Senegal vitality contracts evaluate leaves traders unsure | USAEMALL.com

Senegal’s review of oil and gas contracts could threaten the country’s reputation as a reliable place to do business in a volatile region, critics have warned.

The new administration led by President Bassirou Diomaye Faye, who won a landslide victory in March elections, has argued that the audit of contracts awarded by the previous government is a crucial part of its effort to secure a better deal for Senegal and fill a hole in the public finances that it said was revealed after it took office in April.

But Macky Sall, the former president whose party was trounced by Faye’s Pastef in the elections, accused the government of engaging in populist rhetoric that he said could endanger the west African nation’s hard-won reputation as a stable business environment.

“This political rhetoric could do irreversible damage,” Sall told the Financial Times, adding that his government had negotiated world-class agreements with foreign investors including energy groups.

Mucahid Durmaz, senior analyst at risk intelligence company Verisk Maplecroft, echoed a similar sentiment: “Increased scrutiny risks eroding investor confidence in what has been an attractive destination for foreign investment . . . the government has to find a delicate balance between improving people’s living standards and making sure investor confidence isn’t damaged.”

Faye, who at 44 is Africa’s youngest elected leader, swept to victory in the March polls after campaigning on a leftwing platform to end what his party dubbed the neoliberal policies of an elite accused of ignoring the interests of the poor.

The finance ministry subsequently announced that Senegal’s deficit was more than 10 per cent of GDP at the end of 2023, not the 5.5 per cent declared by Sall’s government. Average public debt over the previous five years was 76 per cent of GDP, not 66 per cent as previously reported, it also said when announcing its findings in September.

“The authorities we replaced lied to the country and lied to partners, falsifying figures,” said Ousmane Sonko, Senegal’s prime minister.

Faye has vowed to renegotiate all government contracts to extract better terms. Since taking power, he has cancelled an $800mn desalination project with Saudi Arabia’s ACWA Power on cost grounds and put the country’s IMF deal on hold after the government’s audit showed the nation’s finances were worse than previously stated.

Speaking at the August launch of a panel set up to probe the energy contracts, Sonko said a number of oil and gas deals had been signed “to the detriment of . . . Senegal and its people”.

The country joined the ranks of oil states in June when Australia’s Woodside began producing from its Sangomar offshore field. The Greater Tortue Ahmeyim, a liquefied natural gas project that straddles the border with Mauritania and is operated by a consortium led by UK energy group BP and the US’s Kosmos, is expected to start production later this year.

Sall said any attempt to get a better deal from the energy companies would “make me laugh”.

The former president, who trained as a geological engineer, also said it was risky to suspend the $1.8bn IMF programme over what he said were gimmicky recalculations of the country’s deficit. “This gives the country a very bad image because multilateral institutions play a role in surveillance of the macroeconomy,” he added.

However, the IMF, which completed a mission to Senegal last week, said preliminary findings indicated that the fiscal situation was worse than had been presented in the 2019-2023 period reviewed by the global body.

The fund also said Senegal’s macroeconomic outlook remained “challenging” amid sluggish growth in the non-oil sector and low government revenue, but that it expected growth to rise to 6 per cent this year, compared with 4.3 per cent in 2023.

Rating agency Moody’s downgraded Senegal’s long-term debt rating to B1 from Ba3 this month in response to what it said was a significantly worse debt and fiscal position than expected, although it also predicted strong improvement in growth next year as more oil and gas comes on stream.

François Conradie, an analyst at the Oxford Economics Africa consultancy, said Faye’s audit into the energy deals would look for any “irregularities in the contracts” or booking of costs that could reduce Senegal’s tax take.

No deadline has been set for the completion of the review.

BP declined to comment on the audit. A Woodside spokesperson said the company respected “the right of governments to determine the legal and regulatory frameworks that govern oil and gas development”, adding that “the most successful jurisdictions have been those that work in partnership with industry, respect contract sanctity and create investment certainty”.

An executive at another oil company said there might be minor wriggle room in the contracts but that the basic agreements were enshrined in domestic and international law.

Senegal’s tax authorities and Woodside, which owns an 82 per cent stake in Sangomar, are separately at loggerheads over a $68mn tax bill. Woodside confirmed it had filed a case in the Dakar high court disputing the tax assessment.

Fears of an all-out assault on the oil and gas companies were overblown, said Conradie. The government would be “pragmatic and flexible”, he added, as “they don’t want to be so aggressive that the oil and gas companies pause on developing the fields . . . because they need the money”.

Senegal is grappling with a high cost of living and joblessness, particularly among young people, with the headline unemployment rate at 21.6 per cent, according to the country’s statistics agency. Large numbers of young Senegalese have joined the tens of thousands of migrants embarking on risky journeys to Europe each year in search of a better life.

Faye has called a snap parliamentary election on November 17 in the hope of gaining a majority in the 165-seat national assembly, where his party has only 56 seats.

But the economic situation could derail the government’s support among its youth base even as it seeks to show the fiscal mess was inherited from Sall, said Paul Melly, francophone Africa analyst at London’s Chatham House think-tank.

“There are many things that could erode their popularity,” he said. “The grinding everyday stuff about delivering services, not getting sucked into corruption . . . and jobs for young people. These are the things that could drag them down.”