The Republic of the Congo, often called Congo-Brazzaville, is a country located in Central Africa that straddles the Equator line and covers a surface of 342,000 km2 with a population of approximately four (4) million. The country is bordered by Central African Republic and the Republic of Cameroon to the north, the Democratic Republic of the Congo to the south and east, the Republic of Angola (Cabinda) in the south and the Republic of Gabon to the west. The Republic of Congo has a sea coastline of 170 km along the Atlantic Ocean.
The Republic of the Congo is the fourth oil producing country in Sub-Saharan Africa right after Nigeria, Angola and Equatorial Guinea. Oil represents nearly two thirds of the GDP, about 75 % of the public revenues and about 90 % of export revenues. Domestic production is, in general, estimated at more or less 300,000 barrels a day.
The Congolese oil sector attracts private companies, in particular, Total whose production accounts for about 60 % of domestic ouput, ENI, Maurel & Prom, Chevron and Murphy. Oil resources of Congo are managed by the state-owned company known as ‘’Société nationale des pétroles du Congo’’ (SNPC), responsible for research and exploitation of some deposits directly through its subsidiaries, or in partnership with companies. This state-owned company does the marketing of the Congolese’s share of oil production resulting from contract sharing entered into with oil companies.
I. Legal framework
The hydrocarbon sector in Congo-Brazzaville is governed by Law n° 24-94 of August 23, 1994 on the Hydrocarbon Code ; Law n° 1-98 of April 23, 1998 relating to the setting up of the ‘’Société Nationale des Pétroles du Congo’’ (SNPC) ; Law n° 4-98 of August 28, 1998 setting the obligations of oil companies regarding the demolition of production facilities of hydrocarbons and rehabilitation of sites ; Law n° 6-2001 of October 19, 2001 regarding the refinery, importation, exportation, transit, re-exportation, storage, transportation of greater quantity, distribution and marketing of hydrocarbons and hydrocarbon by-products, modified by an ordinance of March 1, 2002 ; Decree n° 2001-522 of October 19, 2001 related to the enforcement measures of the VAT in the oil sector ; Decree n° 2000-186 of August 10, 2000 setting the rate and collection rules, collection and management of the area levy; Decree n° 2008-15 of February 11, 2008 setting out procedures for granting liquid or gaseous hydrocarbon mining titles; and by a series of other decrees and ministerial orders.
The oil legislation applies to prospection, research, exploitation, storage and transport up to the removal area of hydrocarbons. It defines the rights and obligations of the operator as well as rules for police, security and environment protection.
Besides the texts aforementioned, other texts govern oil activities. They are as follows: Law n° 003/91 of April 23, 1991 on environment protection; Law n° 6-2003 of January 18, 2003 establishing the Investment Charter as well as regulations of the ECCAS n° 17/99/CEMAC-20-CM-03 of December 17, 1999 about the Investment Charter.
II. Ownership of the hydrocarbons and State’s role
The hydrocarbons contained in the soil in subsoil of the Republic of the Congo, including areas covered by territorial waters and national maritime economic zone are all part of the national heritage. The State is responsible for its management through the ministry in charge of hydrocarbons.
In its capacity as owner, the State entrusts the hydrocarbons exploitation to one or more legal entities. In this regard, the prospection, research, exploitation and transport of hydrocarbons may only be undertaken after obtaining a mining title.
III. Mining regime
Oil activities are only open to legal entities. The Hydrocarbons Code provides that any company willing to carry out activities related to prospection, research, exploitation and transport of hydrocarbons should showcase its technical and financial capacities to the Minister in charge of Hydrocarbons. The oil legislation organizes oil activity in three main steps which correspond to three mining titles: the prospecting authorization, the research permit and the exploitation permit.
- Prospecting: the prospecting authorization
Prospecting is undertaken for preliminary works of general fact-finding on the ground and identification of hydrocarbon existence, notably by the use of geophysical methods. Prospecting may only be carried out after obtaining a prospecting authorization issued by a decree of the Minister of Hydrocarbons. The prospecting authorization confers to its holder a non-exclusive right to carry out prospecting works in a specific perimeter. It is granted for a one-year term and may be extended once or more times for the same term. It is neither assignable nor transmissible.
- Research: the research permit
Research is carried out on the basis of a research permit granted under a decree issued by the Council of Ministers following a report from the Minister in charge of Hydrocarbons. The research permit is exclusively granted to companies specialized in the hydrocarbon field. It is, if necessary, granted to oil companies following an invitation to bid procedure. The organization of an invitation to bid is, in particular, not taken into account when it comes to framework agreements concluded between states or for sovereignty reasons.
The research permit confers to its holder and associates the right to freely dispose of the liquid or gaseous hydrocarbons extracted from the soil at the time of research and production tests made in such occasions. It is initially granted for a four-year term, and is renewable twice but for a 3-year term. Besides, this mining title constitutes an indivisible movable right that is not subject to lease and cannot be mortgaged. It is assignable and transmissible, subject to prior approval.
