Tariq Kajee (White & Case, Trainee Lawyer, Johannesburg), and Irvin Titus (Koep, Partner) co-authored this publication.
Recent discoveries by Shell, TotalEnergies and their joint venture partners in Namibia’s Orange Basin suggest the presence of significant reserves: approximately 11 billion barrels of oil and up to 8.7 trillion cubic feet of gas.
Namibia is uniquely positioned to produce green hydrogen for export at scale to global markets
In February 2022, TotalEnergies announced a major discovery of light oil and associated gas in block 2913B, known as the Venus-1X site, in the Orange Basin. This block, owned jointly by TotalEnergies as the block operator, QatarEnergy, Impact Oil and Gas, and the National Petroleum Corporation of Namibia (NAMCOR), is estimated to contain 3 to 5 billion barrels of oil, making it the eighth-largest global oil discovery since 2000.
In the same month, Shell announced its discovery of light oil and confirmed the presence of a working petroleum system at the Graff-1X well in PEL 39, also in the Orange Basin. Owned jointly by Shell Namibia Upstream B.V. as the PEL operator, QatarEnergy and NAMCOR, the Graff-1X well holds an estimated 2.38 billion barrels of oil.
Following this, in April 2022 and March 2023, Shell and its partners announced additional significant oil discoveries at the La Rona-1 and Jonker-1X exploration wells in PEL39, with the latter potentially holding as much as 2.5 billion barrels of oil.
Following these discoveries, Shell and TotalEnergies have both conducted successful flow tests in Namibia: the former at the Graff-1X well, in June 2023, and the latter at the Venus-1X site, in September 2023. Both companies are now assessing the commercial viability of these discoveries and have earmarked substantial portions of their 2024 exploration budgets for further activities in Namibia.
Although Shell does not anticipate producing oil in Namibia until after 2030, it announced plans in November 2023 to drill two additional wells over the next six to nine months, investing approximately 25 percent of its deep-water exploration budget in the country.
Green hydrogen
Alongside the development of its oil & gas reserves, Namibia is also making great strides in renewable energy. Global pursuit of net-zero commitments regarding greenhouse gas emissions and limiting global warming to below 1.50 Celsius, below pre-industrial levels, which means that demand for hydrogen—a clean fuel that, when burned, produces only water vapor—will grow, very significantly. Namibia is ideally positioned to produce green hydrogen for global export. With more than 3,000 hours of sunlight annually, the country boasts abundant renewable energy sources for electrolysis, including high solar power potential. It also has access to vast water resources along its 1,572-km coastline. Additionally, Namibia’s sparse population and ample space favor infrastructure development, and its ports provide logistical access for exporting hydrogen.
Mining & metals
Contribution of mining to Namibia’s GDP in 2023
Mining currently contributes about 30 percent to Namibia’s GDP. Given rising global demand for critical minerals, investment in Namibia’s mining sector is also poised for significant growth. Such minerals include copper, lithium, nickel, cobalt and rare earth elements that are essential for clean energy technologies such as wind turbines and electric vehicles. Namibia is especially rich in lithium and rare earth mineral deposits. In 2022, for instance, a rare earth minerals deposit with an ore body estimated at 579 million tonnes was discovered at Kalkveld.
Namibia has secured a provisional agreement with the European Union to supply rare earth minerals, complementing its green hydrogen exports to Europe. In August 2023, Namibia also entered into an agreement with Japan for the joint exploration and development of rare earth minerals, aiming to secure a consistent supply to that country for electric vehicle batteries in its automotive sector. Under this agreement, the Japan Organisation for Metals and Energy Security (JOGMEC) will collaborate with Epangelo, a Namibian state-owned mining company, on various exploration activities.
Unsurprisingly then, Namibia is witnessing a surge in mine acquisitions—both of operational mines and those in maintenance. Notable recent acquisitions include Rosh Pinah Zinc by Appian Natural Resources and Namib Lead and Zinc by CL Ventures Lux S.A.R.L.
Interest in Namibia’s critical minerals is set to rise even further, though. To achieve global net-zero emissions by 2050, demand for these minerals is projected to double by 2030. Lithium demand has already surged, with a 200 percent increase globally between 2017 and 2022. Namibian authorities have responded by banning the export of unprocessed lithium and other critical minerals to promote in-country beneficiation. This strategy aims to maximize local profits throughout the supply chains and enhance the development of its critical minerals potential.
Oil & gas
TotalEnergies has allocated approximately US$500 million, half of its 2023 global exploration budget, to further appraisal of blocks 2912 and 2913B. As of December 2023, two rigs, three wells, and four drill stem tests are operational to establish the scale of resources and expedite development in the area. These developments have sparked considerable interest in the Orange Basin. Chevron and Woodside Energy have secured farm-in agreements with frontier explorers holding licenses adjacent to the discoveries.
The Namibian Ministry of Mines and Energy is formulating a local content policy to increase participation by historically disadvantaged Namibian citizens. A draft local content policy has been published by the Ministry and a consultative process initiated with stakeholders to develop a policy for the petroleum upstream industry in Namibia. The draft aims to define “local content” clearly and set out comprehensive plans to ensure that Namibians benefit from their natural resources. This process is ongoing.
Navigating regulatory challenges and due diligence in extractive industries
The terms of foreign loans are restricted, and prior exchange control approval is required for disbursements
In considering opportunities in Namibia, potential investors need to consider the significant political pressure that exists for local beneficiation in the extractive resources industry. Acquisitions planning job cuts may face particular scrutiny and challenges. Regulatory bodies, such as the Namibian Competition Commission, are increasingly advocating for investment in local processing as a condition for acquisition approvals, wherever economically feasible.
