Oil and Gas Law News - Motta, Fernandes Rocha Advogados
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Oil and Gas Law News - Motta, Fernandes Rocha Advogados
Oil and Gas Law News Newsletter of the International Bar Association Legal Practice Division VOL 3 NO 1 OCTOBER 2015 IBA ANNUAL CONFERENCE, VIENNA, OCTOBER 2015 The Section on Energy, Environment, Natural Resources and Infrastructure Law (SEERIL), with the support of the IBA North American Regional Forum, is proud to present its biennial conference in New York City. The conference will focus on the critical challenges facing practitioners in mining, oil and gas, power, environment, water and international construction areas of the law Biennial Conference of the Section on Energy, Environment, Natural Resources and Infrastructure Law 2016 Challenges in the 21st Century: New Issues on the Horizon 17–20 April 2016, New York, USA Presenters include internationally recognised experts in the field from private and public practice, academia, corporate law departments and public interest organisations. In addition, top government lawyers from the host country will speak. Topics will include: • Challenges faced by industry, governments, communities and, in general, stakeholders in the natural resources industry in the next decade • Structuring and restructuring projects for the mining, energy, and oil and gas sectors • The critical role of construction agreements in project development • Development of an informal law of “best practices” for the industry • The role of climate change in project development and operation • Recent developments in litigation affecting the extractive industries and international construction projects • ‘Sharing the costs and benefits of energy and natural resources developments’, a special presentation by SEERIL’s Academic Advisory Group of its new book FOR MORE INFORMATION AND TO REGISTER YOUR INTEREST VISIT WWW.IBANET.ORG/CONFERENCES/CONF659.ASPX Contributions to this newsletter are always welcome and should be sent to the Newsletter Editor at the address below: IN THIS ISSUE From the Chair 4 From the Editor 5 Meet the Officer 6 Committee Officers 7 IBA Annual Conference, Vienna 4–9 October 2015: our Committee’s sessions 8 Articles International Bar Association 4th Floor, 10 St Bride Street London EC4A 4AD United Kingdom Tel: +44 (0)20 7842 0090 Fax: +44 (0)20 7842 0091 www.ibanet.org © International Bar Association 2015. Falling oil prices: is it possible to revise the contract price? 11 Mercedes Romero and Luis López Brazil – the oil industry, sustainable development and legal certainty Luiz Gustavo Bezerra Paul Stockley Bond Dickinson, London [email protected] All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, or stored in any retrieval system of any nature without the prior permission of the copyright holder. Application for permission should be made to the Director of Content at the IBA address. 13 Indonesia’s oil trading arm to be dissolved 15 Mirza Karim, Karen Mills and Margaret Rose Towards a new mining code for Senegal 17 Dr Aboubacar Fall The UK Energy Bill as it relates to the oil and gas industry 20 Uisdean Vass and Marianne Russell This newsletter is intended to provide general information regarding recent developments in oil and gas law. The views expressed are not necessarily those of the International Bar Association. Advertising Should you wish to advertise in the next issue of the Oil and Gas Law newsletter, please contact the IBA Advertising Department: [email protected] Terms and Conditions for submission of articles 1. Articles for inclusion in the newsletter should be sent to the Newsletter Editor. 2. The article must be the original work of the author, must not have been previously published, and must not currently be under consideration by another publication. If it contains material which is someone else’s copyright, the unrestricted permission of the copyright owner must be obtained and evidence of this submitted with the article and the material should be clearly identified and acknowledged within the text. The article shall not, to the best of the author’s knowledge, contain anything which is libellous, illegal, or infringes anyone’s copyright or other rights. 3. Copyright shall be assigned to the IBA and the IBA will have the exclusive right to first publication, both to reproduce and/or distribute an article (including the abstract) ourselves throughout the world in printed, electronic or any other medium, and to authorise others (including Reproduction Rights Organisations such as the Copyright Licensing Agency and the Copyright Clearance Center) to do the same. Following first publication, such publishing rights shall be non-exclusive, except that publication in another journal will require permission from and acknowledgment of the IBA. Such permission may be obtained from the Director of Content at editor@ int-bar.org. 4. The rights of the author will be respected, the name of the author will always be clearly associated with the article and, except for necessary editorial changes, no substantial alteration to the article will be made without consulting the author. OIL AND GAS LAW NEWSLETTER OCTOBER 2015 3 FROM THE CHAIR Giovani Ribeiro Loss From the Chair W e proudly welcome you to the October 2015 edition of the IBA Oil and Gas Law Committee newsletter. The goal of the Oil and Gas Law Committee remains to focus on the most relevant issues affecting the oil and gas industry by means of this newsletter and the various IBA meetings. Both this newsletter and the programme at the IBA Annual Conference in Vienna (4–9 October 2015) promise to engage important and valuable debates on the future of the oil and gas industry. Currently, the oil and gas industry is facing challenging times. Given the low oil price, day-to-day oil and gas legal work is reducing and the first and second quarters of 2015 have also seen a reduction in oil and gas M&A activity. However, considering past industry experience, it is expected that low oil prices will eventually lead to an increase in M&A activity, particularly an increase in the number of complex transactions: some recent examples are the Shell–BG and the Halliburton–Baker Hughes deals. Our final panel at the IBA Annual Conference, entitled ‘Update on mergers and acquisitions in the oil and gas world’, will touch on this matter, addressing the change 4 of circumstances in the industry, including oil prices, new regulation on unconventional resources and decommissioning as well as judicial recovery/financing issues. We will also explore other important debates, as in our opening panel discussion, ‘Recurrent issues in joint operating agreements’, addressing issues around the traditional contractual formula versus different ways of oil and gas exploration. The ‘Past, present and future of mediation in the oil and gas industry’ session highlights another current industry issue, regarding the trend to avoid litigation or arbitration, in order to save time, money and energy fighting legal battles. Finally, the session entitled ‘Hot topics on gas supply arrangements’ will discuss possible changes in the world’s energy matrix due to geopolitics, new technologies and power games. We encourage you to join us at the Committee sessions in Vienna, where there will be many opportunities to share your views and questions on these complex issues with your colleagues from around the world, and to discuss them with other similarly situated lawyers who share your interest in these matters. I hope you will find the articles in this newsletter informative and my sincere appreciation goes to all contributors. INTERNATIONAL BAR ASSOCIATION LEGAL PRACTICE DIVISION Mattos Filho Veiga Filho Marrey Jr e Quiroga Advogados, Rio de Janeiro giovaniloss@ mattosfilho.com.br FROM THE EDITOR Paul Stockley Bond Dickinson, London paul.stockley@ bonddickinson.com From the Editor W elcome again to the IBA Oil and Gas Law Committee Newsletter. What a difference a year makes! Last year, when I reflected on the various challenges and opportunities our everdynamic sector presents, the oil price stood at something over $100/b; this year, as I write this letter, it is below $50/b. This is undoubtedly a major challenge for the sector, but there have been downturns before and ours is an industry that has become skilled at ‘weathering the storm’. Furthermore, opportunities continue to arise in the sector such as in unconventionals and in new jurisdictions opening up to the market, such as Mexico. Certainly, it has never been more important for contractors to focus on technological improvements and internationalisation. This year, as the UK celebrates 50 years since gas was first found in the North Sea, change continues apace in the UK Continental Shelf (UKCS) with the new regulator, the Oil and Gas Authority (OGA) now established (since 1 April 2015) and busy setting out its role in maximising the economic recovery (MER) of the remaining UKCS barrels. It sees this role as three-fold: To Regulate – licensing offshore oil and gas, onshore oil and gas and carbon capture and storage; To Influence – industry culture, commercial behaviour and greater collaboration; and To Promote – investment in UKCS, value creation and industry development. The UK Energy Bill unveiled in July, will, if enacted in its current form, represent a major plank in that rapidly evolving UK regulatory system as it seeks to