Mining throughout Africa is a vital economic component. Minister of Mines and Energy Tesfai Ghebreslasie is keen that Eritrea should be no exception

How important is the energy and mining sector to the Eritrean economy?

One hardly needs say that dependable and adequate sources of energy are a prerequisite for a modern, vibrant economy. Realising this, the government has set as one of its priorities finding a solution to the problems facing the country's energy sector. The success of Eritrea's economic and social progress will to a large extent depend upon the country's ability to develop the energy sector. The contribution of the mining sector to the economy has so far been marginal, though I am very optimistic about Eritrea's mineral potential. The gold mines which opened during the Italian occupation were worked for only a short time because of the country's unstable political environment up to independence and, save for some small-scale mining of industrial and construction materials and rudimentary artisinal mining of gold deposits, there is virtually no mining activity. However, Eritrea is, for the first time, seizing the opportunity to assess and develop its mineral potential properly. I believe that the mining sector will soon play an important role in the national economy.

The Mining Code was introduced in April 1995. What benefits does the code offer to foreign investors?

The Mining Code compares favourably with those of other countries. It sets out a number of incentives, including a low income tax of 38 per cent, low royalties of 2-5 per cent, and nominal (0.5 per cent) duties on imported capital goods. Eritrea's Mining Law guarantees licencees the right to dispose of minerals locally or abroad without export tax and to repatriate profits after tax with no restrictions. According to the law, financial losses may be reduced from gross incomes and may be carried forward. Further, the mining law provides a simple legal framework and licence application and negotiation procedures, because responsibility for all aspects of the process are vested in a single ministry, the Ministry of Energy, Mines and Water Resources.

How interested are foreign investors in Eritrea?

A number of foreign investors have expressed interest in the minerals sector; some established offices here even before the Mining Law was promulgated. My ministry has granted nine exploration and prospecting licences to six of the 20 companies which applied in the first bidding round. We are now preparing for a second bidding round.

It has been said that you have been cautious in granting licences. Do you agree?

We were not reluctant to grant exploration licences. In fact, we are very keen to create a favourable investment climate. However, I have to admit that, since both the government and the foreign mining firm have to live happily with agreements on mining operations for many years, we have been cautious in our negotiations and in our selection of the best of the applying companies.

How do you plan to develop the mining sector in coming years?

My ministry will continue to encourage private investment in the mining sector. It will also ensure that the development of the sector will be moderated by environmental concerns, and the best interests of the Eritrean people. We will also seek to ensure that domestic mining companies develop through the proper transfer of skills and technology. The government also plans intensive geological studies to promote the development of the sector. Eritrea possesses large potential oil resources.

How optimistic are you that oil will be found?

I am very optimistic. From the very limited studies undertaken in the Eritrean Red Sea we have identified source rocks, reservoir rocks, cap rocks and traps. Moreover, the existence of oil seeps in coastal areas, oil and gas shows in most of the eight deep wells drilled to date, the favourable geological history of the basin and flat spots in some of the seismic line indicators suggest the possible accumulation of hydrocarbons.

The government has passed legislation to attract foreign investment into the oil sector, but has granted only one exploration licence. Why?

Although the legislation was passed in July 1993, it took some time to devise a licencing strategy, draft regulations and prepare a Model Contract. Given these preparations, and the lack of a promotional campaign, I think that the granting of this licence was an achievement. Moreover, negotiations are under way with several other companies.

The recent dispute with Yemen over the Hanish islands illustrates potential problems in future oil exploration. How concerned are you that territorial disputes will hamper the development of the oil sector?

I don't believe that the dispute with Yemen illustrates potential problems in future oil exploration. From a geographical perspective, I cannot see these islands, which are volcanic, holding oil reserves. Irrespective of this assumption, however, we will defend them because they are part and parcel of Eritrean territory. Finally, Eritrea suffers from a severe shortfall in energy production.

What plans are in hand to rectify this?

To boost our energy production, we recently increased the generation capacity of the Asmara power plant by 15MW. We know that this is not enough to meet demand, and we are working on another project which is expected to be completed by 1997. It will include generators with up to 90MW capacity, as well as substations and transmission lines connecting some of our major towns with the Asmara-Massawa power system.

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©Kensington Publications 1996