Oil Wealth in Senegal: For the Many or the Few?

The recent discovery of significant oil and gas deposits in Senegal’s onshore and offshore territories has been the subject of much attention and debate. These resources have the potential to transform the country’s economy – if correctly managed.

But while these deposits have dominated headlines, substantive debate on their governance is conspicuous by its absence. The management of the country’s mineral resources currently appears to rest in the hands of a closed club of actors. Although exploration has been underway for several years, and more than 202 mining titles were granted by 2014, the mineral sector’s contribution to the national economy, particularly in terms of tax revenue, remains low.

A 2014 report by Senegal’s Inspection Générale d’Etat (IGE) showed that, over a period of 15 years, the government collected less than 1 billion West African francs (CFA) per year in tax revenue from resource extraction. Fortunately, thanks to the intervention of civil society actors in the years 2010-12, the sector was invited to join the national debate about this increasingly important part of the economy, and support was built for Senegal’s membership in the Extractive Industries Transparency Initiative (EITI), the global standard to promote the open and accountable management of oil, gas and mineral resources.

Senegal’s candidacy to the EITI was announced in December 2011 by the country’s former president, Abdoulaye Wade, and was ratified by the Council of Ministers the following February. In October 2013, the current president, Macky Sall, formalized Senegal’s accession to the EITI.

From energy dependence to energy self-sufficiency

Senegal has long been reliant on other states for trade, for aid, for investment and loans – and for petroleum. If its newfound mineral resource wealth is well managed, the country could move from energy dependence to energy self-sufficiency. Already, products derived from mineral resources such as gold and zircon have resulted in a 23 per cent boost in the balance of payments on exports. If Senegal succeeds in establishing a good system of governance for the sector, with a strategic use of the revenues generated, the economic outlook will be positive.

Unfortunately, there is a tendency to reduce the issue of transparency in Senegal’s extractive sector to the publication of its annual EITI report. This reveals a very limited understanding of the issue.

The EITI report follows standard norms, and is focused on the availability of data on payments issued by companies and collected by the State through its public institutions. It provides a relatively interesting database for effective monitoring and control of the sector, and reinforces a pre-existing framework of legal rules and supervisory institutions. It aims above all to support citizen-led initiatives favoring transparent management of public resources.

However, the report shows that there are shortcomings in the overall governance of Senegal’s mineral resources.

At present, the sources of the data on resources baseline evaluations from petroleum extraction are the foreign companies that do the extracting, in a kind of unacknowledged de-patrimonialization. Although Senegal’s mining sector has a cadastre – a public registry of ownership and values – it does not yet have one for petroleum or mineral resources.

Moreover, as the EITI reports published from 2014 to 2017 highlight, there has been a failure to implement a transparency law passed in December 2012 that requires the publication of all mining contracts. This is a reminder that there are many factors to consider when judging the transparency of a mineral resource management system. Although the Senegalese government decided in 2017 to publish all mining contracts on the government’s own website, information about these contacts is still not exhaustive.

The Petro-Tim case: unfulfilled promises and an ongoing debate

Petro-Tim Ltd is an operating company whose corporate purpose, according to its website, “is oil exploration and research; the acquisition of interests in all mining and petroleum titles, exploitation, production, temporary storage, processing, transportation, refining, distribution, marketing and advertising.” Petro-Tim has a research and hydrocarbon exploration contract with Senegal.

On January 17, 2012, Petro-Tim Ltd and Petrosen, the Petroleum Company of Senegal, signed a contract to share research and production on the Cayar Offshore Deep and Saint Louis offshore licenses. The murky nature of this contract, which become known in the press as the “Petro-Tim Affair,” has given rise to searching questions within Senegal’s political and civil society.

The EITI report is silent on the Petro-Tim case. It mentions the procedures agreed between the National Committee of the EITI and the country’s Independent Auditor (Vérificateur Indépendant), but these procedures are not an audit of extractive revenues, nor do they detect errors, illegal acts or other irregularities. In other words, the report is strictly limited to terms of reference that do not provide for the control of transactions with that company. Referring to Article 8 of the Petroleum Code, the EITI report mentions the existence of two cases of transfers (Petro-Tim-Timis Corporation/Timis Corporation – Kosmos) but fails to note whether the conditions laid down for these two operations were fulfilled.