establish the OGA as the autonomous regulator, under the broad control of the UK Government’s Department of Energy and Climate Change in terms of matters of national security and/or public interest; create a new non-binding dispute resolution system; provide the OGA with broad power to ensure that petroleum-related information and samples are preserved; permit the OGA to attend licensee meetings bearing on MER; allow the OGA to sanction infringements of the MER strategy and much else besides. Once again we have received some excellent articles for our newsletter. I would like to thank those contributors for taking the time to produce these interesting and thought-provoking pieces. As always, they cover a wide range of topics including: falling oil prices – is it possible to revise the contract price?; Brazil – the oil industry, sustainable development and legal certainty; the dissolution of Indonesia’s oil trading arm; looking towards a new mining code for Senegal; and a review of the UK’s Energy Bill, which, if enacted, will add new provisions to the Petroleum Act 1998 and is key to the future of the UKCS. Thank you for taking the time to read this newsletter and for your continuing interest in the Oil and Gas Law Committee. We hope to see many of you in Vienna. As an introduction to our new Chair of the Committee, Giovani Ribeiro Loss, we have included his insightful response to the ‘Meet the Officer’ questionnaire and in his note from the Chair, Giovani has given us an excellent foretaste of the topics to be discussed in Vienna. We are once again reminded that as oil and gas lawyers, whether in-house or in private practice, we are privileged to work in such a fascinating sector. OIL AND GAS LAW NEWSLETTER OCTOBER 2015 5 MEET THE OFFICER Meet the Officer Giovani Ribeiro Loss Chair, Oil and Gas Law Committee Mattos Filho Veiga Filho Marrey Jr e Quiroga Advogados [email protected] How did you get into the law and your area of practice? My goal was to work with something that would allow me to interact with cultures from different countries. Becoming an oil and gas lawyer has given me the opportunity to interact with other cultures and to travel a lot. This is definitely one of the reasons why I chose an international law field. If you were not a lawyer, what would you do? Probably a banker. I’m very interested in the transactional work. What advice would you give to someone new to being a lawyer? Planning your career ahead is the key to achieving your professional goals. It is also important to understand what additional steps may allow you to achieve your goals faster. How has your role changed after the financial crisis? During times of economic crisis, clients tend to reduce costs, particularly by cutting out the referral of day-to-day work. After the financial crisis, oil and gas work became increasingly complex, with clients outsourcing only the most complex and strategic matters. 6 What area of your work do you enjoy the most? The least? I really enjoy the transactional part of the lawyer’s job, but not the bureaucratic part of it, such as paperwork and billing hours. What are the current challenges facing your area of practice? The low oil price is undoubtedly the biggest current challenge of the oil and gas industry. This leads to a large number of clients requesting alternative fee arrangements. What has been the biggest challenge of your career? How did you overcome it? The biggest challenge of my career was to qualify as a lawyer in both New York and England. I overcame it with a great deal of hard work and determination to pass both Bar exams. What are the ethical issues facing your area of practice? There are many inexperienced professionals who advise clients on subjects they know little about. If you could put together a wish list of changes you would bring about in the profession, or to your area of practice, what would you include? Price of the oil barrel above US$100.00, less state influence in some countries where that intervention is excessive and, also, greater incentives for developing oil and gas markets that still have potential. INTERNATIONAL BAR ASSOCIATION LEGAL PRACTICE DIVISION COMMITTEE OFFICERS Committee officers Chair Publications Officer Giovani Ribeiro Loss Mattos Filho Veiga Filho Marrey Jr e Quiroga Advogados, Rio de Janeiro [email protected] Sophie Lamb Debevoise & Plimpton, London [email protected] Newsletter Editor Vice-Chair Elisabeth Eljuri Norton Rose Fulbright, Caracas [email protected] Paul Stockley Bond Dickinson, London [email protected] Membership Officer Vice-Chair Paul Griffin Allen & Overy, London [email protected] Michael Silver BHP Billiton, Houston [email protected] Corporate Counsel Forum Liaison Officer Vice-Chair Paul Stockley Bond Dickinson, London [email protected] Alvaro Rodriguez Posse Herrera Ruiz, Bogotá [email protected] Secretary Matthias Lang Bird & Bird, Düsseldorf [email protected] OIL AND GAS LAW NEWSLETTER OCTOBER 2015 7 IBA ANNUAL CONFERENCE, VIENNA, 4–9 OCTOBER 2015: OUR FORUM’S SESSIONS Oil and Gas Law Committee sessions Monday 0930 – 1230 Tuesday 1430 – 1730 Supply of energy and resources: geopolitical challenges Recurrent issues in joint operating agreements Presented by the Energy, Environment, Natural Resources and Infrastructure Law Section (SEERIL) Session Co-Chairs Jean-André Diaz Total, Paris, France; Secretary, Energy, Environment, Natural Resources and Infrastructure Law Section Arent van Wassenaer Allen & Overy, Amsterdam, the Netherlands World economy and political stability very much depend on supply of energy and resources. Demand for energy and natural resources is still growing rapidly. China, as a fast-growing economy, attempts to take over production of natural resources in Africa on the one hand and it is restricting the export of its own natural resources, including rare earth minerals, on the other hand. In the US and Canada, industry is benefiting from fracking shale gas, whereas European countries are very reluctant to allow this new technology to be applied. One of the major issues is the protection of groundwater. Furthermore, climate change is dramatically affecting the planet and its people. Thus, many countries are promoting a radical change in the energy supply away from fossil and nuclear fuels to renewables. This raises several new issues, such as the need for new transmission grids for electricity as well as for natural gas. Due to the problems with the construction of new transmission grids, projects such as Desertec – where solar power generated in northern Africa shall be used for Europe’s energy supply – are at threat. Furthermore, political issues constitute a challenge to the energy supply of developed countries and industry nations. A recent example is the dispute between NATO and Russia over the further destiny of Ukraine. In the past, Russia has cut off or at least drastically reduced the gas supply to the Ukrainian pipelines, which also serve western Europe. Some European countries such as Germany are more or less dependent on Russian gas. This problem could be resolved with the new NABUCCO Pipeline. However, this project has never materialised. Presented by the Oil and Gas Law Committee Session Chair Luis Alberto Erize Abeledo Gottheil Abogados, Buenos Aires, Argentina What happens when a traditional and well-experimented contractual formula faces an entirely different way of extracting oil and gas? Joint Operating Agreements (JOAs) systems have been discussed for decades amid exploration and production regimes with the government, consisting in production-sharing agreements, concessions or part of both. The shale oil and gas revamping techniques look for a substantially different financing system, requiring a continuity of investment flow to maintain an otherwise rapidly declining production, without however facing lower risks than in the other cases of oil and gas production. Rather, the request for increased infrastructure and logistics, water supplies’ assurance, Environmental Impact Statement and a solid commitment between community and oil and gas producers for making it work, poses new challenges, particularly in the present prices’ roller coaster. Offshore, deep water (pre-salt) exploration and production presents an entirely different set of challenges and risks. The new contracts’ grid should be explored and related issues discussed, such as joint/non-joint (exclusive) operations, pilot project provisions, reserved capacity, etc. More than the usual, regulatory changes may pose threats that the JOA provisions have to consider for an adequate allocation of risks. Speakers Doran Doeh Dentons, Moscow, Russian Federation Marion Kaisinger OMV, Vienna, Austria Karl Erik Navestad Arntzen De Besche Advokatfirma, Oslo, Norway Peter Roberts Andrews Kurth (UK), London, England Paulo Valois Pires LO Baptista – SVMFA, São Paulo, Brazil William Wood Norton Rose Fulbright, Houston, Texas, USA ROOM 2.31 Therefore, this session will analyse how the supply of energy and resources affects economic and political stability and, at the same time, how such supply is being affected by geopolitical issues. Speakers Edward Asscher Royal Asscher Diamonds, Amsterdam, the Netherlands Suedeen Kelly AkinGump, Washington, DC, USA Peri Johnson International Atomic Energy Agency, Vienna, Austria Pascal Laffont International Energy Agency, Paris, France Francis Perrin Stratégies et Politiques Energétiques, Paris, France