The Office of National Mining and Strategic Industries (OMNIS) is facing hard times, caught between plummeting revenues and unchecked expenditures. An analysis.
“We also draw attention to the very fragile financial performance of the Office of National Mining and Strategic Industries (OMNIS), characterized by a consistently negative gross operating surplus over the past five fiscal years, placing the institution in a structurally deficit position.”
This stark assessment from the audit firm Mazars, which certified OMNIS’s 2020 accounts with reservations, leaves little room for doubt: the repeated deficits of this public administrative body—tasked with implementing the national policy on hydrocarbon exploration and exploitation—are threatening its very viability.
Dividend
OMNIS, which celebrated its 45th anniversary in 2021, operates under the authority of the Prime Minister and under the technical supervision of the Ministry of Mines and Strategic Resources (MMRS). The public institution is chaired by Stéphanie Delmotte, former chief of staff to President Andry Rajoelina. Since March 2019, it has been led by an interim director. Nantenaina Rasolonirina, appointed in November 2020, currently holds that position.
Financially autonomous, OMNIS derives its revenue primarily from administrative fees collected from companies conducting hydrocarbon exploration or exploitation projects in Madagascar, and from the sale of technical files to companies interested in developing such projects. Unlike mining administration fees—collected from mining companies by another public body, the Madagascar Mining Cadastre Office (BCMM), and paid into the public treasury before being distributed according to quotas defined by decree between the state budget, the BCMM itself, and the regions and communes affected by mining projects—OMNIS retains all of its revenue. As a public administrative entity (EPA), it does not pay any dividends to the Malagasy state.
Awaiting Renewal
Following the discovery of significant hydrocarbon reserves off the coast of Mozambique, OMNIS launched a call for tenders in November 2018 to award exploration licenses for 44 oil and gas blocks located in the Morondava Basin, covering an area of approximately 63,000 km². The tender process was initially set to conclude in May 2019. However, the election of Andry Rajoelina as President altered the course of events. A ministerial note issued in February 2019 has since frozen all oil promotion activities.
Of the 14 oil companies operating in Madagascar identified by OMNIS in 2018, only six remained by 2021. British major BP, which began exploration activities in 2018 on four blocks in northwestern Madagascar, exited the country as early as 2019. Among the six companies still active in 2021, only Madagascar Oil—which operates the Tsimiroro block—has entered the production phase. However, due to a lack of market outlets, its heavy oil production has been suspended since 2016. The other permit holders are also facing difficulties.
Pura Vida Mauritius, a subsidiary of Hartshead Resources, is still awaiting the renewal by OMNIS of its exploration license for the Ambilobe block, which expired in 2019. Due to a lack of financing, the company—whose financial condition is fragile—has not fulfilled its contractual obligations under the production-sharing agreement signed with OMNIS, notably the drilling of an exploration well. The license for the Antsiranana block, held by Oyster Madagascar Ltd, a company registered in the British Virgin Islands, also expired in 2019. That same year, the parent company of Oyster Madagascar Ltd, ZTR Acquisition Corp, was forced to hand over all its assets in Madagascar to its creditors.
Also in 2019, Amicoh Resources Ltd, a subsidiary of Crown Energy, saw its license for the Manja block—covering an area of 7,180 km² south of Morondava—expire. In November 2022, the company’s board of directors announced it was ending negotiations with OMNIS regarding the renewal of that license. The license for the Belo Profond block, granted to the company Marex in 2007, expired in 2021. The only currently valid license is held until April 2024 by CB World Trade Natural Energy Ltd (CBWTNE) for the exploration of the Belo Profond Nord block, located offshore from Morondava. Except for BP and CBWTNE, no oil company has been granted a new exploration or exploitation permit since 2017, according to data provided by the Extractive Industries Transparency Initiative (EITI) in Madagascar.
Revenue at an All-Time Low
The departure of oil companies, coupled with the absence of new investors, has led to a sharp decline in OMNIS’s revenue. Administrative fees—a form of annual royalty paid by oil companies to OMNIS—were halved between 2016 and 2020, dropping from 5.4 billion to 2.2 billion ariary (see infographic). Meanwhile, the sale of technical data files, OMNIS’s second main source of income, brought in only 516 million ariary in 2020, compared to 6.2 billion in 2016.
The lack of interest from oil and gas companies in Madagascar does not alone explain OMNIS’s low revenue levels. The 2019 and 2020 audits reports point to a range of issues : a significant number of doubtful accounts, uncertainty regarding the actual revenue due to opacity surrounding amendments to production-sharing agreements signed with oil companies, and failures in the institution’s internal control systems. According to these same reports, training fees collected from oil companies—intended to fund OMNIS staff’s ongoing professional development—also suffered delays in collection.
These management issues are not new. As early as May 2018, audit firm NPNM Audit raised red flags in its audit report on OMNIS’s 2017 accounts, highlighting the absence of billing for administrative and training fees owed by two oil companies: Madagascar Southern Petroleum (MSP) and Varun Petroleum. In October 2006, MSP had signed a production-sharing agreement with OMNIS for Block No. 3112 and held the exploration license for that block until July 2015. At the time, the ultimate beneficiary of MSP was Dr. Hui Chi Ming.
A consul of Madagascar in Hong Kong, Hui Chi Ming has close ties to the political establishment in Madagascar. In 2009, his company Sunpec hired Yves-Roger Rajoelina—the father of the current President of the Republic and then head of the Transitional Authority (HAT)—as an advisor. A 2019 decree officially terminating the production-sharing agreement between OMNIS and MSP did not result in the settlement of MSP’s debts. That year, OMNIS recorded a loss of 837 million ariary in its accounts, corresponding to outstanding receivables from MSP.
