RCEM: Views on Energy News

1. Nations of the world show enthusiasm for the Extractive Industries Transparency Initiative

            Originally proposed by the NGO Publish What You Pay and taken up by the government of Tony Blair in 2002, the guiding idea behind the Extractive Industries Transparency Initiative (EITI) is to incite extractive companies to publish the payments they make to host governments. The EITI begins with the observation that too few of the 3.5 billion people living in resource-rich countries actually benefit from the exploitation of those natural resources. According to Clare Short, EITI President, "It is only through transparency of the production of gas, oil, and mining across the world that we can limit corruption, make sure that the sector is well governed, and that the income from it leads to development."[1]

            African governments, anxious to appeal to major players in the mining sector, clearly feel there is some interest in complying with the EITI. Although only two of them were considered as compliant with the Initiative's requirements at the end of 2010, there are now 12 countries on the continent to have been validated as EITI-compliant, the most recent being the Ivory Coast.[2] Cameroon could soon be added to the list - the EITI International Secretariat is expected to issue a decision on the country's compliant status in the coming days.[3] At the same time, however, Gabon was excluded from the EITI that in the first quarter of 2013, and the Democratic Republic of the Congo was temporarily suspended due to decreased mobilisation on the part of authorities in recent years.[4]

            The enthusiasm has apparently infected South America as well; with Peru securing compliant status in 2012, Columbia has announced it will apply in early 2014.[5] It seems that countries from the North would also like to set an example - the United Kingdom launched its EITI process in July, and France announced in early 2013 that it intended to do the same.[6]

            Major producers also see the process as beneficial, since EITI is implemented on a national scale. It involves all actors in a sector and not only those that may agree, unilaterally or individually, to take similar transparent approaches. All companies are therefore on the same basic footing, even if their country of origin is not a stakeholder.[7]

2. Transparency International's Global Corruption Barometer

Transparency International published its most recent global corruption barometer last July 9th. This survey of over 100,000 people measures perceptions of corruption in 107 countries.[8]

With over one respondent in four having responded that they paid a bribe over the preceding year, corruption is certainly a very widespread problem, with consequences that are all the more dire as they affect those with the lowest standards of living.

For Huguette Labelle, president of Transparency International, "Bribe paying levels remain very high worldwide, but people believe they have the power to stop corruption and the number of those willing to combat the abuse of power, secret dealings and bribery is significant."

Paradoxically, the highest rates of corruption are recorded in those institutions responsible for protecting people, especially the police and the judiciary. Respectively 31% and 24% of those who had contact with these institutions declared they had paid a bribe.

The majority of those questioned consider governments to be ineffective in fighting the practice and have the impression that corruption has gotten worse in their country. This ratio increases to two out of three in Algeria, Lebanon, Portugal, Tunisia, Vanuatu and Zimbabwe.

Only 18% of those surveyed feel that corruption has decreased. The most favourable perceptions were in Belgium, Cambodia, Georgia, Rwanda, Serbia and Taiwan, where the figure is over 50%.

The study showed that two-thirds of respondents are aware that corruption is not limited monetary payments, and can take other forms such as influence peddling. This proportion is as high as 80% in Israel, Italy, Lebanon, Malawi, Morocco, Nepal, Paraguay, Russia, Ukraine and Vanuatu.

The 2013 barometer reports a crisis of confidence in politicians, with more than one out of two people feeling that their government actually acts for the benefit of the powerful rather than in the general interest. On this front, political parties top the ranking of institutions perceived as the most corrupt.

Amongst the NGO's recommendations are the need for codes of conduct for political figures to follow and the establishment of binding standards for public procurement. The highest priority areas for intervention are the police and the judiciary. Transparency in the democratic process must also be improved, for example through disclosure of donations to political parties or oversight procedures for conflicts of interest in the ruling class.

For Huguette Labelle, "Governments need to make sure that there are strong, independent and well-resourced institutions to prevent and redress corruption. Too many people are harmed when these core institutions and basic services are undermined by the scourge of corruption." 

3. UNCTAD: World Investment Report - Global Value Chains: Investment and Trade for Development, 2013

The 2013 World Investment Report prepared by the United Nations Conference on Trade and Development (UNCTAD) describes the major trends in foreign direct investment (FDI).

