Testimony Before the House of Representatives of the Republic Of Liberia
On March 25, 2013
By Tiawan S. Gongloe
On Wednesday March 20, 2013, I received a letter from the Chief Clerk of the House of Representatives inviting me, by directive of the chairperson of the Joint Committee on Lands, Mines and Energy, Public Utility, Investment and Concessions, Judiciary, Contracts and Monopolies and State Enterprises, Public Autonomous Commissions and Agencies to a public hearing on the Restated and Amended Production Sharing Contract between the Republic of Liberia and Exxon Mobil Exploration and Production affecting Block-13 of the Oil and Gas Sector of the Republic of Liberia.
Let me begin with some general comments. My first comment is that in acting on any matter before you, you must always consider the best interest of the Liberian people, not the interest of a few. My second comment is that Liberian people have become so critical of public officials that in passing on any issue before you, consideration must be given by you to whether your action will pass through their collective critical examination with a positive result. Based on the result of the last legislative elections, it is now common knowledge that the voters in Liberia are closely watching members of the legislature and are ready when the occasion arises to dismiss them with their ballots. It was shown, in 2011,that of the fifteen Senators that campaigned to retain their seats, only two were approved by their people and of the sixty four Representatives that campaigned to retain their seats, only twenty seven retained their seats. Certainly, the people are monitoring each of you. The third comment that I have to make is that you must exercise the highest degree of caution when making decisions about natural resources, because they are depletable. When they are finished they cannot be replaced. Since we have not developed the Liberian economy in a manner that reduces our reliance on revenue from the exploitation of our natural resources, as a major source of national income, we have to make sure that we manage them in ways that will make them available for a long time to come. My fourth comment is that as our representatives, you must, by your actions, not let this generation of Liberians be viewed by the future generations of Liberians as greedy and selfish. You can do this by not giving away all our natural resources during this administration. The prices of natural resources will keep rising as more countries industrialize; hence, we need to reserve some, if not, most of our natural resources to sustain the future generations of Liberians. In the area of oil and gas, it is my view that you make a decision to await the outcome of those companies that are already exploring to start developing and exploiting oil and gas before proceeding with any other contract. When this happens, then lessons learned from the implementation of the production sharing contracts will inform you to make better decisions about the remaining potential sources of oil and gas. You can see that, already some bad decisions have been made in the oil sector. Everyone from government that has come here or spoken to the public on the recent oil production sharing contract signed by the President, has said that the ExxonMobil/COPL contract is better than all other oil and gas agreements signed by the government, thus far. Yet it is members of this same government, not another government, that negotiated the terms of the agreement which they now term not to be as good as the one before you. That statement alone from the President of NOCAL and others from the Executive Branch, calls for an inquiry by this joint committee to invite the negotiators to explain to the Liberian people why they convinced you to sign agreements that they now say were not as good as the one you now have before you. Are they not going to tell you tomorrow, when asking you to approve another agreement in the oil and gas sector that that agreement is better than the one before you today? I implore you to be cautious.
My fifth comment to you is that, rather than approving another oil and gas contract that may be considered in the near future not to be good, you should
make appropriations for training Liberians in various fields of study in the oil industry so that Liberia can have its own citizens with the requisite knowledge to negotiate for the best benefits on every activity in the oil sector, from exploration to exploitation. Finally, I plead with you to do due diligence on each company offering to invest in the oil sector in Liberia on their track records in Nigeria, in order to find out what contribution, it has made to the trouble emanating from the petroleum industry in Nigeria. Any company that has been a source of the conflict in Nigeria, a country with more educated citizens in the oil sector, than Liberia, is most likely to be a source of conflict in Liberia, a country with less educated citizens in the oil sector. In the interest of Liberia, you should either reject agreements signed with companies with negative roles in Nigeria or be rigorous in examining such agreements in order to prevent any of the problems caused by them in Nigeria. Liberia does not have the capacity to contain crises coming from bad agreements in the oil sector. Perhaps the reason why the previous agreements were not as good as the one now before you, as its drafters say, is that those who negotiated the terms of those agreements did not have sufficient knowledge to counter the experts of the investing companies in order to produce a result, similar to the one that NOCAL is now praising. First, education of Liberians must be attained in the oil sector, before the exploitation of oil. This is my candid advice.
Now , let me make some specific comments on the content of the agreement.
1. Applicable Law
It is commendable that this contract provides that it is subject to the Laws of the Republic of Liberia and its terms shall be construed and interpreted by it.
2. Tax Exemption
The contract before you has been praised to be better than similar contracts before it, particularly for its signing bonus of fifty million United States Dollars. However, I urge you to take a critical look at the amount of tax exemptions agreed to by the negotiators under Article 17 of the contract and weigh same against the tax obligations imposed by the new Petroleum Law as found at chapter ten of the said law, in order to convince yourselves about whether the fifty million dollars is more than what the people of Liberia would receive if exemptions of certain taxes for the period of the contract are not accepted by you. You need to take a particular look at Article 26 of the contract which provides a wide range of exemptions on imports and exports. Get your technicians to provide some estimates to guide you in reaching a decision on this matter. As much as fifty million dollars sounds very good, you must not let it becloud your judgment, on the benefits that the people could get in the long-term. Both signing bonus and tax exemptions are provided for under chapter ten of the New Petroleum Law. In order to arrive at a sound decision on this contract find out whether the potential revenue waived by the exemptions are less than what is provided under the New Petroleum Law or far exceeds it.
