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Yaoundé - 26 February 2024 -
Energy

Chad upset over “irregularities” in management of pipeline with Cameroon

Chad upset over “irregularities” in management of pipeline with Cameroon
  • Comments   -   Monday, 24 April 2023 10:44

(Business in Cameroon) - The Chadian government has in an April 20 statement expressed its dissatisfaction with the recent developments in the management of the pipeline it shares with Cameroon. The situation is such that Chad's ambassador to Cameroon, Djidda Moussa Outman, has been called back home for "consultation," the Minister, Secretary General of the Presidency of the Republic (SGPR), Gali Ngothe Gata, reported.

Chad’s “anger” finds its roots in the agreement signed between the Cameroonian national hydrocarbons company (SNH) and the British Savannah Energy, under which SNH will take control over 10% of  Savannah Midstream’s (subsidiary of Savannah Energy) shares in Cameroon Oil Transportation Company (Cotco). This acquisition, valued at $44.9 million (nearly CFA27 billion), will bring SNH’s interest in Cotco to 15.17% and reduce Savannah’s to 30.06%. The other shareholders: Malaysian Petronas (29.77% via Doha Pipeline Investment Inc), the Chadian government (2.74%), and the Chadian hydrocarbons company (21.26%) will keep their shares unchanged.

The claimant says this operation goes against the conventions and statutes of Cotco. Let’s however note that the acquisition is not yet effective; it is still subject to some pre-conditions related to the modification of Cotco's statutes. Savannah revealed in a recent statement that the agreement is expected to go into effect by the second half of 2023. What bothers N'Djamena is that it sees in this agreement a new rapprochement between Cameroon and its "enemy," whereas Chad and Cameroon were supposed to support each other in this matter. Until now, Chad says, Cameroon has only made "unfriendly actions" during Cotco's board meetings and has demonstrated support to the British company.

As a reminder, on December 9, 2022, Savannah Energy announced it has acquired the shares the American multinational ExxonMobil had in Chad and Cameroon. An acquisition strongly vetoed by Chadian authorities. Despite this opposition, the deal was made in “violation of the Doba Consortium (Esso, Petronas, Chad hydrocarbons company [SHT]) hydrocarbon exploration, exploitation and transportation agreements of 1988 and 2004", according to a Chadian government press release. 

Subsequently, N'Djamena, putting forth its right of pre-emption, nationalized all the assets purchased from ExxonMobil by Savannah in Chad. These are 40% of Esso Exploration and Production Chad Inc (EEPCI) -which operates the Doba oil wells whose output is shipped through the pipeline- and Chad Oil Transportation Company (Totco), which manages the Chadian side of the pipeline (178 km).

Obstacles

Chad has also managed to sign a share acquisition deal with Petronas when the company expressed the desire to exit the project. The deal is now awaiting approval from Cemac competition authorities. The press release from the Chadian presidency, however, did not specify whether this agreement concerns the assets in EEPCI (35%) and Cotco (29.77%). If it does, Chad would take control of the pipeline with 53.77% interest in Cotco.

This may be why Cameroon has been blocking the process. Chad said in its statement that its neighbor has never responded to the letters of request for no-objection sent by the Competition Commission in the framework of the deal with Petronas… although Cameroon’s feedback is crucial to finalize the file.

Indeed, Cameroon has always wanted to be the biggest shareholder in this project, especially since the pipeline is deployed mostly on its territory. In 2013, the country obtained an increase in the rate of transit fee to $1.30 per barrel, compared to $0.41 previously. The related agreement provides for the updating of this rate every five years based on the average annual inflation rate recorded in Cameroon during that period. On this basis, the transit fee rate was updated on September 30, 2018, from $1.30 to $1.32 per barrel.

Acquiring 10% more share in Cotco will increase Cameroon’s grip on the infrastructure and boost its earnings. But Chad, which currently holds 24% of Cotco, could oppose the operation, exactly how Cameroon is doing with the Petronas deal. A battle is looming…

Translated from French by Firmine AIZAN

Written in French by Cédrick Jiongo

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