Cameron - Government-Company Relations After the Contract

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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

Cameron, P.D., Government-Company Relations After the Contract: Reconciling Objectives and Strategies for Long-term Relations, in Petroleum Resources and Development: Economic, Legal and Policy Issues for Developing Countries,  Khan, K., (ed.), (London & New York: Belhaven Press, 1987)

The paper examines ways in which the objectives of the investor can be reconciled with that of the host government whose preference for flexibility in contracts may in some circumstances lead to a dispute. The focus is primarily on the determination of commerciality of petroleum reserves post-contract and analyzes government-company relations and their utilization of the bargaining power in terms of understanding the changing patterns of relations involved in petroleum operations. This is based on the understanding that where commercial quantities are discovered there is a corresponding change in bargaining position often shifting to favor the host government.

It is of no consequence, therefore, that the determination of commerciality involves understanding the intricate negotiations that have to take place between the government and the investor. The author attempts to convey this understanding by laying down some of the key areas which can often lead to contentious relations for both sides. One instance, for example, is the decision of who gets to determine commerciality and when. Typically, the operating company will tend to regard determination of commerciality as its prerogative, but the author cautions against a strict interpretation of provisions in favor of one side or another and makes the case for a flexible approach on the matter. In some instances this flexible approach, which vests some decision power in the government, might be favorable for the investor who may need to think twice about an unfavorable commerciality decision.

Other areas discussed involve the procedures that need to be adhered to in the advent of a commercial discovery. This includes the methods used in arriving at a lucid development plan; according to the author, a full discussion of the requirements needed for the development plan should be in the interest of both parties considering the extensive obligations involved for the contracting company. Furthermore, the approval of development plans by the host government prior to commencement of operations limits the chances of future disputes. The involvement of the host government, thus, is essential throughout the life of the operations and the best way to achieve this is through host government participation.

The paper concludes with a set of guidelines summarizing the solutions outlined in the paper.  A ringing theme throughout is the case made for ensuring flexibility throughout negotiating process - flexibility especially in determination of commerciality is particularly stressed in times of volatility in oil prices.  

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