According to the report, FDI flows fell by 18% to $1.35 trillion in 2012 "mostly because of global economic fragility and policy uncertainty."[9] UNCTAD forecasts that FDI flows in 2013 will remain close to the 2012 level, with an upper range of $1.45 trillion. The report estimates flows could reach levels of $1.6 trillion in 2014 and $1.8 trillion in 2015 if transnational corporations (TNCs) decide to invest their cash holdings, which are already at a record level. However factors such as structural weaknesses in the global financial system, the possible deterioration of the macroeconomic climate, and significant political uncertainty in areas crucial for investor confidence could lead to a decline in FDI flows.

The report stated that 52% of worldwide FDI flowed into developing economies, which recorded their second highest level - even though they dropped slightly in 2012 (-4 %) to $700.3 billion. Among regions, flows to developing countries in Asia and Latin America remained at historically high levels, but their momentum weakened, while Africa saw increased FDI inflows  in particular due to FDI in the extractive industries.

At the same time, developing countries were the source of over a third of FDI outflows worldwide. According to the report, Asian countries remained the largest source of FDI, accounting for three quarters of the developing-country total. FDI outflows from Africa tripled while flows from developing Asia and from Latin America and the Caribbean remained at their 2011 levels.

FDI flows to developed countries "plummeted" by 32%, with the European Union alone representing over two-thirds of the global FDI decline. FDI outflows from developed economies fell by 23%, although Japan resisted, keeping its position as second largest investor country in the world, while Europe and North America saw large declines.

On another front, UNCTAD gives an overview of investor-State arbitration. According to the report, 58 new dispute resolution matters were opened in 2012. This brings the total number of known cases to 514 and the total number of countries involved in one or more cases to 95. These figures confirm the continuing trend of foreign investors turning to arbitration to settle disputes.

Nevertheless, this method of dispute resolution has revealed deficiencies, and there are continuing concerns over "legitimacy, transparency, lack of consistency and erroneous decisions, the system for arbitrator appointment and financial stakes". UNCTAD has therefore defined five broad paths for reform: "promoting alternative dispute resolution, modifying the existing ISDS (investor-state dispute resolution) system through individual IIAs (international investment agreements), limiting investors' access to ISDS, introducing an appeals facility and creating a standing international investment court." In its report, UNCTAD invites interested governments to assess their current system and make the necessary reforms. 

4. Algeria: a new oil and gas law

Algerian law no. 13-01 of 20 February 2013 ("Law 13-01") amending and supplementing law no. 05-07 of 28 April 2005 ("Law05-07") on oil and gas, was published in the country's public journal, theJournal Officiel, on 24 February 2013 (no. 11). 58 articles have been amended and 5 new articles added.

This is the second time that Law 05-07 has been amended. The last time was in 2006, by way of Ordinance no. 06-10 of 26 July 2006, when a rule was introduced that all exploration and/or exploitation agreements must contain a clause granting Sonatrach the right to hold a minimum 51% interest.

These new changes are being made at a time when Algeria is endeavouring to stimulate interest in its energy sector with a view to attracting foreign investors to its exploration and exploitation industries.

Firstly, Law 13-01 now authorises the exploitation of unconventional oil and gas. Algeria has vast undeveloped shale gas resources. According to an EIA-sponsored study published in April 2011,[10] the country has 231 tcf (trillion cubic feet) in technically recoverable shale gas reserves. The government has decided to exploit this potential, with a view in particular to securing energy independence for Algeria. Law 13-01 requires operators to obtain approval from the Council of Ministers before using hydraulic fracturing techniques. The oil and gas regulator, the Autorité de régulation des hydrocarbures (ARH), may also set "regulations on industrial health and safety, the environment and the prevention and management of serious risks, including specifically the protection of ground water resources and aquifers, applicable to operations governed by this law".

Law 13-01 has relaxed the requirements for undertaking exploration and/or production operations. For example, the term for which exploration periods can be extended is now 2 years instead of 6 months.

