“The need for energy hasn’t changed due to the fact that there was a change in leadership,” Benoit La Salle, Windiga Energy’s President and Chief Executive Officer, told AFKInsider, noting the project is “not at all affected.”
“Actually, the new president said it very clearly, that all existing contracts in place will be respected,” says La Salle. “And the project is full speed ahead.”
“In countries like Burkina Faso, a new government is not going to want to sort of kill the ‘golden goose’ of investment,” the Center for Strategic and International Studies’ Cooke told AFKInsider.
More than Regime Change
In other cases, companies are able to dodge the regime change bullet because a new government may simply be unable to successfully re-negotiate, according to Stratfor’s Schroeder.
“Sometimes successor governments don’t have any new capabilities or new understanding or economic conditions to successfully re-negotiate,” Schroeder told AFKInsider. “They may be stuck with the same constraints that their previous government faced that led them to negotiating the contracts that they were in.”
Of course, it’s not just political regime changes that can hold up projects.
On Nov. 14, the U.S. Millennium Challenge Corporation (MCC) approved up to $9.8 million for the development of Tanzania’s energy sector. The grant is to help Tanzania prepare for an upcoming Millennium Challenge Corporation’s funding round worth in the range of $450 to $700 million.
But on Dec.10, MCC’s Board of Directors “expressed continued concern over corruption in Tanzania, including the implications of the recent case involving Independent Power Tanzania Limited (IPTL).” The Board put the Government of Tanzania on notice that it “must take firm, concrete steps to combat corruption before a compact is approved.”
It’s not the first time the Millennium Challenge Corporation has taken action: After coups occurred, MCC cut off a $460 million grant for Mali in 2012 and a $110 million grant for Madagascar in 2009 – both five-year grants had already been signed and the projects were being implemented when coups occurred.
The current pressure on Tanzania comes in the wake of an October announcement that 12 international donors – Finland, Germany, Britain, Norway, Sweden, Denmark, the European Commission, Ireland, Canada, Japan, the World Bank and the African Development Bank – were withholding $558 million pledged to Tanzania’s 2014-15 budget.
Tanzania – East Africa’s second largest economy – is building new ports, power plants and roads as part of a $25 billion, five-year development plan to help the country achieve middle-income economy status by 2025.
The funding suspensions come as Tanzania prepares for their October 2015 election, which some fear could lead to violence due to the corruption allegations, as well as rising fuel prices and continuing power shortages that have led to small riots in some cities.
Other disputes over contract transparency and sudden increases in taxes in Africa have resulted in battles that have stalled or cancelled projects and strained existing relationships between governments and foreign developers.
“In plenty of places, governments have – whether legally or more deviously – ways of saying ‘you’re not meeting your contracts, so we’re annulling the contract and we’re going to change the terms,’” Cooke told AFKInsider.
In Uganda, new taxes are being contested by Tullow Oil and Heritage Oil Corp. trying to develop new oil reserves, and in Zambia, First Quantum Minerals Ltd. and Glencore PLC have delayed $2 billion in mine expansions after the government announced in October it was more than tripling their take of mine royalties.
“That hurts a government as well; if it’s changing the terms, it’s credibility in terms of contract sanctity and so forth takes a hit,” Cooke told AFKInsider.
“So an incoming government needs to think hard about whether it’s going to change the terms and scare investors away,” says Cooke.