HALL L8 8 INTERNATIONAL BAR ASSOCIATION LEGAL PRACTICE DIVISION Wednesday 0930 – 1230 Past, present and future of mediation in the energy, oil and gas industry Presented by the Mediation Committee and the Oil and Gas Law Committee Session Co-Chairs Jean-André Diaz Total, Paris, France; Secretary, Energy, FEATURE ARTICLE Environment, Natural Resources and Infrastructure Law Section Jawad Sarwana Abraham & Sarwana, Karachi, Pakistan; Senior Vice Chair, Mediation Committee Mediation is certainly a hot topic today. The wish to avoid litigation or arbitration is certainly a major factor in a world where all parties are seeking to save money and trying to explore avenues to do business rather than lose time and energy fighting legal battles. Mediation appears to meet those expectations, but what is happening on the ground? The energy, oil and gas industry offers a good illustration to try to explore this inquiry: is mediation used effectively in light of the types of disputes this sector generates? Is it actually paying out and working? If so, why can’t we hear more about this Alternative Dispute Resolution (ADR) and its success in this field? How frequently can one find such clauses in contracts, including, inter alia, concession contracts and BITs? The experience gathered by in-house counsels and counsels for oil and gas companies, as well as from state agencies, such us OPEC, dealing with this area, will give the audience a better grasp of the use of mediation in this industry. A few practical examples will also be shared by those with unique insight, to explain how negotiations/mediations actually work in this sector, whether with a positive or negative outcome. Equally important is to have some comparative perspectives, with practitioners coming from regions where those disputes arise or may arise, including Africa and Asia. Against this context, the panellists will explore all possible avenues to improve the use of ADR, notably mediation, in the particular industry of energy, oil and gas disputes. This session will also include a mock case. Delgates are encouraged to read the mock case available on the IBA Annual Conference website. Speakers Kehinde Aina Aina Blankson, Lagos, Nigeria Laurence Burger Landolt & Koch, Geneva, Switzerland; Co-Chair, State Mediation Subcommittee Robert Gaitskell QC Keating Chambers, London, England Sophie Lamb Debevoise & Plimpton, London, England; Publications Officer, Oil and Gas Law Committee Benoit Le Bars Lazareff Le Bars, Paris, France ROOMS 1.61 & 1.62 Thursday 1430 – 1730 Hot topics on gas supply arrangements Presented by the Oil and Gas Law Committee The shift of a reacting Saudi Arabia oil policy allowed prices to fall to rock bottom prices. These scenarios pose crucial options for projects that are middle-of-the-road, affecting as well gas supply agreements, gas-to-gas competition, and international pipeline projects, with a high potential of litigation and negotiation. Speakers Paul Bieniawski Zechstein Midstream, The Hague, the Netherlands Maryna Ilchuk Arzinger, Kiev, Ukraine Stephan L Jervell Advokatfirmaet Wiersholm, Oslo, Norway Heinrich Kühnert bpv Hügel Rechtsanwälte, Vienna, Austria Jeff Makholm NERA Economic Consulting, Boston, Massachusetts, USA Humberto Quintas BP Energy do Brasil, São Paulo, Brazil Elmar Schweers RWE Supply & Trading, Essen, Germany ROOM 2.15 Friday 0930 – 1230 Update on mergers and acquisitions in the oil and gas world Presented by the Oil and Gas Law Committee and the Corporate and M&A Law Committee Session Co-Chairs Michael Coates Shell International Limited, London, England; Treasurer, Corporate and M&A Law Committee Giovani Loss Mattos Filho Veiga Filho Marrey Jr e Quiroga Advogados, Rio de Janeiro, Brazil; Chair, Oil and Gas Law Committee Oil and gas mergers and acquisitions (M&A) have been affected by the rapid change of circumstances in the oil and gas industry, which includes oil prices, new regulation on unconventional resources and abandonment; and judicial recovery and financing issues. This panel looks at how law firms and clients are dealing with new factors impacting oil and gas M&A transactions around the world. Speakers Michael Burns Ashurst, London, England; Membership Officer, United Kingdom Energy Lawyers Group Emmie Jones Macfarlanes, London, England Juan MacKenna Carey, Santiago, Chile; Council Member, Energy, Environment, Natural Resources and Infrastructure Law Section Olusina Sipasi ǼLEX Legal Practitioners, Lagos, Nigeria Daniel Szyfman Machado Meyer Advogados, Rio de Janeiro, Brazil Preben Thomas Willoch Simonsen Vogt Wiig, Oslo, Norway Andrey Zharskiy ALRUD Law Firm, Moscow, Russian Federation HALL L4 Session Chair Matthias Lang Bird & Bird, Dusseldorf, Germany; Secretary, Oil and Gas Law Committee The entire energy matrix in the world is subject to significant changes due to geopolitics, new technologies and power games. The shale technological revolution altered the energy source balance in the USA, and this then affected the whole world (by redirecting energy flows and lower energy global demand). At the same time, tensions built up with the Ukrainian conflict and through the resulting sanctions by the EU and USA, posing great uncertainties for natural gas continuity of supply east to west. OIL AND GAS LAW NEWSLETTER OCTOBER 2015 9 ANNUAL CONFERENCE OF THE INTERNATIONAL BAR ASSOCIATION WASHINGTON MARRIOTT WARDMAN PARK, WASHINGTON DC, USA T he 2016 IBA Annual Conference will be held in Washington DC, home to the federal government of the USA and the three branches of US government – Congress, the President and the Supreme Court. Washington DC is also an important centre for international organisations and is home to the International Monetary Fund and the World Bank. As well as being the political centre of the USA, Washington DC is home to some spectacular museums and iconic monuments clustered around the National Mall. Washington DC will give the 2016 IBA Annual Conference the perfect blend of opportunities for business, cultural exploration and to develop a unique set of new contacts. This mix makes Washington DC an ideal location for the world’s leading conference for international lawyers. WHAT WILL WASHINGTON DC 2016 OFFER YOU? • Access to the world’s best networking and business development event for lawyers – with over 6,000 lawyers and legal professionals attending from around the world • Up-to-date knowledge of the key developments in your area of the law – with nearly 200 working sessions covering all areas of practice • The opportunity to generate new business with the leading firms from around the globe • Up to 25 hours of continuing legal education and continuing professional development • A variety of social functions providing ample opportunity to network and see the city’s famous sights TO REGISTER YOUR INTEREST: Visit: www.ibanet.org/Form/IBA2016Washington.aspx Email: [email protected] OFFICIAL CORPORATE SUPPORTER FALLING OIL PRICES: IS IT POSSIBLE TO REVISE THE CONTRACT PRICE? Mercedes Romero Pérez–Llorca, Madrid mromero@ perezllorca.com Falling oil prices: is it possible to revise the contract price? Luis López Pérez–Llorca, Madrid [email protected] The recent fall in oil prices and the possible effects on long-term energy contracts Some prices of long-term energy contracts (ie, gas, electricity, steam, etc) are connected to the oil market. One of the main features of the oil market during the 1990s was the relative stability of the long-term oil price.1 However, oil prices have fallen sharply since the middle of 2014. The fall has materially affected a wide range of energy companies, with many players forced to rethink investments, cost structures and even business models. In addition, this drop may have a significant impact on the price agreed in long-term energy contracts linked to the oil market. Therefore, parties to long-term energy contracts connected to the oil market will need to determine whether the recent fluctuations of oil prices have led to a material change that ought to be reflected in the contractually agreed price. In these circumstances, some parties under long-term energy agreements spanning ten years or more may believe that the price in their contract does not reflect the extent of the change in oil price or that the price is overcompensating for the change. As a result, either party to the contract may seek to change the agreed price formula to reflect the alleged changes in circumstances.2 The parties usually submit their disputes to arbitration instead of litigation. The submission of price revision to arbitration for confidentiality reasons In the oil and gas industry, arbitration is a popular alternative dispute resolution method given that it offers certain advantages, such as: • neutrality of the process;3 • neutrality of the forum;4 • degree of autonomy for the parties;5 • the speed of the award;6 and • the enforceability of the award. Nevertheless, the main virtue in this industry of submitting the dispute to arbitration is that the proceedings are confidential. Usually the parties agree to keep the arbitration proceedings confidential, including all documents, evidence, orders and awards.7 For this reason, arbitration is seen as advantageous compared to litigation, which is usually open to the public, save for a few exceptional circumstances.8 In relation to the revision of the contract price, this confidentiality is critical, given that it prevents