COMMENTS

REGULATION OF THE PETROLEUM SECTOR

DRAFT DECREE LAWS

From Joseph C. Bell, Hogan & Hartson LLP
Chair Advisory Council, Revenue Watch Institute

April 4, 2007[1]

These comments are filed pursuant to the public consultation announced by the Ministry of Natural Resources, Minerals & Energy Policy (the “Ministry”) regarding a trio of decree laws establishing a National Regulatory Authority for Petroleum, Natural Gas, and Biofuels (“ARNP”), a national oil company, and setting out a general regulatory regime for petroleum. 

These comments are necessarily brief because of the limited time provided for this public consultation and the limited information available regarding the decree laws[2].  Given the importance of the issues that are dealt with in the three laws, this limited period for consultation is itself a concern.  These three laws form the basic framework for the management of Timor Leste’s most important resource, and accordingly deserve careful and thorough public scrutiny and discussion.

The law establishing the ARNP raises a number of significant and serious issues.  Although some of these matters may be dealt with in other legislation, they are singled out here to assure that they are indeed addressed either in the instant legislation or otherwise.

Concentration of Political Power.   The ARNP is given very significant authority subject to limited check by other branches of the government or even of succeeding governments.   The Minister is entitled to appoint all three members of the Administrative Council of the ARNP without approval of any other governmental authority or parliament, and once appointed the appointees hold office for four years[3] subject only to an undefined process for removal by the court.   Unlike most traditional regulatory bodies there is no requirement of balance in the membership and most peculiarly it appears that members appointed now would not be subject to removal by future governments in the absence of amendment of the law. 

Transparency.   Although the proposed National Council for Energy has some oversight role, the draft laws themselves do not appear to provide for open proceedings by the agency nor does the law provide for publication of the agency’s budget, its accounts, or the audits of the ARNP let alone its proceedings.   Nor are there provisions explicitly providing for public participation in the development and implementation of the regulations to be administered by the ARNP.[4] While practice to date at least with respect to publication of information about the oil fund has been good, it is not sufficient to rely upon the goodwill of public administrators.

Auditing.  The law provides for an auditor appointed by the Minister of Natural Resources (the Minister responsible for appointing the members) and the Minister of Planning.   There is no provision for auditing by the auditor general or for any independent auditing.   Nor as noted is there any provision for making the accounts public.   The auditor reports internally only to the head of the ARNP although it is authorized to report irregularities to the appointing Ministers.

Extra Budgetary Accounts.  Although subject to some reporting to and oversight by the National Council for Energy, the ARNP has full control of its own budget, and is able to supplement any appropriations from the national budget through fees, fines and other sources which it controls.[5]  The net result is that the ARNP is not subject to the same budgetary controls as other parts of the government and is enabled to act in nearly autonomous fashion.  Elsewhere petroleum administrative agencies not subject to national budget controls have often been operated as “gold plated” organizations providing their managers and employees compensation and perquisites far beyond that available to other civil servants.

It is also unclear whether funds from petroleum operations are to move directly to the oil account or whether they pass through the ARNP.  Certain diagrams provided in connection with the decree laws suggest that such revenues would pass through the ARNP.  If this is the case, that is very problematic and could compromise the oil fund.

Nation Energy Policy Council.  This body is given some general oversight and planning powers, but it is not clear how it will operate in practice.  It is to have only two meetings a year.  All real activity is carried out through the executive secretariat which is appointed and controlled by the Ministry of Natural Resources, the same entity appointing the members of the APRA.   Moreover although the CNPE is supposed to have certain representatives from civil society, the university, and the private sector, the representatives are all subject to appointment by the Minister of Natural Resources. 

Division of Powers.  Article 25 transfers all attributions, rights, and obligation of the Ministry, “especially those of a regulatory nature” under the Law on Petroleum Activity to the ARNP.   This general but undefined transfer of power particularly from the appointing power could lead to future conflicts and should be more precisely defined.

Implementation by Decree Law.  These laws create the central regulatory and administrative structures for Timor Leste’s most important resource, yet they are being implemented by decree rather than the full legislative process.  Further, although they purport to build stable structures, the “independence” of a body solely appointed by one political group may not endure through subsequent election cycles, but because of the lack of flexibility in the law, subsequent administrations are likely to have to proceed by further amendment.  This in turn creates the very instability which presumably the drafters wished to avoid. 

* * *

These limited comments touch on only a few major issues, and they do not discuss at all the very important issues surrounding the establishment of a national oil company.   Some such companies have become highly competent professional organizations; others are responsible for enormous waste and pilferage of national assets.  But even these limited comments suggest that further public discussion and consideration pursuant to a full and open political process is warranted.