Baz Waiswa

Baz Waiswa

The Unrealized Oil Promise of the Democratic Republic of Congo

By NJ Ayuk

It is no secret that the DRC's mining industry is of vital importance in answering the country's and the world's mineral needs. Today, copper, cobalt and other byproducts represent the backbone of the DRC's economic structure at about 85% of its exports.

That has been the case for many years, through several regimes, with little change. Besides metals, diamonds and oil represent the remaining of all that the DRC sends abroad, the vast majority of its outbound trade balance being composed of raw unprocessed goods.

Standing in the 12th position amongst African oil producers, the DRC's petroleum industry is miniscule at best, producing an average of 25 thousand barrels of crude oil per day off its coastal ageing fields. But that seems rather odd.

While there is not much talk about this particular fact, when we think of it, it is somewhat perplexing that the DRC, which is bordered by so many oil producers and has territorial waters in the prolific Gulf of Guinea, has never really developed an oil industry or even seemed to be interested in developing one, despite its prospective reserves. With a population of around 80 million people, of which around 75%, most statistics indicate, live in extreme poverty, the DRC is today amongst the five poorest countries in the world. 

One would expect that the country's leaders would strongly push for the exploration of the country's natural resources to produce wealth and provide for better living conditions for its citizens. Yet, the DRC's oil and gas reserves remain largely unexplored, while most studies estimate that there could be around 20 billion barrels of undiscovered oil in the country's basins, both onshore and offshore.

That is a tremendous amount of oil which, if confirmed, would place the DRC as the second biggest petroleum holder in Sub-Saharan Africa, behind only Nigeria, and far outdoing Angola's reserves of 9 billion barrels of oil.

This is not the Africa we want, and this is not the DRC that we want.

First of all, keeping certain communities in poverty to retain power is a complete mistake. Power stability comes from generalized improvement of life conditions. If the country is wealthier and is capable of improving the lives of those that live in it, the more stable it will be and the more capable it will become of sustaining and giving continuity to that development.

Further, as I have extensively defended over the years, the sanctity of contracts is of paramount importance to attract investment and partnerships into any country. What company would want to invest in a country where a contract can be signed and then cancelled a few months later without further explanation or justification?

And it is not just a matter of reputation, but of direct financial burden, lest not forget that just in March this year, an international court ordered the Democratic Republic of Congo to pay South African DIG Oil Ltd USD$617 million for failing to honour two oil contracts.

That is 1.6% of the country's 2017 GDP. How can any leader possibly justify such a loss to its economy. Not to, again, mention the enormous economic potential that could come from actually letting those contracts take shape and allow companies to explore the country's oil regions.

Stability depends on investment, cooperation and development. To attract investment, conditions need to be created for the business environment to be enabling for industry development. Disrespecting contracts does not achieve that. Nor does keeping people from producing wealth.

Just in May, French super-major Total abandoned its exploration license in the DRC. Bloomberg's article on the matter was titled "Congo's Lone Oil Giant Quits Search, Partner Says". That's right, it was the last major oil and gas company to abandon the DRC's oil plays. Others had been there over the years, Shell and Texaco for instance.

About 10 years ago, Tullow Oil and partners tried to acquire a license for exploration, signed a contract, paid the bonuses, and saw the contract then cancelled and the same block then sold to yet another company just a few months later. Nothing has been done in the acreage since.

This is the absolute opposite of what must be done.

Oil and gas production can bring enormous wealth to the country and its people, not to mention the ability the country's gas reserves could have to produce electricity to power homes and industry.

Since January 2019, the DRC is led by a new government. It now has the opportunity to change the status quo of the DRC within the global oil industry and to promote investment. The country's oil and gas laws are fairly well developed and the potential for discoveries is huge; the problem is reputation.

If the country's leaders can reassure international investors that their contracts will be respected and if investments can be facilitated and transactions made transparent, there is little limit to how quickly the country's industry could grow and how much its people could benefit. Better living conditions across the country would ease ethnic and social tensions and provide the basis for a level of socio-economic development that the country has never seen before.

