Tuesday, 20 November 2012

ConocoPhillips vs. Timor-Leste Government (TL): A wake call for Timor-Leste Extractive Industry Transparency Initiative (TL-IETI).

opinion by Jo Monteiro*


There has been a huge talk by the society at large on the lawsuit made by ConocoPhillips against TL submitted to the Dili District Court recently. There might have a public scrutiny at this stage on question of whoever would be lawfully proven by the court of being guilty or either way.  For the purpose of this article, it will not touch upon how the legal processes of both sides have taken place. It will rather concentrate on how the aforesaid case is rightly taken into account as a wake-up call for TL-EITI. It therefore discusses; first, does TL-EITI work properly? Secondly, does TL-EITI need an improvement? Finally, in answering these two questions, comments and recommendations will be provided.

TL fulfilled its status as one of the EITI implementing states in 2010, of which made the country became the first Asian country that hold such title, (IETI, 2010). Despite of the fact that the implementation of the EITI principles are based on the notion of “voluntary”; nevertheless, such an accomplishment could be seen a paramount milestone to be appreciated by the Timorese people and all relevant stakeholders. As this showcases how the government entities, industries, and civil society organisations are committed to hold each other accountably and transparently in the petroleum development sector. However, the question should be asked is; Does TL-EITI work adequately? If it is viewed from the broader picture of how the EITI International principles are implemented in practice then TL – IETI has done its task properly. As briefly speaking, the requirement of the EITI International (EITI) is that the material payments made by the extractive companies and the incomes collected by the government are meant to be reconciled of which the results are published publically. Despite such reconciliation is carried out by an independent auditor applying the international auditing standards, it essentially looks only at whether the reported amounts agree, not whether they are correct. (Olcer, 2009). If this is an issue, then TL-EITI should go beyond the current pattern. Some questions might be raised. Are the payment of royalty, taxes and other payments made by the companies are exactly the same as the volume of the production which are normally regulated under the license or Production Sharing Contracts (PSC) in the case of TL. Is the payment made by the companies on time to the government authority (e.g. National Petroleum Authority and/or the Petroleum Tax Directorate)? The EITI International still fails to cover these critical issues (Olcer, 2009); the same status quo also prevails in TL – EITI model. These kinds of practices often result into discrepancies which eventually may turn into disputes; thus, these probably could be seen as a serious subject during the on-going legal dispute between ConocoPhillips v TL.  As a case in point, in Nigeria, some companies were detected by auditors that companies reported making payments to the Central Bank of Nigeria that the bank had no record of receiving. Equally, the bank had no recording of the payments made by the companies, (Olcer, 2009). When this practice arises, the companies have an opportunity to make profit out of it. It is therefore seen that TL-EITI might have not performed adequately to hold each stakeholder in a transparent and accountable manner.

It has been already mentioned that the principles of the EITI International are literally implemented on voluntary basis. This means that governments and extractive industries need to voluntarily agree for adopting the initiative before publishing the data, and there is no such kind of enforcement among them, (Publish What You Pay, 2009). Hence, the IETI International principles are primarily considered as a “soft law” to be relied upon by the Stakeholders Working Group (SWG). Considering that the EITI International principles are “toothless” to secure the concept of transparency and accountability in the development of natural resources, TL needs to go beyond such principles. It is worth noted that the 2011 Regional Conference themed “Beyond EITI: Timor-Leste Transparency Model Extractive Industries Transparency Initiative” hosted by TL in Dili was a sort of milestone of which the country is thought being committed to the core principles of the IETI International. In the opening remarks of the Minister of Finance, Mrs. Emilia Pires says that “…the EITI acts as a complimentary mechanism to the Timor-Leste Strategic Development Plan (SDP), by helping to reduce corruption and make politicians and civil servants accountable,” (Ministry of Finance, 2011).

Apparently, the wording of “complementary” here does sound wimpy as some might assume that the TL-EITI’s nascent in the country would be seen as a kind of recommendation, rather than legal action to be further undertaken seriously, in one hand. On the other hand, the abovementioned expression could be regarded as a possible avenue for the state to actually exercise its power in the long-run for establishing a special law/Act of the EITI itself in order to reaffirm the commitment of TL through the TL-EITI which could have a legal enforceability, instead of being dependent to the EITI International which is mostly regarded as “toothless.” This is so to follow the example of other EITI compliant state such as Nigeria which has enacted its Nigeria EITI (NEITI) Act of 2007 that is meant as an anti-corruption tool to mitigate the magnitude of mishandling the revenues collected and generated from the extractive industry in Nigeria. Briefly speaking, the NEITI Act of 2007 regulates how the parties involved in the extractive industry could be held accountable and transparent, yet still harmonizing such Act with the EITI International’s principles and criterions, (Ewere, 2011). It is worth mentioned that under Article 16 of the Act regulates that both the governments and industry players have contractual liabilities to be carried during the life of petroleum development in the country. In case if either government and/or companies that exercise its role violating the NEITI may lead into imprisonment and fined, (NEITI Act 2007).