sensitive information being disclosed to competitors. Different price revision scenarios and the possible change in the trend of the rebus sic stantibus doctrine application There are two scenarios where a revision of the formula price of a long-term energy contract can be requested by a party as a consequence of a change in circumstances: • when the parties have provided a price revision clause in the contract; or • when the contract is silent. When the parties have provided a price revision clause Parties who are aware that economic circumstances that serve as the basis for fixing the contract price may change can agree on a clause in their contract, providing that the contract term or the price formula will be changed, renegotiated or, ultimately, if such circumstances arise and no agreement can be reached, submitted to arbitration (or jurisdiction). This clause can be incorporated by reference to hardship model clauses or the parties may decide to draft an ad hoc clause. Hardship model clauses are based on provisions provided by international law such as Article 6.2 of the UNIDROIT Principles or Article 6.111 of the Principles of European Contract Law. Hardship clauses typically recognise that parties must perform their contractual obligations even if events have rendered performance more onerous than would reasonably have been anticipated at the time of the signing of the contract. However, where continued performance has become excessively burdensome due to an event beyond a party’s reasonable control, which OIL AND GAS LAW NEWSLETTER OCTOBER 2015 11 FALLING OIL PRICES: IS IT POSSIBLE TO REVISE THE CONTRACT PRICE? the party could not reasonably have been expected to have taken into account, the hardship clause allows the parties to negotiate alternative contractual terms.9 There is also the possibility for the parties to agree on an ad hoc clause (different to the hardship model clause) in which the price revision only applies when the requirements set out in the agreed clause are fulfilled. Hence the parties are free to expressly exclude specific requirements typically included in hardship clauses. In both cases, regardless of whether the parties have agreed on a hardship clause or an ad hoc clause according to the general principle of the literal interpretation of contracts,10 if the parties have agreed on a price revision clause, and are willing to revise the price, a strict interpretation (remaining faithful to the literal terms agreed by the parties) should be made in order to determine whether the changes of circumstances justify a revision of the price. does not allow an interpretation beyond the terms agreed by the parties. In the past, Spanish courts only applied rebus sic stantibus doctrine when there was an extraordinary and unforeseen alteration of the economic circumstances in which the contract was based and an exorbitant disproportion between the parties’ obligations. Nevertheless, two rulings recently rendered by the Spanish Supreme Court in 201414 changed this trend. The rulings granted two requests for a price revision based on the argument that the economic crisis constitutes extraordinary and unforeseen circumstances, which may cause a lack of equilibrium between the parties’ obligations. In these rulings the Spanish Supreme Court reduced the strictness of requirements to apply this doctrine and accepted that the economic crisis was unforeseeable and hence could allow a revision of the price contract, insofar as it disproportionately affected the equilibrium between the parties’ obligations. When the parties have not agreed on a price revision clause Conclusion When the parties have not agreed on a price revision clause, the majority of national systems have a rule that allows a change in circumstances to modify the binding terms of the contract. This possibility is also known under the maxim rebus sic stantibus, which means that the contract remains binding ‘provided that things remain as they are’. The principle of rebus sic stantibus is a principle of international law that generally applies if no revision clause has been provided by the parties in contracts. The rebus sic stantibus is said to be a principle of lex mercatoria.11 In a nutshell, in order to apply the rebus sic stantibus doctrine, the change must be unforeseen, substantial and fundamental.12 In addition, the change must alter the equilibrium of the contract (an exorbitant disproportion between the parties’ obligations). Consequently, ICC awards13 have been rather strict when applying rebus sic stantibus. However, the recent developments in the economic area and oil market may change this tendency in the next few months. An example could be found in Spain. Spanish case law has always been extremely restrictive in applying the rebus sic stantibus doctrine, ensuring first and foremost the pacta sunt servanda principle, which in simple words 12 Two questions are still up in the air: • Will these cases be applied to the fall in oil prices? • Will arbitrators follow this case law? In the current circumstances, parties contemplating a potential price review should consider these recent trends whilst remaining mindful of the original expectations of their price review clause. While it is easy to evaluate what has already occurred, it can be difficult to foresee if these changes will continue to affect oil prices and/or gas markets in the future. In a wider sense, when dealing with long-term contractual arrangements, it is important to have clear adjustment standards that take into account the effects of inflation, currency fluctuations and changes to the law. For parties considering a price review, they will need to consider each of the possible economic explanations and determine whether they are significant, lasting changes. The answer may be worth hundreds of millions of euros. Notes 1 B Fattouh and P Scaramozzino, ‘Uncertainty, expectations, and fundamentals: whatever happened to long-term oil prices?’ (2011) 27(1) Oxford Review of Economic Policy, 186. 2 J Wilson and W Lowery, ‘“Trigger Happy”: Considering the requirements of your price review clause’, Inside Energy & Environment, 15 February 2015. 3 Oil and gas contracts frequently involve parties from different national jurisdictions. INTERNATIONAL BAR ASSOCIATION LEGAL PRACTICE DIVISION BRAZIL – THE OIL INDUSTRY, SUSTAINABLE DEVELOPMENT AND LEGAL CERTAINTY 4 M L Moses, The Principles and Practices of International Commercial Arbitration (2nd ed, Cambridge University Press, 2012), 3. 5 H R Dundas, ‘Dispute Resolution in the Oil and Gas Industry: an Oilman’s Perspective’, (2004) 2(3) Oil, Gas & Energy Law Intelligence (OGEL), 3. 6 Arbitration takes a relatively shorter time than litigation, mainly due to the fact that the award is non-appealable except in exceptional circumstances. 7 V Rajora, ‘Confidentiality in Arbitration’, Social Science Research Network, 16 March 2010. 8 See A Robb, ‘Confidentiality and Arbitration’, 39 Essex Street, 5 May 2004. 9 F R Fucci, ‘Hardship and Changed Circumstances Luiz Gustavo Bezerra Motta Fernandes Rocha Advogados, Rio de Janeiro [email protected] 10 11 12 13 14 as Grounds for Adjustment or Non-Performance of Contracts’, American Bar Association, Section of International Law, Spring Meeting, April 2006. Ie, ICC Case No 9812 (1999). M Mustill, ‘The new Lex Mercatoria: The First TwentyFive years’, [1988] Arbitration International, 86. Decision of the International Court of Justice, Fisheries Jurisdiction Case, 2 February 1973. Ie, ICC Award No 1512 (1971), ICC Award No 6281 (1989), ICC Award No 8486 (1996). Decisions No 591/2014, 15 October 2014 and No 333/2014, 30 June 2014 of the Spanish Supreme Court, regarding publicity and hotel management contracts. Brazil – the oil industry, sustainable development and legal certainty I t is interesting how global awareness regarding environmental protection has progressed over the past decades. Since the United Nations Conference on Sustainable Development in 2012, the concept of sustainable development, forged by the Brundtland Report in 1987, has solidified in such a way that it is no longer possible to think ahead without ensuring that future generations are also able to benefit from natural resources. Today, the environment is recognised for its intrinsic value and new ways of measuring the wealth of nations are being discussed, taking into account nature and the environmental surroundings that guarantee satisfactory conditions to human life in our planet. In this scenario, the energy sector should less and less be seen as dissociated from the environment. The feasibility of any energy project must undergo a detailed assessment of its environmental impact. In the oil industry there are several instances where environmental challenges have become legal issues and environmental law ends up being seen as an obstacle. Environmental law in the oil industry must be seen through the lense of sustainable development, considered by the Brazilian Supreme Court as the ‘factor for reaching a fair balance between economy and ecology’. This is the only possible way to solve some of the legal dilemmas faced by players in the oil industry nowadays. One of the most challenging matters is civil liability for environmental pollution, not only for the oil and energy industries, but for every activity involving environmental risks and a high level of natural resource utilisation. The extent of civil liability