- Exploitation: the exploitation permit
Exploitation and development of related works, meaning preparatory works for the extraction of hydrocarbons may only be carried out on the basis of an exploitation permit granted under a decree taken up at the Council of Ministers following a report of the Minister in charge of Hydrocarbons after an enquiry by the Hydrocarbons administration.
The exploitation permit is initially granted for a period not exceeding 20 years and may be extended up to five (5) years. At the end of the extension, a new title must be requested. This permit is a property right, different from land ownership, indivisible, not leasable, and not subject to mortgage. It is assignable and transferable subject to prior approval.
The exploitation permit is exclusively granted to companies specialized in the field of hydrocarbons. It is granted to the holder of a research permit who has showcased, through steadily research works, the existence of a hydrocarbon deposit within the perimeter concerned evidencing the possibility of a technically achievable and very profitable exploitation.
Based on transportation facts of products obtained from exploitation, the exploitation permit confers to its holder and associates the right to construct canals within the national territories in order to carry liquid or gaseous hydrocarbons to the storage, processing, removal or great consumption sites.
- The production sharing agreement
In order to carry out its activities, except for activities covered by a prospection authorization, the concerned company must enter into, prior to starting such activities, a production sharing agreement. This agreement shall determine the applicable legal framework and obligations of the contracting parties.
The production sharing agreement provides the hydrocarbon sharing production of deposits covered by the mining title between the State and the company. This sharing is carried out according to certain modalities, notably: the setting aside of a share of the hydrocarbon production for the refund of oil costs incurred by the company (“oil cost”), then the setting aside of the hydrocarbon aggregate annual output for the remuneration of the State and the company (“oil profit“) after deducing the proportional mining royalty and “the cost oil“ above-mentioned. The production sharing agreement sets the sharing modality of the “oil profit” between the state and the company.
IV. Environmental requirements
Law No. 003/91 of April 23 1991 on environmental protection includes provisions for the protection of human settlements, fauna and flora, air, water and soil. This law defines the rules applicable to classified facilities and specifies the taxes and fees relating thereof. In addition, under this law, any economic development project cannot be implemented without an environmental impact assessment.
In addition, the Hydrocarbons Code provides that any operator of a hydrocarbon deposit is required to apply the cleanest confirmed methods to maximize the final output of the deposit, and to comply with safety regulations necessary for the protection of the environment.
Finally, any exploration or exploitation project of natural resources on lands traditionally occupied or used by indigenous people is subject to a prior socioeconomic and environmental impact study. These people cannot be displaced from lands they own or traditionally use, except for public interest purposes.
V. Tax and Customs regime
The oil legislation states that activities concerning hydrocarbons prospection, research, exploitation and transportation are subject to corporate tax and a proportional mining royalty. The corporate tax is calculated on the yearly income at the rate of 35 % for all exploitation permits resulting from one research permit and for a duration not exceeding five (5) years. When the deadline expires and following the consultation between the State and the company, this rate may be raised to a higher level pursuant to article 42 of the Hydrocarbons Code.
The rate of the proportional mining royalty is set at 15 % for liquid hydrocarbons. Nevertheless, in the event of the discovery of natural gas, the proportional mining royalty is set after consultations between the State and the company.
Moreover, apart from various rights and taxes, the Congolese legislation provides in particular for an area levy payable by the holder of a research or exploitation permit in compensation for surfaces put at his/her disposal by the State. This area levy is deductible from the tax base.
Furthermore, the research or exploitation permit gives rise to the payment of a bonus to the State (import duty) for which the amount is determined under the decree granting the permit. The bonus is not amortizable for the purpose of the calculation of the corporate tax or the “oil cost”.
With regards to customs regime, the import of goods and equipment earmarked particularly for research, development, exploitation and transportation of hydrocarbons benefit from a specific customs regime. This specific customs regime is subject to a decree taken in the Council of ministers and the same decree applies to agreements entered into by the State and the company. Eligible oil companies may also benefit from tax and customs incentives described in the Investment Charter such as the exemption or the reduction of 50 % on corporate tax.
Finally, the conventions and agreements concluded with the State on a date preceding the promulgation date of the Law establishing the Hydrocarbons Code above mentioned, including the production sharing agreement, remain in force, except for the modifications arising out of the agreements reached between the State and the signing companies.
VI. Exchange rate regime
Foreign companies are subject to exchange control regulations and benefit from the free convertibility between domestic currency and foreign currencies. Congo is a member of the Economic and Monetary Community of Central African States (CEMAC). Within the CEMAC, foreign exchange regulation states that the purchase and selling rates of currencies other than the euro should be set based on the fixed exchange rate of the Franc CFA against the euro. The rates of these currencies against the euro are based on foreign exchange markets.