Behind the scenes: TOGY talks to NJ AYUK
Will the government alter its regulations to encourage more energy companies to set up operations in Equatorial Guinea?
The government is likely to embark on a policy to provide fair returns to the state and investors, avoid undue speculation, limit undue administrative burdens, cull regulations and support healthy competition and market efficiency. In the near future, there is likely to be a more efficient fiscal system in place that takes into consideration the economic risks as well as the potential rewards.
What changes could be made to the production-sharing contract terms in the upcoming licensing rounds?
The government is likely to ask for better terms when dealing with new contracts. It is incumbent upon it to design its fiscal system to maximise the value of the revenues from its petroleum resources. A new economic framework might be needed in order to review the current system.
Some of the contractual elements that worked well prior to 2003 are now out of date and need to be redesigned. There is likely to be a change in the overall fiscal balance in the upstream petroleum regime as the government might want to maximise the value of its revenues due to the current high demand for its oil and gas resources.
Whatever the government decides on in terms of its new production-sharing contracts in the next licensing rounds, I hope the fiscal terms encourage efficiency on the part of international oil companies (IOCs). Setting a policy to provide higher profits to IOCs when they are more efficient will not be a bad idea. This would benefit the national economy because it would permit the government to obtain higher revenues.
The companies and the government will both profit from increased efficiency. This is important because if oil prices rise, IOCs may be induced to squander resources to capture new opportunities. The government should therefore increase the attention it pays to fiscal structures, which reward efficiency and provide a strong disincentive for squandering capital and operating costs. Its take should remain at approximately the same level but with lower costs.
What areas is the government yet to address to bring the country’s legal system up to an international standard?
The government clearly understands the need for judicial modernisation if Equatorial Guinea is to compete internationally, continue attracting foreign direct investment and ensure investor confidence. IOCs are attracted by the fundamental business opportunities represented by the presence of oil and gas reserves in Equatorial Guinea and other Gulf of Guinea countries. In order to make a long-term commitment, these firms must see that there is a serious, ongoing effort, ability and willingness on the part of the government to protect their investments.
Investors have recognised the judiciary’s ability to respect contracts, especially under the OHADA business law traditions. There has been a lot of work done in the area of judicial capacity building in the country. The government has engaged in various initiatives, strengthening the judicial branch, speeding up the processing of cases and increasing access to dispute resolution mechanisms.
Although progress has been made, challenges remain. Recognising this, the government has intensified its efforts to improve the overall governance environment. It is necessary if we want to compete globally.
What can international oil companies do to help local and regional companies to become competitive in the Equatoguinean market?
There is a great demand for services in the oil and gas industry but very little supply from the country or regional services providers. There are several steps that oil companies can take to encourage local companies to grow by freeing up opportunities. This includes ensuring that contracts for services are negotiated in the country and encouraging capacity building of nationals within their master service agreements and joint ventures with national companies. Local firms should also be included in the bidding process and informed of upcoming bids. In addition, there should be programmes designed for these companies.
It is not enough to train a national firm in business skills and never offer them an opportunity to apply those skills – this is basically setting them up for failure. Equatoguinean firms should also know that they have to perform to their greatest ability when provided with an opportunity.
Would passing stringent local content laws, such as those in place in Nigeria, Ghana and Angola, be effective at increasing local participation in the energy industry?
I am a firm believer in less regulation and letting the market work. There should be incentives to encourage local content and the government might have to step in if the companies do not act in ways that encourage the participation of local companies. A free and structured market, together with an enabling environment, is not only critical but also essential.
However, protectionism might be sensible in certain areas, especially to build national, regional and Africa-wide capacity. It is not possible to build a national industry if you do not provide the right incentives in the short term to create local capacity. Local companies face insurmountable odds when they compete with foreign companies that come to Equatorial Guinea who in some cases do not have to pay any duties or taxes. Local companies are challenged to remain competitive. The responsibility lies with the government and oil companies to help the sector strike a balance.
How is the government planning to combat capital flight from companies that win contracts in the country but do not register a local entity?
There are clear regulations concerning capital flight, but the compliance environment is weak. The government has always tried to encourage businesses to operate even when there are apparent violations. Companies are urged to register in the country and the government might take a hard-line stance on those that break the law in the future. The government could use the help of the companies that contract these firms to ensure that they are registered and comply with their tax obligations in the country.
Equatorial Guinea has been the subject of scrutiny by the international community with regards to transparency issues. How would you characterise the country’s oil and gas industry?
Transparency is the hallmark of today’s oil and gas industry. This is a very transparent industry and there are a lot of legal instruments in place to encourage compliance. The laws are very stringent. Foreign laws, such as the US Foreign Corruption Practice Act and the 2011 UK Anti Bribery Act, even call for personal liability for bad actions.
Equatorial Guinea is one of the few countries to have a senior government official responsible for ensuring the government fully complies with the Extractive Industries Transparency Initiative, which aims to set a global standard for mining, oil and gas firms. Companies should pay attention to the basic legal framework for oil and gas development in Equatorial Guinea, which is the hydrocarbons law. It ensures proper governance because it defines the roles of the state, establishes key institutions and sets out the basic licensing and contractual framework. New companies coming into Equatorial Guinea should stick to the rules.
Do IOCs respect the country’s labour laws? What are the major challenges?
The fundamental employment policies of the oil companies are good. Most do their best to respect the labour laws of the country. That is the only way to be a long-term player in this market and these firms have provided jobs to many nationals. When they make mistakes, they try to correct them and sometimes lawyers have to seek the help of the judiciary to resolve labour issues. Labour litigation in Equatorial Guinea is very low compared with other jurisdictions. However, oil companies can improve on their training and development and promotion of nationals. National employees can perform well if given the right training, mentorship and responsibility
“News briefs from the field” is reproduced with kind permission of The Oil & Gas Year. You can find the briefs in their original form by visiting www.theoilandgasyear.com
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