Onorato - Legislative Frameworks used to Foster Petroleum Development

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Transparency and Accountability

Policy, Legal and Contractual Framework

Sector Organization and Institutions

Fiscal Design and Administration

Revenue Management and Distribution

Sustainable Development

Onorato, W.T., Legislative Frameworks used to Foster Petroleum Development, (New York: Legal Department, World Bank, 1995)

The paper identifies and explains the essential elements in what is described as a ‘legislative framework’. They are three-fold: a petroleum law, regulations and a model contract. A short, generic petroleum law is likely to be effective in encouraging petroleum development if it is accompanied by subsidiary instruments such as enabling regulations and one or several variants of a model contract. Such a framework will provide clarity for both host governments and IOCs when negotiating E&P arrangements. The paper is emphatic that the circumstances of each country are unique and, therefore, the paper confines itself to an exposition of principles and elements of model regimes but does not offer model language, clauses or codes for their drafting.

Among the elements of a petroleum law that are deemed to be essential are: a statement of ownership of petroleum; designation of a competent authority; short provisions on petroleum operations and the use of model agreements by the competent authority; authorization to make regulations from time to time; qualifications, duties and rights of contractors; provisions on how profits are to be taxed, as well as other duties and exchange controls; fiscal stabilization; and environmental protection and safety. Various additional provisions may be included covering matters such as natural gas development, unitization, access to land for petroleum operations and international arbitration.

Matters such as the manner of award of rights, size of contract area, work program and assignment of rights are usually best left to the subordinate instrument of regulations which may be varied from time to time by the host state in the light of changing circumstances, policies and needs. The model contract interrelates with both the regulations and the law itself but would normally be included in the bid tender package, reducing the time required by the host government to carry out negotiations and offering investors clarity about many of the expectations of the host government at a very early stage.    

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