This is one of a series of country briefings produced by NRGI to summarize the evolving situation with respect to the pandemic and its economic impacts. The analysis it contains is subject to change with circumstances, and may be updated in due course.
- Tunisia imports most of its energy. The government has taken advantage of the current low fuel prices to remove the country’s fuel subsidy.
- Tunisia is unlikely to become energy independent, despite authorities’ interest in pursuing shale gas. Renewable projects, which the government hopes will produce 30 percent of electricity, have stalled during the pandemic.
- An increase in protests in oil, gas, and mining regions threatens social and economic stability in Tunisia.
- Deep reform of the main state-owned enterprises (SOEs) operating in the extractive sector is an urgent need. Tunisia’s two main SOEs are facing serious financial challenges. In the coming months both may be unable to pay salaries or meet other obligations such as tax payments and commitments to local communities in producing regions.
Summary of economic impact of the coronavirus pandemic
Before the coronavirus pandemic, Tunisia’s economy had been expected to grow by more than two percent in 2020. In June, the World Bank predicted that the country’s economy would contract by four percent this year. By October, the International Monetary Fund (IMF) was expecting a seven percent contraction. The drop in tourism as well as the impact of national lockdown measures have reduced informal economic activity which is responsible for over 30 percent of employment in Tunisia. During the second quarter, the hotel and restaurant sector contracted by almost 77 percent according the National Institute for Statistics. In October, in an effort to combat the continued spread of the virus, the government instituted new measures including a night curfew and a ban on public events; measures that will further affect the tourism and service sectors.
In April, Tunisia received USD 745 million in emergency financing under the IMF’s Rapid Financing Instrument to help the authorities cope with the impact of the pandemic. In June the World Bank approved budget support of USD 175 million under its Resilience and Recovery Emergency Development Policy Operation to mitigate the impact of the pandemic. The government faces challenges seeking loans from other sources because Tunisia already has a high debt-to-gross domestic product ratio (estimated to be at 90 percent by the end of 2020). Tunisia is continuing to repay its loans to maintain international credibility and to ensure access to funding in the future. The country is asking citizens and companies to donate to support the national health response, and has imposed a compulsory “donation” deduction on civil servants’ salaries. This has been controversial and threatens social stability in Tunisia.
In July, Prime Minister Elyess Fakhfack stepped down over allegations of a conflict of interest, adding political turmoil to the country’s economic woes. A new government was approved by parliament in September. The Nawara gas field, for which the Tunisian national oil company (ETAP) borrowed USD 75 million from the African Development Bank, commenced production in February 2020. However, overall production had decreased due to movement restrictions linked to the pandemic. Indeed, in August 2020 ETAP reported a 24 percent drop in monthly oil production in comparison to August 2019. According to the official Facebook page of the Ministry of Energy and Mines, oil production in March (before lockdown measures were taken) was 40,000 barrels per day. With restrictions on movement imposed in March and the protests in Tataouine which started in July, oil production fell to its lowest level in Tunisia’s history at less than 25,000 barrels per day by the end of August.
ETAP is facing serious financial challenges exacerbated by the economic impacts of the pandemic. In the fourth quarter of 2019, ETAP was not able to pay its taxes to the Ministry of Finance. It has not paid taxes since, and as a consequence, the Ministry of Finance seized ETAP’s bank accounts in September 2020. ETAP, with the support of the Ministry of Industry, Energy and Mines, has asked the Ministry of Finance to reschedule its tax debt, which amounts to over TND 30 million (USD 10 million). The situation may lead to ETAP being unable to pay staff in the coming months. Further challenges threaten Tunisia’s energy production chain as both the national refinery company and the national electricity company are unable to pay ETAP for oil and gas because they are also facing financial challenges.
These financial problems have wider ramifications. In 2017, following protests by local activists in Tataouine, where ETAP’s oil production activities take place, the then government, ETAP and oil companies committed to address grievances of local communities. The parties agreed to invest over TND 80 million (USD 26 million) in the governorate of Tatouine, and ETAP committed to employing more than 1,500 people in the area. While this agreement was not fully implemented, protests subsided until the pandemic. As production slowed due to the lockdown, the subsequent decrease in revenues meant the Tunisian government, ETAP and its partners were even less able to meet their commitment to local communities. Thus, a second wave of protests began in July 2020 and have continued, significantly stalling production in the district/region as protesters blocked the main oil distribution valve.
[Hear NRGI's Wissem Heni discussing demonstrations in Tunisia's producing regions.]
The government succeeded in signing a deal with Tataouine protestors in November 2020, and the production of oil and gas restarted. However, the protests have expanded to other marginalized regions, among them other natural resource-producing areas. Protestors are asking to follow the same approach adopted with Tataouine, especially in terms of employment solutions.
Impact on the mining sector
Tunisia’s mining sector was facing significant challenges even before the coronavirus pandemic. Phosphate extraction had been decreasing due to social protests in producing regions focused on environmental impacts and demands for employment. These protests started in 2008 and intensified after the political upheaval in Tunisia and the wider region in 2011.