for environmental pollution was outlined in a classic judgement by Minister Herman Benjamin, of the Brazilian Superior Court of Justice, which states that: ‘for the purpose of verifying the chain of causality regarding a given environmental damage, polluter is everyone who does it, who does not prevent it when was supposed to, who allows it to be done, who does not care that other people do, who pays for another person to do it, and who benefits from it when others do it’. The comprehensiveness that our high courts have been granting to the concept of polluter and to the configuration of the chain of causality to impose civil liability (eg, the obligation to clean up or compensate environmental pollution) results in severe legal uncertainty, not only for those who conduct high-risk activities, but also for all those who are part of the supply chain, including their financiers. Would it be possible to apply this theory to impose civil liability on those who finance such an activity? On the same theme, it is important to note that the Brazilian environmental liability framework is based on the Federal OIL AND GAS LAW NEWSLETTER OCTOBER 2015 13 BRAZIL – THE OIL INDUSTRY, SUSTAINABLE DEVELOPMENT AND LEGAL CERTAINTY Constitution, which states that ‘activities that are harmful to the environment shall subject violators, whether individuals or companies, to criminal and administrative sanctions, regardless of the obligation to repair the damage caused’. Hence, the Federal Constitution provides for environmental liability in three distinct fields: civil, administrative and criminal. Furthermore, administrative liability is often mistaken for civil liability, as agents in charge of environmental enforcement seem to be unaware of their fundamental difference. The first is repressive by nature, in absolute opposition to the reparatory nature of the latter. This mistake results in administrative sanctions (eg, fines) being imposed as if they were bound to a strict and several liability scheme, which they are certainly not. Another huge challenge is to find limits to the application of the precautionary principle, which states that even when one is scientifically uncertain about potential impacts of an activity or technology, preventive measures must be adopted to stop them occurring. However, it turns out that both public prosecutors and judges alike apply this principle indiscriminately, misrepresenting its purposes. Authorised activities are interrupted and environmental permits are suspended, all because the said principle is commonly used as an escape valve, ignoring the fact that sustainable development is also part of the same legal framework. The aim here is not to reject the precautionary principle, effectively present in the Brazilian legal framework and whose importance is undeniable, particularly in an industry that is always dealing with environmental risk management. Our purpose is to think over the disrupted application of this principle, which must be tempered by proportionality and reasonability. Unfortunately, we believe this will only occur when our judiciary is prepared to apply environmental law in all its complexity. As a matter of fact, this chaotic use of the precautionary principle tends to result in the judicialisation of environmental issues, especially those related to environmental permitting. This gives rise to another challenge: to turn environmental permitting processes into something more rational, efficient and predictable. In connection with such a challenge, we should celebrate the enactment, in late 2011, of the Environmental Authority Act (EAA), 14 which sets the guidelines for the cooperation between the Union, states and municipalities regarding their joint authority for executing administrative measures towards the protection of the environment. Besides setting guidelines for cooperation, the EAA, based on objective criteria, assigns responsibilities to each one of the federative entities concerned with environmental permitting proceedings, listing the cases in which each entity will be in charge of conducting the proceedings. Thereby, the EAA definitively states that environmental permitting proceedings must take place at one federative level only. In addition, it introduces what some already consider a new principle of Brazilian environmental law: the principle of the ‘licenser-overseer’, which, briefly, means that the entity with the obligation to conduct the environmental permitting of a given activity is the one primarily responsible for inspecting the same. We do know that the EAA will not solve all conflicts of authority related to environmental permitting or inspection, but the long-awaited law already takes the legal certainty for activities in the oil industry to another level, from upstream to downstream, covering all of its production chain, including service providers. This is even more true with the recent publication of the EAA Regulation Decree, in late April 2015. Staying with environmental permitting, another challenging trend is the use of alternative environmental impact assessment methods. In Brazil, over the past decades, environmental impact assessment studies were conducted for individual projects only and the so-called ‘estudo de impacto ambiental’ (environmental impact assessment) and ‘relatório de impacto ambiental’ (environmental impact report) are the most remarkable, complex and controversial of them. However, recently, whether by imposition or by requirements from public prosecutors, these assessments are beginning to be implemented during the planning stages, seeking to evaluate the cumulative and strategic impacts of several activities considered together. Examples of this new kind of environmental assessment include Strategic Environmental Assessment, Integrated Environmental Assessment and Sedimentary Area Environmental Assessment. In view of the multiplication of such assessments, it is expected that the environmental permitting of specific projects will become more rational, since a baseline will already INTERNATIONAL BAR ASSOCIATION LEGAL PRACTICE DIVISION INDONESIA’S OIL TRADING ARM TO BE DISSOLVED exist for the understanding, for instance, of the environmental sensitivities of a certain sedimentary area. Nonetheless, there will be much discussion before the consolidation of these new studies. Indeed, Public Prosecutors’ Offices have already obtained injunctions to halt activities until such assessments are approved by environmental agencies. If, on the one hand, legal certainty is pursued by the oil and gas industry, on the other hand the industry is still failing to grasp with precision the extent of the environmental impact related to new technologies, such as fracking. Due to that dichotomy, fracking is the subject of a bill under scrutiny by the Brazilian Congress seeking to establish a five-year moratorium on the technique, and also of several public civil actions in some states. Likewise, Mirza Karim KarimSyah Law Firm, Jakarta mirza.karim@ karimsyah.com there are no well-defined solutions to fight climate change challenges. Legal environmental matters in connection with the oil industry are certainly challenging. This article only indicates some of the major dilemmas, among many, faced by companies dedicated to oil and gas exploration or the distribution of their consumer products. Today, environmental considerations permeate the formulation of public policies, and the notion of development is only complete through sustainable development. Environment and sustainability should not be perceived as costs to corporate activities, but rather as great opportunities. Companies with such vision, that structure themselves for the decades of the green economy to come, will surely be in a privileged position. Indonesia’s oil trading arm to be dissolved Karen Mills KarimSyah Law Firm, Jakarta [email protected] Margaret Rose KarimSyah Law Firm, Jakarta margaret.rose@ karimsyah.com N ews in Indonesia’s energy sector lately has been focused on Pertamina’s intention to halt the operation of its Singapore-based subsidiariy, Pertamina Energy Trading Limited (Petral), as well as efforts to liquidate Petral’s subsidiaries, Pertamina Energy Services Pte Limited (PES) and Zambesi Investments Limited (ZIL). The announcement was made at the Ministry of State Owned Companies’ offices on 13 May 2015 by the new President Director of Pertamina, Dwi Soetjipto, along with the President Commissioner of Pertamina, Tanri Abeng, Minister of State Owned Companies, Rini Soemarno, and Minister of Energy and Mineral Resources, Sudirman Said. The role of Petral has, on and off, been the subject of debate in the energy sector for many years as the company, which handles oil imports from Singapore, was seen as being beneficial to certain oil brokers, but not to the nation. Efficiency and transparency in oil supply procurement were seen to be compromised in using Pertamina’s own intermediary. Petral’s history In 1968, Indonesia’s three state oil companies, Pertamin, Permina and Permigan were merged into Pertamina. In the same year Pertamina joined with a number of United States investors to form the Perta Group to perform marketing activities for Pertamina’s oil and gas products in the US. The Perta Group, which consisted of Perta Oil Marketing Limited (established in the Bahamas and based in Wanchai, Hong Kong) and Perta Oil Marketing Corporation (established in California