With regard to opportunities in the oil & gas sector, investors typically apply for, or farm into, exploration licenses allowing exclusive operations within designated blocks. These licenses are subject to the terms and conditions specified in the license, and the terms and conditions contained in a petroleum agreement entered into with the Namibian government.
Prior to finalizing farm-out, share purchase or asset purchase agreements, comprehensive due diligence is conducted on the relevant exploration license. This includes title opinions and securing necessary statutory approvals, such as ministerial approval for license transfers or assignments, and merger approval where a transaction triggers a change in control and merger thresholds are breached.
In the mining sector, investments in exclusive prospecting licenses (EPL) and mining licenses are made through share acquisitions, investments or asset purchase agreements. Mining licenses often require a minimum of 20 percent representation of historically disadvantaged Namibians in management, including the board. Additionally, 5 percent of principal voting shares or mining license holdings must be owned, directly or indirectly, by historically disadvantaged Namibians.
Applicants must also demonstrate strategies for addressing the government’s objectives, including poverty eradication and benefiting disadvantaged youth, women and impoverished individuals.
Other conditions stipulate that mineral license holders must prioritize Namibian-manufactured products and services, with due regard for technical and economic efficiency. Preference is given to employing local professionals and collaborating with local people to develop the industry.
Competition, exchange control and tax structuring
Estimated size of a rare earth minerals deposit discovered at Kalkveld in 2022
Foreign investment in hydrocarbons or mining licenses is generally unrestricted. However, the Bank of Namibia mandates a 3:1 thin capitalization and a similar debt-to-equity ratio for exchange control purposes, applicable to transactions outside the Common Monetary Area in South Africa, Namibia, Lesotho and Eswatini.
If financial assistance from a foreign entity is disproportionate to a company’s fixed capital, interest or charges on the “excessive portion” may be disallowed as a deductible expense by the Namibian Receiver of Revenue.
Foreign loan terms are restricted. Exchange control approval is necessary for both loan disbursements and repatriation of repayments, the latter especially if the original loan advances were not approved by the Bank of Namibia.
From a tax perspective, investors should consider implications of bilateral investment treaties and double-taxation agreements to which Namibia is a party. Namibia operates on a source-based tax system, taxing both residents and non-residents on income sourced within the country. Capital gains are not taxed, however, and this applies to the sale or transfer of interests in petroleum licenses.
Dividends are tax-exempt, but non-resident shareholder tax (NRST) is withheld at 10 percent if a Namibian company holds at least 25 percent of the shares and the shareholder is a company. Otherwise, NRST is payable at 20 percent.
Withholding taxes apply variously to service fees paid by residents to non-residents, including fees for directors, royalties and consulting services, subject to any double-taxation agreements.
Overcoming obstacles to obtaining regulatory approvals
To secure regulatory approvals in the mining or oil & gas sectors, demonstrating financial and technical capacity to meet work obligations and minimum expenditure is essential.
Furthermore, and as noted earlier, investments leading to job losses will undergo additional scrutiny and challenge. Regulatory bodies like the Namibian Competition Commission are increasingly requiring investment in local processing as a prerequisite for merger approvals. This trend suggests that investors focusing solely on extraction without adding value to the Namibian supply chain may face challenges. Thus, investing in the processing of raw materials within Namibia could be advantageous, especially considering more rigorous regulation that might be introduced in the near future to require even greater local processing of key mineral resources.
Investment protection and dispute resolution regime
Namibia might become a new pivotal destination for investment in Africa
Namibia’s adherence to international treaties it has ratified and protocols to which it has acceded exerts significant influence over its domestic legislation. According to Article 144 of the Namibian Constitution, general rules of public international law and international agreements binding upon Namibia under the Namibian Constitution form part of the law of Namibia.
If the Minister of Mines and Energy and a license-holder cannot resolve a dispute through negotiation, either party may opt for arbitration. Such disputes are settled in accordance with the Arbitration Rules of the UN Commission on International Trade Law, effective as of the agreement signing date. Unless agreed otherwise, arbitration typically occurs in London, unless parties agree otherwise. As far as is practicable, the Minister of Mines and Energy and the company are expected to continue to implement their agreement while arbitration is pending and during arbitration.
Namibia’s promising horizon
Namibia’s regulatory environment, stable economy and rich mineral resources make it an attractive investment destination. While Namibia’s GDP is forecast to grow at only 2 to 3 percent over the next few years, the new oil & gas discoveries coming online will have the effect of ramping this up. This, with new clean energy opportunities (particularly in critical metals and green hydrogen) will also present attractive opportunities for Namibia to diversify its economy and reduce unemployment. Moving away from reliance on diamonds, gold and copper exports, and tourism, these developments could drive significant economic growth by the end of the next decade. Given this outlook and the potential for further opportunities, investors should view Namibia potentially as a key emerging investment hub in Africa.
Notable recent developments
In October 2023, the European Union pledged approximately US$1.34 billion to Namibia’s green hydrogen and raw materials sector, following a memorandum of understanding signed in September 2023, and the establishment of a roadmap for green hydrogen investment by the European Union and its constituents in Namibia.
The creation of SDG Namibia One, a US$1 billion blended-finance vehicle for green hydrogen investment in Namibia. This initiative is a partnership between Namibia’s Environment Investment Fund and two Dutch organizations, Climate Fund Managers and Invest International B.V. (II).
White & Case means the international legal practice comprising White & Case LLP, a New York State registered limited liability partnership, White & Case LLP, a limited liability partnership incorporated under English law and all other affiliated partnerships, companies and entities.
This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.
© 2023 White & Case LLP
Source link : https://www.whitecase.com/insight-our-thinking/africa-focus-winter-2023-namibia-investment
Author :
Publish date : 2023-12-19 08:00:00
Copyright for syndicated content belongs to the linked Source.
