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Policy environment to determine oil discovery impact

2022-03-18  Maihapa Ndjavera

Policy environment to determine oil discovery impact

Recently, a joint venture consisting of Shell announced the discovery of oil offshore. Soon after that, another joint venture consisting of TotalEnergies made a similar announcement, with Qatar Energy and the National Petroleum Corporation of Namibia (Namcor) partners in both discoveries.

Minister of mines Tom Alweendo said in a ministerial statement in the National Assembly this week that this is indeed great economic news for Namibia, especially after various attempts over the years to discover oil. 

On a question of what will be the impact of the oil discovery on the socio-economic landscape, Alweendo said: “I would like to believe that we all want our discovery to be a blessing rather than a curse. However, for it to be a blessing hinges mostly on our policy environment, especially our institutional and political aspects.”

He noted that it has been proven that countries with strong institutions, a stable political system, and an effective legal framework were able to manage their oil revenues with a positive impact on the economy and for the benefit of their citizens.

The minister gave the assurance that Namibia’s institutions, political system and legal frameworks are such that there is no reason why the oil discovery should not be a blessing. What needs to be done, according to him, is to manage the resources with a clear understanding that these belong to both current and future generations. 

At the beginning of this year, a barrel of crude oil cost US$78, and today it costs US$110, an increase of 41%. 

Furthermore, Alweendo noted that the discovery of oil itself will not necessarily lead to cheaper local fuel prices, which have been increasing more recently. This will depend on a number of factors, such as the cost to extract the crude and the cost to refine it. 

“In our case, given the fact that this will be deepwater extraction, the extraction cost is likely to be much higher than in some other jurisdictions. Oil extraction cost is lowest in the Middle East. This is, however, not a sufficient reason not to invest in a local refinery. It will all depend on the economics of such an investment, and an assessment of that will be made at an appropriate time,” he stated.

The minister said Namibia will not have a production of crude oil tomorrow. There is even more analytical work that needs to be done before the construction of the platforms to extract the oil commences.

In his contribution, Rally for Democracy and Progress (RDP) lawmaker Mike Kavekotora said if the oil discovery is left to chance, the positive impact on the economy will be minimal. 

“If we continue with similar approaches like the ones in the Kavango regions to our natural resources, the end- results will be negative. At best, it could be a marginal positive contribution to the economy. It is time for us to interrogate how we handle our natural resources, including revising our laws, and if need be, amend them to make sure the benefit of the natural resources accrues to Namibians,” he reasoned.

Kavekotora added that in the absence of good laws, it will be difficult to quantify the economic value of natural resources for all Namibians. 

For his part, Swanu parliamentarian Tangeni Iijambo observed that “this is the only country that I know that willingly forfeits its natural resources to investors.” 

He further questioned why Namibia has minimal shares in its own resources. Iijambo then advised government to build a refinery that will ensure that value-addition of this new discovery happens domestically.

2022-03-18  Maihapa Ndjavera

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