By Nicolas Bonnefoy and Geoffrey
Picton-Turbervill
Ashurst September 2015 Energy
Briefing
The DRC Government has finally
officially published the new petroleum law (Law No. 15/012 dated 1 August
2015), putting into force a new regime for the upstream oil and gas sector. In
our briefing of July 2015 (New petroleum law in the Democratic Republic of
Congo: will a new regime eventually emerge?) we reported on the key features of
the draft law. Now that the law has been finalised, we recap on those key
features, once again distinguishing between improvements to the regime and some
deficiencies (particularly from an international oil company perspective).
Improvements
Rights are to be awarded by way
of a tender process on the basis of technical and financial criteria
established by the Council of Ministers, giving the regime greater transparency.
The award process has been
simplified, with awards to be made only on the basis of a petroleum contract.
It excludes exploration permits and zones
exclusives de reconnaissance et d'exploration (exclusive exploration and
reconnaissance areas), which had led to significant confusion in the past.
The geological coordinates of
the petroleum blocks are to be determined by order of the Minister of
Hydrocarbons, therefore avoiding the materialisation (delimitation) of the
zones exclusives de reconnaissance et d'exploration (exclusive exploration and
reconnaissance areas), which had also led to confusion in the past.
The award formalities are
simple and clear: execution of contracts (and all amendments) by the Minister
of Hydrocarbons and the Minister of Finance after deliberation of the Council
of Ministers, and entry into force after approval by ordinance from the
President. Hydrocarbon rights awarded are to be included in a specific register
at the Ministry of Hydrocarbons, and contracts are to be published in the
Journal Officiel (official journal) and on the website of the Ministry of
Hydrocarbons within 60 days after approval, giving the regime additional
transparency.
The processes for the renewal
and the extension of exploration rights, the approval of the development plan
and the authorisation of transfers on the basis of a decree by the Minister of
Hydrocarbons have also been simplified and clarified.
The law expressly recognises
the right of the contractor to exploit all discoveries it considers
commercially viable, subject to the approval of a development plan, and of the
right to recover the related costs.
There is provision for disputes
to be resolved by negotiation, and for subsequent referral to arbitration as
necessary. Technical or operational disputes are to be referred to expert
determination.
Importantly, there is a
separation of the commercial functions of the national oil company from the
policy making and regulatory functions exercised by the Minister of
Hydrocarbons.
Petroleum blocks are to be
allocated into different fiscal zones taking into account the "caractéristiques géologiques et
environnementales" (geological and environmental characteristics).
There is also provision for the establishment of a specific fiscal regime for
each zone.
Production figures, payments
and tax collections from oil and gas companies are to be published on the
website of the Ministry of Hydrocarbons, again giving the regime enhanced
transparency.
Deficiencies
The fiscal regime is overly
burdensome: it includes the customary royalty, cost oil, and profit oil, and
additional excess oil. It also includes:
· a participation for the national oil company
(20 per cent minimum);
· a commitment to fund community sustainable development
projects, community infrastructure projects, and a programme of activités secondaires ("secondary
activities");
· a commitment to fund the training of Congolese
nationals;
· a transfer tax;
· a super profit oil;
· custom duties; and
· not less than fifteen various additional
royalties, taxes, bonuses and contributions.
The provisions dealing with
production sharing are somewhat uncertain: the mechanism for the determination
of royalties, cost oil, excess oil, and profit oil is not completely clear.
There is no provision for the measurement and valuation of production at this
stage.
There is no express tax
exemption in the law. In this context, it is not entirely clear whether the
fiscal regime applies in addition to or instead of the general tax regime.
There is no provision for the
stabilisation of the fiscal regime. This means that international oil companies
are not protected from future changes to the fiscal regime. The law does not
set out a regime applicable to the transport of hydrocarbons. This is a
significant oversight given that transportation is a key issue in the context
of oil and gas development: the DRC is a vast territory, which is difficult to
access, and has limited maritime export capacity, thereby requiring petroleum
companies to consider hydrocarbons transport and export through neighbouring
countries.
The regime applicable to
natural gas has not been developed in any detail. The law does not address
issues specific to gas, such as the need to extend exploration rights during the
period necessary to complete a feasibility study for the determination or the
development of a market and the implementation of the corresponding transport,
liquefaction and export infrastructure, as well as the establishment of a
specific fiscal regime.
The contractor is not
authorised to transfer any exploration rights before the completion of the
works programme pertaining to each contractual year. This will certainly act as
a limitation on companies' ability to farm-out.
For all transfers, the national
oil company has a pre-emption right. However, the law does not specify how that
right is to be exercised. The national oil company is to be a party to a joint
operating agreement with other members of the contractor group during the
exploration phase. However, the exploration costs are to be borne solely by the
other members of the contractor group and are not to be refunded by the
national oil company. This runs contrary to the generally accepted principle
that the right to attend operating committee meetings, the power to make
decisions and the right to access data and information should only be given to
parties who finance the related cost.
The transitional provisions are
not very clear or comprehensive at this stage: current contracts are expressly
stated to remain in force and it is implicitly understood that they will
therefore remain governed by the previous petroleum law (ordinance-law No. 81-
013 dated 2 April 1981). Current contracts are then to be governed by the new
petroleum law upon any renewal. The law does not, however, specify the
implementation mechanism for this to happen.
Next
steps
The transitional provisions
mentioned above are stated to apply to current contracts which were validly
awarded. It is intended that the Minister of Hydrocarbons will publish a list
of current valid contracts within 30 days after entry into force of the new
petroleum law.
The new law also contemplates
that implementation provisions will be enacted within six months after entry
into force of the new petroleum law. It is anticipated that implementation
provisions will include a new model contract.
Conclusion
The
new petroleum law includes features which are a significant improvement when
compared to the existing regime. However, there are also some significant deficiencies.
In particular, although it is not possible to determine the precise level of
Government take at this stage, it is likely to be relatively high compared to
the geological and environmental characteristics of the blocks in the context
of the global competition to attract investment from international oil
companies. Ultimately, the attractiveness of the new regime will be tested as
and when the Congolese Government holds the next licensing round.
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