Hydrocarbons Law in Madagascar

The combination of two factors, namely the increase in prices of oil in recent years, as well as the improvement of exploration techniques, has led to the discovery and exploitation of reserves in regions the oil potential of which has been, until now, ignored. Madagascar is one of these areas, and as such will start in 2013 its first experimental oil production. This evolution has urged the need for the implementation in Madagascar of a hydrocarbons legislation which would be modern, attractive, while preserving the interests of the country and the population (both in terms of economic and social benefits of these activities for Madagascar, as well as in terms of limitation of the impact of oil industry on the environment).

Two texts currently govern petroleum and oil activities in Madagascar: a Petroleum Code established by Law No. 96-018 (the « Petroleum Code »), regulating the upstream oil sector (i.e. exploration, research, extraction and routing of the crude product to the point of refining or to the transport terminal), and Law No. 99-010 of 17 April 1999, as amended by Law No. 2004-003 of 3 June 2004 and by Law No. 2008-037 of 17 December 2008, regulating the downstream oil sector (i.e. processing, import, transport, storage and sale of hydrocarbons).

However, an in-depth review of the current Petroleum Code may lead to the conclusion that the Petroleum Code is flawed for a number of reasons.

– First, there has been no implementing decree to the Petroleum Code to date, nearly 17 years after its entry into force.

– Second, the Petroleum Code has provided for the setting up of two entities with specific functions: (i) a technical body responsible for managing the national oil field, and (ii) a national company, responsible for conducting the upstream activities themselves, alone or with the assistance of other oil companies. If the OMNIS (Office of National Mines and Strategic Industries) has been appointed to serve as a technical body by a decree of 7 November 1999, the national company has not been established to date. The national company functions are consequently temporarily exercised by the OMNIS, which in practice can result in confusion of roles and relationships issues between the different actors (especially between the technical body, the national company and oil companies).

– Finally, if the Petroleum Code provides that upstream activities can only be conducted through the conclusion of petroleum contracts with the national company (for instance, through a production sharing contract or a contract of association), it is regrettable that no provision defines the interests accruing to each partner under these contracts. The sharing of oil revenues is indeed entirely determined by contractual negotiations between the parties, which may result in some issues, such as the conclusion of contracts too unfavorable to the national company because of power imbalances between the parties, or the risk of corrupt practices and lack of transparency in the management of the hydrocarbons sector.

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Law No. 99-010 of 17 April 1999 regulating the downstream oil sector, as amended by Law No. 2004-003 of 3 June 2004 relating to the liberalization of the downstream oil sector and amending Law No. 99-010 of 17 April 1999 regulating the downstream oil sector, and by Law No. 2008-037 of 17 December 2008 (French version)