THE ROLE AND IMPACT OF INSTITUTIONS CURSE IN PERPETUATING THE RESOURCE CURSE

When oil, natural gas, or similar natural resources are discovered the expectation is that their exploitation will dramatically and materially benefit the population of the host country. Notwithstanding this, developing nations frequently experience either (or both) increased corruption (through predatory rent-seeking) or paradoxically slower economic growth after the resources are discovered. This anomaly is often described as the Resource Curse.

While studies have shown that there are various drivers behind the Resource Curse, it tends to arise more frequently in countries that have institutions that either facilitate or encourage rent-seeking, as indicated in the case study of Nigeria below. The rent-seeking behaviour, in turn, tends to compete with productive activity and drains the countries’ economic vitality. Weak institutions and associated illicit conduct is commonly referred to as the “Institutions Curse”.

Continue reading

WEBINAR: THERE IS NO FUTURE FOR FRONTIER EXPLORATION

Bertrand Montembault, a partner in the Paris office of Herbert Smith Freehills who has built particular experience in the oil & gas sector in Francophone Africa, will be moderating an Oil Council webinar on Thursday 25 June at 11:00 BST which will discuss “There Is No Future For Frontier Exploration”.

To register for this event, please visit the Oil Council website here.

MUDDYING THE WATERS: THE UPSTREAM PETROLEUM RESOURCES DEVELOPMENT BILL 2020

Authors: Peter Leon, Paul Morton, Amanda Hattingh and Ernst Muller

INTRODUCTION

A year ago, on 27 February 2019, Total S.A. announced a major discovery of gas condensate in the Outeniqua Basin (Brulpadda prospect, Block 11B/12B) offshore South Africa. This deposit reportedly contains around one billion barrels of oil equivalent. 

This discovery had two significant consequences. First, it identified South Africa as one of the world’s new frontiers for oil and gas exploration. Second, it placed a spotlight on the inadequacy of South Africa’s existing regulatory regime and the urgent need to develop upstream petroleum legislation.

Continue reading

PETROLEUM BILL — OLD WINE IN A NEW BOTTLE

Author: Peter Leon

Regulatory scheme remains modelled on mining principles 

Much anticipation awaited the release of the draft Upstream Petroleum Resources Development Bill on Christmas Eve after a one-year gestation by the department of mineral resources & energy. The long-awaited bill is intended to create a new regulatory framework for the exploration and extraction of both onshore and offshore oil and gas.

This underdeveloped sector has long been viewed by the government as a potential economic destiny-changer. In 2014, during the Zuma administration’s Operation Phakisa (Sotho for “hurry up”), it was estimated that SA’s territorial waters sit atop 9-billion barrels of oil (40 years’ worth of national consumption) and 11-billion barrels of natural gas (375 years’ worth of consumption).

Drilling 30 exploration wells in 10 years could see SA producing 370,000 barrels of oil and gas a day in the subsequent 10 years — reducing the country’s reliance on oil imports (by up to 80%), as well as the energy grid’s dependence on coal; creating 130,000 jobs; and adding $2.2bn (R32.5bn) to GDP annually.

Continue reading

HERBERT SMITH FREEHILLS ATTENDS AFRICA ENERGY FORUM IN LISBON

Author: Joanne Elson 

The 21st Africa Energy Forum (AEF) took place on the 11th to 14th June 2019 in Lisbon, Portugal. The annual AEF is the largest Africa energy gathering of the year and easily draws over a 1000 delegates from all over the globe, including many government officials, public private sector representatives, developers, dealmakers, investors and business leaders, each with their focus on energy in Africa. This year renewable power together with new technologies in the battery storage and off-grid sectors were inescapable in their prominence. However, hydro, conventional power, LNG and oil & gas remain of key strategic importance in a number of jurisdictions.

Africa as an emerging market presents an opportunity to investors of all kinds and, in particular, development finance institutions with investment capital. These opportunities were discussed in great detail in highly focused sessions and break away meetings over the four day conference. Both public and private partnership investment opportunities were promoted in order to mobilise inward investment into the region. The delegates found the conference to be insightful and important given the ever prominent issue of power on the continent. Another key focus was on the ever increasing debt of governments either by way of direct guarantee liabilities or contingent liabilities with respect to their State utilities’ obligations.

Continue reading

THE BRULPADDA DISCOVERY AND SOUTH AFRICA’S OPPORTUNITY TO CREATE A SUITABLE REGULATORY FRAMEWORK FOR THE UPSTREAM SECTOR

Authors: Peter Leon, Paul Morton and Patrick Leyden

With the momentum of Total’s discovery earlier in the year and the promise of an emerging player in the oil and gas sector, 2019 may be South Africa’s best opportunity to set the legal framework for a successful and productive domestic oil and gas industry.

