LIBYA’s O&G
the NTC’s commitment to fairness and transparency. However, despite initial assurances from the NTC that existing
contracts would be honoured, it would be imprudent to presume that the NTC or the new government will not take advantage of this opportunity to renegotiate contracts in order to protect the best interests of the country. It is generally accepted that government succession, in the
form of a change of regime, does not invalidate pre-existing contracts, as there is no change in the legal personality of the state. However, if Cyrenaica is successful in its bid for political autonomy, a different approach may be taken, depending on the level of independence achieved. Existing exploration and production sharing
agreements (EPSAs) are in place with a number of international contractors, notably ENI, Total, Repsol, ConocoPhillips, ExxonMobil, BP, Shell, Marathon Oil and Hess. It is expected that the review will focus particularly upon the fiscal terms dealing with cost recovery, sharing of output and custom, and tax exemptions. Whilst political and legal stability remain in flux, it is difficult to speculate whether existing EPSAs and other key contracts will be considered favourable to Libya, particularly given the inherent secrecy surrounding Gaddafi-era contracts. The full effects of the review are unlikely to be seen until the political landscape has settled. For some, the process of review may open up a dialogue with
the NTC or the new government, and provide an opportunity to renegotiate unfavourable terms. This will be particularly beneficial for companies forced to suspend exploration and production programmes and related services prior to the uprising. For contractors who were closely aligned with Gaddafi, however, the concern is that lucrative contracts will be forcefully renegotiated by the NTC or the new government. This process may, in addition, have a knock-on effect on the service companies that support the hydrocarbon exploration and development industry in Libya. Although the extent to which new Libya is bound to existing
terms struck in the Gaddafi-era remains to be seen, the approach of the NTC or the new government is likely to be moderated by the continuing need to attract foreign investment.
Legal & Regulatory Framework Alongside a review of existing contractual arrangements, the
implementation of a new, comprehensive legal and regulatory framework would revive enthusiasm for exploration and development of oil and gas. The current body of law in Libya is piecemeal and, although amended over the years, the original petroleum law dates back to 1955. There have been many attempts to enact a new petroleum law in the past: several draft bills have been submitted for legislative discussion and never approved. Now, the dependency on revenue from hydrocarbons (particularly oil) for rebuilding Libya makes the enactment of a new petroleum law a priority and, until this happens, new exploration is unlikely to take place. Successful petroleum legislation will need to provide a
framework that is balanced, is attractive to contractors, and encourages new exploration and outside investment. The
legislation should be comprehensive in scope and cover key aspects of the oil and gas industry, but need not be exhaustive in the scope of detail. The new government should aim towards developing a flexible framework, covering core concepts that are adaptable to future changes in the sector.
The full effects of the review are
unlikely to be seen until the political landscape has settled
Concerns have long been raised
regarding lack of transparency and democracy in Libya. Following the fall of the Gaddafi regime, the international community will expect to see a fair, reasonable and objective legal and regulatory framework put in place for the future. In view of this, the success of the new petroleum law will likely be assessed on its approach to fair contract allocation, contract
transparency, data
transparency, access to information and independent auditing.
In
addition, the new legislation will need to identify a competent and independent governmental agency that will be designated to control and implement petroleum sector policy. Given the continuing political unrest and the ingrained legacy of weak state institutions, the new government may struggle to achieve this key objective. The responsible economic management of the O&G sector is arguably the single most important task for the new government. A robust, flexible and comprehensive legal and regulatory framework, effectively implemented, with a competent governmental body overseeing inward investment, will go a long way towards providing political stability and economic success in Libya.
Model EPSA The NTC has made it clear that
existing agreements with contractors will be examined before any new concessions or major contracts are
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