If the dependency on the volatile prices of mineral commodities continues, as well as the uneven distribution of wealth, and if the generalized situation of extreme poverty is sustained amongst the population, instability, rather than stability, will be the end result.

Further, the DRC has the opportunity to seek the help and support of international institutions and partners in developing its oil industry, such as the World Bank, the IMF or the Norwegian government, which have vast experience in helping other African oil producers. They can also seek closer proximity with the US, where most of the major companies with the capability, technology and capital to help develop their industry reside. 

The US government also has an interest in promoting these developments in the DRC, as maintaining stability in the sub-continent and the Central African region is of particular strategic importance for US interests. 

It is astonishing to me that the leaders in Kinshasa are not willing to look from their windows just across the Congo river to Brazzaville and want to emulate the steps taken by their neighbour, the Republic of Congo, currently the third biggest oil producer in Sub-Saharan Africa.

Finally, good signs are coming from the current administration. In April, at the latest Africa Petroleum Producers Association's Conference in Malabo, Equatorial Guinea, the DRC's oil minister announced the country would put 38 blocks on offer for bidding and negotiation, located in three different basins. This is an important step in order to call out investor attention to the country, and I applaud the initiative.

Hopefully the regime change, the country's adherence to the EITI, and the new block offer will help bring investment, but more will have to be done to reassure investors that entering this market will be a profitable and safe bet, and that their interests and rights are protected by the law.

I hope to see these developments happening soon and to be a witness to the fulfillment of the DRC's oil industry's full potential.

NJ Ayuk is the CEO of Centurion Law Group, a pan-African law Conglomerate and the current Executive Chairman of the African Energy Chamber (EnergyChamber.org), the voice of the African Oil and Gas industry. He is the author is the upcoming book "Billions at Play: The Future of African Energy and Doing Deals".

Muloni Downplays Need For Mineral Development Authority

A request by Uganda Chamber of Miners and Petroleum (UCMP) to have the government set up a Minerals Development Authority is certain to hit a dead end after Eng. Irene Muloni, the minister of energy and mineral development told Earthfinds that this will be duplication of roles now being undertaken by the line ministry.

Elly Karuhanga, the chairperson of UCMP Council while speaking at the closing of the 8th Annual Mineral Wealth Conference at Kampala Serena Hotel, in the presence of Eng. Muloni and Edward Ssekandi, the vice president of Uganda, requested that the two government officials spearhead the formulation of an Authority that will oversee the minerals sector.

According to Karuhanga, the mining sector is not getting the deserved attention from the government, unlike other sectors. “Why do we have just a unit? What has stopped us from having a mineral development authority? If we had an Authority, the attention (to offer licenses) would be taken away from minister,” Karuhanga said inquisitively. 

Among the issues the Authority should handle, according to Karuhanga, is the issuance of licenses, now a preserve of the minister through the Directorate of Geological Survey and Mines (DGSM) in Entebbe. He added that the Authority should also be the regulator of the mining sector.

However in an interview with Earthfinds, just after the closure of the two-day conference, the energy minister said this will not be possible because the government is focused on setting up a national mining company, which itself was requested for by the Chamber to protect the country’s business interests in the minerals sector.

“In the draft law, we are looking at a mining company; that is what they requested earlier on at the same mining conference (Ed. the 7th annual mineral wealth conference of 2018). They have been saying why don't we put in place a mining company so that it is also able to participate in the mining sector tells,” Muloni said.

The minister emphasized that with the coming into existence of an online licensing system, putting in place an Authority will duplicate roles and present a cost burden to run that Authority.

“If you are looking at an Authority for regulation that means you have to provide for it. Recently, you heard, the government was trying to rationalize by merging some of these Authorities because a lot of money is put in there,” she said.