In addition, Law 13-01 has amended the method of calculation of the tax on oil and gas revenue [taxe sur le revenu pétrolier- TRP], which will now depend on the profitability of the deposit and not turnover. Under the previous rules, the thresholds were rapidly met due to the high price of oil per barrel. This means that production costs will now be taken into account for the calculation of the TRP. An additional tax on revenue (ICR) to tax the "super profits" generated by foreign groups operating in the oil and gas sector has also been introduced. According to article 88bis, Sonatrach's partners will now have to pay an ICR tax of 80% on their profits above a certain threshold. Below this threshold, the ICR applied is 19%.

The Agence Nationale de Contrôle et de Régulation des Activités dans le Domaine des Hydrocarbures (ARH) and the Agence Nationale pour la Valorisation des Ressources en Hydrocarbures (ALNAFT) both have broader roles under the new law.

In addition to its aim of increasing interest in the oil and gas sector, the Algerian government has retained its monopoly over the sector by maintaining the obligation to allow Sonatrach a 51% interest in oil and gas exploration and exploitation activities and by resurrecting Sonatrach's monopoly over oil and gas pipeline operations, which existed under the old system governed by Law no. 86-14 of 19 August 1986 (the "1986 Law") and was discontinued under Law 05-07.

Article 5 of Law 13-01 provides that "with the exception of association agreements for which one or more oil and gas deposits has/have entered production by the date of publication of (Law 13-01) in theJournal Officiel, parties to an association agreement may apply to benefit from the provisions of the above-mentioned Law no. 05-07 of 28 April 2005, amended and supplemented by (Law 13-01), for a new agreement submitted to the provisions of article 30 of Law no. 05-07 of 28 April 2005 (cited above)". In other words, parties to a production sharing agreement concluded pursuant to the 1986 Law and whose oil and gas projects have yet to enter production can opt for an exploration and exploitation agreement under the new law.

In addition to its legislative reforms, the government will also need to deal with investors' concern on security following the terrorist attack that took place earlier this year in In Amenas.

5. Opinion of the European Court of Justice's (ECJ) Advocate General on whether the measures imposed by the French state on purchase of wind-powered electricity constitute state aid

On 17 November 2008, the minister for state, minister for ecology, energy, sustainable development and infrastructure and the minister for the economy, industry and employment signed a decree setting out terms for the purchase for wind-powered energy. A decree dated 23 December 2008 further clarified and added to the earlier decree. Both of these decrees have been the subject of a claim of ultra vires brought by the organisation, Vent de Colère! - Fédération Nationale.

The French legislation imposes an obligation on the distributors operating the distribution network to which a wind farm is connected, namely EDF and the private electricity distributers, to purchase the electricity generated by that wind farm. As a result, those distribution network operators will be forced to acquire electricity above market value. The proposed legislation, therefore, necessarily results in additional costs for those distributors.

According to Vent de Colère! - Fédération Nationale, these decrees were signed in breach of articles 87 and 88 of the EEC Treaty (articles 107 and 108 of the TFEU), because the financing mechanism in place constitutes state aid. As a result, Vent de Colère! - Fédération Nationale assert that these measures must be notified to the European Commission before implementation.

A measure will constitute state aid if four cumulative conditions are met: there must be an intervention by the state or through state resources; the intervention must be liable to affect trade between Member States; it must confer an advantage on the recipient; and, lastly, it must distort or threaten to distort competition. In such cases, the European Commission must be notified, in sufficient time to enable it to submit its comments, before any plans to grant or alter aid are implemented. Any state aid, provided without notification to the European Commission or implemented prior to the Commission reverting with comments on the proposed measure, is illegal.

On 15 May 2012,[11] the French Conseil D'Etat decided to postpone implementing the proposed measure and requested clarification from the ECJ on whether the proposed mechanism for the purchase of wind powered electricity constitutes an intervention by the state or through state resources under article 87 of the EEC Treaty.

On 11 July 2013, the European Court of Justice's (ECJ) Advocate General delivered his opinion on this question and declared that (paraphrasing) "the funding mechanism for the obligation to acquire the wind-powered electricity, being based on a tax imposed on all ultimate consumers, constitutes an intervention by the state or through state resources under article 107 of the TFEU."[12]

The minister for ecology, energy and sustainable development, Mr Philippe Martin, wanted to (paraphrasing) "reiterate that this measure would not have come as a surprise […] Indeed, on 22 April 2013 the French authorities began a pre-notification procedure in relation to its support for land based wind turbines. The full notification procedure will begin as soon as practicable."[13]

We await the decision of the ECJ.

