Oxfam Malawi lobbies legislators to push for fair oil deals – Mining & Trade Review

201806 Malawi Mining & Trade Review Oxfam MPs

Oxfam lobbies legislators to push for fair oil deals

By Marcel Chimwala

Oxfam Malawi says there is a need for members of parliament (MPs) to utilize research based information to push for fair fiscal terms in oil contracts which the government signs with multinational firms in order to ensure substantial benefits to the country when an oil discovery is made.

Interim Country Director for Oxfam Malawi, Lingalireni Mihowa, said this when the organization presented “an analysis report on fiscal terms in Malawian oil contracts and their implications for potential government revenue” to Members of Parliament (MPs), mostly drawn from the Parliamentary Committee on Agriculture, Natural Resources and Climate Change, at Capital Hotel in Lilongwe.

Oxfam engaged local and international experts to develop the report which analyses Petroleum Sharing Agreements (PSAs) which the government signed with multinationals RAK GAS MB45 Limited for Blocks 4 and 5 and Pacific Oil & Gas for Block 6 in comparison with similar agreements signed by other countries which are prospecting for hydrocarbons such as Uganda and Kenya.

We urge you our members of parliament to utilize this high quality evidence from experts to push for the interest of Malawi in these agreements,

said Mihowa.

She said her organization realizes that it is important to engage MPs to lobby for sound policies and legislation for the extractive sector which can be an alternative to agriculture as the latter is encountering several challenges including climate change.

Oxfam Malawi started its extractive industry programme in 2016 to lobby for good governance of the sector by, among other things, promoting transparency and accountability.

Our aim is that Malawi should get it right in managing the extractive sector including the emerging upstream oil and gas subsector. We have to learn from other countries that have discovered oil and are doing things right for the benefit of their citizens,

she said.

Oxfam Malawi Coordinator for Extractives Industry, Elyvin Nkhonjera Chawinga, said as Malawi is developing its oil and gas exploration and production sector, it is important to prepare the ground to ensure that when discoveries are made, they contribute to sustainable development.

Chawinga explained that the best preparation for the oil discoveries is to come up with win-win agreements with companies, which will ensure that there are tangible benefits to the country while not scaring away the investor.

If we get it wrong in the awarding of contracts, Malawi has lost,

she said.

Chawinga also urged the government to promote transparency and accountability in the managing of the oil and gas subsector by, among other things, disclosing to the public the contracts that it signs with prospecting firms.

She said it is unfortunate that the government rushed to sign the existing contracts with RAK GAS and Pacific Oil in 2013 while using the outdated law (Petroleum Exploration and Production Act 1983) and before it finalized the development of a model PSA.

Chawinga, therefore, stressed the need for Malawi to review the Petroleum Act, finalise development of the model PSA and develop a national petroleum policy in order to establish a clear legal and policy foundation on which to promote the development of the oil and gas subsector.

Chairperson of the Parliamentary Committee on Agriculture, Natural Resources and Climate Change, Victor Musowa, commended Oxfam for producing the report and engaging the MPs in the learning and sharing session on analysis of fiscal terms in oil contracts, which included a dinner.

This is very important information because parliament needs issue-based discussions. Our committee is in support of Oxfam’s goal to promote sustainable extraction of resources for the benefit of the country’s population,

he said.

Musowa, who is MP for Mulanje Bale Constituency, also said the session has come at an opportune time when parliament is expected to debate and pass the long awaited Mines and Minerals Bill, which is also targeting the extractive sector.

Chairperson of the Natural Resources Justice Network, Kossam Munthali, asked the legislators to show commitment in debating and passing both the Mines and Minerals Bill and the revised petroleum law when they are tabled in parliament.

He also urged the MPs to ensure that the new laws protect citizens from harmful mining practices and ensure that Malawians substantially benefit from resource extraction projects.

We also ask you to push for transparency in the governance of the extractive sector because there is more secrecy in the issuing of licences to mining investors and even the renegotiation process for oil contracts,

he said.

A local consultant who took part in the development of the report, Fredrick Maliro Chanza, summarized the report to the MPs highlighting that Malawi stands to benefit more from the oil and gas subsector if it utilizes the terms in the model PSA currently being developed other than the signed contracts and an addendum that has been developed on the signed contracts as part of the renegotiation process with the oil firms.

A model PSA with well-calibrated fiscal terms provides a sound basis for negotiations with international oil companies. Malawi should finalise the development of the model PSA, including comprehensive review of the fiscal provisions, and use that document as a foundation of all future negotiations,

said Chanza who is an expert in taxation and public policy, and energy and mining economics including financial modelling.

He also said the Malawi government needs to strengthen its capacity to undertake an economic analysis of the fiscal terms contained in existing or future contracts.

The economic model prepared as part of this project is a tool that can assist in meeting this objective,

Chanza said.

He also emphasized the need for the Malawi government to build on previous efforts to renegotiate the fiscal terms contained in the already signed PSAs in order to ensure that the government protects its revenue interests and secures fiscal terms that generate an increased share of revenue for the government, particularly for projects that are highly profitable.

The fiscal terms contained in Malawi’s three signed PSAs are based on the same basic instruments included in the model PSA.

However, Chanza said specific provisions in the signed PSAs are more generous to the oil firm than is the case with the model PSA.

He explained that the terms contained in the proposed addendum of late 2016 improve the government’s position but still do not enable the government to secure a larger share of the divisible revenue for highly profitable projects.

The provisions in the signed PSAs relating to profit oil allocation and a potential reduction in the rate of corporate income tax fall outside the bounds of international good practice. The government of Malawi should, therefore, seek to remove these two provisions, as appears to have been the objective in negotiations on the proposed addendum,

said Chanza.

Comparative analysis with contracts from Kenya and Uganda signed before suggests that Malawi should target a government take of around 70% as according to IMF, a government might expect to secure between 65% and 85% of the divisible (after-cost) revenue from a petroleum project. However, countries like Malawi with no history of a commercial oil discovery should expect to be on the lower end of the spectrum.

Chanza also says further review of the fiscal terms applicable to deep water projects may be appropriate given the very high challenging economics for deep water projects in a lower oil price environment.

This review can likely be pursued after onshore discoveries have proven the availability of commercial oil discoveries in the country and the companies are excited to invest in deep water offshore exploration which is very expensive especially in a landlocked lake hundreds of kilometres away from the East African coast,

he said.

***

This piece was initially published in Malawi’s Mining & Trade Review Issue Number 62 (June 2018).

The full edition is available for download here. This monthly publication is edited by Marcel Chimwala.

 

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