Regulate to Build a Strong Local Economy
Despite low levels of hydrocarbon production, Senegal’s petroleum law – introduced in 1998 – was unanimously perceived as modern and ambitious at the time, for a country where fishery and agriculture were main sources of national revenue.
Discoveries of oil and gas between 2014, 2016 and ongoing, translated into the necessity of modernizing a 20-year old regulatory framework for the hydrocarbon sector. The government wishes to build on discoveries and attract more exploration and production companies. Furthermore, Senegal aims to keep control over its natural resources and ensure generated revenues benefit local citizens in the long-term. The new petroleum Bill was approved on January 24, 2019 amid several reforms targeting sector regulations.
As the country moves towards first oil and gas productions in 2022, the new oil and gas code features major breakthroughs in line with national goals and social inclusion challenges.
Article 5 states the people of Senegal are the sole owners of the country’s natural resources, as opposed to the previous code were the State of Senegal was entitled to ownership of the country’s resources. This major shift fits the country’s Constitution and translates to increased citizen power when it comes to key decisions regarding oil and gas finds across the territory.
The framework stipulates that the Ministry of Hydrocarbons is the government body in charge of implementing hydrocarbon policy and the national oil company (Société des Pétroles du Sénégal) is in charge of promoting the sector and representing the State in oil and gas operations.
Licensing and Permitting Process
The new licensing process ensures exploration permits can only be awarded to a legal entity through a tender process. According to the law, the license will be awarded to the organization that submits the most attractive application from a technical, financial and socio-economic point of view. Farm-ins are facilitated and must be officialized through a declaration to the Ministry of Hydrocarbons.
Local content was a major topic during the law drafting process. Several sessions were organized between the civil society and lawmakers to introduce favorable dispositions. According to the Bill, operators are obligated to involve the Senegalese private sector in oil and gas operations and include local companies in construction, supply and service providing contracts. It also states a technology transfer obligation to local companies and compels producers to supply hydrocarbon products to the local market, first and foremost.
A separate law has been drafted to specifically address local content challenges, and to bring more precision as to contractual obligations between operators and local companies. The law states that the National Committee of Local Content Monitoring is in charge of coordinating the local content strategy.
Environment Concerns and Transparency
Environmental issues are included in the new Bill under article 53, which asserts that operators and investors are responsible for any additional cost regarding protection of the environment, in spite of the Environment Code.
As Senegal is an active member of the Extractive Industries Transparency Initiative, all companies operating in the country’s oil and gas industry must declare all payments made to the state in line with their business operations.
The dispositions presented in the new petroleum bill do not apply to running agreements and only concerns contract posterior to the application of the new law.
Senegal’s 2019 petroleum bill translates the government’s commitment to best practices regarding national hydrocarbon resources. Social issues have been taken into account with specific dispositions regarding local content, the creation of an intergenerational fund as well as transparency across the sector. However, foreign investment is also encouraged thanks to additional custom tax holidays for operators and simplified procedures for equipment imports.
The first Senegal Oil & Power 2020 conference will be held on May 27-28, 2020 in Dakar, Senegal. The conference will be a vehicle to promote the new deep water licensing round, which was announced at the Africa Oil & Power Conference in Cape Town and for public-private partnerships spanning the value chain.