TL-EITI still has a long way to go in order to maximise its role sufficiently for ensuring the motivation of transparency and accountability in the extractive industry development. There are several “food for thoughts” to be sought, inter alia; first, given the fact that the EITI International principles are applied on the notion of voluntary, it is possibly advocated that the proposal of creating the TL-EITI Act should be put forward. This has to be initiated by the TL-EITI SWG in the first place. However, the bill would have to be carefully scrutinised (either by Parliament or Council of Ministry) for avoiding conflict of law towards several related-laws which are already in place such as Petroleum (Activities) Act No. 13 of 2005, the Decree Law No. 20 of 2008 on the Establishment of the ANP, Decree Law No. 7 of 2005 on Public Tenders in Respect of Petroleum Contract Awards, Petroleum Taxation Law of 3 August No. 8 of 2005, and Law No. 9/2005 on Petroleum Fund. Furthermore, the bill also needs to cautiously consider the role of several relevant institutions that have been established, inter alia Commission of Anti-Corruption (CAC), ANP, Petroleum Tax Directorate of the Ministry of Finance, otherwise the compatibility and applicability of such a proposed law might never be attainable. This might happen due to the conflict of interests among the institutions both at individual level and organizational level.

Secondly, due to the complexity of extractive industries’ operation, it is submitted that the TL SWG member should be constantly trained in order to comprehend how the whole chain of the industry operates, especially in terms of information and data disclosure made by government and companies. At this point, the local NGO should be engaged more actively as the voice of the society at large. In order to produce quality and accurate information, highly well-trained people are needed. This is mostly not the case in the developing nations, since not many people are well-informed about the flow of information in the country, whereas in developed world, the information mostly well-produced. And, the citizens normally question over the accuracy of information disclosed, (Olcer, 2009). There more people are well-trained; the demand of the accuracy of information is higher. It should also be mentioned that media’s role here is paramount. However, the impartiality shall be upheld in order to avoid “rumours and gossips” publications, which might eventually let into public confusion and conflict.

Finally, it is noteworthy that the corruption involved with oil and gas often occurs in the early stage of the process where the contracts or licenses are being granted to the oil companies or oil service companies, (Global Witness, 2008). This can be seen in the case of Security and Exchange Commission vs. Halliburton Former Executive Albert Jack Stanley who admitted in a guilty of plea to Houston, Texas Federal Court which held that Halliburton’s engineering subsidiary, Kellog, Brown, and Root paid U$ 180 million in bribes to the Nigerian government to in order to win a natural gas plan contract, (US District Court Southern District of Texas Houston Division, 2009). It is so firmly suggested to TL-EITI and the relevant national authorities to be a “watch-dog” towards whichever the company that operates or might come to operate in TL. Often occurs that the British Petroleum (BP) in United Kingdom Continental Shelf (UKCS) has its own way of practice comparing to the BP in Nigeria, or ConocoPhillips which operates in TL is different with the ConocoPhillips in Norway. As both Norway and the UK arguably have a strong and well-established petroleum legal framework that can be able to endorse the idea of international best practices, and hold the companies act responsibly which is also being advocated by the EITI International; whereas, TL and Nigeria do not have as such. It should be further noted that although these giant companies operate under the same flag, yet their respective management is always different from country to country. Inevitably, the international best practices applied by major international oil companies are somehow different from jurisdiction to jurisdiction which is pretty much dependent on the rules and regulations which are available in one particular country. If the country has an adequate legal framework in place, the international best practice which is one of the cornerstones principles of the EITI International could be attained. By contrast, if the country has a very limited rules and regulations, it might rather trigger to the international oil companies to behave irresponsibly.

[*The author is the recipient of SERN – Norway Master Scholarship Program and presently completing LL.M in Oil and Gas Law at Aberdeen University School of Law, Scotland, UK. This article is a personal opinion. Any mistake and omission is solely responsible by the author himself.  He can be reached via email at joniantomonteiro@yahoo.co.uk]

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