Tanzania: BG exit rumours resurface

The near-perennial rumours that BG may sell its 60% stake share in Tanzania’s Offshore Block 3 have resurfaced this week. The Sunday Times reports that BG is quietly searching for a buyer and a sale is likely, echoing rumours that have been circulating for some months. 

BG operates and holds 60% stakes in Blocks 1, 3 and 4 with Ophir holding the remaining 40% in each. The Tanzania fields are incredibly large, but their size is equalled by the cost of bringing the fields to production. Tens of billions of dollars will need to be invested, partly because the country is bereft of even the most basic infrastructure, including a port, roads, and power that would be required for a gas liquefaction plant.

This comes at a time when BG is looking to downsize its global empire, which includes the North Sea, Brazil, East Africa and Australia, following a series of profit warnings that led to the resignation of its chief executive, Chris Finlayson.

Although it is currently understood that BG is looking to sell its entire 60% stake in Tanzania’s Block 3 exploration area, BG also owns 60% of Blocks 1 and 4. This means that BG has the option of selling a minority stake, bringing in cash, reducing its share of future spending, while enabling it to keep operational control of the development.

One industry source has told Menas Associates that ExxonMobil, which is the minority partner in Block 2, may also consider buying out its partner Statoil. A pull out by BG would affect the management of the proposed LNG project because the project manager is currently a BG position based in the UK. This would be mitigated by ExxonMobil’s presence in the project already. However, no move is likely until there is agreement on outstanding issues, including gas pricing, domestic market obligations and the finalisation of the project site.

For more news and expert analysis about East Africa, please see East Africa Politics & Security.

© 2014 Menas Associates

Kenya: President Kenyatta to impose capital-gains and windfall tax legislation within months

Kenyan President, Uhuru Kenyatta, stated in a 2 August interview that Kenya will impose capital-gains and windfall taxes on oil, gas and mining companies within months to ensure the East African nation maximizes benefits from its mineral resources.

Enacting the laws this year will be a positive signal to investors that Kenya is keen on creating necessary conditions for the industry. “This is something that we are very clear about,” Kenyatta said from Nairobi’s State House, “We want to ensure that we as a country also are able to benefit from both the windfall and capital-gains tax.” 

Recently oil reserves have been found in northern Kenya, while gas exploration continues and the nation’s potential for gold production is being studied. 

Kenya hopes the new legislation will prevent similar situations to Tullow’s experience in Uganda, where the company is appealing against the state revenue authority’s demand that it pay capital-gains tax of about US$473 million following its sale of assets in Uganda. 

For an in-depth analysis of this issue and how it will affect the exploration companies operating in the country please see our upcoming issue of East Africa Politics & Security.

© 2014 Menas Associates

IOCs evacuate staff from Libya

Italian energy giant, ENI, has responded to the escalating violence in the capital by moving fifteen members of its staff out of Tripoli. The employees were moved to the offshore Bouri oilfield before being whisked away to Malta and onto Italy.

French company Total has also moved its staff out of the capital, getting them out of the country by road to Tunisia. The United Nations has also pulled its remaining staff out of the country. 

Following the abduction and beheading of a Filipino construction worker on 15 July, the Philippines government ordered its estimated 13,000 nationals in Libya to leave the country, instructing them to contact the embassy in Tripoli for instructions on "mass evacuation."

Yet how such evacuations are going to take place while the airport is out of action and with little prospect of its restarting operations any time soon is unclear. 

Although the airport at Zawara is preparing to take both domestic and international flights, it is still going to take several days before it is in a position to do so. It also still requires the agreement and support of the Ministry of Transport and the Civil Aviation Authority. More importantly there are still question marks over safety and insurance issues.  

Meanwhile there are growing fears about evacuation by road given that the confrontation has now spilled beyond the airport area and out to Janzour. 

For more news and expert analysis about Libya, please see Libya Focus and Libya Politics & Security.

