Oil law before Congo parliament fails to safeguard against corruption or environmental damage – Global Witness

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Planned revisions to the Democratic Republic of Congo’s hydrocarbons law contain major flaws that could allow gross mismanagement of the country’s oil wealth and serious environmental impacts. The draft text, published by Global Witness today,[1] is before the parliament of the vast central African state, which is on the cusp of a large hike in oil production.

Global Witness is calling for the new legislation to require an open and competitive tendering process for oil permits, contract and ownership transparency for oil and gas rights, and a prohibition of drilling in the country’s national parks.

Congo’s oil production is approximately 25,000 barrels per day, [2] which generated more than $320 million in tax revenue for the impoverished state in 2010, the most recent year for which figures are available.[3]  Oil majors such as Chevron and Total already have interests in Congo, as do smaller players such as London-listed SOCO International.[4]

A massive increase in Congo’s oil production is likely, following an agreement with Angola on sharing benefits of lucrative offshore fields.[5] Congo has also controversially granted oil exploration licences along its northeast border with Uganda, which partly overlap with the Virunga National Park.

The new oil law has already been passed by Congo’s Senate, and is under discussion in the lower house of parliament, the National Assembly.[6] It is expected to be passed before the end of the current parliamentary session on 15^th June.

 “Congolese legislators have a unique opportunity with the new oil law to create a system to manage the country’s oil resources for the benefit of the Congolese state and its people,” said Nat Dyer of Global Witness. “Unfortunately what we have now is a weak bill that could see Congo’s oil wealth squandered through secret deals, while protection of national parks and World Heritage sites would actually be weakened.”

Global Witness’s analysis of the proposed oil law

Global Witness is calling for parliamentarians to amend the oil law to include, among other things, competitive public tenders, clear rules on transparency and a prohibition on drilling in national parks.  The analysis below builds on Global Witness’s recommendations on the oil law published in October 2012.[7] 

An inadequate tender process

Despite initial appearances, the latest version of the oil law does not provide for a rigorous public tender process. A well-structured and transparent competitive bidding process is the best way of ensuring that the state will get the highest possible prices for its oil and gas resources. Furthermore, open tenders help to prevent corruption, by ensuring that all companies are dealt with in an impartial manner. A number of countries, including South Africa and Algeria, already ensure that rights to explore or exploit national oil assets are, as a rule, allocated via public tender.

The draft law appears to make tenders compulsory (Article 63). However, the following article guts this provision by stating that once a request for a block has been judged “eligible” (“recevable” in French), no other request can be introduced until a decision to allocate the grant has been made.[8] This effectively reduces the process to a first-come, first-served system at the discretion of officials. As well as eliminating this ambiguity, the law should also lay down ground rules for an open tender process – for example, there is no commitment for: key documents in the tender process to be made public, such as the bids/proposals from companies; the criteria over how bids will be shortlisted; and the criteria for the final award of rights. See Global Witness a “Citizens’ Checklist” for detailed recommendations for the rules governing tender processes. (http://bit.ly/QUxjiF) [9]

Transparency on volumes, contracts and ownership needed

The new oil law should reflect, at a minimum, the Prime Ministerial decree of May 2011, which requires all contracts related to natural resources to be published within 60 days. However, the current transparency provision in the law (Article 108) stops short of enacting this commitment.  While it states that oil and gas companies should publicly declare their payments and receipts – in line with transparency pledges Congo has made under the Extractive Industries Transparency Initiative (EITI) -  it does not include an obligation for the state to make contracts public.[10] The article should also require companies to publicly declare volumes of oil and gas produced.

The law should be further strengthened to include provisions obliging companies to declare their real or “beneficial” owners.  Declaring the underlying ownership of companies would help guard against the involvement of government officials or people with track-records of corruption. It would also help prevent the same actors repeatedly obtaining assets covertly through shell companies with different names. Such a transparency reform has recently been enacted elsewhere in Africa, notably in the June 2012 South Sudan oil code and the September 2011 revision to the mining code in Guinea.[11]

Strong transparency requirements would enable informed public debate about the oil sector and scrutiny of the revenues generated from Congo’s oil resources. By giving less scope to wild rumours over the country’s oil riches, transparency could also reduce distrust between the Congolese elite and the wider population, helping to defuse potential conflict.

Drilling permitted in national parks and World Heritage Sites

A further serious concern about the draft oil law is that it could open the door to drilling in Congo’s World Heritage sites. Article 24 would allow oil exploration to take place in “protected areas” if a Council of Ministers decided that this was in the public interest.[12]

Conservation organisations, including UNESCO, have opposed moves to allow London-listed oil company SOCO International[13] to explore for oil in Virunga National Park, arguing that this breaches Congo’s environmental laws as well as the Convention on World Heritage, to which Congo is a signatory.[14] The proposed oil law could provide a justification for such objections to be ignored in the future. The Salonga National Park, which covers a wide area in the heart of the Congo Basin rainforest, has also been divided into oil blocs. Colin Robertson from Global Witness said “the proposed law would severely undermine the legal protection of Congo’s World Heritage Sites, which are already being targeted by oil companies. This loophole could allow some of Congo’s most pristine ecosystems to be ravaged by oil exploration.”