and operating in the US) commenced activities in 1972. Then, in 1978, a major reorganisation replaced the Bahamas company with a Hong Kong entity, Perta Oil Marketing Limited. The Perta Group continued to stand as intermediary between Pertamina and its offshore suppliers and customers throughout the period of Suharto’s rule continuing, as Petral, to the present day. Established during the ‘New Order’ reign of Suharto, the Petra Group was owned in OIL AND GAS LAW NEWSLETTER OCTOBER 2015 15 INDONESIA’S OIL TRADING ARM TO BE DISSOLVED the majority by Pertamina with Suharto’s youngest son and one of Suharto’s unoffical business partners holding minority interests. It was, and still is, suspected to be utilised for these personal interests and also for those of an ‘oil and gas mafia’ of various current and former officials and business persons, together with at least one Singapore player. The evolving rumours have it that more than half of the oil imported into Indonesia was controlled by or connected with this ‘oil and gas mafia’. Despite the remarkable losses inflicted on the state as a result, no investigation had ever been undertaken into these practices, until now. Pertamina took over the Perta Group in 1997 when Suharto stepped down, but the unofficial interests of those connected with that former President remained in place. Then in 2001 the name of the Perta Group was changed to Pertamina Energy Trading Limited (Petral), and it was incorporated in Hong Kong, although it maintained its head office in Singapore. (For ease of reference the term ‘Petral’ shall, in the remainder of this article, refer both to the Perta Group and to the later legal entity, Petral.) Petral has two wholly owned subsidiaries: • Pertamina Energy Services Pte Limited (PES), formerly Perta Oil Services Pte Ltd, established in Singapore in 1992. PES’s role is to carry out marketing activities for oil, oil products and petro-chemicals; and • Zambesi Investments Limited (ZIL), established in Hong Kong in 1979. ZIL’s role is to perform non-oil business development and investment. Indonesia was a net oil exporter and a member of OPEC at the time of the establishment of Petral, which was positioned by Pertamina as its international trading and marketing arm. Oil and gas were still the major source of foreign exchange revenue and/or state’s revenue in the State Budget. Petral’s establishment was made in line with Pertamina’s policy to increase trading and marketing functions. Petral’s main business was crude oil exports and imports and refinery products. Petral also performed trading activities of oil and derivative products originating from other countries in the Asia Pacific region, Europe, the Middle East, Africa and other regions. However, the decrease in oil production along with the rapid increase of oil consumption in 2003 created more demand, which needed to be covered by oil imports. As Indonesia’s status shifted from net exporter to net 16 importer, Petral remained the trading arm of Pertamina, and it also acquired an additional function of ‘procurement agent’ for crude oil and fuel oil, the function of which was believed to provide more opportunities for the enrichment of some of the players involved from the start. The problem Indonesia’s high demand for fuel oil caused a rapid increase in the business of Petral, Pertamina’s sole authorised seller and purchaser of crude and fuel oil. Yet, Petral did not perform any actual transaction with third parties; Petral’s official role was only as ‘tender administrator’, thus it could be characterised as a trading company. Nor was it able to perform any transaction at the Platts Window Market (Singapore Oil Exchange), since Petral did not physically possess any products. Yet, Petral was able to set both buying and selling prices, but with no transparency or accountability. Under Indonesia’s new president, a shortterm Oil and Gas Governance Reform Team (RTKM) was established to regulate some of the problems in the sector. Its Chair, Faisal Basri, noted Petral’s manipulation of the oil supply through oil companies owned by foreign governments or national oil companies (NOCs). Many of the NOCs that were successful in their tenders possessed no oil of their own, and needed to acquire products from other parties. The Minister of Energy and Mineral Resources, Sudirman Said, also revealed the existence of suspicious cartel practices in Singapore and a number of other unclear practices in Petral’s fuel oil procurement process. As long as Petral continues to act as Pertamina’s trading arm, it is inevitable that the ‘oil mafia’ will continue to drain funds from the state treasury for their own benefit. Dissolution of Petral The dissolution of Petral was endorsed by Sudirman Said, although he also stated that the final say must be Pertamina’s. On 13 May 2015, Pertamina officialy terminated the entire operation of Petral and its subsidiaries and announced that Petral and these subsidiaries are to be liquidated by April 2016 at the latest. Such action is widely recognised as a much-needed clean-up effort, with many pointing out that Petral has long been infamous for being ‘the nest of the oil and INTERNATIONAL BAR ASSOCIATION LEGAL PRACTICE DIVISION TOWARDS A NEW MINING CODE FOR SENEGAL gas mafia’. The current President Director of Pertamina, Dwi Soetjipto, stated that Petral’s business activities, especially those related to crude oil and fuel oil imports and refinery products, will now be fully performed by Pertamina’s own integrated supply chain (ISC). There is no need for an agent. In fact, many of these activities have gradually been performed by ISC since early this year. Petral’s assets will also be transfered to Pertamina. During the past three months, since ISC took over Petral’s business activities, Pertamina has already managed to save US$22m, as reported by Sudirman Said to Indonesia’s new President, Joko Widodo, adding to the view of prior missappropriation by Petral. Both the Ministry and Pertamina also intend to perform full financial and legal audits to examine Petral’s business track record, prior to its liquidation. However, Indonesia’s government may have difficulty in performing such investigations, particularly if they are to be performed by Indonesia’s Supreme Audit Agency (BPK), Dr Aboubacar Fall Geni & Kebe, Dakar [email protected] because Petral is a Hong Kong legal entity, based in Singapore, not an Indonesian one. It is hoped that Petral’s dissolution will eliminate the payment of agency fees and other questionable practices in the oil and gas sector. Through ISC, Pertamina will be able to negotiate prices directly with suppliers. Pertamina’s decision to disband Petral is commendable. Ever since Ibnu Soetowo, the first President of Pertamina, almost bankrupted the nation through questionable financing transactions in 1978, efforts to clean up Indonesia’s largest state-owned entity have proved unsuccessful. After the fall of Suharto, Pertamina itself was cleaned up and is now operating in a transparent manner; and now, finally, its subsidiaries are receiving proper scrutiny as well. A fully transparent oil and gas industry will certainly spell not only a welcome increase in state revenue, but also a more attractive energy sector for investors, domestic and foreign alike. Towards a new mining code for Senegal T he process of revising the 2003 Mining Code (which remains in force) began in November 2012. Indeed, right after his election, and despite the low prices on the international mining market, the President of Senegal, who is a geologist engineer by training and has served as Minister of Mining and Geology, decided to introduce new mining legislation. The objective of this decision was to attract more foreign investment in order to drive economic growth in Senegal and increase the contribution of the mining sector to the country’s gross domestic product. It is noteworthy that mining has been selected as one of the main priority sectors of the Plan for an Emerging Senegal (PSE), designed and strongly supported by the President. Context Parallel to this decision to revise the current legislation, a presidential decree established the Commission for the Revision of Mining Contracts and the Mining Code, which is exclusively composed of representatives of public institutions (the government, parliament and the Economic and Social Council). The mandate of the Commission is two-fold: • revisit existing mining contracts; and • revise the current legislation in order to bring about important changes including: – the reinforcement of local developmentrelated provisions; – the deadlines on starting work plan implementation; and – the increase of transparency obligations on the title holders as well as the Senegal government. In that respect, it should be emphasised that Senegal has recently embarked in the Extractive Industries Transparency Initiative (EITI). These changes derived from recommendations formulated from different OIL AND GAS LAW NEWSLETTER OCTOBER 2015 17 TOWARDS A NEW MINING CODE FOR SENEGAL sources, including a World Bank-funded study on the ‘Diagnostic of the Legal and Fiscal Framework of the Senegal Mining Sector’ and other stakeholders (including the input from the Commission for the Revision of Mining Contracts and the Mining Code) and the public consultations held across the country. The overall objective of future mining legislation is to increase the