Tunisia’s Draft Law on Parliamentary Approval of Oil Contracts: Missed Transparency Opportunity?
Since the Tunisian revolution, governance of Tunisia’s oil, gas and mining sectors has morphed from a taboo subject to the heart of reform discussions, including those around the 2014 constitution. Such discussions followed the calls of marginalized regions and civil society organizations accusing the ousted Ben Ali regime of corruption and mismanaging natural resources.
The constitution in turn linked natural resources to issues of good governance, sustainable development and regional development. One of the most directly relevant provisions, article 13, requires parliamentary approval of natural resource contracts. A 2016 NRGI study of global experience with parliamentary approval of contracts found that the practice can bring benefits as well as risks, and suggested some guiding principles for implementation of article 13. While the government has taken some concrete steps to increase extractive transparency, including through an open data portal and promising developments on joining the Extractive Industries Transparency Initiative (EITI), progress on the constitutional article had been missing. But recently the government finally took a step by presenting a draft law to parliament to revise the hydrocarbons code in light of article 13.
The question now is whether this draft law sufficiently addresses the goals and challenges of article 13.
A missed opportunity to guarantee transparency
Treatment of article 13 in the draft is largely limited to a new provision requiring that conventions particulières be approved by law. (Conventions particulières are the contracts which define, in
line with the hydrocarbons code, the terms and conditions for exploration and exploitation for a particular area). Overall the draft represents a missed opportunity to implement article 13 in line with transparency and accountability goals of the constitution. Specifically, it is disappointing that the draft does not mention publication of contracts. Global experience shows that parliamentary approval of contracts alone is not a guarantee of their transparency. Tunisia has already recognized the importance of contract transparency by taking the important step of publishing many existing contracts. It is therefore surprising that the draft law does not adopt this practice as a legal requirement, leaving it instead subject to ad hoc political decisions.
The draft mentions that reform of the hydrocarbon code will be progressive and transparency issues will be left to a second phase. This fails to recognize that transparency is at the heart of article 13, and that interpretation of this article should incorporate the constitution’s pro-transparency spirit as per article 15 on transparency in public administration and article 32 on access to information.
Addressing risks of contract approval
Implementation of article 13 also requires government to address the risks associated with parliamentary approval of contracts. This includes the risk that lack of clarity on processes or roles will create impediments to investment or result in inadequate review by parliament. The draft law does not address issues such as the parameters and focus of parliamentary review or requirements that the government provide specific information to parliament to facilitate review and approval of contracts.
The law’s drafters have tried to address one issue of efficiency and oversight by aiming to do away with Tunisia’s two-tier hydrocarbon contract approach (i.e., a first-level convention particulière and a second-level production sharing contract or joint venture agreement) by including more elements in the convention. This would mean that important terms, such as production sharing percentages impacting Tunisian revenues, would be in the convention and therefore could not escape parliamentary review. In practice though it may not be practical to do away with the second tier contracts altogether, in which case a solution could be for a copy of the second-tier contract to be an annex to the convention so as to ensure an opportunity for parliamentary review.
Another significant risk of parliamentary approval of contracts is the possibility that individual contracts could deviate from the law. Parliamentary approval of contracts should not become a vehicle for contracts to not comply with the requirements of the law. Model contracts are an important tool in this respect. They also strengthen a government’s negotiation position vis-à-vis companies, mitigate corruption risk by reducing discretion, and facilitate contract administration. Tunisia’s existing legal framework is commendable for featuring a publicly available model convention. Accordingly, any talk of eliminating the model convention as part of legal reform and simply relying on ad hoc negotiation of contracts approved by law would be a step in the wrong direction.
Combining prospecting and exploration phases: in Tunisia’s interest?
An additional issue is the draft law’s combination of the prospecting permit phase with the exploration permit and production phase. It is important to consider whether this combination could unintentionally weaken Tunisia’s negotiation position. Under the draft law’s approach, contractual terms such as production sharing percentages would be locked in at issuance of the prospecting permit rather than at the issuance of the exploration permit, as is currently done. This could result in the government having less geological information on which to base its negotiation position, and also engaging in a long-term contract with a company lacking a track record in Tunisia.
More generally, the Tunisian government should aim to increase transparency and competition in its hydrocarbon rights allocation regime, which is currently characterized by relative opacity and a high degree of discretion on the part of the administration. Until this is addressed, it is likely that the discussion and bottleneck around executing oil contracts will continue even with a parliamentary contract approval mechanism in place, as parliamentarians and other oversight actors may question the reasons behind the selection of investors and setting of terms.
Transparency and participation in the law and law-making
Finally, lawmakers should ensure sufficient consultation and input from relevant stakeholders, including civil society and companies. It is unclear what consultations have been conducted on the draft law to date, but to improve results the legal reform process itself should be transparent and participatory.
Linking parliamentary approval of contracts with transparency and other principles for good governance of the sector will increase the chances of success. In the absence of such an approach, simply instituting parliamentary approval is unlikely to put an end to demands for greater transparency and accountability in natural resource governance in Tunisia.
