Sierra Leone Model Petroleum Agreement

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In 2011, Sierra Leone developed a model petroleum agreement under the amended Petroleum Exploration and Production Act.[1] The model agreement sets the broad guidelines for the individual petroleum agreements, while specific fiscal terms are determined by the individual contracts.

Fiscal terms

Sierra Leone has a Royalty-Tax system of which the main fiscal terms are contained in Section 104 of the Petroleum Exploration and Production Act (2011).[2].

Accordingly, the government of Sierra Leone obtains revenue from the oil and gas sector by subjecting it to the following:

  • a royalty rate set at 10 percent of gross production of crude oil[3]
  • an income tax set out in the Income Tax Act (2000) [4] and amounting to 30 percent of the profit of the international oil company after deducting all "allowable costs" [5]
  • a Petroleum Resource Rent Tax (PRRT), a progressive tax instrument based on the Petroleum Exploration and Production Act (2011) and the Income Tax Act, which is taxed at single tier PRRT at 40 percent and an accumulation (threshold) rate of 15 percent in nominal terms [6] [7]
  • a capital gains tax set out in the Income Tax Act providing for taxation of the premium received by the assignor in the assignment of any participating interest in a licence; it is currently based on the prevailing company income tax rate and takes 10 percent of the gross consideration paid for real property[8] [9]
  • Bonuses (production and signature) which are biddable[10]

In addition, Sierra Leone’s proposed Extractive Industries Revenue (Imposition) Act of 2012, would introduce a Mines and Minerals Resource Tax (MMRT) that would apply in addition to income tax and applicable royalties.[11]

Contract transparency

The Petroleum Exploration and Production Act (2011) requires that oil contracts are awarded only through competitive auctions, that they are published and payments are disclosed in accordance with the terms and procedures of EITI.[12] However, as of October 2013 Sierra Leone has not publish contracts with extractive companies and releases only partial data on most aspects of the mining industry.[13]

References

  1. Sierra Leone: Extractive Industries”. Revenue Watch Institute, retrieved 22 October 2013.
  2. Is Sierra Leone’s Fiscal Regime (Terms) Neutral Enough to Enable Balancing of the Objectives of Government and a Prospective International Oil Company?”. Femi Coker, May 2012.
  3. Is Sierra Leone’s Fiscal Regime (Terms) Neutral Enough to Enable Balancing of the Objectives of Government and a Prospective International Oil Company?”. Femi Coker, May 2012.
  4. Conducting oil and gas activities in Sierra Leone”. CMS Cameron McKenna, retrieved 25 October 2013.
  5. Is Sierra Leone’s Fiscal Regime (Terms) Neutral Enough to Enable Balancing of the Objectives of Government and a Prospective International Oil Company?”. Femi Coker, May 2012.
  6. Is Sierra Leone’s Fiscal Regime (Terms) Neutral Enough to Enable Balancing of the Objectives of Government and a Prospective International Oil Company?”. Femi Coker, May 2012.
  7. Conducting oil and gas activities in Sierra Leone”. CMS Cameron McKenna, retrieved 25 October 2013.
  8. Sierra Leone Fiscal Guide 2012/13”. KPMG, May 2012.
  9. Conducting oil and gas activities in Sierra Leone”. CMS Cameron McKenna, retrieved 25 October 2013.
  10. Is Sierra Leone’s Fiscal Regime (Terms) Neutral Enough to Enable Balancing of the Objectives of Government and a Prospective International Oil Company?”. Femi Coker, May 2012.
  11. Limiting foreign investment?”. Mining Journal, 25 January 2013.
  12. Political Economy of Extractives: Governance in Sierra Leone”. Fanthorpe, R. and Gabelle C., 2 July 2013.
  13. Resource Governance Index: Sierra Leone”. Revenue Watch Institute, retrieved 27 October 2013.