Petroleum Law (2002)

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The Liberian Petroleum Law was passed in 2002 under the government of Charles Taylor,[1] but has only been partially implemented.[2] As of October 2013, the law remained in force but existed alongside individual production sharing contracts (PSCs) awarded since 2002 that did not adhere to the terms set out in the law.[3]

A key aim of Liberia's ongoing reforms to increase investment in the upstream oil and gas sector, according to energy consultancy GlobalData, is to establish a new petroleum law bringing the regulations outlined in the 2002 law up to date with current practices, reflecting the terms already in force under current PSCs.[4] News agency The New Dawn reported in May 2012 that during debate on the new bill, members of the Liberian legislature demanded a high degree of transparency and accountability in the sector.[5]

Key provisions

Liberia's petroleum law requires 20 percent free carriage equity for the National Oil Company of Liberia (NOCAL) in all PSCs on behalf of the Liberian people, while section 3.4 of the law requires that 10 percent shares of each oil contract be made available at fair market value for Liberians to buy, and section 3.7 requires that 12 percent to 18 percent royalty of gross production be paid as tax to the government.[6] The law stipulates that purchase contracts valued at US $3 million or less be awarded to Liberian contractors.[7] It sets offshore royalties at 12 to 15 percent, which GlobalData suggests is unattractive to investors, noting that the majority of current PSCs either have no provision for royalties, or set them at a rate of 5 percent of gross production.[8]

Shortcomings in transparency, local content and dispute resolution

The law includes provisions preventing contract transparency and shielding companies from future changes to Liberia's laws, according to Ernst & Young.[9] The law's local content provisions were not enforced in contracts awarded in the two bidding rounds[10] in 2004 and 2007[11], primarily because there were no guidelines to implement them, according to the law firm King & Spalding.[12]

The law does not prescribe any forum for dispute resolution, stating only that the applicable law for all contracts is Liberian Law. Investors can propose detailed arbitration clauses to ensure that any future disputes do not go through the Liberian court system, which according to King & Spalding does not possess the capacity to deal with oil and gas disputes. Writing in October 2011, the firm gave the example of a dispute between NOCAL and a company holding a contract for a near-shore block. The company had not started drilling five years after acquiring the block, allegedly in violation of its PSC. In response, NOCAL issued a mandatory sale order, an action addressed neither in the PSC nor the petroleum law.[13]

Reform plans

A new draft petroleum law is aimed at revising the 2002 law, which is to happen alongside revisions of the act establishing the National Oil Company of Liberia (NOCAL), the model PSC and the revenue management law, according to the law firm Eversheds. The draft petroleum law would establish an independent regulator to facilitate effective monitoring of the sector and to develop regulation policy. It would also implement the constitutional provision that petroleum resources belong to the state, thereby excluding oil companies from owning private property relating to petroleum resources. Eversheds wrote that it would also implement a progressive fiscal regime to give the state an increasing share of profits as the overall profitability of a project increases.[14] John McCormack, GlobalData’s analyst for Sub-Saharan Africa, indicated the royalty range for offshore hydrocarbons in the new petroleum law could be set at 0 to 5 percent.[15]

The draft also aims to increase transparency and competition in the sector, according to news agency Deutsche Welle. The bill has passed the Liberian Senate but not the House of Representatives, which delayed debate on the new law until January 2014. Thomas Doe Nah of CENTAL, a local branch of Transparency International, told Deutsche Welle that the bill had been drafted by Robert Sirleaf, the son of President Ellen Johnson-Sirleaf, and the National Oil Company of Liberia (NOCAL) and had reached the Senate without prior public consultation. The House of Representatives insisted on a hearing of experts before proceeding any further, and subsequently delayed the debate to 2014.[16]

External links

An Act Adopting the New Petroleum Law of the Republic of Liberia

References

  1. Liberia Overhauling ‘Overambitious’ Upstream Policy to Boost Investment GlobalData, 25 July 2013.
  2. Liberia: Investment Potential in the Oil and Gas Industry in Liberia King & Spalding, October 2011.
  3. Liberia Overhauling ‘Overambitious’ Upstream Policy to Boost Investment GlobalData, 25 July 2013.
  4. Liberia Overhauling ‘Overambitious’ Upstream Policy to Boost Investment GlobalData, 25 July 2013.
  5. Liberia: Oil Debate Intensifies - House Wants All Contracts Renegotiated The New Dawn, 9 May 2012.
  6. Liberia: Oil Debate Intensifies - House Wants All Contracts Renegotiated The New Dawn, 9 May 2012.
  7. Liberia: Investment Potential in the Oil and Gas Industry in Liberia King & Spalding, October 2011.
  8. Liberia Overhauling ‘Overambitious’ Upstream Policy to Boost Investment GlobalData, 25 July 2013.
  9. Doing business in Liberia Ernst & Young, 21 February 2013.
  10. Liberia: Investment Potential in the Oil and Gas Industry in Liberia King & Spalding, October 2011.
  11. Liberia Opens Bidding for 10 Offshore Oil Blocks Rigzone, 10 December 2007.
  12. Liberia: Investment Potential in the Oil and Gas Industry in Liberia King & Spalding, October 2011.
  13. Liberia: Investment Potential in the Oil and Gas Industry in Liberia King & Spalding, October 2011.
  14. Africa Briefing: Liberia’s plan to reform its petroleum law Eversheds, 19 December 2012.
  15. Liberia Overhauling ‘Overambitious’ Upstream Policy to Boost Investment GlobalData, 25 July 2013.
  16. Oil, politics and the family in Liberia Deutsche Welle, 9 September 2013.