The royalty rate provided under the New Petroleum Law at section 3.7 thereof, for hydrocarbon exploited off-shore, as in the case of the contract before you, is 12-15 percent, but the royalty rate provided under the Production Sharing Contract before you is 5-10 percent. Considering that the payment of royalty is on total production, the reduction of the royalty in this contract is a waiver of revenue in the tone of, probably, billions of dollars. Therefore, I consider it a big risk for you to accept the royalty rate suggested by the contract before you. Even a reduction of the signing bonus in favor of maintaining the royalty rate provided in the New Petroleum law will be in the best interest of Liberia, in the long-term. National decisions should not be made purely on the satisfaction of short-term interest.
4. Liberian Citizen Participation
The New Petroleum Law provides at section 3.4, for ten percent shares to Liberian citizens, but the contract before you provides for 5 percent. This reduction added to the reduction in the royalty rate terribly reduces the potential benefit that Liberians will gain from the exploitation of hydrocarbon found in Block 13. What is the rationale for such a give-away? Therefore, take a close look at section 19.6 of the PSC before you. I suggest that you stick with the ten percent share provided for under the New Petroleum Law and even ensure that ownership of the shares be spread across the counties to ensure maximum feasible participation of all Liberians consistent with Article 7 of the Constitution of Liberia.
5. Monetary Unit
Article 24 of the PSC says that all transactions shall be recorded in dollars without stating which dollars, United States or Liberian. In other parts of the contract such as Article 29, clear reference is made to US dollars. Article 24 should be revised to say United States Dollars, to avoid any controversy in the future.
6. The Transfer from Perper Coast to Canadian Overseas Petroleum (Bermuda) Limited. First the circumstances under which Broadway Consolidated Plc became Pepper coast which then made transfer to COPL should be closely studied before proceeding to deliberate on the content of the contract.
As you review the PSC before, I implore you to proceed with the utmost care in the best interest of the Liberian people. There is a general view that members of the legislature, have not been, generally acting in the best interest of the Liberian people, since our country started on the path of true democracy in 2006. The people showed their disapproval for the behavior of the legislature by the way they voted in the legislative election of 2011. There is a strong view within the public that most often, on critical matters that involves money, you, members of the Legislature act on the basis of money received by you from those who tend to benefit from your action. Members of this house confirmed the suspicion of the public when some of its key members were involved in accusations and counter accusations, a few years ago, about receiving bribe to perform their legislative duties.
At this point in our history we need legislators who will put national interest above parochial interest. Like the ten Senators of the Liberian Senate who in 1930, told President King to resign or be impeached in the interest of maintaining Liberian sovereignty, you must forget about the interest of the President and any other powerful individual of influence and act consistent with your oath of office, your solemn pledge to the Liberian people that you will act in their best interest at all times.
Today, unlike 2006 when all members of the government were under pressure to find sources of revenue for supporting the small budget at the time and other sources of employment outside government, Firestone and the retail business sector, Liberia has signed several concession agreements in the agricultural, forestry and mining sectors worth billions of US Dollars, to help government with revenues and provide more employment. What needs to be done is for government to closely monitor the implementation of those concession agreements to ensure that Liberia gets the benefits for which those agreements were fast-tracked. There was an urgent need to be less critical then. Today, the situation is different. The Liberian people need the best benefits that our natural oil and gas can provide in the world today. We must learn from whatever mistakes have been made in Nigeria, and other oil producing countries in Africa, the Middle East and Southern America and get the best deal that the oil and gas industry can offer today. If it is not possible, then we should wait. There is no need to hurry like we did in the 1950s and 1960s with iron ore and got the result of growth without development.
Let us, for once, insist on the collection of our taxes in the oil and gas industry and get our share of participation as enshrined in the Revenue Law of 2000 as amended through 2010 in order to raise the revenue that will finance vision 2030 and any other national vision. Let us also, first train a good percentage of the man-power needed in the oil and gas sector before proceeding with the exploitation of petroleum and natural gas. We can do this by sticking to our Revenue and Petroleum laws and not merely rely on signing bonus. No matter how big the bonus may be, it cannot be a substitute for insisting on the generation of tax revenue consistent with existing laws. Those countries on which we rely for donations today developed their countries through taxes collected, largely on their natural resources. We must do the same. If companies coming from their countries are not prepared to do the same here, then let us make the sacrifice and let the future generations of Liberians get the appropriate benefit, when those resources are depleted in other parts of the world. Ladies and gentlemen of the House, my strongest feeling is that you reject the PSC for block 13 until we learn some lessons from the exploitation of oil and gas under the contracts that have already been approved by you.
I thank you.