revenues to the government and the local communities from the mining sector, while still keeping the investor-friendly incentives offered in the current 2003 legislation. In terms of scope of application ratione temporis, it must be noted that companies that have already acquired a mining title in Senegal will still be bound by the mining law that was in force at the time they were issued. In other words, there will be no retroactivity once the future legislation is enacted. The main innovations contained in the future mining legislation Future typology of mining titles The distinction introduced by the current mining legislation between ‘mine permit’ and ‘mine concession’ led to confusion in the mind of investors who called for a simplification in this matter. The future legislation will now distinguish between ‘small mine permit’ and ‘mining permit’. A small mine permit will be limited to a daily treatment capacity of 500 tons of minerals and a mining area of 500 hectares. Regarding the mining permit, there will be no limitation on the scale of operations the title holder will be able to conduct. The future mining law will allow investors to apply for a semi-mechanised mining authorisation, which is designed to cover artisanal mning operations over a maximum of 50 hectares. Further, the notion of concession minière (mining concession) has been replaced by that of permit d’exploitation (exploitation permit), which the drafters have considered to be legally more explicit. It is important to emphasise that current mining concessions will continue to be governed by the 2003 Mining Law until their expiration dates. The term ‘exploitation permit’ will be used for mining agreements issued after entry into force of the new Mining Law. The name change does not therefore result in legal consequences. 18 Timeframe for the validity of mining titles The future mining law will grant the small mine permit holder an initial term of five years instead of three years under the current legislation. These five years may be renewed for three years at a time without limit to the number of renewals. Mining permit holders will enjoy an initial term of between five and 15 years, depending on the targeted mineral reserves and the investment required. Mining permits will be renewable as many times as necessary until the end of production. It is noteworthy that under the current legislation, a mining concession could be granted for up to 25 years. Once a mining permit is granted, the investor can negotiate a mining agreement under the condition that the agreement: • is published on the Ministry of Mining and Trade website after execution; • does not contradict the provisions of the future mining law, but may supplement them; and • sets out the rights and obligations of the parties, including the stability of the legal conditions under which the mining title was granted. Ownership of mining titles The future mining law will remove the restriction clause under which foreign investors cannot own 100 per cent of the shares in a Senegalese mining company, but the mining title will still have to be held by a company registered in Senegal. New changes in fiscal revenues These changes relate to fees, royalties and taxes. Fees Regarding fees, it should be noted that under the future mining code, the entry fees for research permits, semi-mechanised mining authorisations and quarry permits will be increased, but not substantially. The same applies to small mine permits and mine permits. Royalties With respect to royalties, the future legislation will introduce an annual surface royalty payable by all title holders, including holders of research permits and quarry permits. The annual surface royalty will be calculated per hectare or square kilometre: INTERNATIONAL BAR ASSOCIATION LEGAL PRACTICE DIVISION TOWARDS A NEW MINING CODE FOR SENEGAL • FCFA 2,500 per hectare for a small mine permit; and • FCFA 250,000 per square kilometre for a mining permit. Taxes Under the future law, mining companies will no longer have to resort to the mining code for information regarding fiscal and custom regimes applicable to their project. Indeed, all tax provisions included in the current legislation, except the mining tax, will be transferred to the General Tax Code (Code général des impots). While the mining tax has not been transferred, its application has been revised in order to make all mining activities subject to a trimestrial mining tax levied on the market value of the commercialised product. The rate of trimestrial mining tax will be increased based on the type of substance being mined. Below are some examples: Iron Ore Phosphate – concentrate 3.5% – processed 1.5% – calcium-aluminate 5% – chalk phosphate 6.5% Gold 5% Other assigned substances 3% Tax relief Changes will also take place with regard to various tax benefits contained in the current legislation. For example, during the period commencing on the date of entry into force of the mining permit (or small mine permit), and ending on the first date of the commercial production (called the investment period), the mining title holder will be exempt from all taxes and fees, including VAT and COSEC port charges. However, despite these changes, some taxes have been maintained, such as stastical royalty, community solidarity levy and community levy, among others. Mining title holders will no longer be exempted from the payment of export taxes in relation to products mined within the area of their mining permit. It is noteworthy that the abovementioned provisions will be applicable jointly with any other applicable taxes and tax exemptions contained in the General Tax Code. Introduction of the Production Sharing Agreement (PSA) Under the future mining law, the state will be given the possibility of entering into a production sharing agreement with a mining company. Under such an agreement, the mining company is given the exclusive right to research, develop and exploit a mine in a particular area and recover the costs incurred from the proceeds of the sale of the product. The remaining profits from the sale of the product will be split between the State and the mining company. Each PSA will provide the detail of the contractual arrangement between the parties. It is important to emphasise that the mining production under the PSA will not be subject to the above-mentioned trimestrial mining tax. Contribution to local development In order to promote the social and economic development of local communities living in mining areas, the future legislation will make it mandatory for mining title holders to contribute annually to a local fund. The amount of the contribution will be specified in each title holder’s mining agreement. New compulsory obligations for mining title holders Contrary to the current mining code, the future legislation will impose on research permit and small mine permit holders the requirement to provide a guarantee as security for the cost of rehabilitating their research area or their mining site. A joint ministerial order from the Ministry of Mines and Industry and the Ministry for the Environment will provide the details of the guarantee to be posted. The current obligation for the mining permit holder to establish a trust account with a local bank and deposit the funds that will be used for the rehabilitation of the mine site will continue under the future mining code. In addition to rehabilitation obligations, all mining title holders will specifically be required to: • respect, protect and implement human rights in areas affected by mining operations; • respect the provisions of the Forestry Code where the mining title has been granted over a ‘classified forest zone’; and • respect the principles and obligations OIL AND GAS LAW NEWSLETTER OCTOBER 2015 19 THE UK ENERGY BILL AS IT RELATES TO THE OIL AND GAS INDUSTRY under the EITI, such as declaring all payments to the state to the national EITI authorities, including social development payments. New sanctions for mining title holders The future mining code will prescribe a great number of infractions and sanctions including, but not limited to: • non-payment of taxes; • not beginning work programmes within the agreed timeframes; • irregularities in documentation or failure to provide requested documentation; • illegal mining activity and theft of mine substances; • illegal storage, transport or sale of mineral substances; • fraud; and • health and safety violations. New audit and transparency requirements In addition to being bound by their commitments regarding the EITI, the state and mining companies will be subject to more stringent audit and transparency obligations. For example, the state will be free to appoint an independent firm to audit the accounts, facilities, infrastructure, systems and procedures of any mining company. Further, there will no longer be confidentiality regarding the publication of all mining revenues due to the state. The state will be compelled to make public all contracts and related financial statements. Conclusion In revising its mining legislation, Senegal is following the trend currently observed in West Africa aimed at increasing state revenues to boost its GDP, introducing more stringent social and environmental safeguards, and improving the social and economic conditions of local communities residing in the areas of the mining site. The draft legislation is before Parliament and should finally be adopted as law before the end of the year. The UK Energy Bill as it relates to the oil and gas industry Uisdean Vass Bond Dickinson, Aberdeen uisdean.vass@ bonddickinson.com Marianne Russell T he UK Energy Bill 2015 (the ‘Bill’), published in July, has been widely anticipated because it draws together the recommendations set out in the Wood Review and seeks to overhaul the regulatory system to allow the transfer of functions from the Department of Energy and Climate Change (DECC) to the Oil and Gas Authority (OGA) to enable the OGA to regulate, influence and promote the UK Continental Shelf (UKCS). To do this, the OGA will be provided with significant new powers to assist it in its new role, the key provisions of which are discussed below. 