TIMOR-LESTE PETROLEUM ACT

COMMENTS FROM LA’O HAMUTUK

The draft laws contain many errors in section numbering and cross-referencing that we trust will be fixed by others.

Preamble

The purpose of Timor-Leste Petroleum Act (the “Act”) is to create a regulatory regime for petroleum companies to explore for and develop petroleum resources which belong to Timor-Leste in such a way as to provide maximum benefit to Timor-Leste.  It empowers the Ministry to encourage petroleum companies to train and employ Timor-Leste nationals and use Timor-Leste goods and services.  The Act also aims to ensure stability and transparency, and to allow Timor-Leste to compete successfully with other countries for international investment.   

The principal purpose of this Act is to facilitate the process of converting Timor-Leste’s petroleum resources into cash resources which can be used to benefit current and future generations of citizens of Timor-Leste. The petroleum companies are merely a means to this end.

Other goals are to protect Timor-Leste’s environment, human rights and property both during and after operations.

The Petroleum resources that belong to Timor-Leste have great potential value, and are expected to generate significant revenues for Timor-Leste.  Revenues from Petroleum will allow Timor-Leste to address more fully its development needs and priorities, further strengthen its human resources, consolidate the gains achieved so far, accelerate and sustain economic growth, reduce poverty and improve the welfare of the people of Timor-Leste.

Timor-Leste has title to all Petroleum resources in the ground, whether on land or at sea.

This refers to the State of Timor-Leste, not the Government of the day. It only refers to such resources within the territory of Timor-Leste. Is title retained after the resource is extracted, until it is sold?

According to international law, Timor-Leste has sovereign rights for the purpose of exploring and exploiting its natural resources, including its Petroleum resources, and the management of these resources, located in all its territories or in its maritime zones.

The Timor-Leste Constitution sets out the territory of Timor-Leste. The Timor-Leste Petroleum Act applies to these areas, except areas that are subject to temporary international agreements as long as those agreements are in force.

It should also apply to the IUA, and perhaps make specific reference to the maritime boundaries law. Only the JPDA is excepted, and this could be stated explicitly.  Further, “temporary international agreements” should be spelled out specifically -- is this the 2002 Timor Sea Treaty and its Annexes only? 

PRELIMINARY

Article 1        Definitions

In this Act:

“Access Authorisation” means an authorisation granted pursuant to Section 7.4;

“Act” means this Timor-Leste Petroleum Act, as amended, modified or replaced from time to time, and regulations made and directions given under it;

“Affiliate” means, in respect of an Authorised Person (or, if more than one person, in respect of each such person), a person that Controls, is Controlled by, or is under common Control with, the Authorised Person or any such person, as the case may be;

“Authorisation” means an Access Authorisation, a Petroleum Contract, a Prospecting Authorisation or a Seepage Use Authorisation and any agreement made in respect of such an Authorisation or Contract;

“Authorised Area” means the area from time to time the subject of an Authorisation;

“Authorised Person” means:

(a)   in respect of a Petroleum Contract, a (check the Contractor for problems) Contractor; and

(b)   in respect of any other Authorisation, the person to whom the Authorisation has been granted;

“Calendar Year” means a period of twelve months commencing on January 1 and ending on the following December 31, according to the Gregorian calendar;

“Code” means the Petroleum Mining Code adopted pursuant to  Article 7(a) of the Treaty, as amended, varied, modified or replaced from time to time, and regulations made and directions given under it;

“Contract Area” means the Authorised Area under a Petroleum Contract;

“Contractor” means a person with whom the Ministry has made a Petroleum Contract;

“Control” means, in relation to a person, the power of another person to secure:

(i)   by means of the holding of shares or the possession of voting power, in or in relation to the first person or any other person; or

(ii)   by virtue of any power conferred by the articles of association of, or any other document regulating, the first person or any other person,

that the affairs of the first person are conducted in accordance with the wishes or directions of that other person;

“Government” means the Government of the Democratic Republic of Timor-Leste;

“Inspector” has the meaning in Section 21.1;

“Ministry” means the ministry or other agency, from time to time, responsible for the administration of this Act;

Petroleum Ministry of the government of RDTL. At present, the lack of definition of this Ministry is a serious omission which makes it difficult to evaluate and comment on the effectiveness, consequences and shortcoming of the entire draft Petroleum Regime.