© 2014 Menas Associates

Nigeria 2014 growth to exceed 6% despite downwards revisions on previous years

Nigeria's recent rebasing of its GDP continues to lead to statistical adjustments. These include last week’s downwards revision of Nigeria’s 2013 GDP growth rate from 7% to 5.5%. The 2012 GDP growth has also been reduced to below 5% by the National Bureau of Statistics (NBS), although 2014 growth is still expected to exceed 6%.

While Nigeria is still operating from a massively increased GDP "base" level, such a change does raise concerns about future official growth rates and whether growth - quite aside from broader questions of "job creation" and increase in living standards - is being adequately assessed.

Nevertheless, the NBS projects that GDP growth in 2014 will be approximately 6.2%, based on a first quarter GDP growth rate of around this level. NBS director general Yemi Kale claims that Q1 growth is typically slower than growth for subsequent quarters.

Although growth in the oil and gas sector has been modest, optimism about growth in other sectors of the economy abounds. For example, the Renaissance Capital emerging markets bank has recently released a report entitled "Nigeria's GDP: Bigger but slower - Manufacturing is the engine of growth". It suggests that percentage manufacturing growth has been in double digits, with the Dangote-dominated and Lafarge target cement sector being a notable success story. Rencap also cites textiles as a major growth area, a significant development given the decimation of textile producers in West Africa, including in Ghana, because of foreign competition.

The attraction of the diversified Nigeria growth story is also illustrated by analyst observations that at least US$500 million of investment is planned to build a series of major shopping centres by or before 2016. South African banks, retail players, plus the UK’s CDC private equity spin-off Actis, are among the participants in a country with a significant "demographic dividend". South Africa's Shoprite Holdings, which operates a number of shopping centres or malls throughout Africa - including in Lagos' Ikeja district, Abuja and Accra - has just announced a 10.5% increase in its profits through to June 2014, and so interest is likely to continue.

For more news and expert analysis about Nigeria, please see Nigeria Focus and Nigeria Politics & Security.

© 2014 Menas Associates

Libya's Brega Port under siege as guards prevent exports

Libya’s energy sector was dealt another blow on 11 July when a group of protesters from the Oil Facilities Guard closed down the Brega Port and prevented a cargo that was in the port from loading.

The members of the guard are demanding that they be paid their backdated salaries, just as those members of the guard who were blocking the ports of Es-Sider, Ras Lanuf have been paid. One of the guards told the Turkish media on 11 July that “we closed Brega today as they haven’t given us our financial dues for several months. We will prevent all ships from being loaded with fuel. There is a cargo [in the port] and we won’t allow it to load oil until we receive our dues in full.”

Brega, run by the NOC’s Sirte Oil Company subsidiary, is a relatively small port with a 90,000 b/d capacity that has lately been used to supply the Zawia refinery. Its closure is a challenge given the troubles with the eastern oil export terminal ports over recent months and the fact that it will still take a while before operations are back to normal in Ras-Lanuf and Es-Sider, handed over earlier this month.

Given that the protesters are making purely financial demands the situation should be resolved easily enough. Despite this, with the political scene in such chaos and with the economic situation in deep crisis, how long it will take the government to resolve this standoff has yet to be seen.

Meanwhile, workers at the 103 Oil Field 200 km from Ajdabiya and operated by the Zuetina Oil Company stopped working this week. On 9 July the workers began an open sit-in at the field in protest against the company’s board. It is not clear exactly what it is about the board that the workers are protesting about, but they are refusing to leave unless their demands are met.

The good news, however, is that the agreement between the head of the Cyrenaican Transitional Council (CTC) politburo, Ibrahim Jedhran, and the government appears to be holding despite the fragility of the situation on the ground. It was reported this week that foreign workers have returned to work in the oil fields in Jalu and that European companies are restarting their operations.

For more news and expert analysis about Libya, please see Libya Focus and Libya Politics & Security.

© 2014 Menas Associates

New security system for Algeria oil bases

Last week’s return of foreign workers to the Tiguentourine gas facility at In Amenas is based on the implementation of new security measures at Algeria’s oil and gas fields and their various installations. The new measures are reported to cover the four regions: the In Salah-Adrar basin, Hassi R'Mel, Hassi Messaoud and the southeast area encompassing Tiafti and In Amenas.

