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

Marrakech 26 th - 30 th of April 2004 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.)

Marrakech 26 th - 30 th of April 2004 Concession and PSA systems in North and West Africa PSC system Concessionary system Dual system ALGERIA (SONATRACH) LIBYA (NOC) EGYPT (EGPC) NIGERIA (NNPC) CONGO (SNPC) GABON EQUATORIAL GUINEA (GEPETROL) SENEGAL (PETROSEN) MALI ANGOLA (SONANGOL) SUDAN (SUDAPEST GPC) MAURITANIA MOROCCO (ONAREP) CHAD CAME- ROON

Marrakech 26 th - 30 th of April 2004  a blessing: II - Oil revenues : a curse or 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

Marrakech 26 th - 30 th of April 2004  a curse: paradoxically adverse effects of oil and gas development on the social and economic achievements of certain countries Conclusion Conclusion: not a curse, simply a problem relating to the use of oil revenues

Marrakech 26 th - 30 th of April 2004  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 III - States’, NOCs’ or IOCs’ curse?

Marrakech 26 th - 30 th of April 2004 IV - The use of oil revenues in Africa became an international community concern  Oil revenues should benefit the country’s development  First reaction : Creation of soft law

Marrakech 26 th - 30 th of April 2004 V - From soft Law to binding legislation 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 V.1 - "Political Declarations"

Marrakech 26 th - 30 th of April 2004 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. V.2 - The rising of NGOs

Marrakech 26 th - 30 th of April 2004  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 V.3 - From Best Practices to a Voluntary Framework

Marrakech 26 th - 30 th of April 2004 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

Marrakech 26 th - 30 th of April 2004 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

Marrakech 26 th - 30 th of April 2004  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 Why should oil companies care? VI - Court action

Marrakech 26 th - 30 th of April 2004  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”. Some conclusion