This should be more specific, as the administration of different parts of this Act should involve not only the Petroleum Ministry, but also other ministries responsible for environmental protection, human rights and local communities. This Act should say “Petroleum Ministry” throughout the Act when that is what is meant.

“Official Gazette” means the Jornal da República;

“Operator” means an Authorised Person or other person named in an Authorisation or unitisation agreement to organise and supervise Petroleum Operations;

“Parliament” means the parliament of Timor-Leste;

“Petroleum” means:

(i)      any naturally occurring hydrocarbon, whether in a gaseous, liquid or solid state;

(ii)    any mixture of naturally occurring hydrocarbons, whether in a gaseous, liquid or solid state; or

(iii)   any Petroleum (as defined in paragraphs (i) and (ii) above) that has been returned to a reservoir.

“Petroleum Contract” means a contract, licence, permit or other authorisation made or given pursuant to Article 7;

“Petroleum Operations” means activities for the purposes of:

(i)   prospecting for Petroleum;

(ii)  exploration for, development, exploitation, transportation or export of Petroleum; or

define terms “development”, “exploitation”, “transportation” and “export”. Does this also include refining, liquification, and consumption within Timor-Leste?

(iii)   construction, installation or operation of any structures, facilities or installations for the development, exploitation, transportation and export of Petroleum, or decommissioning or removal of any such structure, facility or installation;

“Prospecting Authorisation” means an authorisation granted pursuant to Article 6;

“Public Officer” means a civil servant, a member of Parliament or a member of Government;

Presumably of RDTL only. Should include agents and representatives of government, as well as local government.

“Reservoir” means an accumulation of Petroleum in a geological unit limited by rock, water or other substances without pressure communication through liquid or gas to another accumulation of Petroleum;

“Seep” means, in respect of Petroleum, Petroleum which is seeping to the surface, naturally, through natural conduits;

“Seepage Use Authorisation” means an authorisation granted pursuant to Article 9;

“Territory of Timor-Leste” consists of the territory of Timor-Leste, including its territorial sea, together with its exclusive economic zone and continental shelf where, by international law, Timor-Leste has sovereign rights for the purposes of exploring for and exploiting its natural resources.

Specify which international laws. Also, refer to Timor-Leste Maritime Zones Act. Treaties signed and ratified by Timor-Leste (i.e. boundary agreements) should also be included.

“Timor-Leste” means the Democratic Republic of Timor-Leste.

“Treaty” means the Timor Sea Treaty between the Government of Timor-Leste and the Government of Australia signed on 20th May 2002;

Better to say “Timor Sea Treaty” everywhere as there will be other relevant Treaties, such as boundary agreements.

“Well” means a perforation in the earth’s surface dug or bored for the purpose of producing Petroleum;

“Wellhead” means the point where Petroleum exits the confines of the Well and associated systems; and

Article 2        General Provisions

2.1.         Citation

This Act may be cited as the Timor-Leste Petroleum Act, 2004.

2.2.         Application of Act

(a) This Act applies to the Territory of Timor-Leste.

‘throughout’ would be preferable.

(b) Except as otherwise provided, this Act does not apply to any area that is subject to a provisional arrangement within the meaning of Article 83, paragraph 3 of the United Nations Convention on the Law of the Sea, done at Montego Bay December 10, 1982.

Is this about the JPDA only? If there is a new or expanded IUA or JPDA for Sunrise, this act should apply if appropriate. If this is meant only to exempt territories covered by Annex F of the Timor Sea Treaty, it would be best to make that clear.

2.3.         Scope of Act

(a) This Act applies to Petroleum Operations. 

It applies also to those persons, natural and corporate, responsible for and conducting Petroleum Operations, as well as to the government of RDTL.