Our understanding of the new measures is that some 80 oil installations have been linked together in a new early warning preventative warning system. This includes intensive monitoring operations over oil and gas fields by military aircraft, as well as an alarm control system operated by Sonatrach that is triggered in the event of the discovery of any infiltration into 50 and 100 km security perimeters surrounding oil fields and bases. The military presence in areas close to industrial centres, oil and gas fields, and bases that have foreign employees has also been strengthened.

In addition, considerable emphasis has been placed on recruitment, not only at the point of recruitment, but throughout the period of employment and after the departure of the employee. This is because the terrorist attackers at In Amenas are believed to have collected information from former employees at the base.

Other safety procedures will include establishing a national security database that will hold the identity and a detailed biography of all Algerian and foreign workers in the oil companies.

For more news and expert analysis about Algeria, please see Algeria Focus and Algeria Politics & Security.

© 2014 Menas Associates

Ghana budget review comes amid ailing economy

Embattled Finance Minister Seth Terkper is expected to outline new measures to address Ghana’s economy when he presents a mid-year review of the 2014 budget.

The review, which is likely to take place before the end of this month, could see the ministry modify its macroeconomic targets for the 2014 budget, which are widely seen as being unrealistic, as well as present new policies to stabilise the economy.

As reports emerged this week that the cedi could fall even further to between GH¢3.50 and GH¢4 per dollar, there is mounting pressure on President Mahama and his Finance Minister to deal with the country’s ailing economy.

Last week the Trades Union Congress released a statement reprimanding the government for an economic situation which is “getting worse every day” and a country in which “nothing is working”. It pointed to the continuous slide in the cedi, unpaid salaries, job losses, failing businesses, rising inflation, energy shortfalls, rising utility tariffs and high taxes as factors which continue to harm hardworking Ghanaians.

The Private Enterprise Foundation (PEF), an umbrella organisation for private businesses, also said last week that the government’s “misguided” policies mean that business confidence is at its lowest in four years. This echoed the sentiment of the Association of Ghana Industries which in May called for drastic measures to improve the dwindling fortunes of Ghanaian businesspeople, as well the concerns of the Monetary Policy Committee which, in its April report, spoke of a depressed business environment. There is also considerable anger that the government is not grasping the severity of the situation. The PEF’s CEO, Nana Osei-Bonsu, said, “Government comments like ‘we are going through short-term challenges and difficulties, and this is like a hiccup’ are not helping. These are hurricanes! This is not a hiccup.”

International ratings agencies have meanwhile delivered a damning report on Ghana’s economic management. Following Fitch’s downgrade of its outlook from stable to negative, Moody’s lowered Ghana’s rating to B2 from B1, and maintained a negative outlook on the rating to signal the likelihood of a further downgrade in future; it then downgraded the ratings for the GCB.

Despite increasing pressures, the government is sticking to “home-grown” solutions for now rather than seeking financial assistance from the International Monetary Fund to help solve its problems.

For more news and expert analysis about Ghana, please see Ghana Politics & Security.

© 2014 Menas Associates

Kazakhstan increases crude oil export duty

The Kazakhstan government has increased the so-called ‘export customs duty’ (ECD) on crude oil from $60 to $80/ton. This change will take effect on 1 April, according to economy and budget planning minister Yerbolat Dosaev, who unveiled the new export tariff at a ministerial meeting.

The ECD increase should boost this year’s projected government revenue by $2.7 billion. The economy ministry has added $1.6 billion to this total in the form of extra tax income to be derived from the exporting industries’ future profits, which are widely expected to ameliorate after the 20% devaluation of the tenge in February 2014.

The ECD was introduced in May 2008 at the rate of $110/ton at a time when international oil prices were as high as $125/barrel. It was argued that the new duty would enable Kazakhstan to benefit fully from increasingly favourable conditions on global markets as well as its expected stabilising domestic effect.

