Source: African Business

Following the death of President Hage Geingob on 4 February, Namibia is preparing for elections at the end of the year. Energy investors are watching closely as they seek to develop a series of vast oil and gas projects and green hydrogen schemes.

Namibia earned international praise for the calm and peaceful manner of the transition of power to former vice president Nangolo Mbumba following Geingob’s death from cancer.

However, Mbumba is effectively a caretaker. The 82-year-old will serve the remainder of Geingob’s term, which expires in March 2025, but will not contest November’s election to choose a permanent successor. Instead, newly appointed vice president Netumbo Nandi-Ndaitwah will be the flagbearer for the ruling SWAPO party and is the overwhelming favourite to triumph in the polls.

The stability and relatively pro-business stance maintained by the late President Geingob was a key factor in attracting major energy players to Namibia. It is not a foregone conclusion, however, that Nandi-Ndaitwah will follow the same approach if elected.

“The question that is troubling investors is the election and the likely winner,” says Graham Hopwood, executive director of the Institute for Public Policy Research, a Windhoek-based think tank. “Very little is known about her attitudes to investment in general and key developing sectors like green hydrogen and oil and gas.”

Development risks

Vast quantities of oil and gas were discovered offshore during Geingob’s presidency, with international oil companies Shell and TotalEnergies both announcing massive deepwater finds in 2022.

But finding oil and gas is one thing; bringing these resources into production is another. The government will need to introduce multiple regulations covering technically complex subjects and negotiate various agreements with the relevant companies. The companies themselves will need to assess the commercial viability of production, before securing finance and striking offtake agreements. Experience from other African countries shows this is likely to be a years-long process.

In Mozambique, for example, Italian oil and gas giant Eni began commercial gas production in 2022 – 11 years after its initial discovery. Two larger gas projects in the country are still being developed. In Uganda, meanwhile, oil discoveries were announced in 2006 – but exports are not slated to begin until next year at the earliest.

The timeline for green hydrogen production could be somewhat shorter. Hyphen Hydrogen Energy, which is spearheading a $10bn project in the country, aims to start production as early as 2028.

Toni Beukes, the company’s head of ESG, says that she is “not at all” concerned by the prospect of political uncertainty. “There’s no history or precedent in the country where a contract concluded by the Namibian government was not honoured by a later government,” she points out. Beukes adds that government officials have put in a “vast amount of work” to lay the foundations of a green hydrogen industry in the country, including through building international partnerships with potential funders and offtakers.

It may seem unlikely that Nandi-Ndaitwah would backtrack on the progress that has already been made in the green hydrogen sector. But the next government will have its work cut out to complete the regulatory framework for the industry, while simultaneously undertaking the regulatory groundwork for the offshore oil and gas sector.

Environmental concerns

And not all stakeholders will want Nandi-Ndaitwah to go full steam ahead in allowing Hyphen to begin construction work. The planned project will take place within the boundaries of the Tsau Khaeb National Park in the southwest of the country. Large tracts of the park will be covered in solar panels, while roads, transmission lines and other infrastructure will also have environmental impacts.

Beukes acknowledges that environmental objections are “certainly one of the key risks” facing the project. She insists, however, that the scheme will be built to the highest possible environmental standards. Hyphen plans to ensure that some of infrastructure it builds can also be used for other planned hydrogen schemes in the same area, thereby reducing the cumulative impact.

The two-year process of carrying out an environmental and social impact assessment is about to begin. Hyphen will need to satisfy the Namibian government that it has an adequate plan to mitigate negative impacts, while also persuading potential funding partners that the project will comply with international standards.

And Beukes emphasises that Hyphen is thinking hard about ways to ensure the project produces social benefits. In particular, the company is seeking to provide training to Namibian workers, in the hope that locals can occupy a large share of the 15,000 jobs that will be created during the construction phase and 3,000 that will remain when the plant becomes operational.

“We will be paying lip service to this idea of maximising Namibian participation on the project unless we add this capacity building element,” she says.

For the time-being, environmental and social considerations do not appear to be deterring foreign governments, corporates and investors. A memorandum of understanding on an offtake agreement for green ammonia was signed with German company RWE in December 2022, while the EU announced a ‘strategic partnership’ with Namibia on green hydrogen last year.

Meanwhile, a blended finance vehicle established by asset management firm Climate Fund Managers agreed to take a 24% equity stake in the project in December 2023. Mercia Geises, investment director at CFM, told African Business that it will work with Hyphen to ensure it complies with the IFC Performance Standards and other international guidance.

She added that Namibia’s status as a stable democracy is an important enabler in allowing the green hydrogen industry to take off. “We are confident that the industry presents with a high probability of success,” she says.

Avoiding the resource curse

Alongside the environmental and social concerns around Hyphen’s project, NGOs are worried about a perceived lack of transparency in the energy sector. Hopwood says that the Namibian government is currently considering whether to join the Extractive Industries Transparency Initiative (EITI), which would compel it to publish details of oil and gas contracts.

“Vested interests who thrive on secrecy – both in government and the private sector – are lobbying hard to ensure Namibia does not join,” says Hopwood. “Without a commitment to meeting the industry standard on transparency we will not know the terms of the production licences to be negotiated with Shell and TotalEnergies.”

Introducing transparency is seen as key to ensuring that Namibia avoids the ‘resource curse’ scenario experienced in many of Africa’s largest oil and gas producers. Mozambique, which made its own massive gas discoveries around a decade ahead of Namibia, serves as a warning. The country has been plagued by a series of huge corruption scandals since the gas discoveries were announced, while onshore gas infrastructure has been targeted by insurgents in the north of the country.

Unfortunately, Hopwood is not optimistic that Namibia is on the right path.

“At the moment it looks like government does not have the political will to hold off the corrupt elements that are already moving into the oil and gas sector,’ he laments. “Nandi-Ndaitwah has projected herself as the ‘integrity candidate’ – but while she might have a personal aversion for corruption, it is not clear if she will be able to challenge corrupt practices among her comrades in the ruling party.”

admin
Author: admin

Byadmin

Leave a Reply

Your email address will not be published. Required fields are marked *