Puzzlement as govt suspends oil exploration

When government announced the suspension of oil and gas exploration activities on Wednesday, the reaction from some stakeholders was that of puzzlement.

Business grouping Malawi Confederation of Chambers of Commerce and Industry (MCCCI) said yesterday it immediately called the Ministry of Natural Resources, Energy and Mining to understand what prompted such a drastic move.

On the other hand, an economic analyst said in a separate interview that such on-and-off decisions by Capital Hill send wrong signals to the investing community due to the uncertainty they create.

The suspension—announced by Secretary for Natural Resources, Energy and Mining Ben Botolo in a statement—came barely weeks after the same government gave one of the companies, RakGas, permits to launch activities that would culminate into an aerial survey called Full Tensor Gravity Gradiometry (FTG) on Block 5 for which the firm holds an exploration licence that Capital Hill issued to it last year.

The company had in fact started sensitising local leaders last week with the blessing of the Ministry of Natural Resources, Energy and Mining, which had sent a senior officer to accompany RakGas on the very activities it has now suspended within days of giving the nod.

In the statement, Botolo ordered all companies involved in oil and gas exploration in Malawi “to immediately cease all operations in relation to the granted oil and gas exploration licences until the review that is currently underway, regarding the manner and procedures that were followed [in issuance of licenses], is finalised”.

Added Botolo: “This will allow government to thoroughly scrutinise and review each and every licence agreement that was issued or signed. This procedure is necessary to ensure that the licences that were granted or the agreements that were signed are for the benefit of the people of Malawi and were done in accordance with all the relevant laws of the country.”

Malawi is divided into six segments for oil and gas (petroleum) exploration, with Block One awarded to Sac Oil Holdings Limited of South Africa in December 2012.

Blocks Two and Three were awarded to a British firm, Surestream Petroleum in 2011, but in 2013, Hamra Oil Holdings Limited acquired 51 percent stake in the Surestream licences; whereas blocks Four and Five were awarded to RakGas in July 2013. The sixth block went to a company called Pacific Oil.

Hamra Oil Holdings has already carried out the FTG in blocks Two and Three, covering on-shore and off-shore areas in districts of Karonga, Rumphi, Nkhata Bay and Nkhotakota while Rakgas was last week consulting local communities in Mulanje, Machinga, Zomba, Chiradzulu, Thyolo and planned to do the same in Phalombe and Blantyre, all of which fall under Block Five, before starting aerial exploration.

In a follow up interview yesterday, Botolo said the review of the mining licences will take close to a month.

But he could not explain the decision to suspend the company’s prospecting activities just days after government permitted RakGas to do so, saying what is important is that government was scrutinising the processes.

In an interview yesterday, MCCCI president Newton Kambala said when they consulted the ministry to ask what was going on in its capacity as a private sector representative, the ministry explained that it needed to ensure that the process of awarding licences was procedural.

“The message they [government] are sending to investors is that things have to be done in a proper manner,” said Kambala, who also hoped that the move was aimed at ensuring transparency.

But economist Collen Kalua, who is also director of research at the University of Livingstonia, warned government against decision reversals, especially when the review is only coming now after prospecting operations are at advanced stages.

Kalua said the move will send bad signals to would-be investors because this shows lack of seriousness, insufficient political maturity and lack of respect for contracts.

An official from RakGas, Chimwemwe Chikusa, while saying they respect the government’s decision, noted that the move could have cost implications on their part.

“This means we have to immediately stop all field work and this also means sending all the workers back to their homes,” he said.

Asked on whether the suspension could have legal implications, Attorney General (AG) Kalekeni Kaphale said: “My office is being consulted. The review process is ongoing and one can’t say if there are legal implications before the process of the review is over.”