In January 2009, however, the government scrapped the ECD after oil prices had fallen from their historic highs. As the global market stabilised the ECD was re-introduced in August 2010 at the rate of $20/ton. This was applied to all Kazakhstan-based oil exporters except those whose production-sharing agreements guaranteed stability of the customs regime. In January 2011 the ECD was increased to $40/ton and then again to $60 in April 2013.

The government plans for at least 6% GDP growth by the end of 2014, while also containing annual inflation below a 6–8% cap. The benchmark oil price that serves as the basis for all income and expenditure forecasts has also been increased, from $90 a barrel to $95. Some local analysts have already expressed their scepticism about the latter benchmark, given the possible impact of the crisis in Ukraine on future global oil market stability.

Earlier this month the US administration announced its intention to release around 5 million barrels of crude to the market and cited the need to test the sustainability of the US oil infrastructure after a recent surge of domestic production. Some have seen this, however, as a calculated move as part of Washington’s efforts to punish Moscow for its combative stance on

Ukraine’s Crimea peninsula.

While this quantity is clearly too small to have any significant impact on oil prices, expanding US domestic production may upset both Russia’s and Kazakhstan’s medium- to long-term price expectations.

For more news and expert analysis about the Caspian region, please see Caspian Focus.

© 2014 Menas Associates

Nigeria: Eurobond funds pumped into gas infrastructure

Minister of Power Chinedu Nebo said on 16 August that N70.2 billion (US$450 million) from Nigeria's Eurobond has been allocated for gas-to-power infrastructure. The Eurobond was launched in early July and it raised US$1 billion. It was four times oversubscribed which reflected investor optimism about Nigeria's economic prospects, and it secured long-term capital for the government's plans to tackle rampant power shortages.

While Nigeria's abundant gas resources mean generation capacity could soar, with a target of 40,00MW by 2020, the weakness of the country's transmission infrastructure remains a serious bottleneck. The country's transmission grid has a current capacity of less than 6,000MW.

 

The government has secured an additional US$1.47 billion to upgrade the transmission infrastructure from other sources, including the World Bank, the African Development Bank and the China Export-Import Bank. To finance the Transmission Company of Nigeria an additional US$1.6 billion is expected to come from the sale of ten electrical plants under construction as part of the National Independent Power Project (NIPP).

 

The NIPP project was inaugurated in 2004 under President Olusegun Obasanjo to construct power plants throughout the country and sell them to private operators. This week, the Federal Government pre-qualified 82 consortia as bidders. To meet the standards, the groups were required to have three years' experience in operating a thermal plant of over 300MW as well as having a net worth of US$100-200 million. The list of preferred bidders is due to emerge in January 2014.

 

There is, however, a serious disconnect between government policy and implementation. To boost the power sector's development the Federal Government waives duties on the import of certain machinery and equipment. But the Independent Power Producers Association of Nigeria complains that administrative sluggishness creates long delays in the approval of the waivers.

 

For more news and expert analysis about Nigeria, please see Nigeria Focus and Nigeria Politics & Security.

© 2013 Menas Associates

Iran to export gas to Iraq

Iran and Iraq have signed a high-profile agreement according to which Iran will supply 25 mcm/day of natural gas to the Al-Baghdad, Al-Mansouriyah, and Sadr power plants in Iraq.

 

The deal was signed by Petroleum Minister Rostam Qasemi and his Iraqi counterpart, Abdul Kareem Luaibi, in Baghdad. Iran will earn $3.7 billion a year from the deal.

 

In related news, the United States has announced that it is concerned about a $14.8 billion gas deal between Iran and Iraq and has asked Baghdad to explain it. The US State Department said that it plans to inform Baghdad about the implications with respect to sanctions.

 

In response, Mussab al-Mudaris, a spokesperson for the Iraqi Ministry of Electricity, emphasised that the natural gas supplies from Iran would help to ease electricity shortages by feeding two power plants in a Baghdad suburb.

 

For more news and expert analysis about Iran, please see Iran Strategic Focus.

 

© 2013 Menas Associates