Senegal to Boost Wealth Fund, Cut Debt With Oil Income

(Bloomberg) -- Senegal will use a third of income from future oil and gas sales to boost its budget and reduce growing public debt, while the remainder is likely to go into investment funds, a government official said.

The government of President Macky Sall is drafting legislation to overhaul the oil industry and determine how to use future income as a string of major discoveries off its coast are expected to make the West African nation an oil exporter in coming years. A new code will probably be submitted to parliament next month as explorers including BP Plc and FAR Ltd. are expected to make investment decisions within the next 12 months.

The government will also use proceeds from royalties and other taxes for the budget, according to Mamadou Fall Kane, deputy permanent secretary of COS-Petrogaz, the government committee overseeing new oil and gas policies. A stabilization fund that’s still to be created and a sovereign fund for longer-term investments are each set to receive a third as well, Kane said in an interview in the capital, Dakar.

“Oil and gas should help boost your development, especially your investment,” Kane said. “It can also help repay your public debt.”

Local Infrastructure

Senegal expects production to start as early as 2021 and stands to receive more than $30 billion, or three times its 2017 public debt stock, over the next 30 years from two of its offshore reserves, according to a June presentation by state-run oil company Petrosen. Debt has risen to at least 48 percent of gross domestic product in 2017, from 31 percent in 2012, Moody’s Investors Service said in a Nov. 7 report.

Read more: Senegal Targets Bigger Royalties, Stakes in New Oil Code

The sovereign wealth fund, created in 2012, will probably consider investing in local infrastructure projects and real estate with local and foreign partners, said Ibrahima Kane, chief executive officer of Fonsis, the government-run investment holding company that manages the fund.

The division between foreign and local investments “depends on what amount of money our economy can absorb without stoking inflation,” said Kane, who is not related to the head of COS-Petrogaz.

To contact the reporter on this story: Alonso Soto in Dakar at asoto54@bloomberg.net

To contact the editors responsible for this story: Karl Maier at kmaier2@bloomberg.net, Pauline Bax, Andre Janse van Vuuren

©2018 Bloomberg L.P.