It remains to be seen whether the transfer requests were approved by the Ministry of Energy or if prior authorizations had been granted to purchasers to carry out these suspicious transactions.

A public limited company with a majority public shareholding, Petrosen occupies a rather ambiguous place in Senegal’s hydrocarbons sector. It represents Senegal in oil operations with privately controlled companies, and at the same time, it assumes several other sovereign functions, including promoting exploration opportunities in Senegal’s sedimentary basin to multinational oil companies, and managing the State’s strategic interests in the sector, especially in production-sharing contracts, value chain management, marketing and exploitation. Petrosen also provides Senegal with monitoring and technical control of operations.

A more appropriate institutional framework for Petrosen is urgently needed — one which separates the different roles and scales of the chain of exploitation, transport, processing and marketing of hydrocarbon products. Furthermore, it is essential that the Strategic Orientation Committee for Oil and Gas (COS-PETROGAZ), which was established by President Sall in October 2016 but whose constitution has not yet been specified, does not serve as the lone political answer to a debate conducted in a context of opacity.

Resources, rights, and responsibilities: a call for reform

The constitution of Senegal, adopted by referendum in May 2016, states that the country’s natural resources belong to the Senegalese people. This calls into question the operating regulations currently in force on the ownership of resources. If natural resources belong to the State, as the provisions of the mining and the oil codes stipulate, there is a need for harmonization. Regrettably, the new petroleum code adopted in January 2019 leaves the decision-making process in the hands of the President of the Republic and his ministry in charge of petroleum and energy.

So who speaks for citizens in these negotiations? Should the Senegalese people be represented only by the President of the Republic and his government? Should we not instead open up the process of the governance of mineral resources upstream and downstream to the National Assembly, locally elected representatives and civic and community groups, in a cross-party and egalitarian manner?

Another significant issue raised by the discovery of Senegal’s petroleum riches is that of the rights of citizens who live in the communities where the mining takes place. Many of them live in precarious conditions and extreme poverty. Their needs could be addressed if companies exhibited true corporate social responsibility rather than making only minimum mandatory contributions. A national strategy led by the Strategic Orientation Committee for Oil and Gas should involve all stakeholders in defining local priorities, rather than allowing extractive industries to use CSR for a mix of philanthropic purposes and social marketing.

At present, the state does not have the means to ensure adequate administrative and technical supervision of offshore extraction. Instead, it has offered over-generous inducements to holders of resource extraction licenses, including favorable tax codes, customs exemptions and concessions for the first three years.

How petroleum wealth can build a stronger Senegal

The process that led to the reform of Senegal’s mining code in 2016 brought about notable progress on the issues of transparency and the concerns of local communities. The petroleum code, which was adopted in January 2019, includes some positive developments, but they are not sufficient to insure that communities’ rights and demands will be adequately covered.

Now that major concerns about institutional architecture and revenue management have been identified, further reforms are needed in the legal framework and the sector’s revenue mobilization system. As civil society leaders have observed, the review of the petroleum code failed to adequately involve other actors – particularly parliamentarians, citizens’ organizations, and affected communities – in a way that ensures that decision makers have a complete picture of the current and future economic, social and environmental impact of exploiting Senegal’s petroleum resources.

The new code, which will come into effect via an implementing law and a model contract, must assess potential risks, strengthen transparency provisions in the awarding of contracts and conventions, ban tax incentives for petroleum multinationals, and allow for stricter oversight of these companies’ operations and accounting.

To this end, and as we await a new law dedicated to revenue-sharing models, it is essential to consider the creation of stability and growth fund reserves, funds for diversification in key economic sectors (such as non-hydrocarbon energy sources, agriculture, fishing, livestock and farming) and sovereign wealth funds that could serve Senegal tomorrow as well as today.

Income from the exploitation of Senegal’s petroleum resources must be distributed in a spirit of consensus, integrity, republicanism and patriotism. These riches must go toward addressing the poverty and precariousness that is the daily reality of so many people in Senegal.

Elimane Haby Kane is an Atlantic Fellow for Social and Economic Equity at the LSE’s International Inequalities Institute. An expert in governance, international development and project management, he leads the governance program at Oxfam in Senegal. He was program officer, then executive director of Forum Civil, the Senegalese section of Transparency International. He is a founding member of the pan-African think-tank LEGS-Africa.

Originally published on the AFSEE Blog.