It is almost six months since government renegotiated the 2014 Oil Production Sharing Agreements (PSA) but until now, government is yet to approve the jointly developed Addendum to the PSA.
According to sources inside the Ministry of Natural Resources Energy and Mining, government managed to renegotiate for better terms than any other oil and gas contracts in the Sub-Saharan region.
Some of the tentatively agreed terms include increasing of royalty rate from 5 percent as indicated in the 2014 Agreement to 10 percent; ring fencing of oil blocks and associated transactions.
It also includes an increase in government’s participating Interest from 10 percent to 20 percent, alterations on the share of profit oil between the State and the Multinational Cooperative (MNC), application of Malawi’s Taxation Act and possible removals of tax holidays.
In an interview with Business News, head of oil and gas section in the ministry Cassius Chiwambo confirmed that government had sessions of renegotiation on the 2014 PSAs in November, 2016 but said “we are still waiting for some internal government processes to be finalised.”
However, speaking in an interview on Thursday, Attorney General Kalekeni Kaphale under whose office the vetting is being done attributed the delay in vetting the draft addendum in the renegotiated PSA to technicalities.
He said his office is still consulting on the matter and has engaged external lawyers to guide them on whether they are on the right path or not.
“This matter is of national importance and might bring about long-term consequences to the country so we need to be cautious,” he said without giving the exact date for the completion of the vetting.
But mining expert who is also former Energy and Mining Minister Grain Malunga said at this stage the risk is low but the explorers cannot go into the second phase of exploration where the risk is a bit higher without the PSA.
He said the whole process needs a consultation framework and where there are long-term agreements there is no harm in waiting for proper procedures to be followed.
According to Malunga, government expects to benefit more from the anticipated oil industry through actual production sharing, loyalties and tax.
However industry expects say the delay is affecting the progress in terms of commencement of some costly activities such as detailed explorations and implementation of Corporate Social Responsibility (CSR), among others.
“This delay is denying Malawians of the vital information as to whether Malawi has oil and gas or not. The activities being delayed can also help Malawians to know the actual benefits to be accrued from the oil and gas sector,” one expert told Business News.
President Peter Mutharika in March 2017 publicly signalled his administrations resolve to proceed with oil exploration in Lake Malawi amid pockets of resistance from environmentalists. He said Malawi will use an on-shore clean technology to protect and maintain the ecosystem in the lake.
According to Chiwambo, it will take five years from now for Malawi to begin the actual drilling of oil in the lake.