Congo Oil Law May Impose 40% Tax, Allow Drilling in Gorilla Park

The Democratic Republic of Congo’s parliament is debating an oil code that may impose a 40 percent capital gains tax, allow drilling in national parks, and force current title holders to renegotiate their deals.

The code will create a new legal framework for the country’s nascent oil industry and replace 1980s-era legislation governing hydrocarbons, according to a copy of the draft law obtained by Bloomberg from members of the National Assembly. Existing permits that were legally acquired “remain valid and are renegotiated in the 36 months from the date the law is enacted,” the draft says. Congo’s president will retain the right to approve all permits, according to the proposals.

Congo’s government plans to raise its current oil output of 25,000 barrels per day is opening up dozens of blocks for exploration across the nation, sub-Saharan Africa’s largest by landmass. Companies including Total SA, SacOil Holding Ltd., Soco International Plc, and billionaire Dan Gertler’s Fleurette Group all have oil exploration projects in the country.

“It is vital that the government of the DRC gets this important legislation right and introduces a regulatory framework which balances the need to create a positive, stable environment that encourages investment” while ensuring Congolese citizens benefit, Fleurette said in an e-mailed statement yesterday.

A spokesman for London-based Soco said the company doesn’t comment on government actions or on legislation in countries where it operates. An official at Paris-based Total couldn’t immediately comment yesterday, while SacOil, based in Johannesburg, didn’t immediately respond to an e-mail and a phone call requesting comment today.

Provisions ‘Unclear’

Several provisions of the draft code are unclear and may be of concern to investors, according to Poupak Bahamin, a Paris-based specialist on Congo at the law firm Norton Rose Fulbright LLP who advises companies involved in mining, oil and gas on regulatory matters.

The 40 percent capital gains tax is higher than normal, while a strong oil code should obviate the need for presidential approval, Bahamin said by phone from Paris yesterday.

“The aim is for those conditions to be objective, clear and applied in a transparent manner,” she said. “In that context, there should be no need for a presidential decree. In the mining sector the grant of rights is not subject to presidential approval.”

The draft code leaves a number of issues unresolved, including tender rules, royalties, bonuses and the percentage of the state’s participation in projects. The Prime Minister will lay out the specifics in separate “hydrocarbons regulations” within six months after the law is enacted, the draft says.

Skirting Parliament

By putting such terms outside the code, “the government will be able to modify them at any time, without the need to go through parliament,” Bahamin said.

Advocacy groups including London-based anti-corruption campaigner Global Witness have criticized the government for not allowing public debate of the code as it has for the laws governing the mining industry. Mining companies, civil society groups and the government are currently negotiating an update to Congo’s 2002 mining code.

“The ultimate owners of oil rights would be secret under the proposed text and there is nothing to ensure the terms of oil deals are made public,” Nathaniel Dyer, a campaigner for Global Witness, said in an e-mail yesterday. Dyer said the document was “muddled.”

Oil and gas provided about $465 million in revenue to the state in 2011, according to the most recent data from Congo’s Extractive Industry Transparency Initiative.

Investor Security

“There are elements of the code that are positive, but I’m not totally satisfied,” Martin Fayulu, an opposition leader in the National Assembly, said by phone from the capital, Kinshasa, January 17. The law should give security to investors while improving oversight of oil revenue and clarifying the tender process, he said.

It should also outlaw drilling in Virunga National Park, a United Nations Educational, Scientific and Cultural Organization World Heritage site and home to endangered mountain gorillas, he said.

Soco has permission to conduct aerial exploration in a block overlapping with Virunga, while Total says it won’t explore the section of its concession within the park. UNESCO has threatened to remove Virunga from its World Heritage Site list if Congo allows drilling.

The draft code would permit exploration in protected and restricted areas after an environmental assessment and approval from Congo’s Council of Ministers “on grounds of public benefit.” Exploitation could proceed if the restricted area is declassified “in whole or in part,” the code says.

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