Govt’s oil dilemma

• Increased shareholding might chase away investors, Namcor warns
Namibia's oil discoveries have pitted politicians and technocrats against each other over shareholding margins, which the former feel are too low, while the latter say that the current shareholding regime is ideal for investments.
Namibia’s oil parastatal, the National Petroleum Corporation of Namibia (Namcor), has opposed a recommendation by the Parliamentary Standing Committee on Natural Resources that calls for government to hold a 51% shareholding in companies investing in the petroleum sector.

The recommendation is contained in a committee report that was compiled in response to a petition to stop oil drilling in the Kavango East Region, related to exploration activities in which the Canadian company Reconnaissance Africa (ReconAfrica) is currently engaged.

Among the recommendations contained in the report are for greater participation by government in the oil and gas sector through Namcor.

“Namcor should, on behalf of government, hold 51% shares of all new companies investing in natural resources of the country to derive maximum benefits,” the committee note in the report.

Bad idea

Namcor’s managing director Immanuel Mulunga did not welcome the recommendation, saying it would kill interest in Namibia’s oil and gas sector.

“We do not support such a proposal; it will kill off the oil exploration industry overnight. Namcor participation is not the only way that the state benefits from oil and gas. Government receives royalties and various taxes which, together with Namcor’s equity, puts the government take already at 65%. That proposal is ill-advised,” Mulunga told Namibian Sun last week.

Asked whether the 10% carried free interest by Namcor in oil and gas projects is automatic, Mulunga responded: “No, it’s not automatic. It has become an unwritten rule over the years. Perhaps that’s something that can be regulated instead of the current proposal.”

Mines and energy minister Tom Alweendo commented on the issue as follows:

“While I understand the reasoning behind state ownership in companies investing in our natural resources, this must be done with due care such that we do not inadvertently discourage needed investments,” he said.

It is not the first time the committee has made a call for greater participation by government in Namibia’s oil and gas resources.

Last year, committee chairperson Tjekero Tweya and committee member Mike Kavekotora questioned government’s shareholding in oil and gas resources during a presentation by Namcor officials.

Benefits

Recon’s stock market price had risen to the benefit of its shareholders on the Toronto Stock Exchange, while 10% equity partner Namcor derived no monetary benefits from the change in its share price.

Namcor said the oil and gas licence obtained by ReconAfrica had increased the Canadian company’s market value from N$141 million in 2015 to N$25 billion in 2021.

“With your 10% they benefit, but with their 90% you don’t benefit until the production phase. What if by the last well ReconAfrica doesn’t find oil?” Tweya asked Namcor officials following a presentation to the committee last year.

During the presentation, Kavekotora said Recon was benefitting off movements on the stock exchange, using its Namibian licence to its advantage.

“The other licences are almost irrelevant because the share price was just worth six pennies. You claim to say that your 10% has no value, but the real value of ReconAfrica at this point in time is a result of the activities being done with the Namibian licence,” he said.

Other recommendations contained in the report included a call for the ministry of mines to ensure value addition must be guaranteed to be undertaken in Namibia in terms of processing of oil and gas products in the event commercial oil is discovered in Namibia.

The committee also recommended comparative studies be undertaken in oil producing countries to benchmark best practices prior to signing new agreements in case commercial oil is discovered, before commencement of the production phase.