By: Nghiinomwenwa-vali Erastus
There is a phrase that leaders use in their speeches that “the resources are ours.”
This phrase is, however, being rejected like a null hypothesis as the public beg the state to own more of the resources it claims to own.
This notion is being laid bare as the leader of the opposition party and the general public are demanding the government renegotiate its mineral riches deals and acquire more stakes.
The call is revived by the new oil-finding news with the call for the government to own more of the potential findings by renegotiating the country’s Oil Prospecting and Extraction Agreements.
However, the Ministry of Mines and Energy, in its responses to the opposition parliamentarian and the general public, was that if the government wants to acquire more stakes in its mineral riches beyond the 10 per cent carried interest, it should deploy and risk capital.
This will be to buy more shares and also bourne the risk involved in exploration, the ministry explained in its lengthy response on Tuesday.
“If the state wishes a 51% participating interest in its exploration block, it will have to fund the exploration programme to the tune of a hundred million dollars,” the ministry responded.
In the same statement, the mines and energy wrote, “is without a doubt that the Namibian resources belong to its people”.
Explaining further that this also involves the full financial and operational risks which are borne by those who do mineral exploration.
The ministry said that International Oil Companies (IOCs) that invest in the exploration do carry all the risks involved and are ready to lose billions of dollars if the operation fails.
This is because the IOCs have fat balance sheets and experience to either take the financing risk and/or to avoid significant loss of investment.
According to the mines team, the impact of which a country’s economy is not naturally designed to withstand.
The team stated that the significant funds invested by the IOCs will only be recovered after several years of production (if any), and then the government will start to receive royalty, tax, and profit oil upon the commencement of production.
IT’S OK TO GIVE UP THE RESOURCES AT THE T EXPLORATION STAGE
According toTom Alweendo and the team, what they are practising is basic standards for the ratio of ownership to be high for the investors at the exploration stage as in Namibia, with the government having only 10% ownership.
“From a competition perspective, it is industry standard that the IOCs take about 80% to 100% participating interest during the exploration phase”.
They added that having a 51% regime in Namibia will be typical and may also lead to a “view of expropriation tendencies”.
Expropriation tendencies are one of the major country risk assessments considered by IOCs and finance providers globally. The team reminded the parliamentarian and the public.
The 90% participating interest that the IOCs take also means that in the event of a farmout, the new investor will have to fund a greater percentage of the exploration operations, as opposed to a scenario where the state already holds 51%, meaning that the new entrant will be funding a significantly lower percentage of the work programme, according to the ministry explanations.
Another reason provided by the mines and energy team is that having the state as the majority owner and hence the funder of exploration and development activities will mean that the economic benefits of foreign investment to the local private sector will be significantly reduced.
As a result, the mines ministry cautioned the parliamentary and the public, that are demanding better ownership of the minerals, to be extra careful when it comes to the mining sector.
“It is therefore based on the above that care should be exercised when administering this industry and comparison of Namibia with matured jurisdictions such as Norway need to be approached with caution,” wrote the ministry.
While the IOCs bear all costs associated with exploration, the country continues to benefit from the economic activity brought into the country, including goods and services that will be supplied by the local private sector, says the ministry.
In addition to the tax and royalties that the state will be entitled to, the team indicated that the IOCs will transfer technology to the state and provide world-class training at no cost to the state.
This will lead to the development of the state’s ability to take greater participation in the development of its resources in the future, wrote the ministry.
Alweendo and the team also explained that is important to recognise that mining and oil exploration is a very highly technical and capital-intensive industry that only operates with specialised skills.
The current oil discoveries are located between 3500-2000km of water depth and at a distance of more than 250km from shore.
The process of drilling, which is used to explore the oil or to extract it, is quite capital intensive.
According to the mines team, each of the wells costs more than N$l billion to drill, highlighting the magnitude of the undertaking.
The mining ministry, however, stated that it is its fiduciary duty to ensure that the state has the resources explored, discovered, and produced with minimal financial exposure to the state.
Moreover, recognise that this specialised industry requires companies with those skills.
In recognition of this, the ministry acknowledges the need to develop more economic linkages.
The team updated that through the currently ongoing process of developing the Local Content Policy, an additional level of participation will be added, which will cater for more benefit for the Namibian people.
HOLD YOUR HORSES; COMMERCIAL VIABILITY NOT DONE
The Mines Ministry has also reminded the parliamentarians and the public that the discoveries of light crude oil are so far from exploratory drilling.
“Although these exploration wells encountered hydrocarbons, the journey to the production of oil is still far,” the ministry wrote.
The team explained that the government and the joint venture partners are in the process of ascertaining the volume of the resources and establishing whether it is of commercial value.
Upon establishment of commerciality, development plans will then be articulated and, on their basis, final investment decisions made.
Once the final investment decisions are made, developing the oil field to construct the infrastructure required for production will commence.
The team also tried to calm the whole hype of oil discovery. The journey from discovery to appraisal, development and then production of the first oil could take a minimum of 5 years, depending on the requirements of the field.
“Although we are thrilled to have made the discoveries, the total recoverable reserves volumes are not yet established at this stage.”
This says that figures quoted in the media are highly speculative and should therefore be treated with caution.
If commerciality is attained, the resources will be developed sustainably for the economic benefit of all Namibians. The team assured while adding that the activities regarding the oil exploration and others are conducted in line with the provisions of the Namibian constitution, the Petroleum Act, and other related laws.