On 7 February 2019, Total announced a major discovery of gas condensate offshore South Africa, on the Brulpadda prospect on Block 11B/12B in the Outeniqua Basin,1 which is reported to contain around 1 billion barrels of oil equivalent.2 Total described the discovery as ‘opening a new world-class gas and oil play’ and the announcement has certainly generated a lot of interest in the South African press. The upstream industry has also taken note and South Africa now features heavily in conversations about exploration on the African continent. Although there has been much speculation on the potential contribution to the South African economy, it is clear that reserves of this magnitude have the potential to transform the energy mix in the country and contribute significantly to public revenues.

Total and its partners plan to continue their assessment of the Brulpadda discovery through further seismic surveys and a number of further exploration wells later in 2019. In the meantime, the discovery has put the spotlight on the regulatory regime governing the upstream sector in South Africa. Oil and gas is covered by the same legislation in South Africa as mining, namely the Mineral and Petroleum Resources Development Act of 2002 (the “MPRDA”). The MPRDA is a regular feature in the South African news, most recently during the course of 2018 with the proposed Mining Charter III and the abandonment of the ill-fated MPRDA amendment bill. However, given the historical dominance of the mining sector in South Africa, oil and gas regulation has never been the centre of attention. That is now likely to change.

Continue reading

PROMOTING HUMAN RIGHTS THROUGH THE EXTRACTIVE INDUSTRY

Author: Stéphane Brabant

The hereunder presentation is adapted from a speech given during a seminar on ‘Mining and Oil and Gas Law: Transactions and Dispute Resolution’, jointly organised by the International Association of Lawyers and the Senegalese Bar Association in February 2017.

A few years ago, it was still unrealistic to raise the topic of compliance with human rights with companies, and particularly with mining and oil & gas companies. This area was still largely perceived as States’ exclusive realm while the primary purpose of companies was to generate profit. This is true. But should it be at all costs? Can companies operate at the expense of fundamental rights?

The idea that companies must also promote fundamental human rights is new. It is an idea of a new century – the 21st century. We owe this awareness to the late Kofi Annan, a man from the African continent, and probably amongst, if not the greatest man of the 21st century.

This wake-up call was brought about thanks to Kofi Annan’s efforts, then UN Secretary-General, and John Ruggie, Professor at Harvard Kennedy School, appointed in 2005 as Mr. Annan’s UN Special Representative on human rights and transnational corporations and other business enterprises. Together, they elaborated principles and procedures to ensure that companies embrace this new mindset and acknowledge that going forward they will have to reconcile their activities with the respect for fundamental human rights of all affected stakeholders such as workers, local communities or even consumers.

Promotion of fundamental rights is indeed the most important element for a project to be sustainable and profitable, for banks to be reimbursed, for insurers to be spared, for shareholders to obtain return on investment, for the State to find a balanced source of income and for local communities to be respected.

No one is mistaken in that respect. Nowadays, even banks, especially banks in fact, agree that a sustainable mining or hydrocarbons project must be a project that complies with all fundamental rights. How can we concede that a mining project could lead to the pollution of waterways? How can we accept that a mining project will result in the expropriation of entire local communities without fair compensation and relocation for each community member, and especially the most vulnerable?

All this is no longer acceptable and it is this 21st century idea that now prevails. This paradigm shift has extra territorial legal consequences. It is interesting to note that recently, a Canadian mining company was brought before Canadian courts with regard to allegations of slavery, forced labour, torture and crimes against humanity. Harsh words for a 21st century mining company. The applicants claim that the company aided and abetted abuses perpetrated in Africa by its local subcontractors, controlled by the State and the army.

Today, mining activities can only be viable and acceptable if they are indeed socially responsible. Yet the above-mentioned case reflects a grim reality: according to the International Labour Organization, 21 million people worldwide are victims of forced labour, trafficking or modern slavery and the illegal profits from their exploitation are estimated at 150 billion dollars.1

It is against this bitter background that the new trend that companies shall be compelled to promote human dignity emerged. Through a number of texts, amongst which the United Nations Guidelines on Business and Human Rights adopted unanimously by the Human Rights Council in 2011, procedures and tools are now in place to ensure that projects are compliant with human rights.

Thanks to the adoption of these Principles – some of them having been incorporated into positive law – globalization, which was primarily economic and financial, now extends to social and human concerns. As a matter of fact, these issues are not evolving in a legal vacuum but we must go even further than positive law.

These new principles apply to everyone and in all countries. They affect not only all companies, whatever their size, but also every human being in every country of the world. These are principles without borders as they embody universal rights. These principles are in issue before international arbitration tribunals in investment disputes. They are even increasingly incorporated in investment treaties, constitutions and laws. In Senegal, the 2016 Mining Code states this very clearly with the obligation to respect and protect human rights,2 in accordance with the 2009 Ecowas Directive on the Harmonization of Guiding Principles and Policies in the Mining Sector.3

Nowadays, companies are being challenged to think further, to assess risks, not only to themselves, but also henceforth, to any potential victims. The mindset of companies must indeed change. In our modern world, our approach must be not only to identify where tax or commercial risks lie, but also to pay attention to human rights risks generated from or even simply related to their activities and track, prevent, mitigate or provide remedies in relation to those risks to women and men involved in any project.

