stuff:

The Niger Delta through the eyes of George Osodi

Probably hundreds of reports have been written, published and promoted about the environmental damage that oil production has produced in the Niger Delta. Thousands of pages have been filled with interviews, research, facts and policy advice on the ecological, economic, political and economic ramifications of uncounted oil spills, corruption and crime associated with the business in Nigeria.

Still, for most people it is still hard to really get what is happening in this specific part of the world. And this is where George Osodi comes in. By now, he is probably one of the most famous Nigerian, if not African, photographers and his breakthrough came with his series of photographs on the Niger Delta. He captures photos of extreme beauty, which often only reveal environmental destruction, poverty and violence at the second glance. Much more accessible than any report or working paper, his images provide an intense glimpse into the challenges that come with resource wealth, especially for local communities.

The International Slavery Museum in Liverpool, UK, featured Osodi in a special exhibition titled “Oil boom, Delta burns” and has published an interview with the artist with corresponding sideshow of his works. Osodi is also portrayed in a longer piece by Al Jazeera, which focuses on his current project, photographing Nigeria’s traditional rulers. Enjoy!

Oil boom, Delta burns: photographs by George Osodi from National Museums Liverpool on Vimeo.

Rich links: diamonds and bushmen in Botswana

As usual, the web’s most interesting reads:

Diamonds and Bushmen

Charity Survival International alleges that the government of Botswana systematically uses access to water as weapon to drive the country’s Bushmen out of their diamond rich reservation. The Independent

South Sudan plans allocation of new exploration blocks

The East African country will hold an auction to sell exploration licences to new oil blocks. If exploration proves successful, additional oil production could significantly enhance government income. Voice of America

Tullow Oil stops exploration in Kenya

After demonstrations in Kenya’s Turkana region by local communities demanding a greater share of jobs and higher income from Tullow’s operations, the British company has suspended all exploration activity in the area. Kenya hopes to significantly add to its natural resources portfolio with oil deposits currently appraised by Tullow. Sabahi | the Star | African Mining Brief

Zambia first cancels, then reinstates tax on unrefined copper exports

Only days Zambia has cancelled a 10% export tax on unrefined copper and other minerals, the country’s president Michael Sata has ordered his government to reintroduce the tax. Lifting the regulation had been a key demand of international mining firms, which argued that Zambia doesn’t have the necessary smelting capacity to process all ores in the country itself and that the additional tax would make operations uncompetitive. African Mining Brief

The future of Tanzania’s mining sector

Tanzania sports quite a wealth of various precious metals, gemstones, fossil fuels and other minerals. But falling gold prices and power challenges have made some investors weary. Mining Weekly | Daily News

Other stuff

  • How can African countries use their oil revenue for lasting development? the Guardian
  • Angola has opened a training centre for oil industry related professions: Mining Review
  • Women are breaking into the male dominated mining sector in Zimbabwe: IRIN

Can the E.U. stop armed groups profiting from the mineral trade?

Conflict Minerals are the new Blood Diamonds. The term refers mainly to three metals, tantalum, tungsten and tin, originating in Eastern Congo. Advocacy groups like the ENOUGH Project have pushed hard to put the contribution that the mining and export of these metals make to the war chest of Congolese rebel groups on the international agenda and have had some success. As part of the Dodd-Frank Wall Street reform act, the U.S. has put in place regulation that forces U.S. listed companies to disclose if they are using any of these metals from Congo or its neighbouring countries in their products and if yes, what they are doing to keep them “conflict free”.

The Dodd-Frank act doesn’t force companies to actually do something, if they find out that money from the mineral trade in their value chain benefits armed groups. It just provides the disclosure that advocacy groups like ENOUGH need to put public pressure on these companies.

Dodd-Frank has been quite successful in a sense: Out of fear of bad publicity, most Western companies simply switched to other sources for the metals, sending the economy of Eastern Congo into a crash. As many experts have cautioned before the law was enacted, violence didn’t subside – the armed groups just switched to other modes of financing themselves.

