National Petroleum Policy

The final version of Liberia's National Petroleum Policy was released by the National Oil Company of Liberia (NOCAL) in November 2012 and marks a step toward the development of a new framework to manage the country’s oil, according to advocacy group Global Witness.

The policy addresses nine thematic areas, including resource ownership, the legal framework and institutional oversight, transparency, licensing, work program and operations, state participation and the fiscal regime, revenue management, local content, and environmental and social impact. The policy recognizes the constitutional provision that petroleum resources belong to the state and that private property rights do not apply to ownership of petroleum resources.

=Key provisions=

Role of the ministry and new regulatory body
The policy stipulates that the Ministry of Land, Mines and Energy is responsible for all policies governing the petroleum sector. It also calls on the government to establish an independent regulatory body "as soon as practicable and no later than the commencement of commercial production."

Role of the national oil company
The policy states that NOCAL is to maintain its commercial and operational mandates but eventually divests all regulatory powers. NOCAL is to maintain its regulatory function "during a transitional period until the establishment of the independent regulator," while the separation of regulatory powers is to be gradual "to avoid any voids which might be created as a result of an immediate separation."

State participation and the fiscal regime
The state is to participate in the oil sector "in many ways", including through the option to take participating interest in petroleum operations, which is to be "carried" in each case until commercial production. The policy also specifies that the fiscal terms in all oil and gas contracts should be progressive, i.e. giving the state an increasing share of profits as the overall profitability of a project increases.

Contracting and petroleum operations
Petroleum operations are to be contracted through "a hybrid form" of production sharing contracts (PSCs). Licensing for oil blocks is to be based on a transparent competitive bidding process, and only companies that meet the government's criteria for pre-qualification (based on their financial and technical capacity to carry out the project) are to be permitted to bid. In its comments on a draft of the petroleum policy, released in August 2012, Global Witness argued that competitive bidding should be mandatory for all stages of the oil production process, including reconnaissance and extraction. The draft policy does not make explicit that all contracts should be bid upon, and neither does the final version, which was released in November 2012. The final version does address alternatives to competitive bidding, saying that the award of blocks by direct negotiation will be allowed where a competitive process has "failed to attract bids that yield sufficient returns for the country."

A block may be held by a single entity or a consortium of companies and the assets are to be managed independently or 'ring fenced', i.e. so that damages, losses or liabilities associated with one block are not transferred to others and do not negatively affect other blocks. The policy also states that land rental rates are to be set to encourage licensees to surrender acreage they do not want to exploit. The government is to establish effective systems for monitoring and petroleum operations, conduct annual financial audits of the contractor and verify compliance with the work programs.

Revenue management
The August 2012 draft of the petroleum policy provided that dividends from state participation in petroleum blocks should be collected by NOCAL. In its comments on the draft policy Global Witness recommended that dividends should be collected by the Ministry of Finance, not NOCAL, because in oil producing countries with weak governance "national oil company control of revenues risks corruption and revenue loss as fiscal controls and accountability safeguards applicable to the rest of the government are diluted." Liberia's final petroleum policy does not specify which entity should be charged with the collection of revenues.

The policy does call on the government to develop strong audit capacity to account for petroleum revenue collection, and put in place mechanisms to efficiently use the revenues. Information on revenues from oil and gas activities, including production volumes and sale price, are to be "published regularly such as quarterly on Government websites, daily newspapers, and in accordance with the principles of the Liberia Extractive Industries Transparency Initiative (LEITI)."

The policy recognizes that revenues from oil and gas production are unpredictable and time-limited, and calls for revenues to flow into special petroleum funds to "help stabilize public expenditure in the face of oil price and production fluctuations". The government is to create fiscal rules to determine how revenues may be used to meet current consumption and investment needs, and how much must be saved for future spending. A substantial part of the revenues must be invested outside the resource sector, i.e. in physical infrastructure, education, health care, agriculture, the environment and social protection. Investment priorities are to be determined by long term national development plans.

Transparency and accountability
Fiscal terms in the oil and gas sector are to be subject to public scrutiny, whether those terms are in law or in contract. The petroleum sector is to adhere to the principles and procedures of LEITI, including its reporting requirements. Information pertaining to the petroleum sector - including legal, policy, planning, commercial, seismic and scientific data - is be made available to the public in accordance with Liberian laws such as the Freedom of Information Act of 2010.

The policy specifies that public officials "with responsibility relating to the petroleum sector" are not permitted to have any personal interest in petroleum companies or service providers. It also calls upon NOCAL and the regulatory body to publish annual reports.

Safety, health, environment and social impact
All laws, contracts, agreements, and licenses related to the petroleum sector are to comply with the environmental laws of Liberia. The principle of ‘strict liability’ is to apply in the case of damage to health and safety of people or damage to the environment, i.e. the contractor is 100 percent responsible for damage to employees and the environment. The policy also calls on contractors to conduct an Environmental and Social Impact Assessment and create an Environmental and Social Management Plan before any petroleum operations commence.

Local content
The policy calls on the government to create a local content strategy to protect the Liberian business interest and develop the competence of Liberians to achieve maximum benefits from petroleum operations.

=External links= Liberia National Petroleum Policy, November 2012

=References=