Posted by: Home Strange Home | May 17, 2010

Recent Oil Finds in Africa

A number of recent oil discoveries in Africa over the past several years have reignited debates over whether oil is a blessing or a curse for developing countries. 

In the Democratic Republic of Congo, where it is argued the country’s mineral wealth has fuelled civil war, oil discoveries have been made on the eastern shore of Lake Albert.  An estimated 2 billion barrels lie in reserve under the lake.  Lake Albert straddles the bordered between the Congo to the east and Uganda to the west.  The main economic activity around the lake is fishing.  

Currently, the Congo produces only 28,000 barrels a day, which are extracted by a French company called Perenco and come from the Congo’s narrow Atlantic coastline.  The Congolese government has not done much to encourage foreign investment to develop the oil industry.  The lack of infrastructure, weak institutions, and poor safety record in the Lake Albert region will make it difficult for foreign investors.  

Some foreign oil companies have been waiting years for President Joseph Kabila to allow them to start exploring oil blocks which they made upfront payments for in the past; other licenses are being disputed.  For example, Tullow Oil, a British oil firm, in consortium with Heritage Oil and Cohydro, signed an agreement for an oil block on Lake Albert in 2006 and paid a $500,000 “signature bonus.”  But the government subsequently revoked it, saying it was invalid, and gave the permit to a rival consortium which includes South Africa’s state oil company PetroSa. 

Tullow Oil is the same company that announced the discovery of 600 million barrels of oil offshore in Ghana in 2007.  The national oil company, Ghana National Petroleum Company (GNPC), has partnered with a number of foreign oil companies to contribute their expertise and help extract the oil.  Ghana has traditionally exported gold, timber, and cocoa, and the discovery of offshore oil reserves in the Gulf of Guinea has induced a sort of mania among the government and the populace in anticipation of an oil boom.  But some think these expectations are unrealistic. 

After all, the oil is offshore – 100 kilometers out to sea – and it may be extracted without ever coming onshore.  Even people in the southwestern region of Ghana, the closest region to the oil, are unlikely to benefit.  Such enclave extraction has very few linkages with the local economy and generates few possibilities for job creation for the average Ghanaian.  The oil rigs will only create a few highly specialized employment opportunities (perhaps 200 jobs).  And some existing jobs may be destroyed—local fisherman have already complained that the boats going out to the rigs run over their nets, and they are being limited in terms of where they can fish.  

Moreover, the government will not keep all of the oil revenue, but will only receive royalties in the range of 10%.  The question is how the government will use this oil revenue.  Ghana is cognizant of the possibility of the “oil curse,” and has looked to Norway for advice on how to best manage the oil find and build a fund for oil revenues that can be harnessed for the nation’s development.  That said, so far the government has not even made detailed projections of the revenues, yet how they will be used.

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