20 Context Section 41 of the Infrastructure Act 2015 introduced the concept of maximising economic recovery of UK petroleum (MER) into the Petroleum Act 1998. MER became ‘the principal objective’ and it is intended that it will be achieved through development, construction, deployment and use of equipment within the industry, together with collaboration between licensees, operators, owners of infrastructure and persons planning and carrying out the commissioning of infrastructure INTERNATIONAL BAR ASSOCIATION LEGAL PRACTICE DIVISION Bond Dickinson, Aberdeen marianne.russell@ bonddickinson.com THE UK ENERGY BILL AS IT RELATES TO THE OIL AND GAS INDUSTRY (the ‘MER parties’). MER has not been defined; it is envisaged that the Secretary of State will produce a ‘strategy’ to enable this objective to be met. The strategy will go out for consultation this autumn. It will be interesting to see the strategy and how it will apply to the MER parties, whether it will govern the relationship solely between a party and the OGA or, as would be expected, it applies horizontally to a MER party’s relationship with other MER parties. The OGA The OGA will be expected to have regard to five factors when exercising its powers: • minimising future public expenditure; • security of supply for the UK energy sector; • collaboration between the government and other persons who carry out relevant activities (related to the exploration, production and decommissioning of oil and gas facilities); • encouraging innovation in technology and working practices; and • maintaining a stable system of regulation that encourages investment. These are all admirable and relevant considerations, but it may be difficult to achieve a balance in practice. No guidance is given as to whether the OGA is required to consider all five factors with equal weight or whether one factor should be considered to be more important than another. In considering the interests of two parties, what is commercially viable for one will not necessarily be viable for the other, and it is questionable whether the OGA could require a party to commit to capital expenditure or compel a party to do something that it would not otherwise be inclined to do. Companies in a joint venture will be required to account to their shareholders and, therefore, it may be difficult to reconcile their individual fiduciary duties with the government’s MER objective. New powers for the OGA Sanctions DECC, as the regulator, was unable to be as effective as it might have wished to be partly because of its essential inability to require companies to take action. The Bill seeks to resolve this by providing the OGA with a powerful tool in the form of sanctions. Essentially, if an entity has failed to comply with a petroleum-related requirement, that is: • the duty to act in accordance with the Section 41 strategy; • a term or condition of an offshore licence; or • a requirement imposed by a provision under the Bill that is sanctionable, the OGA can potentially levy a sanction in the form of: (1) an enforcement notice; (2) a financial penalty notice; (3) a revocation notice; or (4) an operator removal notice. With respect to all the sanctions, the OGA must specify the petroleum-related requirement and provide details of the failure to comply. The enforcement notice must provide details of the actions required for compliance and provide any directions, including measures that must be taken and the date on which compliance must occur (a party can appeal against a sanction). Similarly, the financial penalty notice must specify the actions required to rectify the breach. In addition, a fine can be levied of up to £1m per occurrence (this could potentially be increased to £5m if the Secretary of State elects to amend the regulations). The most powerful sanction will be the revocation of a company’s interest in the licence because all rights will then cease on the revocation date. Both revocation and operator removal will clearly have an impact on the remaining licensees. The OGA will be required to publish guidelines on its intended use of financial penalties so that parties are aware of the potential consequences of their actions. It is noteworthy that there is no similar requirement with respect to revocation, which is the more serious sanction. Before the OGA can issue a sanction, it must first issue a sanction warning notice that alerts the relevant party to the problem and affords it the opportunity to rectify the issue and present its case to the OGA. However, a sanction notice (with the exception of an enforcement notice) can be issued even where the breach has been remedied, and it is within the OGA’s discretion to issue the notice solely to one party or jointly to other relevant parties. It is anticipated that these powers, contained in sections 37 to 56 of the Bill, will be watched closely because the industry will be keen to see the approach the OGA takes in practice. The sanctions have the potential to be a useful tool and a valuable deterrent OIL AND GAS LAW NEWSLETTER OCTOBER 2015 21 THE UK ENERGY BILL AS IT RELATES TO THE OIL AND GAS INDUSTRY to discourage certain types of behaviour. However, if the sanctions are applied too heavily then they may discourage investment. Disputes The Bill allows a relevant MER party to refer a qualifying dispute (a dispute with respect to issues relating to the qualifying objective (MER) or activities carried out under a licence) to the OGA. The OGA can also decide, on its own initiative, to consider a dispute. Dispute has not been defined and, therefore, it is not clear whether a formal dispute would be required, for which there is a cause of action in contemplation of litigation, or whether a mere disagreement would suffice. If the OGA accepts the reference then, in considering how the dispute should be resolved, the OGA should seek to achieve an economically viable solution for the parties. However, what may be economically viable for one party will not necessarily be economically viable for the other. In addition, these dispute resolution provisions have the potential to cut across contractual dispute resolution procedures, which have been agreed between the parties, and it is not clear how they would work in the situation where litigation had already been commenced in court. Additional obligations for licensees and other relevant parties Meetings The Bill provides that the OGA should be notified, in writing, in advance of relevant meetings between two or more relevant parties. This is likely to capture operational and technical meetings, and may also include less formal meetings. This obligation to notify the OGA of such meetings falls on all relevant parties (including employees that know or ought to know a relevant meeting is taking place) and, therefore, in order to discharge that duty, it is likely that all 22 participants will be required to notify the OGA. This is likely to lead to the OGA being inundated with a plethora of paperwork because the notice should be accompanied with copies of all relevant materials that are to be considered at the meeting. It may be difficult to ascertain which meetings the OGA will prioritise. The OGA will have the opportunity to send a representative to attend such meetings, as it deems appropriate. Alternatively, where the OGA declines to attend (perhaps due to unavailability of resource or appropriately qualified personnel), the OGA is entitled to be provided with information following the conclusion of the meeting. Information and Sampling A licensee must prepare an information and samples plan if there is a licence event in contemplation, such as a transfer or surrender of rights, or a licence expires or is revoked; such an information and samples plan must then be agreed with the OGA. The OGA may submit a notice to the licensee to require it to provide information. This requirement is wide-reaching, and information protected by legal privilege is the only information that is expressly excluded. This has the potential to be onerous on a licensee and could include information that is valuable or commercially sensitive. The OGA can use the information to prepare general reports and it may, in certain circumstances, disclose the information to the general public. Conclusion While there may still be uncertainty with respect to the interrelationship between MER and the strategy and how the OGA will seek to apply this in practice, there is certainly little doubt that the proposed changes will be far-reaching and are much needed for the future of the UK oil and gas industry. INTERNATIONAL BAR ASSOCIATION LEGAL PRACTICE DIVISION
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