2024-04-18 08:47:52
In Washington, the IMF asked the government mission to review the 2024 budget, which should not be funded by revenues from oil exploitation.
Cheikh Diba, Minister of Finance and Budget
By Madiambal DIAGNE- It was a cold shower that the government mission staying in Washington, to discuss with Senegal’s financial partners, received from the International Monetary Fund (IMF). This institution called into question the budgetary framework for the current financial year, asking the Senegalese authorities to review the copy of the 2024 budget, with the aim of drastically reducing revenue forecasts. Indeed, the IMF considers that the expected revenues from oil exploitation will not be there. The hopes of revenue which boosted the budget for the year 2024, with strong additional revenue for this year, have vanished.
The multi-year budgetary and economic programming document, published in July 2022, indicates that Senegal should garner 888 billion CFA francs in revenues from oil exploitation, over the period 2023-2025, distributed as follows: “ 59 billion in 2023, the year production starts, then 327 billion in 2024 and finally 501 billion in 2025.” We see that all these beautiful forecasts have fallen through.
Should this surprise the new government authorities?
The information is a bolt from the blue for public finance officials. Verification made with sources close to the partner companies for the exploitation of the Sangomar deposit, the reality remains stubborn. “The start of operation remains maintained for the end of June 2024, but during the first five to six months, production will not really be able to start. We will be in the test phase and operation will only begin to be viable or optimal from the end of November 2024.” Experts in the field of oil exploitation explain this situation by technical considerations. “We can not do otherwise. The first barrels of oil pumped are always contaminated by elements such as mud or other rock sediments, and large quantities will have to be extracted to access crude oil of marketable quality.
The threat of contract renegotiation
Multinational oil companies, already committed to the objective of exploiting hydrocarbon resources, remain doubtful or are overcome by a certain reluctance, regarding the future of their relations with Senegal. The new President of the Republic, Bassirou Diomaye Faye, and his Minister of Oil, Energy and Mines, Birame Soulèye Diop, have indicated, in every tone, their desire to renegotiate the mining contracts. It must be said that many suspicions surround these mining contracts. The Head of State indicated that he would commit his government to an upcoming audit of mining contracts, and a renegotiation of said contracts might result. When we know that an audit procedure will require several months between the selection of firms, the start of the mission and the submission of contradictory reports, we can wonder if the 2025 horizon for the effective exploitation of oil and gas wouldn’t even be too close.
“While we wait to see things more clearly, it will be quite difficult for us to think regarding increasing our investments in Senegal. We need to know how all this is going to happen,” underlines an administrator of a multinational. In addition, the majors were starting to drag their feet to start pumping oil and gas in Senegal. Operating costs can be more expensive than in certain regions, because deposits in very deep waters require more logistical and technical resources. Some companies were considering keeping the estimated oil volumes in Senegal in reserve. A prospect which, certainly, cannot enchant Senegal. There is no need to fear a tumultuous future with disputes arising from the questioning of conventions already signed by Senegal. We can remember the disappointments of President Abdoulaye Wade’s regimes in 2000 with the Canadian electricity company Hydro-Québec and those of Macky Sall’s regime with the Indian steel group Mittal. The denunciation of these contracts, signed by previous political regimes, had caused significant reparations borne by Senegal to put an end to the contentious procedures.
Negotiations with Mauritania
The gas issue, which Senegal and Mauritania share equally, will be at the center of official discussions during President Bassirou Diomaye Faye’s visit to Mauritania today. The two countries had managed to agree quite easily on the conditions of exploitation and sharing of the resource, but the arrival of a new political regime in Senegal might change the situation. Who can guarantee that Mauritania would agree to be patient to give Senegal time to carry out audits and other desired efforts, and perhaps call into question the existing agreements both between the two countries and those signed with the investors? Mauritania has great hopes of economic and social takeoff thanks to the resources expected from the exploitation of its gas.
We recalled, on April 11, 2022, that “experts consider that the gas resources estimated in Senegal are world class. Senegal is set to be a major gas exporting country. The Grand Tortue Ahmeyim (Gta) field, shared between Senegal and Mauritania, discovered in 2014, is today estimated to contain between 15 and 20 Tcf of gas resources, or between 530 and 700 billion m3 of proven gas. British Petroleum (Bp) considers that the potential of this natural gas deposit is much greater. Another deposit, Yaakar Teranga, off the coast of Cayar, discovered in 2016, reveals already proven resources of around 700 billion m3. According to experts, the potential of Yaakar Teranga is much more colossal than that of Gta. Other pockets of gas have been identified off the Senegalese coast, such as Sangomar (Fatick). Onshore gas deposits are also identified in Senegal such as the Ngadiaga deposit (Thiès). The total gas consumption of the African continent is 153 billion m3 per year, according to the Bp Statistical Review of World Energy, published in June 2021. This gives a good idea of the importance of Senegal’s gas reserves. However, more exploration and research will be required to confirm or refute such an assessment. What is certain is that the confirmed potential is sufficient to launch a very large gas project. This is one of the key reasons why Bp, the third largest private oil company in the world following ExxonMobil and Royal Dutch Shell, entered into this project and took charge of the operations by owning 53% of shares compared to 27% for the American Kosmos Energy. In hydrocarbon circles, the best shared feeling is that Senegal has not yet carried out enough research to discover all the gas that its sedimentary basin should contain.
Hostility once morest Senegalese gas
The regime of President Macky Sall was able to be in tune with the authorities in Nouakchott to move hand in hand on the issue of the exploitation of the Grand Tortue Aymehim (Gta) gas field. But we know that certain “friendly” countries of Senegal would not look favorably on the exploitation of this hydrocarbon resource. Senegalese gas appears very competitive compared to other regions and suppliers. Will Senegal and Mauritania still be able to ignore the headwinds and continue their partnership? Countries, notably Russia, Qatar and Algeria, may not welcome the arrival of Senegalese-Mauritanian gas on international markets.
Moreover, President Macky Sall had to fight hard on the international scene to gain acceptance for the continued exploitation of fossil fuels by African countries. In an effort to preserve the environment, many developed countries continue to call for an end to this type of exploitation, especially with regard to off-shore deposits which are presented as very polluting for the environment. Will Bassirou Diomaye Faye have a voice as strong as that of Macky Sall to make the international community hear reason?
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