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Malawi steps on murky waters of oil industry

The restoration of oil and gas exploration licences by the government to some companies will be seen to augur well with efforts to tap into Malawi’s mineral resources –for long an underexploited sector.

But developments in the oil and gas industry elsewhere on the continent should show that Malawi has set sail on rather murky waters.

And particularly important is that the daunting work for citizens to police the sector has only begun.

The oil and gas business, perhaps because it is a mega-money industry, is notorious for being dubious and bloody even if the preliminary steps for contracts may be satisfactory.

Global Witness, an organisation that “exposes the hidden links between demand for natural resources, corruption, armed conflict and environmental destruction” around the world, indicates in its January 2012 report that getting the first steps in the extractive industry deals right is not enough.

“Even where a country has adopted competitive bidding and taken some steps towards public disclosure of the revenues that flow to the state from oil, gas or mining, there is still a risk that corruption could take new forms, such as the abuse of the licencing process to favour shell companies controlled by government officials or their proxies,” it says.

Through competitive bidding, in 2011 government licensed Surestream Petroleum Limited for oil and gas exploration on Block 2 and 3 on Lake Malawi. Surestream later farmed out 51 percent share of each block to Hamra Oil in 2014.

In 2012, government also licensed SacOil for exploration in Block 1.

In 2013, it licensed Rak Gas for Block 4 and 5 and Pacific Oil and Gas for Block 6.

However, in November 2014, apparently sensing underhand dealings in the transactions, government suspended the licences pending review and legal opinion by the Attorney General.

In May 2015, Attorney General Kalekeni Kaphale released his opinion.

In his review, the Attorney General found, among other things, that production sharing agreements for the deals were signed before production licences were awarded and before oil and gas discoveries were made.

It was also found that some of the licencees were in breach of the provision of the Petroleum (Exploration and Production) Act (1983) that a company can only control a maximum of two contiguous blocks.

It was further established after the inception of the exploration exercise that three of the six licensed companies belonged to a single shareholder but were locally registered in different names so they could acquire a bigger share of the exploration contracts. This was a violation of the Petroleum Act.

Minister of Energy and Mines Bright Msaka said last week that following the review, government has finally given a go-ahead to some of the companies to resume operations.

Msaka declined to give the names of the companies that were in compliance and those that had not been.

But he said government would cancel the licences of those companies that were found to be in contravention of their licence provisions.

“For those companies, we are going to follow proper procedures before cancelling their licenses. We will give them an audience where they will be given a chance to defend their position,” he said.

The seemingly strong hand by the government on the licensing at this stage sits well with issues of transparency and accountability.

But that the government is at pains to name the ‘culprit’ and compliant companies should point to the secrecy that the extractive industry is known to be shrouded in and about who holds greater power between the licencees and the government.

That in part explains why, in the words of Global Witness, “African countries with mineral resources have too long been held back from prosperity by a baleful history of collusion between corrupt and incompetent rulers and amoral international companies.”

In its 2012 report titled ‘Rigged? The Scramble for Africa’s Oil, Gas and Minerals’, the organisation observes that an ‘open’ bidding process will not mean much “if its outcomes are decided away from the scrutiny of legislators, civil society groups and the public”, or if the authorities opt to abandon rules and hand valuable public assets to companies with highly obscure ownership.

Even when initial controls have been implemented, lack of aboveboard dealings throughout the chain is at the heart of all that is tragic and exploitative about the extractive industry.

In the sector, transparency and accountability seem to be commodities owned exclusively by government officials and the companies.

Which is why mineral resources in Africa have become articles of blood and poverty.

In this respect, Nigeria and Angola, which were subjects of the Global Witness 2012 investigation, will come to mind.

The two are Africa’s biggest oil producers, exporting between them about four million barrels of oil per day.

