One Year Since Malawi’s Government Started Reviewing Oil Exploration Licences and Agreements

One year ago today, on 18 November 2014, the Ministry of Natural Resources, Energy and Mining announced that the Government was reviewing all exploration licences for oil and gas and any agreements signed with companies. The companies were told to cease operations until the review was complete. The review is yet to be concluded.

The Press Release, signed by Principal Secretary Ben Botolo, indicated that the review was being undertaken

to allow the Government to thoroughly scrutinise and review each and every Licence and Agreement that was issued or signed. This procedure is necessary to ensure that the Licences that were granted or the Agreements that were signed are for the benefit of the people of Malawi and were done in accordance with all the relevant laws of the country.

Licences were awarded during both the administration of Bingu wa Mutharika and of Joyce Banda and agreements were signed less than two weeks before Banda left office in May 2014, or so we learnt through The Nation’s reporting earlier this year.

2014 CFJ Oil Exploration and Production in Malawi - Policy and Legal Audit, Image page 51

Taken from Citizens for Justice Oil Exploration and Production in Malawi – Policy and Legal Audit (2014), page 51

To quickly recap: the first exploration licences (awarded under Malawi’s 1983 Petroleum (Exploration and Production) Act) were awarded to UK-based Surestream Petroleum for Blocks 2 and 3. One year later, in 2012, South African SacOil Holdings acquired Block 1.

In October 2013, the final blocks demarcated for exploration were awarded to RAK Gas MB45 Limited (a Cayman Islands subsidiary of a state-owned company of the United Arab Emirates Ras al-Khaimah) for Blocks 4 and 5 and to Pacific Oil Limited for Block 6. A few months later, in February 2014, joint operating and farm out agreements were concluded between Hamra Oil Limited and Surestream Petroleum, assigning a 51% stake to Hamra and with approval of the Minister. Hamra is believed to be controlled by the same parties as RAK Gas MB45.

The most recent edition of the Mining & Trade Review highlights that at present SacOil has been allowed to continue with exploration, while the work of the other companies remains suspended. SacOil has completed an environmental risk screening study of the prospecting area, conducted by consulting firm, Golder Associates. Hamra has concluded a full tensor gravity (FTG) survey following an environmental and social impact assessment conducted by the RPS Group for Surestream and RAK Gas has also conduced a FTG survey. Surestream remains active in its support for Malawian football (through its academy after recently withdrawing sponsorship for a team) and Hamra has committed to financing the studies of 10 Malawian students in oil and gas.

In April 2015, The Nation revealed that Malawi’s Attorney General Kalekeni Kaphale had produced a legal opinion on the 6 oil exploration blocks and the subsequent production sharing agreements the government signed:

  • On the exploration licences, the Attorney General stated that the companies controlling Blocks 2-6 (RAK Gas, Pacific and Hamra) are linked to the same owners and the “corporate veil” may have been used to acquire more than the maximum two blocks (stipulated in Petroleum (Application) Regulations under the 1983 Act). While further evidence is required to understand the relationship between the companies, Kaphale argues that the licences should be revoked or cancelled or the company asked to choose two contiguous blocks out of the five.
  • On the three production sharing agreements (for blocks 4, 5 and 6 with RAK Gas and Pacific) the Ministry signed on 12 May 2014, the Attorney General believes that these were entered against advice from the Solicitor General’s office and even though the exploration licences suggest that the agreements can only be entered once production licences are issued. Kaphale concludes that if the exploration licences can be cancelled or relinquished following acquisition of further information about the relationship between the three companies, then the agreements can be re-negotiated and the current ones invalidated. He further advises that the agreements can be cancelled or revoked and only negotiated once a confirmed discovery of petroleum is made.

Government’s decision on this information and on the review remains unclear which, some have opined, is not conducive for building trust with would-be and current investors in the country’s extractive industries or with citizens. Recent commentary in the October 2015 Mining & Trade Review and an op-ed piece this November by Thom Chiumia of Nyasa Times reflect some of the discontent around the indecision. A second opinion written by the Attorney General for the Cabinet continues to call for the cancellation of the licences for the blocks for which production sharing agreements have already been signed between the Government and RAK Gas.

The Minister of Natural Resources, Energy and Mining, Hon. Bright Msaka, indicated that

A government decision is yet to be finalised because this is a very weight matter; a heavy matter. We cannot just make a decision that pleases the investors or a decision that leaves us in a legal wrangle.

In February 2015, the public was told that the review would conclude in March 2015. In June 2015, The Nation reported that the Government had invited the companies for a meeting to present the Attorney General’s legal position and Capital Hill’s position on the review of the licences and agreements. However, the companies were not available for this meeting, which the Principal Secretary Botolo took as a sign of disinterest.