Now the European Union discusses a similar legislation and it will be interesting to see if any lessons from Dodd-Frank will make it over the Atlantic. So far, the debate in Europe has mainly revolved around the question, which part of the supply chain will be covered by the proposed legislation. In its broadest version, every European-registered company would have to publish similar information to the U.S. Dodd-Frank act, including retailers. But this doesn’t play well with European industry interest groups, which fear an increase in bureaucracy and negative publicity for their members, reports Politico:

European Trade Commissioner Karel De Gucht said last month that he wants to be sure any EU policy builds on the U.S. mandate and encourages broader action. However, in recent days, EU trade officials have also begun considering a less stringent proposal that would apply only to European-owned metal processors, a lobbyist close to the discussions said. That proposal would exempt most of Germany’s manufacturing companies, which largely import their minerals from non-European processors.

The problem: European smelting companies process only a small part of the world’s tantalum, tungsten and tin. The market is dominated by smelters in China and Malaysia, who wouldn’t necessarily fall under the proposed E.U. regulation. This would render the law ineffective, because metals from conflict regions would just be processed in smelters without reporting obligations and could then be imported to the E.U. as finished products without a declaration of origin. To be effective, the E.U. regulation would need to cover at least one stage of the value chain above the smelting level.

But the E.U. faces another obstacle, as has become apparent with the application of Dodd-Frank: stopping armed groups from profiting of the minerals trade doesn’t necessarily stop conflicts. Just take the example of the Democratic Republic of the Congo:

As a result of the steps being taken, militias have seen their prices for the minerals drop by more than 55 percent, reports Sasha Lezhnev, Enough’s senior policy analyst.

But even with reduced income from mineral sources, the last year has seen an incredibly high level of violence in the DRC, with the rebel group M23 even taking control of the regional capital Goma for a few weeks. The reason is simple: conflict is born out of political confrontation, not greed, and the Congo offers many more means to finance an armed struggle than minerals. Considering this, Dodd-Frank and the proposed E.U. legislation should be sold as conflict reducing mechanisms, but measures to increase general transparency along mineral supply chains, which would be a perfectly valid reason to enact these kind of laws.

This post is part of my ongoing obsession with the relation between natural resources and conflict on the African continent. Read on to find further insights on this topic and be sure to check back regularly! I will update this article frequently with long and short posts in the manner of a slow live blog.

When oil companies become advocates for peace

Commonly, oil companies are associated with less than benign influence on conflicts. This reputation is well earned: oil money financed a whole chain of Nigerian military rulers, kept the Sudanese regime afloat during the worst massacres in Darfur and continues to play a dubious role in filling the coffers of authoritarian regimes, like in Angola and Equatorial Guinea.

But this interpretation overlooks the potential — and in some cases actual — positive impact that oil companies can have on political and violent conflicts. Arguably, the Chinese government is one of the lynchpins of keeping the peace between Sudan and South Sudan. The interest of China is clear: keep the oil flowing. But the net effect on this particular aspect of the region’s many overlapping conflicts has been positive.

A recent article on the blog African Arguments is another example of the positive influence oil companies can have on active conflicts. Written by a consultancy, it reports on an ongoing diplomatic push to finally resolve the dispute over Western Sahara — spearheaded by French energy giant Total.

There is even talk of Kosmos lobbying the US administration and Total the French government to support a major new diplomatic initiative.

Of course, other parties are interested in a resolution as well, not least because the United Nation voiced fears that Sahrawi youth living in refugee camps are easy pickings for recruiting agents of regional Islamist groups. But with oil prices set to rise and promising geological structures present off the Sahrawi coast, interest in exploration and exploitation will rise. As the article notes, international companies are unlikely to take the risk of acting in the current legal limbo:

Oil exploration permits have been issued by both Morocco’s state Office National des Hydrocarbures et des Mines (Onhym) and Polisario’s government-in-exile, the Saharan Arab Democratic Republic (SADR), but the international consensus is that no significant exploration can be undertaken until the dispute is settled.  This follows a legal opinion by the UN General Counsel that stated that exploration and extraction of mineral resources in Western Sahara would be illegal “only if conducted in disregard of the needs and interests of the people of that territory”.  It has generally been viewed that exploration for reserves of oil and gas would run counter to this; thus they should stay in the ground pending a definitive resolution.

