While some low-income countries are hopeful about the potential for oil and gas wealth, as seen in many of the new African developments, other countries may feel forced into fossil fuel investments to pay off their debts, according to new research. Some state governments are using the growing interest in their untapped oil and gas resources to leverage their position in new developments and bring in new revenue to boost their national economies. But a new report suggests this may not be the case for all low-income countries, with some pursuing fossil fuel projects largely to repay debt.
Many oil and gas firms are pursuing operations in new oil regions in the hopes of developing low-carbon oil and gas projects in untapped regions of the world to help them keep pumping crude during a green transition. This has made international oil majors turn to low-income countries in regions such as Africa and the Caribbean to develop new projects, with many of these countries welcoming the potential for huge revenues from their natural resources.
In Africa, previously unheard-of oil powers such as Ghana and Namibia are expecting to see massive oil booms within the next decade, thanks to several successful exploration projects in recent years. And, unlike many of their predecessors that were exploited for their oil wealth, the governments of these countries want their piece of the pie. The government of Namibia is ensuring that it receives a reasonable stake of all new oil licenses, to provide long-term revenues that will boost their national economies and compensate communities affected by the developments. This approach is also being followed by Guyana, which is poised to become the world’s fourth-largest offshore oil producer.
But this is not the case for all low-income countries developing their energy resources, according to a new analysis by anti-debt campaigners Debt Justice and partners. The report suggests that richer countries and private lenders may be forcing heavily indebted countries to rely more greatly on fossil fuels to repay their debt. It shows that several low-income states are continuing to invest in oil and gas projects to make their repayments, mainly for loans from richer nations. Debt Justice is now calling for creditors to cancel any debts linked to a reliance on fossil fuel projects.
Tess Woolfenden, a senior policy officer at Debt Justice, explained “High debt levels are a major barrier to phasing out fossil fuels for many global south countries.” She added, “Many countries are trapped exploiting fossil fuels to generate revenue to repay debt while, at the same time, fossil fuel projects often do not generate the revenues expected and can leave countries further indebted than when they started. This toxic trap must end.”
The report shows that debt from global south countries has risen by 150 percent since 2011, with 54 countries facing a debt crisis. This has restricted the amount of money these countries can invest in tackling climate change or developing green energy projects. In 2020, in Suriname, the government was forced to agree to a deal providing creditors with the right to nearly 30 percent of the country’s oil revenue until 2050, after it defaulted on its debt. And this is a country that’s being viewed as a key example of the new wave of oil and gas developments, where many assume the population is benefitting from project revenues.
Sharda Ganga, the director of the Surinamese civil society group Projekta, stated “As our debt has grown unsustainable, it dominates all policy decisions and impacts the lives of our citizens in every possible way. Earning money as quickly as possible to pay back the creditors is therefore priority number one. It means there is no more room for patience and such pesky things like sustainability or climate justice. The reality is that this is the new form of colonialism – we have exchanged one ruler for the rule of our creditors who basically already own what is ours. The difference is this time we signed the deal ourselves.”
The report also emphasises the World Bank and IMF’s overestimation of the anticipated revenue benefits of fossil fuel projects on their host nations, with growth following oil discoveries having systematically underperformed against IMF predictions. Debt Justice believes that as well as cancelling debt linked to oil and gas projects, the world’s major financial institutions should ensure finance is aligned with a 1.5-degree warming scenario and is not linked to fossil fuel developments. Until major financial institutions and richer countries acknowledge the role they’re playing in prolonging the global south’s reliance on fossil fuels and do something about it, we cannot expect to achieve a global green transition.
By Felicity Bradstock for Oilprice.com
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