Nonetheless, this administration has shown commitment to improving governance of the sector by joining the Extractive Industries Transparency Initiative (EITI). In a Press Release in July this year, the Minister of Finance, Economic Planning and Development, Hon. Goodall Gondwe, who is the EITI champion, noted that mining would be included from the beginning of Malawi’s reporting for the EITI and oil and gas will be considered at a later stage. A scoping study is currently under way to determine which companies, natural resources and payment streams should be included in the first EITI report and the Malawian civil society chapter of Publish What You Pay (PWYP) is pushing for the inclusion of oil and gas from the beginning,

PWYP Malawi strongly recommends that oil and gas be included in the first report as the Government of Malawi has a number of contracts with companies in this sector.

Legal challenges aside, environmental concerns and the relationship with Tanzania over the boundary on the Lake Malawi, covered by three of the exploration blocks, remain.

In 2012, a dispute flared up between Malawi and Tanzania over the boundary of Lake Malawi (or Lake Nyasa as Tanzanians call it) and President Banda referred the dispute to the African Union for mediation as Tanzania laid claim to half of the lake. Three of the six blocks cover Lake Malawi apart from over Mozambique’s territory. A mediation team of former heads of state, formed in 2013 and led by Mozambique’s former President, Joaquim Chissano, is yet to reach a conclusion.

Malawi’s current President Arthur Peter Mutharika is reported to have said that the Lake is “non-negotiable” although a proposition for resource-sharing was put forward this year by the mediation team given the potential oil and gas resources. In August, Malawi’s Minister of Foreign Affairs and International Cooperation George Chaponda said

The Lake is ours. If mediation fails then the complainant should go the international court of justice to seek redress.

Part of the Lake and onshore area awarded under exploration licences also fall within the UNESCO World Heritage Site Lake Malawi National Park, one of two such sites in Malawi. In fact, 61% of all World Heritage Sites in Africa are overlapped by extractives concessions or activity.

In response to the awarding of licences in the World Heritage Site area, UNESCO carried out a reactive monitoring visit to the Lake Malawi National Park in March and April 2014. The mission concluded that a wide buffer zone must be established around the property to protect it from oil exploitation and argued that there is scope for extension of the property to include a more fully representative sample of the lake’s unique species, biodiversity and evolutionary processes.

The oil exploration companies with rights to parts of the Park (Surestream, now Hamra, and RAK Gas) were also called upon

to publicly subscribe to the commitment already made by industry leaders Shell and Total not to undertake any exploration and/or exploitation of oil and gas inside World Heritage properties.

A full list of recommendations can be viewed here. By 1 December this year, the Government of Malawi is meant to submit a report on the state of the conservation of Lake Malawi National Park, including a response to

Reiterates its concern over oil exploration activities throughout the lake, noting that an accidental spill would pose a potentially severe risk to the integrity of the entire lake ecosystem including the aquatic zone and shoreline of the property

Notes that an Environmental and Social Impact Assessment (ESIA) for oil exploration in the northern part of the lake is being carried out, and requests the State Party to ensure that this ESIA includes a specific assessment of potential impacts of oil exploration and subsequent exploitation on the Outstanding Universal Value (OUV) of the property, in conformity with IUCN’s World Heritage Advice Note on Environmental Assessment;

Urges the State Party to cancel the oil exploitation permit which overlaps with the property and reiterates its position that oil, gas and mineral exploration and exploitation are incompatible with World Heritage status;

Calls on Surestream and RAKGAS, who have been awarded oil exploration concessions on the lake, to make a commitment to not exploit nor explore for oil or gas in World Heritage properties;

This is set against a backdrop of civil society groups calling for the review of legislation governing the sector, which it deems is outdated. The 1983 Petroleum (Exploration and Production) Act states, for example, that control of petroleum resources are vested in the Life President on behalf of the people of Malawi and fines amount to no more that USD 10 or two years imprisonment.

The review of rights to Malawi’s potential oil and gas resources, the conclusion of mediation around the Lake Malawi boundary and a decision by Government on Lake Malawi National Park must be at the forefront of activities if Malawi’s extractives sector is to contribute to national development as has been hoped. In the absence of clear communication on these issues, both citizens and investors will be wary about exploiting Malawi’s resources.

Today also marks three years since I started Mining in Malawi!

– Thanks for the support, Rachel Etter-Phoya

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5 responses to “One Year Since Malawi’s Government Started Reviewing Oil Exploration Licences and Agreements

  1. Pingback: Link Roundup for Extractive Industries in Malawi: November 2015 | Mining in Malawi·

  2. Pingback: Pressure on Government to respond to UNESCO on oil exploration in Lake Malawi National Park | Mining in Malawi·

  3. Pingback: Malawi Asks for More Time to Review UNESCO Position on Lake Malawi and Oil Exploration | Mining in Malawi·

  4. Pingback: Event: Public Talk by Godfrey Mfiti “Is Oil Drilling in Lake Malawi Sustainable Development?” (12 January 2016, Blantyre) | Mining in Malawi·

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