But their experiences with oil are largely a tale of tragedy, a narrative that tells Malawi that finding seams of oil on Lake Malawi will not mean Malawi will stop worrying about fuel shortages or that Malawi will become a prosperous Saudi Arabia of Africa.

For instance, an official audit by the Nigerian government last month uncovered a fraud of US$16 billion of oil money at the state-run Nigerian National Petroleum Corporation.

This is only one of the many stories of fraud infesting this industry in Nigeria.

In fact, Nigeria’s oil sector is popular not for stories that it is making the country a prosperous economy; rather, it is for its never-ending accounts of serious environmental destruction, patronage politics, human conflicts and rampant theft of oil money.

In Angola, a 2011 report by the International Monetary Fund (IMF) found that US$32 billion linked to state oil company was not accounted for.

For both countries, oil is their economy; it is the spinner of enormous sums of government revenue.

But the citizens of the two countries are amongst the poorest in the world, with about 70 percent of 21 million Angolans and 80 percent of 150 million Nigerians living on less than two US dollars a day, according to Global Witness.

That should measure how choppy are the waters ship Malawi is getting into.

In a country where corruption is increasingly becoming a means of earning a living for many, where officials with deficient negotiating skills have to deal with shrewd and highly-experienced operators backed by exploitative international firms, where the laws are not only weak but also outdated and enforcement almost zero, there is every reason to be adequately cautious about this voyage.

That Malawi is now a member of the Extractive Industry Transparency Initiative (EITI), a global rally seeking to promote accountability in management of natural resources, may be a beacon of light on that dark sea.

EITI says for a country to meet an EITI standard, it is required to disclose the process for transferring or awarding a licence, the technical and financial criteria used, information about the recipient of the licence, and any non-trivial deviations from the applicable legal and regulatory framework.

“Implementing countries are also required to maintain a publicly available register with timely and comprehensive information about each of the licences. All contracts and licence are encouraged to be published,” says Eddie Rich, Deputy Head and Regional Director for Africa and Middle East at EITI International Secretariat, in an email response to Malawi News this week.

But convincing proof is hard to find yet that being EITI compliant member guarantees fairness in how natural resource extraction deals are struck and openness in resource revenue is a done deal.

Experts even question the effectiveness of EITI, with some arguing that EITI promotes “zombie transparency” –a situation where a country complies but does not make real change on the ground.

Others suggest however that EITI could help, describing EITI membership as only “a step, not a solution”.

Rachel Etter-Phoya is Head of Accountability, Policy and Programmes at Citizens for Justice, a local civil society organisation which works in the extractive sector.

She says the administration took a bold step in public interest when it decided to review the agreements with the oil firms.

But government has to clearly communicate to the public about why certain licences have been restored while others remain suspended.

“We have the right and the need to know. The government must finish well after making a good start,” she urges.

Etter-Phoya says such transparency is also important for creating a favourable environment for doing business in Malawi.

She adds:

“Government’s position and action on exploration concessions overlapping Malawi’s World Heritage Site, Lake Malawi National Park, and the ongoing border dispute with Tanzania is also significant yet remains unclear.”

According to Etter-Phoya, interest in and concerns about Malawi’s potential, yet-to-be fully explored, oil and gas resources are great both in Malawi and across the world. She therefore calls on the civil society including the media to take a huge responsibility to keep the public informed with correct information.

“This will make it easier to hold government accountable for enforcement of laws and regulations. We need to lobby for improvements in access to information, environmental protection and monitoring, community rights, and updating relevant legislation,” she says.

The Oslo-based EITI suggests the role of citizens is no less vital. It says natural resources such as oil, gas, metals and minerals “belong to a country’s citizens”.

Knowing what is known about them, government and the oil firms will always be defensive of their actions. They will always spin positive arithmetic about the project.

But being owners of the resources, Malawians would do well to be mindful that it could be a long, treacherous, potentially deadly sail this one –and that they should therefore stand ready to be the counterweight as the ship sets forth into the unknown.

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