OIL REVENUE TRANSPARENCY : THE CURRENT REGULATORY SITUATION

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OIL REVENUE TRANSPARENCY THE CURRENT REGULATORY
SITUATION
NOT AN OFFICIAL UNCTAD RECORD
Stéphane Brabant Avocat at the Paris Bar
8th Africa Oil and Gas, Trade and Finance
Conference and Exhibition 26th-30th April 2004 -
Marrakech
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I - Oil revenues

• Oil revenues are , directly or indirectly
  ,central and/or local states revenues from oil
  project (concessions and/or PSAs)
• Tax Revenues (Corporate tax, royalty, rentals
  etc.)
• Customs Revenues
• Bonuses
• Profit Oil
• States participation in Joint Venture
• Indirect Revenues (Municipalities, contractors,
  etc.)

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Concession and PSA systems in North and West
Africa
MOROCCO(ONAREP)
ALGERIA(SONATRACH)
LIBYA(NOC)
EGYPT(EGPC)
MAURITANIA
SUDAN (SUDAPEST GPC)
MALI
CHAD
SENEGAL(PETROSEN)
NIGERIA(NNPC)
CAME-ROON
EQUATORIAL GUINEA(GEPETROL)
GABON
CONGO(SNPC)
ANGOLA(SONANGOL)
Concessionary system
PSC system
Dual system
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II - Oil revenues a curse or a blessing ?
      a blessing

• In Africa, the development of natural resources
  is often the main source of revenues for the
  State
• Most of the producing countries use a
  PSA system
• NOCs hold an important share of the
  profit oil
• Collection of proportional petroleum
  royalty even under PSAs
• In Concession system, income taxes are
  usually high
• In all case, signature bonuses

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    a curse paradoxically adverse effects of
oil and gas development on the social and
economic achievements of certain
countries Conclusion not a curse, simply a
problem relating to the use of oil revenues
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III - States, NOCs or IOCs curse?

•   Most oil revenues belong to the State and the
  NOCs (Budget issue with taxes, royalties, profit
  oil)
• Thus, subject to sovereignty
• Little redistribution / allocation to local
  authorities
•   But, State interventionism decreases
• The problem is now left at the IOCs doors and
  possibly at the NOCs doors

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IV - The use of oil revenues in Africa became an
international community concern

• Oil revenues should benefit the countrys
  development
• First reaction Creation of soft law

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V - From soft Law to binding legislation
V.1 - "Political Declarations"

• Western Governments and International
  Organisations such as the United Nations are
  concerned
• Comments of George Soros (June 2002)
• Comments of Tony Blair (September 2002)
• Recent declarations of the United Nations

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V.2 - The rising of NGOs

• Transparency International
• Amnesty International
• CAFOD
• Christian Aid
• Friends of the Earth
• Global Witness
• Oxfam
• Save the Children
• EITI (Extractive Industries Transparency
  Initiative)
• Human Rights Watch
• Publish what you pay Coalition
• IISD International Institute for Sustainable
  Development
• Open Society Initiative for West Africa
• G8 Statement
• World Council for Sustainable Development, etc.

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V.3 - From Best Practices to a Voluntary Framework

• Best practice
• Indirect ways of helping the community during oil
  and gas production requirement to train local
  personnel, use local products etc.
• Helping the community in ways totally unrelated
  to oil and gas production building schools,
  hospitals, roads, etc.
• Voluntary framework
• Oil Industry oriented initiatives (IPIECA )
• Initiatives of individual oil companies
• Desire to identify practical guidelines /
  framework in order to improve specific company
  practices
• IFC and World Bank Guidelines

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V.4 - From a Voluntary Framework to Conditionality

• Banks and Multinational Investment Agencies
• Equator Principles
• Most International Organisations would like
• bilateral and unilateral development assistance,
  resource-backed loans from banks, and export
  credit agency funding
• Institutional investors

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V.5 - From Conditionality to Regulation

• Most of the NGOs, International Organisations
  and National Authorities
• believe that only a regulatory framework could
  ensure that all IOC have to publish the net
  revenues they pay to governments as a requirement
  of being listed on major stock exchanges
• are supporting governments to reform national
  laws, policies and institutions to promote
  investment and development of extractive
  industries in developing countries
• E.g. Restrictive methods restricting the use
  of all or part of revenue paid to the Government
  (e.g Chad-Cameroon pipeline)
• IFC recommendation conditionality
  implementation of national law
• E.g. IMF efforts to promote a Code of good
  practices on Tax Transparency
• Mandatory Approach

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Why should oil companies care?
VI - Court action

•         Increasing risk of legal claims
•         Cause of these actions universal
  jurisdiction
• E.g. The Alien Tort Act 1789 (US)
• Legal claims based on crimes against humanity
• Allegations from claimants that companies are
• aiding and abetting corruption, wasting public
  funds
• aiding and abetting apartheid
• conspiring with the military

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Some conclusion
      Potential creation of a customary law
based on precedents          Possibility of the
implementation of compulsory regulations by the
legislator and not by the industry
sector          AIPN initiative Contractual
tools to facilitate management of energy project
impact.