Notes

Policy has to be tailored to the respective gas resource potential and the expected gas demand of the country, with the aim of fostering gas investments. As a result, the legal framework should state the priorities for gas uses between domestic and export uses and include incentives such as longer appraisal periods and production periods than for oil; special fiscal incentives must be included for promoting gas activities and principles for gas pricing; mandatory joint development of gas discoveries between several licensee companies must be addressed; and provisions for unconventional gas must be included.

Knowledge tools

The kind of technical support available to governments for planning, negotiating, implementing, and monitoring investments in the extractives sector is being enhanced by the use of Internet-based tools such as the Negotiation Support Portal, designed by Columbia Center on Sustainable Investment (CCSI) and aimed at host governments (www .NegotiationSupport.org). This sort of tool is likely to evolve into an invaluable source of data, tools, and resources to tackle many of the problems discussed in this chapter. Further, for examples of petroleum and mineral contracts available in the public domain, there is Resourcecontracts. org, a repository developed by CCSI, the Natural Resource Governance Institute (NRGI), and the World Bank. It also provides annotations of the contracts’ environmental, fiscal, operational, and social provisions to facilitate comprehension of what are often lengthy and complex documents. There are well over 1,000 contracts from around 90 countries available. In spite of these excellent initiatives, the crucial bottleneck for most governments will probably remain one of securing access to the right combination of information, expertise, and skills.

NOTES

1. Rent seeking can take many forms: offers or solicitations of bribes and illicit payments to or by government officials, fraudulent declarations to the tax authorities, embezzlement of state funds, conflicts of interest of officials who have an ownership stake in companies doing business with the government, inappropriate use of position to influence government decisions, and others. A World Bank (2008, 2) report on the Democratic Republic of Congo noted how, for historical reasons, a culture of rent seeking had developed in the DRC. 2. Of course, they may also do both, with the sector law repeating the more authoritative statement contained in the constitutional document. For comparative studies of approaches adopted in mining, see Bastida, WardenFernandez, and Waelde 2005. For a comparable multi-author study on petroleum law, see Duval et al. 2009. 3. Article 268 of the 1992 Constitution of the Republic of Ghana. http://www.ghanaweb.com/GhanaHomePage/republic /constitution.php. 4. Mineral Resources Law of the People’s Republic of China, 1986, amended 1996, art. 3, para. 1. 5. Transitional Government of Somalia, Petroleum Law 2007, art. 5.1. 6. Such leases will typically not contain an arbitration clause for the settlement of disputes, in contrast to the petroleum and minerals agreements between investors and states found outside the United States (Hood 2012). 7. 1962 General Assembly Resolution 1803 on Permanent Sovereignty over Natural Resources: GA res. 1803 (XVII), 17 UN GAOR Supp. (no. 17), UN Doc. A/5217 (1962), p. 15. This has been supported by later judgments of the International Court of Justice. 8. For an overview of the literature on maritime delimitation disputes, see Cameron 2006. 9. The Memorandum to the Ghana Minerals and Mining Bill of 2006 provides an explanation of the changing policy priorities that made necessary certain provisions in the new law. The Mozambique Petroleum Law of 2001 states that its adoption is to ensure “greater competitiveness in the petroleum sector and guarantees the protection of rights and assets of participants in Petroleum Operations.” Petroleum Law No.3/2001 of 21 February 2001, Preamble. 10. Republic of Liberia, National Petroleum Policy November 2012, 7. 11. Liberian National Petroleum Policy, 19. 12. Department of Mineral Resources, Pretoria, South Africa, 2010, https://www.westerncape.gov.za/Text/2004/5 /theminingcharter.pdf. See also Department of Mineral Resources’ 2015 Assessment of the Broad-Based Socio-Economic Empowerment for the South African Mining Industry, http:// www.dmr.gov.za/mining-charter-assessment-report.html. 13. See the National Minerals and Mining Policy of Ghana, Accra, November 2014, principle 18, 22. 14. This list is not exhaustive. Detailed intentions under each of these, and other possible policy headings, would normally be provided by implementing legislation, model contracts, contract award procedures, regulation, and fiscal regimes. 15. Transitional Federal Government of Somalia, Petroleum Law of Somalia, Law No XGB/712/08 dated 06/08/2008; and President’s Office Ref JS/XM/182/06/2008, August 7, 2008. Sourcebook reference, https://mopmr.gov.so/wp-content /uploads/2019/07/Signed_Petroleum_law-2008-final.pdf.