(b) The existence of Petroleum Authorisations in force in a given area does not prevent authorization of the exploration and exploitation of mineral substances other than Petroleum, provided that such other activity does not hinder the proper performance of the Petroleum Operations.

define “hinder” and “proper” -- this could be construed very broadly. It also should discuss fishing and other maritime activities.

2.4.         Entry Into Force

This Act shall enter into force on the day after its publication in the Official Gazette.

2.5.         Title to Petroleum

(a) Title to and control over Petroleum in the Territory of Timor-Leste are vested in Timor-Leste.

(b) A person may acquire title to Petroleum only after it has been recovered.

define “recovered”

Article 3        Exercise by the Ministry of its Powers and Functions

3.1.         Exercise of Powers

The Ministry shall exercise its powers and discharge its functions, under this Act and Authorisations made hereunder, in such a manner as to ensure sound resource management and develop Petroleum in a way that minimises damage to the natural environment, is economically sustainable, promotes further investment and contributes to the long-term development of Timor-Leste.

Needs to be broader. “Economically sustainable” is inappropriate for such operations, as the petroleum reserves will be irreversibly depleted. But contributes to the long-term welfare of the people of Timor-Leste would be appropriate. This should be a basis for exercising some control over development options, including downstream.

3.2.         Representations to the Ministry

Before exercising any such power or discharging any such function, the Ministry may give opportunity to persons likely to be affected to make representations to it, and shall give consideration to representations received by it.

Should explicitly include civil society, local communities and a public comment period, public hearings, environmental impact assessments and decommissioning plans in advance, etc.

Should be mandatory (“may” should be “shall”)

Should be the responsibility of other agencies independent from the Petroleum Ministry.

Article 4        Public Officers

4.1.         Public Officers Holding Authorisations

The intention of this section is good, but we are concerned that it is unenforceable without supporting legislation requiring transparency of public officers’ personal finances. Penalties should also be specified, as well as provisions for blind trusts or some other mechanism.

(a) Except as a nominee of the Government, Public Officers shall not acquire, attempt to acquire or hold:

Does Timor-Leste have mandatory disclosure laws for Public Officers that would make this section enforceable?

(i)    an Authorisation or an interest, whether direct or indirect, in an Authorisation; or

(ii)   a share in a corporation (or an Affiliate of it) that is carrying out Petroleum Operations.

Does this refer only to operations in Timor-Leste? Or is it all petroleum operations worldwide? In other words, are TL MPs prohibited from owning any mutual funds owning oil company stocks?

(b) Any instrument which purports to grant to a Public Officer, an interest, whether direct or indirect, in an Authorisation shall be, to the extent that it purports to do so, of no effect.

(c)  The acquisition or holding of an Authorisation, interest or share by the minor children or spouse of a Public Officer shall be deemed to be an acquisition or holding by the Public Officer.

Given Timor-Leste’s extended family structure, perhaps this needs to be broader?

Article 5        Graticulation

For the purposes of this Act, the Territory of Timor-Leste, or parts thereof, shall be divided into blocks according to a grid system. 

Part I – AUTHORISATION OF PETROLEUM OPERATIONS

Article 6        Prospecting Authorisations

6.1.         Power of Ministry

The Ministry may grant a Prospecting Authorisation, in respect of a specified area, with a person or a group of persons.

“with” should be “to”

Is nobody allowed to prospect without a PA? (such as contractors, or holders of PAs for adjacent areas)

Can payments be required?

6.2.         Rights and Obligations

(a) A Prospecting Authorisation grants a right to perform geological, geophysical, geochemical and geotechnical surveys in the Authorized Area.

Is a PA exclusive for a given area?

Environmental Impact assessment and remediation plans and other pre-approvals should be required before seismic surveys are authorized? Will the Prospecting Authorization spell out more conditions and restrictions, or is it just a statement of who and where? Perhaps a template PA should be part of this legislation.

Add: “All prospecting activity must be in compliance with laws and regulations in effect in the territory of Timor-Leste, even if those laws are modified during the term of the Authorisation.” (This is important for areas more than 12 miles from ET’s coast, outside the “territorial sea.”) Should specify penalties for non-compliance.