The coronavirus pandemic has exacerbated the social challenges facing Tunisia’s mining sector, particularly in the Gafsa phosphate mining basin. The region’s reliance on the phosphate industry as its main employer means that it is highly vulnerable to any significant reduction in production, andproduction has indeed slowed due to the pandemic. According to the chief executive officer of the state-owned Companie des Phosphates de Gafsa (CPG), before the pandemic, the expected production for 2020 was 5.5 million tons, but production will not exceed 4.5 million tons, because only 30 percent of employees were able to work during the March to May lockdown in Tunisia. However, even the 4.5 million tons estimate is optimistic, since in July phosphate production came to an almost total stop due to protest action by job seekers. CPG failed to exceed 36 thousand tons of production that month, exacerbating its financial challenges. The company is reported to be at risk of bankruptcy.
In July an official from Tunisia’s Ministry of Energy and Mines commenting on the protests and financial difficulties, stated that CPG was at risk of being unable to supply the domestic market with inputs necessary for the coming agricultural season, pay the wages of its workers and honour its commitments with its clients. In September, for the first time in the country’s history, Tunisia decided to import phosphate from abroad—in this case, Algeria—to meet its national demand for fertilizers.
Impact on revenues
Tunisia is not a natural resource-dependent economy. However, a reduction in revenues from the extractive sector will compound the economic challenges the country is likely to face due to the coronavirus pandemic’s impact on tourism, and the informal sector on which many Tunisians rely for their livelihood.
Tunisia imports 75 percent of its energy from abroad, which negatively affects the country’s balance of trade. In April, the government, taking advantage of the low international oil price, took steps to remove the country’s fuel subsidy. Having removed the subsidy when the price was low, Tunisians have not seen a steep rise in the cost of fuel, but if the international oil price rebounds, they will. In response to protests about the removal of the subsidy, the government has reiterated its determination to achieve energy self-sufficiency by revising parts of its legal framework for oil and gas, and granting incentives to encourage private oil and gas investors to operate in Tunisia. Tunisia’s fiscal regime for hydrocarbons—oil, gas and coal—is unattractive to investors.
The government has also said that it will adopt a new legal framework for the non-conventional hydrocarbon sector (mainly shale gas). While investors had previously shown some interest in Tunisia’s shale gas, the current economic turmoil, low gas price and the fact that many investors will have to tighten their belts, mean a legal framework may be insufficient to induce investment going forward.
Tunisia has committed to producing 30 percent of its electricity from renewable energy sources by 2030. However, the coronavirus pandemic has stalled renewable projects. Government officials have expressed concern that the 30 percent target is no longer achievable within that timeframe.
Impact on natural resource governance issues
Tunisia has not experienced any rollback on transparency during the coronavirus pandemic so far. On the contrary, the Ministry of Energy and Mines has proactively disclosed informationthrough its Facebook page, where officials have provided updates on issues such as production and the price of fuel, especially the level of subsidies. In an unprecedented transparency and governance move, in May, the government announced a participatory general audit of the hydrocarbon sector. The process includes representatives from civil society alongside the official audit bodies. At the time of writing the audit is underway. A report will be published once the audit is completed. The audit mission has been slowed down due to the last ministerial reshuffle and the second wave of the pandemic. The auditors are specifically focusing on signed contracts and granted licenses.
In addition, Tunisia has been preparing to join the Extractive Industries Transparency Initiative (EITI). In the first part of the year, the EITI process in the country was suspended because it was not possible to hold meetings of the multi-stakeholder group (MSG) due to the lockdown and restrictions on movements. The MSG held a meeting just after the end of lockdown in early July with high-level representation from the government. The government and other MSG members committed to making Tunisia’s application to the EITI international secretariat before the end of the year.
With respect to other resource governance issues, companies in the extractive sector have asked the Tunisian government to extend the duration of exploration permits, to take account of the fact that they cannot operate during lockdown. They have also asked the government to reduce the amount required as a bank guarantee (the government requires bank guarantees from companies in order to push companies to achieve commitments). NRGI has been told by government sources that their request was rejected by the government.
The energy sector is in the spotlight as the coronavirus pandemic has impacted both the extractive sector and Tunisia’s fuel subsidy and overall energy sector policies. The country is unlikely to see the hoped-for additional investment in oil and gas because of low global oil and gas prices and the knock-on impact on investors’ decisions and bottom lines (factors compounded by Tunisia’s fiscal regime for oil and gas).
The financial difficulties of the national oil company, ETAP, and the national phosphate company, CPG, will be defining features of Tunisia’s extractive sector in the coming year. If CGP is unable to meet social expectation as the main employer in the Gafsa region, the protests and associated drop in production will likely continue. In addition, the country will lose a source of foreign currency as phosphate exports accounted for 3.7 percent of total exports in 2019. Any reduction in ETAP’s activities due to the lack of financial resources will also have a major impact on Tunisia’s energy deficit.
Tunisia’s strategy to pursue shale oil and gas seems high-risk, given the limited likelihood of investor interest and the environmental concerns already expressed in Tunisia about such moves. In light of the challenges facing any effort to exploit shale gas, the government should consider doubling down on its 2030 renewables target.
The time is ripe for Tunisia to review its energy strategy and examine whether domestic energy production can move away from its focus on hydrocarbons. This should include a clear-sighted review of the value and role of ETAP.
Wissem Heni is the Tunisia country manager at the Natural Resource Governance Institute (NRGI).
Photo: Phosphate mining in Tunisia by Laury Haytayan for NRGI