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16. In Canada, the federal government retains authority over income taxation while royalties are a provincial responsibility. 17. For an overview of the literature on maritime delimitation disputes, see Cameron 2006. 18. Even in the Middle East, several companies have engaged private sector participants: for example, in Persian Gulf states such as the United Arab Emirates or Qatar. The rationale for such participation is access to cutting-edge technology and a sharing of technical and financial risks. 19. Economists also refer to the obsolescing bargain as the “time inconsistency problem.” 20. This section follows closely the scheme set out in chapter 3 of Duval et al. (2009, 28–29), International Petroleum Exploration and Exploitation Agreements: Legal, Economic, and Policy Aspects This study provides an excellent survey of key issues under these headings. The terms used by Duval et al. are, however, slightly different: fixed content, agreement, and flexible systems are the three categories used there. 21. It should be noted that rules contained in a basic constitution are likely to override any of the above in the event of conflict. 22. The list of special provisions for gas in a petroleum law is based on Le Leuch (2012), and much of this text follows the content of his paper. 23. Associated gas will usually mean gas that is produced in association with oil but in a project that is primarily focused on oil production. Nonassociated gas usually refers to gas in fields or reservoirs that contain mostly gas reserves, even if associated liquids such as condensate are present as well. 24. This was evident among the “transition” countries examined in the World Bank Group Mining Department report The Potential for Mining Investment in Transition Economy Countries of East and Central Asia (Clark et al. 2003). 25. The ECOWAS Directive on the Harmonization of Guiding Principles and Policies in the Mining Sector. 2009. Abuja, Nigeria. ECOWAS is a group of 15 West African states. http://documentation.ecowas.int/download/en /publications/Ecowas%20Directive%20and%20policies%20 in%20the%20minning%20sector.pdf. 26. Minerals and Mining Act 2006 Act no. 703, section 4(1). 27. For an overview of the early years of the industry in its U.S. setting, see Sakmar 2011. 28. In terms of geology and exploration, hard rock mining, unlike energy resources (coal and petroleum) extraction, cannot be adequately located through basic geological data; much time and drilling over large areas of land is necessary to find feasible mineral deposits. Petroleum exploration is considerably more expensive and risky than mineral exploration, particularly when deposits are in offshore waters (Land 1994, 22–23, 99–100). Smaller operations are possible in mining, whereas petroleum production typically requires huge mechanization and capital. The physical properties of petroleum, and the frequent need to divide production in large oil fields, has resulted in more standardized arrangements than compared to mining (Land 1994, 25–32, 102). Regarding economics, petroleum obtains faster and larger returns than minerals, and so the industry is less risk averse than compared with investment in mineral production. The petroleum industry has also been far more profitable than mining (Land 1994, 140–141, 258–264). In petroleum, the government can normally sell the product relatively easily directly to markets, which has traditionally not been the case with minerals (Smith and Wells 1975, 588). The environmental impact of removing the resource is much greater in mining than it is in petroleum (Land 1994, 35). Where petroleum is extracted from the sea, which is often the case, it presents different environmental and social issues than occur with land-based mining. For all of these points, and particularly the impact of technology and recent developments, see the discussion of petroleum and mining in chapter 3 of the Sourcebook. 29. And some governments may have contracts with separate companies for the different stages (Barberis 1998, 56). 30. Use of model agreements by educators is common, such as in courses offered by Sourcebook partners the Centre for Energy, Petroleum and Mineral Law and Policy and the Columbia Centre for Sustainable Investment. 31. Rocky Mountain Mineral Law Foundation, “Forms and Model Contracts,” Westminster, CO, https://www.rmmlf .org/~/link.aspx?_id=69EB538B7FD34BB38F7B7E545A864 37F&_z=z or the models developed by the Association of International Petroleum Negotiators, http://www.aipn.org. 32. AIPN model agreements are available only to its members, but are extensively used in contract negotiations by company negotiators and law firms. More information is available at the website, http://www.aipn.com. 33. Booking of reserves refers to adding proven reserves of oil and gas to the balance sheet of the company. The reporting could possibly be net of any royalty paid in kind. 34. In the petroleum sector, with few exceptions, the NRC participates in an unincorporated joint venture. In the mining sector, the NRC participates through share ownership in a jointly owned corporation. The unincorporated joint venture is prevalent in petroleum for operational reasons (it offers greater flexibility with respect to transfers of ownership and conduct of operations on an individual or sole-risk basis) and because multiple investor interests are common. Mining operations, in contrast, may involve only one or two investors, which favors an incorporated approach.

