In its latest 2020 outlook, the African Energy Chamber stresses investors’ concerns over uncertain fiscal terms in sub-Saharan Africa.
The chamber is calling on governments to find better ways to reconcile their expectations of short-term tax gains with the need for sustainable and long-term investment in oil and gas exploration.
2020: a drilling year
NJ Ayuk, executive chairman of the chamber and CEO of the Centurion Law Group says that next year is going to be a drilling year in the energy sector. “Africa has the highest exploration success rates in the world. In basins like Mauritania, Senegal, The Gambia, Guinea Bissau and Guinea Conakry (MSGBC) international explorers like Kosmos Energy have had a 100% success rate from all their exploratory drilling,” says Ayuk.
He stresses that with oil and gas you need to drill first in order to find the resources that will allow the project to be commercialised. Ayuk says this process can take up to ten years. “In order to be able to encourage people to come and drill you can’t be having conditions or taxes at the very start – that will stop people from drilling one single well in an offshore environment for more than a hundred million dollars,” Ayuk says “You make it much more difficult by having tax conditions and other regulations at the start, for people to come in.”
In 2019, several African countries revised their legal and fiscal framework to incentivise exploration, as new world-class discoveries were yet again made on the continent.
With the signing of at least nine Production Sharing Contracts (PSCs) in 2019, following the passing of its new Hydrocarbons Code, Gabon has shown that investors are ready to keep betting on Africa – if the right legislation and frameworks are put in place.
The 2020 outlook also focused on how African entrepreneurs are playing an increasing role in the gas industry, which has in the past been dominated significantly by international companies.
Ayuk says that smaller players are also beginning to have a significant impact in the energy sector and he encourages support from governments in this regard.
He references Aliko Dangote: a Nigerian businessman, investor, and owner of the Dangote Group, which has interests in commodities in Nigeria and other African countries. He says Dangote’s company is currently building a 650 000-barrel refinery for operations next year. “Automatically he is building a refinery and a petrol complex which is going to be second to Sasol on the continent,” says Ayuk.
“Even [by] American standards … 650 000 barrels at the cost of US$13 is a big deal. It is going to be a game-changer in terms of revolutionising the way that downstream products are being sold in Nigeria, and the whole region,” he says.
He also references the success of Ghanaian multimillionaire Kevin Okyere, who has been able to build a $1 billion (in revenue) energy conglomerate in little over a decade.
He says Okyere discovered one of the largest plants on the continent, and it is likely to start development next year. “That makes him a great global mover and shaker that one has to watch out for in retrospect to what is likely to happen next year in the industry. So it is an amazing thing to see what is going on on the continent.”
Access to energy
He says that across the continent one in five people have access to electricity, and therefore governments need to look at sustainable ways to make it more accessible.
“It is important to increase access to affordable energy for African populations in general. Energy is particularly something that is going to drive industrialisation and equality,” says Ayuk.
He says that what’s lacking is countries’ financial capacity to put up huge projects that make energy affordable to their populations. He suggests putting up intra trades, which is an interconnected energy line between countries.
“There is no reason for a project that gives energy to both South Africa and Zimbabwe [not to] be put up,” says Ayuk.
He adds that the smaller economies in the Sadec basin together have significant coal resources in South Africa for example. Those are resources that can be exported to multiple countries at the same time.