6. Democratic Republic of Congo: a move towards deregulation of the electricity sector

Having been approved by the National Assembly, a bill concerning reforms to the electricity sector in the Democratic Republic of Congo (DRC) is now before the Senate.

This bill is in line with the Government's desire to mitigate the delays caused to the country's development due to its failure to meet its energy needs.

According to the Strategy Document for Growth and Poverty Reduction, the Government has tasked itself with providing, at every level of society, reliable electricity supply. This is consistent with its objective under the Millennium Development Strategy to raise the territorial ratio of access to electricity to 12.5% by 2015, 60% by 2025 and ultimately to expand the electrical supply network to the entire DRC territory. [14]

Whilst the DRC holds significant natural resources, the country has one of the lowest rations in Africa for access to electricity. According to the Lighting Africa Market Trends Report of March 2011,[15] only 11% of population has access to electricity, that percentage being 25% in urban areas and dropping as low as 4% in rural areas.

Several reasons help to explain these percentages.

Firstly, the distribution network in DRC is in a very bad state. Further, the IMF's "Doing Business 2013" report[16] ranks the DRC in 140th position for access to the national grid, notably due to numerous authorisation requirements and connection delays.

Furthermore, generation, transport and distribution of electricity in DRC are exclusively carried out by the state-owned Société Nationale d'Electricité (SNEL). Nevertheless, the SNEL-nominated representative, Eric Mbala, stated that SNEL (paraphrasing) "continues to suffer from financial difficulties."

Finally, current legislation does not allow for private investment in the electricity sector. The Electricity Act, approved in 2009 but still going through Parliament, attempted to modify this outdated legislation.

The bill currently envisaged provides for deregulation of the electricity sector in DRC, which has to date been subject to SNEL's monopoly. The deregulation of the electricity sector would allow for open-market private investment, therefore enabling national demand to be met, alternative energy sources to be developed, and improving general access to the national grid (in particular in rural areas).

The proposed bill is far from having universal support. Indeed, CORAP (Coalition, Reforme et Actions Publiques), a coalition of various organisations, has submitted to the Senate a report which raises CORAP's concerns about the proposed bill as well as a number of negative consequences which, it claims, would arise from the law being enacted. According to CORAP, with local buying power being low, this proposed law presents a risk that private investors will likely require a price for electricity supply which is beyond what individual households can afford. CORAP is also concerned that the bill threatens the privileged status of SNEL personnel.[17]

We await the Senate's decision.

[1] http://eiti.org/fr/litie, http://eiti.org/fr/news/la-france-et-le-royaume-uni-engagent-envers-une-norme-mondiale-de-transparence

[2] http://eiti.org/countries, http://eiti.org/fr/news/la-c-te-d-ivoire-devient-pays-conforme-l-itie

[3] http://www.journalducameroun.com/article.php?aid=15126

[4] http://economie.jeuneafrique.com/regions/afrique-subsaharienne/16184-itie-les-dessous-de-lechec-gabonais.html, http://eiti.org/fr/news/la-r-publique-d-mocratique-du-congo-est-suspendue-titre-temporaire

[5] http://eiti.org/news/colombia-apply-eiti-candidature-early-2014

[6] http://eiti.org/fr/news/uk-launches-eiti-process, http://eiti.org/fr/news/la-france-et-le-royaume-uni-engagent-envers-une-norme-mondiale-de-transparence

[7] Jeune Afrique n° 2616, p. 63

[8] http://www.transparency-france.org/ewb_pages/div/CP_Barometre_mondial_corruption_2013.php, http://www.transparency.org/whatwedo/pub/global_corruption_barometer_2013


[9] http://unctad.org/fr/PublicationsLibrary/wir2013overview_fr.pdf

[12] http://europa.eu/rapid/press-release_CJE-13-91_fr.htm

[13] http://www.developpement-durable.gouv.fr/IMG/pdf/2013-07-11_Contentieux_eolien.pdf


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