Wissem Heni is the Tunisia program officer for the Natural Resource Governance Institute (NRGI). Amir Shafaie is a senior legal analyst with NRGI.
The constitution in turn linked natural resources to issues of good governance, sustainable development and regional development. One of the most directly relevant provisions, article 13, requires parliamentary approval of natural resource contracts. A 2016 NRGI study of global experience with parliamentary approval of contracts found that the practice can bring benefits as well as risks, and suggested some guiding principles for implementation of article 13. While the government has taken some concrete steps to increase extractive transparency, including through an open data portal and promising developments on joining the Extractive Industries Transparency Initiative (EITI), progress on the constitutional article had been missing. But recently the government finally took a step by presenting a draft law to parliament to revise the hydrocarbons code in light of article 13.
The question now is whether this draft law sufficiently addresses the goals and challenges of article 13.
A missed opportunity to guarantee transparency
Treatment of article 13 in the draft is largely limited to a new provision requiring that conventions particulières be approved by law. (Conventions particulières are the contracts which define, in
line with the hydrocarbons code, the terms and conditions for exploration and exploitation for a particular area). Overall the draft represents a missed opportunity to implement article 13 in line with transparency and accountability goals of the constitution. Specifically, it is disappointing that the draft does not mention publication of contracts. Global experience shows that parliamentary approval of contracts alone is not a guarantee of their transparency. Tunisia has already recognized the importance of contract transparency by taking the important step of publishing many existing contracts. It is therefore surprising that the draft law does not adopt this practice as a legal requirement, leaving it instead subject to ad hoc political decisions.
The draft mentions that reform of the hydrocarbon code will be progressive and transparency issues will be left to a second phase. This fails to recognize that transparency is at the heart of article 13, and that interpretation of this article should incorporate the constitution’s pro-transparency spirit as per article 15 on transparency in public administration and article 32 on access to information.
Addressing risks of contract approval
Implementation of article 13 also requires government to address the risks associated with parliamentary approval of contracts. This includes the risk that lack of clarity on processes or roles will create impediments to investment or result in inadequate review by parliament. The draft law does not address issues such as the parameters and focus of parliamentary review or requirements that the government provide specific information to parliament to facilitate review and approval of contracts.
The law’s drafters have tried to address one issue of efficiency and oversight by aiming to do away with Tunisia’s two-tier hydrocarbon contract approach (i.e., a first-level convention particulière and a second-level production sharing contract or joint venture agreement) by including more elements in the convention. This would mean that important terms, such as production sharing percentages impacting Tunisian revenues, would be in the convention and therefore could not escape parliamentary review. In practice though it may not be practical to do away with the second tier contracts altogether, in which case a solution could be for a copy of the second-tier contract to be an annex to the convention so as to ensure an opportunity for parliamentary review.
Another significant risk of parliamentary approval of contracts is the possibility that individual contracts could deviate from the law. Parliamentary approval of contracts should not become a vehicle for contracts to not comply with the requirements of the law. Model contracts are an important tool in this respect. They also strengthen a government’s negotiation position vis-à-vis companies, mitigate corruption risk by reducing discretion, and facilitate contract administration. Tunisia’s existing legal framework is commendable for featuring a publicly available model convention. Accordingly, any talk of eliminating the model convention as part of legal reform and simply relying on ad hoc negotiation of contracts approved by law would be a step in the wrong direction.
Combining prospecting and exploration phases: in Tunisia’s interest?
An additional issue is the draft law’s combination of the prospecting permit phase with the exploration permit and production phase. It is important to consider whether this combination could unintentionally weaken Tunisia’s negotiation position. Under the draft law’s approach, contractual terms such as production sharing percentages would be locked in at issuance of the prospecting permit rather than at the issuance of the exploration permit, as is currently done. This could result in the government having less geological information on which to base its negotiation position, and also engaging in a long-term contract with a company lacking a track record in Tunisia.
More generally, the Tunisian government should aim to increase transparency and competition in its hydrocarbon rights allocation regime, which is currently characterized by relative opacity and a high degree of discretion on the part of the administration. Until this is addressed, it is likely that the discussion and bottleneck around executing oil contracts will continue even with a parliamentary contract approval mechanism in place, as parliamentarians and other oversight actors may question the reasons behind the selection of investors and setting of terms.
Transparency and participation in the law and law-making
Finally, lawmakers should ensure sufficient consultation and input from relevant stakeholders, including civil society and companies. It is unclear what consultations have been conducted on the draft law to date, but to improve results the legal reform process itself should be transparent and participatory.
Linking parliamentary approval of contracts with transparency and other principles for good governance of the sector will increase the chances of success. In the absence of such an approach, simply instituting parliamentary approval is unlikely to put an end to demands for greater transparency and accountability in natural resource governance in Tunisia.
Wissem Heni is the Tunisia program officer for the Natural Resource Governance Institute (NRGI). Amir Shafaie is a senior legal analyst with NRGI.
Authors
Wissem Heni
Tunisia Country Manager
Amir Shafaie
Legal and Economic Programs Director