Varun Petroleum, for its part, signed a production-sharing agreement in 2008 with OMNIS for Block No. 3101 located in the Menabe region, near Morondava. Founded in 1996, the Indian conglomerate Varun Industries Ltd, which owned Varun Petroleum, has since disappeared. Its Malagasy subsidiaries were liquidated in 2013 following the termination of its production-sharing contract due to payment default. In 2017, Varun Industries Ltd’s Indian executives were investigated by anti-money laundering authorities in India.
However, it was only in 2019 that OMNIS officially recorded in its financial statements the total loss of the receivables owed by Varun Petroleum, amounting to 1.3 billion ariary. The reasons behind OMNIS’s failure to invoice these two companies remain unclear. Nevertheless, the irregularity was serious enough for OMNIS’s auditor to issue a qualified opinion on the public institution’s accounts for the 2017 and 2018 fiscal years.
Excessive Expenses
OMNIS employs 214 staff members. In 2020, its personnel expenses amounted to 7.9 billion ariary, nearly three times its revenue. The collective bargaining agreement governing employment conditions at the public institution stipulates that each employee receives an automatic 10% increase to their base salary every two years from their hiring date. This provision, highly favorable to employees, is unsustainable over time. However, the agreement also states that granted benefits cannot be revoked.
In 2018, management advanced 2.4 billion ariary to OMNIS employees as housing allowances covering five years, repayable monthly without interest. During the health crisis, repayment of these advances was suspended, and additional repayable advances were granted to staff. In 2020, provisions for unused employee leave exceeded one billion ariary. Despite OMNIS’s critical financial situation, its board of directors decided that year to double the annual amount of attendance allowances to 173 million ariary.
The previous year, in 2019, the outgoing Director General retained equipment provided for her role at OMNIS. Among the items graciously transferred to her was a complete living room set purchased the previous year by the public institution for 11 million ariary, as well as a contemporary sideboard valued at six million ariary. Despite such largesse, other budget items faced cuts. While OMNIS’s travel and mission expenses amounted to 2.4 billion ariary in 2018, they fell to only 179 million ariary in 2020. “Donations and grants,” which totaled 650 million ariary in 2016, amounted to just 29 million ariary in 2020.
Irregular Expenditures
The OMNIS budget item that experienced the most dramatic reduction was advertising expenses. While less than four million ariary was spent on this in 2020, OMNIS recorded advertising and sponsorship expenses totaling 1.3 billion ariary in 2017. The audit of OMNIS’s 2017 accounts reveals that these expenditures were made solely “on the recommendations of senior authorities,” without any other selection procedures. The coverage by OMNIS in 2018 of travel expenses and allowances for Erick Rabeharisoa, then chairman of its board of directors, and two Ministers of Mines under President Hery Rajaonarimampianina—Ying Vah Zafilahy and Henry Rabary-Njaka—amounting to a total of 419 million ariary, was also irregular. These expenses included 35 million ariary in allowances paid to Erick Rabeharisoa for his participation in an economic forum in Addis Ababa, and 40 million ariary in transport costs for Minister Ying Vah Zafilahy during a four-day visit to Moscow.
Political interference in OMNIS’s management reached a peak with the decision taken at the Council of Ministers on April 24, 2018, to withdraw 7.6 billion ariary from OMNIS’s accounts to fund the state’s contribution to the construction of the expressway linking Boulevard de l’Europe to Ivato International Airport. Although this request from the state contradicted OMNIS’s principle of financial autonomy, its board of directors approved the disbursement of the requisitioned amount in September 2018.
Risky Investments
OMNIS holds stakes on behalf of the Malagasy state in several mining projects, including 20% of the company QMM. It also controls 20% of Madagascar Consolidated Mining (MCM) through its subsidiary National Supply and Services Company S.A. (Nassco). According to the 2019-2020 report by EITI Madagascar, MCM, which specializes in coal mining, has not yet entered the production phase. The same report notes that Nassco is currently inactive.
Outside the mining sector, OMNIS owns shares in the public company Société d’études, de construction et de réparation navale (SECREN). According to its 2019 financial report, SECREN paid no dividends to its shareholders in 2018 and 2019. Like OMNIS, the naval company posted a negative gross operating surplus for both years. The Société Marbre et Granite de Madagascar (Magrama) and Société de Granite (Secma), in which OMNIS also holds shares, have both ceased operations. Adding to these poor investments is a lost receivable of 950 million ariary related to a fund transfer on behalf of Secma, and another irrecoverable receivable of 3.7 billion ariary owed to OMNIS by the financial institution Investco, now in liquidation.
No Short-Term Improvement in Sight
Contacted during the writing of this article, OMNIS did not respond to our requests for comment. With hydrocarbon exploration and exploitation projects becoming increasingly scarce and no short-term improvement expected, OMNIS faces an urgent need for reform. Ensuring the continued operation of this public institution requires drastically reducing its expenses, restructuring its organization, improving management, and strengthening its independence.
Communities in regions where oil and gas projects are active suffer the negative effects. Yet, only OMNIS benefits from the substantial payments made by companies implementing these projects. It is unacceptable that these communities—and more broadly, Malagasy citizens—do not benefit from the economic and social returns that these financial contributions could provide if used wisely. The necessary reform of OMNIS must address this demand for equity and justice.
Reference: Gross operating surplus corresponds to the operating resource generated during a given period by an entity’s main activity. It is calculated by adding operating subsidies to the value of goods and services produced and subtracting the value of intermediate consumption, wages, and production taxes.
Cover photo source : https://web.facebook.com/OmnisMadagascar/
