Namibia could benefit from delaying TotalEnergies’ Venus oilfield investment decision to prepare its legal framework, lawyer and Columbia University adjunct professor Jenik Radon has warned.
Radon was speaking at the Bank of Namibia’s symposium on oil and gas on Thursday.
“Everyone is worried about the final investment decision (FID). Given what I’ve heard today and what I know, maybe it should be delayed,” Radon said.
A FID is the point at which an oil company’s board formally commits the capital to develop a discovery, moving it from exploration and appraisal into construction and, eventually, production.
TotalEnergies was expected to make its final decision on its Venus discovery in offshore Namibia by the end of July.
According to statements from Total, negotiations with the government are still ongoing.
Radon said a delay could be advantageous for Namibia, giving the country time to prepare.
“International oil companies can take advantage if you’re not prepared, especially if your legal system is not prepared,” he said.
He said companies like Total are under real and valid pressure and the question for Namibia is how to meet it.
In some cases, countries might take unorthodox approaches to manage the pressure from international oil companies. Some of these might work very well, according to Radon.
“However, one concept talked about everywhere is the stabilisation clause. No, no and no. It has a chilling effect on laws. Do not accept a stabilisation clause, ever,” he said.
Stabilisation clauses are intended to shield investors from the government making changes to the law that harm companies.
Although stability is needed for investors, Radon said countries need the flexibility to change their laws as they learn from the experience of producing oil.
Rand Merchant Bank (RMB) head of oil and gas Angelique Peake tells The Namibian that Radon’s position would possibly “cause concern” among investors.
“For the kind of commitment [that Total is making], investors need some kind of stability.
On the flip side, it is very important from a Namibian perspective that we don’t get railroaded by investors,” she says.
Peake believes that Namibia does need to be prepared in order to negotiate a good deal, but the country cannot afford to massively delay this FID.
“Growth [in Namibia] is under pressure.
The scale of oil and gas is such that we can’t risk losing [this prospect].
The fiscal income and the economic multiplier effect can change our future if managed well,” Peake said yesterday.
When a company invests in a 25-year project, it requires some assurances that the project will remain economically viable.
A stabilisation clause can provide that assurance for investors, but it is not the only option, she said.
“If we change laws, which we should be able to do, [the company needs to be sure] that the project will still be economically viable,” she said.
“It might be more of a rebalancing exercise than a technical stability clause that is required,” she said.
Independent Patriots for Change shadow minister for international trade Rodney Cloete tells The Namibian that he believes the FID on Venus should wait until parliament has settled Namibia’s petroleum law.
“Whatever the law says on the day the money is committed is what Namibia will live with for the next 25 years, and right now the law is not ready,” Cloete says.
He says delaying the decision is not an argument against exploring oil or TotalEnergies, but rather a recognition that a rushed contract could harm Namibia.
Cloete also argues against a stabilisation clause.
“A clause that freezes Namibian law for company’s benefit means a future parliament, elected by future Namibians, cannot pass a tax, an environmental standard or a local-content rule without paying compensation,” he says.