Other issues: the oil fund, model contracts and social and environmental provisions:

• There is also a lack of detail in the provision for the “fund for future generations” as set out in Article 112. While some details could reasonably be left to the subsequent regulations, the code itself should nevertheless set out basic safeguards to prevent the money being mismanaged. For example, there should be regular publication of the amount in the fund and the use of funds, and the money should be lodged in a special account at the Central Bank of Congo.
• There is no explicit mention of a “model contract” in the law. This is a standardised contract used as a template for all oil contracts, which fixes certain terms and leaves other terms variable, thus aiding comprehension of contracts and creating a level playing field for companies. This may be what is referred to in Article 67 by the phrase “hydrocarbons contract”, but it should be explicitly stated that it is the basis for a model contract.
• Article 98 should explicitly make environmental and social impact assessments and management plans public.
• Articles related to community relations need improvement. For example, Article 55 gives no indication as to the basis on which compensation payments are to be agreed. Global Witness recommends that the law is strengthened to require meaningful consultation and public participation at each stage of the process. In particular, any resettlement of people should only be done in accordance with a resettlement management plan prepared in consultation with communities and their representatives. This should be done in accordance with international best practice.[15] Compensation should be paid prior to any resettlement, and should be prompt and in accordance with a contract made available to the public.

Following a meeting in Kinshasa on 5 and 6 April 2013, Congolese civil society organisations produced a report, seen by Global Witness, detailing their recommendations on the oil code.  The report says that the oil code should be “founded on transparency, social accountability and the participation of local communities, promoting the welfare of all and sustainable development of the Democratic Republic of Congo”.[16] As with Global Witness’s recommendations, it calls for open public tenders, the publication of oil contracts and the protection of Congo’s World Heritage sites. It also calls for the safeguarding of local community rights.

Revenues from oil could help address extreme poverty in Congo, which according to the World Bank has the lowest GDP per capita in the world.[17] However, unless the country puts in place solid bulwarks against corruption and ensures responsible governance of the sector, its oil wealth could not only fail to benefit the nation – it could end up fuelling corruption and conflict.

/ Ends

Contact:

Daniel Balint-Kurti, +44 (0) 207 492 5872 and +44 (0) 7912 517 146, [email protected]

Nathaniel Dyer, +44 (0)20 7492 5855 and +44 (0)77 11 006 799, [email protected]

Colin Robertson, +44(0)20 7492 5862 and +44 (0)7803 605 362, [email protected]

Notes to editors:

1. The oil sector is currently governed by legislation from 1981, when the country was ruled by President Mobutu.

2. Congo is also in the process of revising legislation governing its mining sector. Global Witness has published a series of briefings about controversial oil and mining deals involving large London-listed firms, often facilitated through British overseas territories, including Gibraltar and the British Virgin Islands. These deals have seen intermediaries benefit at the expense of the Congolese state.

3. The Congo oil law is known by its full title, “Proposition de Loi Portant Régime General des Hydrocarbures”, and is being discussed by the National Assembly. The text seen by Global Witness is the version from March 2013. The law can be found on the Global Witness website http://www.globalwitness.org/sites/default/files/library/DRC-laws-hyrdrocarbons%20code-March%202013.pdf .

4. Congo’s moves to review its mining and oil codes come at a crucial point in the global campaign for transparency in the world’s extractive industries. In July 2010, US lawmakers passed the “Dodd-Frank Act”, which includes measures obliging mining and oil companies to publish what they pay to governments around the world. The law also includes a section obliging companies to check their supply chains to guard against the trade in conflict minerals. These parts of the law became active on 22 August 2012, when the Securities and Exchange Commission published the regulations governing their implementation.  In April 2013, the European Union Commission, Council (EU member states) and Parliament agreed payment disclosure requirements for the extractive and forestry industries. The agreement establishes rules ensuring that oil, gas, mining and logging companies annually disclose payments made to governments on a country-by-country and project-by-project basis. A single payment or series of related payments will have to be disclosed if it is at least €100,000 within a financial year.

5. See our earlier publication: “Global Witness’s recommendations for the Democratic

Republic of Congo’s new hydrocarbons code”, 10 October 2012, available at: http://www.globalwitness.org/sites/default/files/library/DRC-GW%20hydrocarbons%20brief%20Oct%201012%20ENG.pdf