Is a PA indefinite or for a specific time period? Can it be extended?

(b) The Prospecting Authorisation may require the Authorised Person to report on the progress and results of such prospecting, and to maintain confidentiality with respect thereto.

Report to whom?

The Prospector should also be required to follow TL laws, prepare and execute environmental plans, etc.

(c)  Nothing in a Prospecting Authorisation authorizes the holder to drill a Well or to have any preference or right to make a Petroleum Contract.

6.3.         Grant Where Previous Authorisation Exists

Prior to granting a Prospecting Authorisation in respect of an area that is the subject of an existing Authorisation, the Ministry shall give written notice to the holder of the existing Authorisation.

6.4.                Surrender and Termination

(a) The holder of a Prospecting Authorisation may surrender it at any time by written notice to the Ministry, provided that the Authorised Person has fulfilled all its obligations there under.

May expire in a particular amount of time?

(b) If the holder has not complied with a condition to which the Prospecting Authorisation is subject, the Ministry may terminate it by written notice to the holder.

Is one condition that exploration be actively undertaken? Can it be terminated if the holder does nothing?

Article 7        Petroleum Contracts

7.1.         Power of Ministry

The Ministry may conclude a Petroleum Contract, in respect of a specified area, with a person or a group of persons provided that if a group, such group has entered into a joint operating agreement approved by the Ministry under Article 14.

Time-limited?

7.2.         Requirement of Contractor

A Contractor shall:

a)   have, or have access to, the financial capability, and the technical knowledge and technical ability, to carry out the Petroleum Operations; and

Also have a proven record of compliance with standards for environmental protection, fiscal integrity, and economical operation.

b)   be a limited liability corporation or entity with limited liability.

Are no government entities -- either RDTL or publicly owned oil companies from other countries (e.g. Petronas) -- eligible? Or does this assume a new corporation is created for each contract?

Joint ventures?  T-L National Oil Company  can be required to participate in joint ventures?

c) [new clause]

7.2(c) All Authorisation holders shall remain compliant with the TNC norms of the United Nations Sub-Commission on the Promotion and Protection of Human Rights.  The Ministry shall determine the Holder’s compliance with said norms.  Should the Ministry determine non-compliance, it shall be entitled to apply penalties.

Further additional clauses could be added to require companies to follow the principles and practices of EITI, PWYP, and the Voluntary Principles on Security and Human Rights.

7.3.         Rights and  Obligations

(a) A Petroleum Contract grants to the contracting parties the exclusive right to conduct Petroleum Operations in the Contract Area.

Are they allowed to sell, assign or subcontract those rights?

If there is only one contractor, “contracting parties” should be “Contractor” -- if not, other parts of this section need to be changed. (The other party (the Gov’t) is not conducting Petroleum Operations.)

(b) The Petroleum Contract may be limited by reference to Crude Oil, Natural Gas or other constituents of Petroleum.

What does “by reference” mean here?

Add “one or more of” before “crude”.

Add: All Petroleum Operations must be in compliance with domestic and international laws, conventions and regulations in effect in the territory of Timor-Leste, even if those laws are modified during the term of the Contract. Should specify penalties for non-compliance.

7.4.         Discovery of petroleum

(a) An Authorised Person shall give written notice to the Ministry within twenty four (24) hours whenever Petroleum is discovered in its Authorised Area.

(b) The Contractor shall provide any information relating to the discovery requested by the Ministry.

7.5.         Work Approvals

A Petroleum Contract shall oblige the Contractor to carry on Petroleum Operations only in accordance with work programmes, plans and budgets approved by the Ministry.

Environmental Impact Assessments and decommissioning plans should also be required in advance, subject to the approval of a separate environmental agency.  No exploration or exploitation should take place until the contractor obtains the approval of the environmental agency.”

Article 8        Access Authorisations

Shouldn’t this article come before the “Petroleum Contracts” one?

Does a Contractor also need an Access Authorisation?

8.1.         Power of Ministry

The Ministry may grant an Access Authorisation, in respect of a specif