Faced with an aggravated economic crisis and dangerously low foreign currencies reserve, President Abdo Rabbo Mansour Hadi first had to turn toward the oil sector to try to establish how best to maximize Yemen’s income revenues, when he took power in 2012. Since the oil and gas industry represents over 70% of Yemen’s national budget, it was only natural for President Hadi to want to how so far his predecessor, former President Ali Abdullah Saleh had managed the country’s main source of revenues.
A closer look at Yemen developing LNG industry revealed that under current arrangements Yemen had agreed to sell its LNG at a significantly discounted price: $3 per million British thermal units (Btu).
In a remark to the press back December 2013, when the coalition government looked into Yemen LNG dossier, prompted by expressions of outrage from the public over the perceived squandering of public money, Shawki Al-Mekhlafi, the deputy minister of Yemen’s Ministry of Oil and Minerals, emphasized that “agreements signed during the former regime deprived Yemen of full and fair compensation for LNG sales.”
According to national data, Yemen has sold its gas well beyond market prices, $9 below market price to below to be precise. For the past decade Yemen has systematically lost an average of $700 million per annum, which given the state of Yemen’s finances seems rather odd.
As per the Oil Ministry record Yemen signed with TOTAL, KOGAS and GDF-Suez a 20 year agreement for the sale of its gas at $3 per million Btu.
As Yemenis called on the coalition government to immediately look into the matter as to re-align Yemen with global markets and secure the nation a fair return on its natural resources, France, which has a majority interests in Yemen LNG and represents both TOTAL and GDF-Suez, Yemen’s main LNG buyers, has dragged its feet, keen on perpetuating Saleh’s arrangement over a price re-adjustment.
In December, Ahmed Dares, Yemen’s Oil minister confirmed that following a round of negotiations with KOGAS (Korean company) Yemen had modified its sale agreement to match current market level. Starting 2014, Kogas will buy Yemen LNG at a rate of $12.6 per million Btu.
So far France remains undecided.
Earlier this January, Prime Minister Mohammed Salem Basindwa discussed with Chairman of the French energy company TOTAL Christophe De Margerie future cooperation and collaboration in the industry. The PM notified de Margerie of KOGAS’ decision, stating that TOTAL now faced two options: a discounted rate of $12.6 per million Btu or full market price at about $14 per million Btu.
As per noted by officials, Yemen cannot afford to discount its natural resources when millions of its people face unprecedented economic hardship.
Because TOTAL has so far declined to respond to Yemen’s offer, Prime Minister Basindwa warned that should an agreement fail to be brokered according to the nation’s expectations; the government would take the matter to the international court and debate there the matter of Yemen-France’s LNG agreement.
Since it has been rumoured that TOTAL heavily bribed former regime’s government officials to secure such discounted prices, a simple matter of contractual price change could turn into a corruption case with great ramifications.
While former President Saleh has always denied wrongdoings, officials at the Oil ministry noted that despite many requests, Saleh had fail to ever explain why he voluntarily chose to discount Yemen’s LNG resources when he could have easily secure the nation an income of $1 billion per year instead of $300 million per year.
Minister of Oil officials said that the Yemeni government might plan to operate the YLNG projects themselves if a deal is not reached with France and wil use the expertise of local businessmen like Shaher Abdulhak "and Haitham al-Aiani in the process. Since 2005, when former President Saleh signed the LNG agreement with TOTAL, KOGAS and GDF-Suez, Yemen has lost an estimated $5.6 billion of unrealised income. When considering Yemen’s current national deficit stands at $3.2 billion, one can easily understand why so many Yemenis feel deeply uneasy about the situation, especially since the impoverished nation has been put in a situation where it had to bed the international community to pledge funds to finance its economic recovery.