Energy: Balanced Between Opportunity And Investment

John Ffooks
John W Ffooks & Co

THE opportunities for energy exploitation, and associated legal and regulatory work, range across the region: from relatively mature oil and gas production in Congo-Brazzaville, Gabon, and Ivory Coast, to those are under-developed markets, such as Madagascar, to those heavily dependent on imports, such as Guinea.

Away from oil and gas, the region possesses considerable potential for renewable energy, building on the expertise of those countries with experience in hydroelectric power, which acts as a mainstay for many: Gabon and Senegal both make extensive use of either; Guinea – nicknamed 'the water tower' for the confluence of potential power sources – remains notably under-resourced. Solar and wind power are also under investigation, with associated legal advice sought.

Infrastructure, however, and the proper legal and managerial structures that go with it remain the often missing component to underpin the successful development of energy projects in the region.

With Chinese and Indian demand (in part) fuelling the need to reinvigorate the region's under-performing power plants – leading to powercuts, variable supply, and associated problems, as well as civil unrest invarious states, has caused legal and regulatory change in the countries in which we work.

Due diligence; financial difficulties and prerequisites; tight contractual drafting; an understanding of the political and regulatory context of negotiations; anticipating appropriate dispute resolution clauses, and an eye on anti-corruption risks are all constants, to manage risks.

The following is a snapshot of the various jurisdictions in Francophone Africa in which the firm operates.

CONGO-BRAZZAVILLE
As one of the largest producers in West Africa, whilst exports have boomed, production has declined, leading to new fields for development, and new licences awarded for exploration. Large reserves of natural gas have also proved beneficial, with a new gas plant opening at Pointe-Noire, which, together with the boost to hydroelectric power with the completion of the Imboulou Dam, has aided the country's supply difficulties. Both of these willassist the development of refinery capacity and other infrastructure opportunities are open. The country's laws on regulation and supply of electricity – over ten years old – remain stable; there is a greater focus on ADR for energy sector disputes.

GABON
Like its near neighbour, energy exports make up a significant proportion of the country's export revenues, and the licensing system established through Exploration and Production Contracts is well known to oil majors, where Total remains the biggest player. To combat falling reserves, new licences are being awarded by tender with 42 blocs being on offer. The country has revised its Hydrocarbon Code, with a new national oil company to manage the sector, and a review of the ESPC market is in place. The Code has made extensive changes to tax, royalties and increases local involvement in JV'son which advice should be sought.

Electricity – run by a subsidiary of French company, Veolia, has seen many tensions arise over supply and the prospect of reregulation and transfer of the concession by the government at expiry in 2017 remains apossibility.

GUINEA
Guinea's energy market remains less exploited, given a lack of investment inthe country's energy network, which is needed to make it more attractive, especially through new infrastructure. With the national energy supplier insome financial difficulties, that investment need competes with existential realities; yet the real potential for hydroelectric power exists, up to potentially 20,000 gigawatts/per year. That has focused the mind of Guinea's government and its Chinese partners, and are cent USD 18m World Bank loan will supply some of those needs; joint Guinean-Chinese dam projects may supply the rest.

IVORY COAST
Leaving 2010-2011's civil unrest behind, hydro-electricity, together with conventional methods of production, make up the bulk of Ivory Coast's energy production; it is a modest oil producer, but lacks the resources to exploit the much greater reserves that exist offshore, which the previous civil unrest had not helped, but oil major interest – and licences –continue to grow. That said, the government is aware of difficulties in electricity production which have added to that problem; having taken steps to improve capability, including wholesale reform of the state electricity and gas companies in April 2012, merging their functions, and setting the groundwork for multi-billion dollar investment in the sector. Hydroelectricity is also more prominent, with the production of a new dam generating 580MW. New Energy and Mining Codes, proposing significant changes, are both being drafted, completing the structural reforms – but also requiring commercial scrutiny.

MADAGASCAR
No stranger to internal unrest itself in recent years, Madagascar's potential to exploit its energy sources is undercut by the same issues as many Francophone states, leaving it dependent on traditional energy sources, withthe usual forestry impacts. Water and electricity services are provided mainly through state-run utility, JIRAMA, which has undergone a rolling programme of utility and sector reforms through to the present day to meet supply difficulties. Oil remains under exploited, as does gas, recent legal disputes have been settled amicably. The country is also investing in solar and wind-power, the latter, heavily, with associated tax and legal benefits.

SENEGAL
Senegal – gradually moving from domestic consumer to regional producer –shares many of the same challenges as its neighbours above, but has changed its energy policy, to restructure the electricity distribution network, and to develop the oil and gas sector further, including developing reserves. It has considerable potential for the latter, and is actively promoting petroleum exploration, which oil companies are happy to support. Gas also possesses similar potential.

With a new president familiar with such issues in Macky Sall, moves to counteract civil unrest at electricity shortfalls and to grow that sector have followed. The government has restructured the electricity, oil and gas markets, with associated legislation in each, whilst passing other legislation encouraging renewables. It has also created a number of state-backed companies intended to support greater participation in the energy sector.

About the author:
John Ffooks has particular experience in infrastructure, utility and natural resource investments in the developing world and the financial structures associated with them. John has lived in Madagascar for almost ten years, starting his own firm in 2007. He is intimately familiar with the specific legal and business cultures of Francophone Africa.

John W Ffooks & Co
Tel: +261 20 224 3247 / +44 787 656 0873
Email: john@jwflegal.com