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35. Law No. 21/2014 entered into force on August 18, 2014. 36. This is called the investor’s production entitlement share. 37. Iranian RSAs provide for this under the so-called buyback clause (Nahkle 2010). There are also pure service contracts, which are no longer widely used but under which the contractor is paid a fee (usually tied to production) for his services. No element of exploration risk is involved in such agreements. 38. This includes countries such as Mexico and selected countries in the Middle East. 39. For a comprehensive review of the subject in this section, see Duval et al. 2009. The contract variations that can be found between oil and gas, on the one hand, and mining, on the other, are very minor and not important for the level of discussion in this section. 40. Essential infrastructure facilities in the EI sector typically include pipelines, terminals, roads, railways, and/or processing or smelting facilities. 41. Both the good practice note and brief are available at CSMI (2010). https://goxi.org/resource/granting-mineral -rights-good-practice-note. 42. There are several versions of this model JOA, the most recent dating back to 2012. Its predecessor, the 2002 AIPN Model JOA, was arguably the most influential of all versions elaborated by the AIPN to date, but the 2012 version is likely to gain more significance in the future as the users become familiar with it and use it over a longer period. 43. In the words of a leading textbook on the subject, “Any sale, transfer, or assignment of any interest in an [international petroleum agreement], including to an affiliate, is subject to the prior approval of the [host country]” (Duval et al. 2009, 161). 44. For example, in Kenya the model PSA 2015 provides for assignments to third parties as follows: “The Contractor may assign to a person other than an affiliate part or all of its rights and obligations under this contract with the consent of the Minister, which shall not be unreasonably withheld and which shall be granted or refused within thirty (30) days of receipt by the Minister of the notice from the Contractor that it intends to make such an assignment but the Minister may require such an assignee to provide a guarantee for the performance of the obligations of the Contractor” (article 35(2)). https://www.nationaloil.co.ke/pdf/Model_PSC_2015 _-_210115.pdf. An earlier version of this model PSA was used in 2011 when Kenya consented to the purchase by Total E&P of participating interests in five offshore blocks. 45. 2007 Jordan Model Production Sharing Agreement, at art. 31, Barrows Middle East Supplement 176, attachment II, at 61. See also 2005 Afghanistan Model Production Sharing Agreement for Hydrocarbons Exploration, Development and Production, January 3, 2005, Barrows Middle East Supplement 171, attachment VIII, article XXIX, at 48: “29.1 The Contractor may sell, assign, transfer, convey or otherwise dispose of any part or all of its rights or interests under this Agreement to an Affiliated Entity without Government consent, or to any other entity with the prior written consent of the Government, which consent shall not be unreasonably withheld.” 46. There are numerous other examples. The Democratic Republic of Congo introduced a hydrocarbons law in 2015 that imposes a 35–45 percent CGT. Kenya issued guidelines for its EI sector in 2015 through its Revenue Authority, imposing a rate of 30 percent for resident firms and 37.5 percent for nonresident firms. Tanzania will levy a CGT of at least $258 million on the $1.3 billion asset sale of Ophir Energy’s natural gas fields to a unit of Singapore’s Temasek Holdings, and a further large sum from Shell’s acquisition of BG Group with which Ophir had partnered in exploring the country’s gas reserves. Finally, in South Africa a report by the ANC Policy Institute (2012, 34) stated, “In order to discourage mineral right speculators we must introduce an exploration (prospecting) right transfer capital gains tax of 50%, payable if the right is on-sold or the company changes hands before mining commences. This will encourage genuine mineral property developers rather than speculators (‘flippers’).” 47. Le Leuch (2011) identifies present and desired good or best practice with respect to natural gas exploration and upstream development activities. It pays particular attention to upstream gas policies, licensing, legal, contractual, regulatory oversight requirements, and fiscal regimes. 48. An exclusive license by definition means that no other exploration or exploitation licenses will be granted on the same piece of land. 49. A scoping study is generally an assessment of environmental impact requiring less comprehensiveness than a full EIA. 50. A bankable feasibility study is the final study prior to launching the mining project and is generally subjected to a fully independent audit. 51. The study contains a comprehensive appendix with specific country regulations and reports that permit comparisons to be made. 52. The independent Columbia Center on Sustainable Investment described the pattern of events as follows: “Rio Tinto purchased all of the shares in Riversdale Mining Limited (an Australian company) on the Australian Stock Exchange, for around US$4 billion. Riversdale Mining Limited had a subsidiary, Riversdale Energy (Mauritius) Limited (a company registered in Mauritius), which owned the local company, Riversdale Mozambique Limitada (RML). RML held the rights to the coal projects in Mozambique. Through its takeover, Rio Tinto indirectly acquired the rights

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