"We will try to minimize expenses by putting in place structures that are able to manage the sector effectively. And now that we have gone online, the systems are going to control and manage the whole mechanism," she added.

She explained that the minerals unit at DGSM takes up the responsibility of supervising the mining sector – to follow up and monitor what the investors are carrying out and if they are they doing it in accordance with the licensing condition.

Unfazed, Karuhanga said they are seeking to meet the cabinet to have the matter addressed.

The conference held under the theme ‘creating an enabling environment for mining in Uganda’ attracted local and international members of the private sector, policymakers and members of civil society.

Nabbanja, New UNOC CEO, Tasked To Implement Five Year Strategy

Uganda National Oil Company (UNOC) Monday announced that Ms. Proscovia Nabbanja will be the Chief Executive Officer taking over from Josephine Wapakhabulo who recently resigned.

Nabbaja, who has been operating in acting capacity, has immediately been tasked by the Board of Directors to implement the company’s Five-Year Strategy developed by Wapakhabulo.

The strategy basically spells UNOC ambitions and how to achieve its objectives key of which is to ensure that UNOC becomes a profitable company that brings value to its shareholders.

“The BOD is confident that Ms. Nabbanja’s appointment will propel UNOC to greater heights given her vast Knowledge, drive and experience in the petroleum industry.

“UNOC has a key role in ensuring the sustainability of petroleum resource production and reserve replacement in the country. In this regard, UNOC is planning to acquire exploration licenses with a view of increasing the resource base of the country.

“UNOC’s strategy is to build a refinery that meets the petroleum products' needs of Uganda and its regional neighbors, with any remaining to be exported,” read a brief statement issued by UNOC.

Nabbaja, a geologist, priority to taking the acting CEO role, was working at UNOC as the company’s Chief Operating Officer (Upstream).

Miners Want Fast Paced Sector Reforms

The government of Uganda must expedite legal reforms in the mining sector to enable investors do business, speakers said at the 8th Annual Mineral Wealth Conference sitting Thursday at Kampala Serena.

Andy Spiro, the country manager Great Rift Geosciences SMC Ltd, said that in order to attract investment ‘we need good and fiscal policies that are competitive’ adding that good laws will mitigate the risks in the sector.

Similarly, Dr. Luisa Moreno, the managing director Tahuti Global Inc, said favorable mining laws is what Uganda needs to attract investment. Dr Moreno also suggests that the sector should be looked at as a exploration sector not as a mining sector yet.

Dr. Elly Karuhanga, the chairperson, Uganda Chamber of Mines and Petroleum (UCMP), emphasized the need for Uganda to work towards creating an enabling environment for the mining sector.

These submissions from the private sector members who are too anxious to deploy their money into exploration and mining activities are coming at a time government has committed to revise the mining laws, regulations and policies.

Last year, a mining and minerals policy was put in place. Government with stakeholders in the private sector and civil society are participating in an ongoing review of the mining law and regulation that will phase out the Mining Act of 2003 and 2004 regulations.

Peter Lokeris, the energy minister in charge of minerals, explained that the new legal and regulatory framework shall unlock the mineral sector to spark transformation.

He noted that the sector has undergone through various transformations under Mining Act of 2003 that has been in force for the past 15 years.

Robert Kasande the permanent secretary of Ministry of Energy and Mineral Development stated that government intends to conclude the new legal and regulatory framework reviews as soon as possible.  

To facilitate mining activities in the country, the energy ministry is looking at putting in place an online licensing system, establishing a mineral certification system and online registration of all miners (especially artisanal miners) among other programs.  

United Nations Development Programme (UNDP) Uganda country representative Elsie Attafuah acknowledged that that sustainable development in the mining sector must benefit all men and women.

The 8th Annual Mineral Wealth Conference, organized by UCMP, is a high private sector led gathering that sits to deliberate on how Uganda can develop its mining sector.

This year’s theme of the two day conference is creating an enabling environment for mining in Uganda.

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