Time has come for companies to get involved in more than just philanthropy. The construction of a hospital is satisfactory, but is no longer sufficient. It is also necessary to anticipate any adverse impacts that business activities may have on humans. We must therefore go further in our way of thinking the law, our way of thinking projects or companies, and at the end of the day, our way of thinking the role of corporate lawyers as promoters of fundamental rights.

Mr. Kofi Annan with Professor John Ruggie, by inviting us to reconsider the law, may have also invited us to re-evaluate a part of the legal profession. Corporate lawyers’ role is to advise and to defend. This defence is very important and it is twofold. It first concerns companies, and through them, local communities and the fundamental rights of those who take part in the projects of these companies.

Lawyers therefore have a role that goes beyond the traditional but essential role of reading the law. This role must indeed address something new that is no longer just hard law but also incorporates soft law. Whether the expression “hard law” and “soft law” is used, they both contain and refer to the term “law”. Albeit hard law is enforced by the courts, soft law – which is subject to principles that must be respected but not necessarily incorporated into positive law – is enforced by “new judges”.

New judges are the ones that companies face. Companies face serious or hard sanctions when these judges raise their voices against them, for example when a company’s name is on the front page of a newspaper for failing to respect local communities’ or workers’ rights. These sanctions are final. Hence, as the scope of the law expands, so too do the possibilities for action and the role of lawyers. Lawyers must now advise and assist companies to ensure that their clients do not incur the sanctions of these new judges.

All this compels lawyers to expand their advisory role. This ongoing movement may even lead to new accountability for lawyers. Lawyers are expected to handle the expansion of the law, especially as this expansion may disrupt the hierarchy of norms and the international public order. These new rules and international standards now taken into account in international arbitration proceedings, by banks for financing, are perhaps indeed in the process of integrating the international public order without even the need for positive law.

In this perspective, lawyers and bar associations – which remain lawyers’ regulators – are invited to engage with the IBA Practical Guide on Business and Human Rights for Business Lawyers and to integrate these rules in order to pursue this important role, this essence and soul of the legal profession that is the promotion of fundamental rights.


1. https://www.ilo.org/global/about-the-ilo/newsroom/news/WCMS_243295/lang–fr/index.htm 

2. See Article 94 of the Law no. 2016-32 dated 8 November 2016 enacting the Mining Code.

3. See Article 15 of the Ecowas Directive on the Harmonization of Guiding Principles and Policies in the Mining Sector dated 27 May 2009.

For more information, please contact Stéphane Brabant or your usual Herbert Smith Freehills contact.

Stéphane Brabant
Stéphane Brabant
Co-chair of Africa Group, Paris
+33 1 53 57 78 32

ANPG TAKES OVER FROM SONANGOL E.P. AS ANGOLA’S NATIONAL CONCESSIONAIRE

Authors: Rebecca Major, Sharif Abousaada and Matthias Steiner

The Angolan government has taken a further step in restructuring the hydrocarbons sector in Angola with the creation of the National Agency for Oil, Gas and Biofuels (Agência Nacional de Petróleo, Gás e Biocombustíveis) (“ANPG”), which was approved by Presidential Decree (no.49/19) on 6 February 2019.

With the passing of the amendments to the 2004 Petroleum Activities Law on 18 April 2019 (Law no 5/19), ANPG has taken over from Sonangol E.P. the role of National Concessionaire, and exclusive holder of the mineral rights for oil & gas exploration and production. The Concessionaire’s functions include the regulation, supervision and promotion of the execution of petroleum operations as well as hiring / procurement in the oil, gas and biofuels domains.

Continue reading

MINES AND ENERGY MERGER: TOO MUCH ON GWEDE MANTASHE’S PLATE? – LEYDEN

Author: Patrick Leyden

In a move that is likely to be welcomed by the mining industry, President Ramaphosa has appointed Gwede Mantashe as the Minister of Minerals and Energy (which now combines the Ministries of Mineral Resources and Energy).

During his short erstwhile tenure as Minister of Mineral Resources, Mantashe made significant progress in addressing several fundamental issues that have hampered investment into the South Africa mining industry over the last five years. His decisive action in addressing corruption and maladministration within his Department as well as taking steps to promote regulatory certainty were positively received by both domestic and international investors alike. As a result, South Africa gained twenty seven places under the Policy Perception Index and also made considerable gains under the overall Investment Attractiveness Index in the Fraser Institute’s most recent Mining Investment Survey.

Continue reading

SOMALIA AND THE OWNERSHIP OF ITS OIL AND GAS

Authors: Rebecca Major, Jeremy Griffin and Mika Morissette

Since the collapse of Somalia’s central state in 1991 and the ensuing decades of civil war, the central government’s ownership rights over Somalia’s oil and gas have been called into question, particularly in Somalia’s semi-autonomous regions.

As set out below, the central government (the Federal Government of Somalia or “FGS“) and the governments of the semi-autonomous regions (conveniently located in some of Somalia’s most oil rich areas) have both claimed ownership. For international oil and gas companies (“IOCs“) seeking to do business in Somalia, this raises a key question – who should they contract with?

Continue reading