What do you think, do commercial interests of oil companies offer the chance to positively influence conflicts in Western Sahara and elsewhere in Africa?

Rich links: Nile water diplomacy and copper corruption in the DRC

Again, lots of interesting stuff to read from around the internet:

Angola ends talks about a strategic partnership with Portugal

Disgruntled because of Portuguese investigations of high ranking government officials, Angolan president dos Santos has made clear that his country is no longer persuing a strategic partnership with its former colonizer. This is a heavy blow for Portugal which is still caught in the repercussions of the financial crisis and was hoping to profit from its ties with the African country. Especially the oil sector is of interest to Portuguese companies. allAfrica/Deutsche Welle

Sale of Congolese copper producer raises corruption concernas

Congolese government-owned mining company Gécamines is preparing to sell its stake in one of the countries largest copper producer, Kamoto Copper Company. It is unclear if Gécamines has notified the Congolese government of the deal, as is required by law. No details have been published, either by Gécamines, the government or Fleurette Group, the potential buyer. Fleurette is an offshore company tied to Dan Gertler, an Israeli businessman with a colourful reputation and long history in Congolese mining. Africa Progress Panel | Global Witness

Egypt renews its diplomatic offensive for control of Nile waters

Three Egyptian ministers will embark on a diplomatic tour de force through Nile basin countries to try and secure Egypt’s share of the Nile’s waters. Still based on colonial-era contracts, upstream countries like Ethiopia and Uganda are eager to change the current terms. Martin Plaut

International personnel returns to In Amenas

BP has confirmed that its international employees are set to return to In Amenas. The gas facility gained international notoriety when terrorists affiliated with Al Qaeda invaded the plant in January 2013. 37 hostages and 29 of the attackers were killed during a three day long siege and the subsequent assault by the army. Jeune Afrique

More short links:

 

Panda protects Virunga: WWF files complaint against SOCO at OECD

In an interesting twist of the battle over oil exploration in the Virunga National Park in Eastern Democratic Republic of the Congo, environmental protection NGO WWF has put in a formal complaint about SOCO International plc at the OECD in Paris.

WWF today has filed a complaint alleging that British oil company Soco International PLC has breached international corporate social responsibility standards. WWF contends that, in the course of Soco’s oil exploration activities in and around Virunga National Park, the company has violated environmental and human rights provisions of the Organisation for Economic Co-operation and Development (OECD) Guidelines for Multinational Enterprises. – WWF press release

The WWF goes on to allege that SOCO has used state security to put pressure on local communities. SOCO denies the claims that it breached international standards in its activities in the DRC:

SOCO would like to make it clear that all alleged breaches of the voluntary guidelines raised are absolutely ill-founded, tendentious and not supported by the facts. – SOCO press release

Cynics will argue that it would be impossible for SOCO to work in “close collaboration” with the government of the Congo and still hold up international standards of good business behaviour, seeing that corruption, mismanagement and violence against opposition is deeply ingrained in the politics of the country. But even by Congolese standards, the government’s plans to let SOCO explore possible oil reserves in and around the Virunga National Park are contentious.

Virunga is a UNESCO designated Worl Heritage Site and supports a unique rainforest ecosystem. It is also home to some of the last populations of mountain gorillas and many other rare species. Recent legislation introduced into the Congolese parliament now tries to undermine the current regulations that forbid any exploration activity in national parks.

Adding to the environmental concerns, Virunga is also situated in an active conflict zone. Possibly as many as 50 different rebel groups are active in the park and surrounding provinces with the official army acting as one of the greatest human rights violators in the conflict.

H/T Jeune Afrique