Regulating Onshore Petroleum Operations
14 November 2017
History and background
Oil and gas have been sought and harvested on Timor-Leste's land for more than a hundred years, but most projects have been small and all were for local use. Everything stopped when Indonesia invaded in 1975, and, enabled by illegal 1998 Timor Gap Treaty, attention shifted to offshore fields under the Timor Sea. After independence was restored in 2002, the new nation began to establish the legal regime for oil and gas exploration in both its maritime and land territory.
Before Timor-Leste enacted its Petroleum Activities Law 9/2005, La'o Hamutuk suggested that it should only cover activities at sea (offshore). "Because the potential consequences of poorly managed onshore projects are so serious and long lasting, we recommend that Timor-Leste not commit to any onshore projects until all legislation is in place, the necessary experience has been gained, and the review and revisions have been completed. ... We urge that there be wide, informed consultation with the entire society before this second decision is taken, including socialization of the consequences of petroleum exploitation in other countries similar to Timor-Leste."
Although our suggestion wasn't implemented in the law, no onshore oil operations were conducted in Timor-Leste for the next 12 years, allowing lessons to be learned from offshore activities. The nation enacted laws on land rights, expropriation, resource revenue management, environmental protection and licensing, as well as labor, civil and criminal codes. Many of these existing laws were developed after extensive thought, analysis and consultation. After they are supplemented by similarly well-considered regulations for onshore petroleum operations, they will allow on-shore petroleum operations to be safer and more beneficial than they would have been in 2005.
In 2014, the National Petroleum Authority held a public consultation on a draft onshore Production-Sharing Contract and other technical regulations, and La'o Hamutuk made a submission. However, these documents were never finalized and have not been adopted. Nevertheless, Timor-Leste signed its first two onshore Production-Sharing contracts in April 2017 (see below), and began finalizing regulations to govern their activities.
Ema buka mina no gas iha rai Timor-Leste desde liu tinan atus ida.
In May 2017, the National Petroleum and Minerals Authority (ANPM) announced and invited public input on a draft Decree-Law for Onshore Petroleum Operations in Timor-Leste. They held public consultations in Gleno, Maubisse, Suai, Maliana, Baucau, Oecusse and Dili, and have published a summary of the questions and comments raised.
La'o Hamutuk was the only civil society group present at the Dili consultation on 16 June, although a few dozen oil company and government officials attended. The session was opened by Minister of Petroleum and Mineral Resources Alfredo Pires and ANPM President Gualdino da Silva, but they did not stay for the discussion. A lot of time was used to present the structure of the law (most attendees had not read it), and there was little chance for in-depth discussion. A few films were shown, including one which depicted silent on-shore seismic exploration with a soothing classical music sound track.
For the most part, presenters and panelists felt that they had to defend the provisions of the draft, rather than finding ways to incorporate people's concerns. However, ANPM invited anyone with additional suggestions to have a private meeting with them, and La'o Hamutuk and ANPM staffers discussed the draft law for nearly three hours on 6 July (right). They asked us to write down our input and, considering the imminent election, agreed to extend the consultation period by a month, until 15 August.
A few weeks later, La'o Hamutuk gave ANPM an 18-page submission. Our introduction pointed out: "Across the world, onshore petroleum operations have occasionally brought significant wealth to national treasuries, but they have also often brought great sorrow to citizens who live near them, as well as damaging the local and global environment and making other economic activities less productive. Onshore petroleum activities should be undertaken and regulated in the best interests of the citizens of Timor-Leste. We encourage you to approach this difficult, complex and challenging task conscientiously and thoroughly, taking the necessary time and mobilizing expertise from various perspectives to ensure that Timor-Leste does not repeat the disasters of Nigeria, Ecuador, Equatorial Guinea and many other countries. We encourage you to seek advice from people with a wider view than merely promoting the petroleum industry, and who can better understand the specific legal, social and environmental situation is this new, small, oil-dependent nation."
The following is an abridged version of the main points we discussed:
Public consultation on this law is essential, but must be heard and extended.
The new Government will not be able to deal with this law for many months. We encourage you to get diverse advice from experts knowledgeable about land rights, public consultation, environmental protection, emergency response, transparency and other areas.
Consultation is different than socialization. In addition to telling people what this draft law intends to do, you should take their concerns on board and to modify the law to reflect them. ANPM justified some aspects of the law to La'o Hamutuk as “political decisions,” which technical staff cannot explain or change. Civil society groups are not technical experts, but we do provide political input based on people’s rights, needs, perspectives and experience. In a democratic state, public consultation is inherently a political process, and political leaders who make political decisions should listen to the public who put them into office.
Project public consultations should implement Free, Prior and Informed Consent.
All people potentially affected by a project have rights to information and consultation, including those who live or work nearby or downstream, live as isolated individuals or families, or have livelihoods which depend on air, land, watersheds or water which could be affected by the project. Public consultations should be mandatory, and potentially affected local communities have the right to withhold their consent. They should be informed in advance not only about the "type, duration and potential property damage" of Petroleum Operations, but also about impacts to health, agriculture, water supplies, fisheries, freedom of motion, air pollution, accident risks and other potential effects on their lives.
If explosions or seismic boom are to be used, any nearby people should be considered “particularly vulnerable” in Timor-Leste, where Post-Traumatic Stress Disorder is widespread, and effective public notice is essential.
A Law has more power than a Decree-Law, and should be respected or revised.
This Decree-Law cannot alter Parliamentary Laws or take on powers exclusively assigned to Parliament by Article 95 of the RDTL Constitution (CRDTL). It cannot legislate on matters enumerated in CRDTL Article 96, including definitions of new crimes, without an explicit Parliamentary authorization. Many sections of this law expand or alter Petroleum Activities Law 9/2005. Parliament should review and revise that Law before this Onshore Decree-Law is considered. After that, a simpler version of this Decree-Law, together a model Production-Sharing Contract, can establish specific regulations for onshore petroleum activities.
The Law should maximize public benefits while safeguarding public rights.
Regulatory bodies are responsible protect the public interest, not to give away Timor-Leste’s wealth to private companies. If a company doesn’t want to come here because our rules are too strict and/or force them to share too many of their profits with our people, that’s their problem, not ours.
Prioritize public interests, not resource extraction.
The goal of this law should be to maximize the benefits to the public, in terms of taxes and jobs, while minimizing the risks. If a petroleum reserve is not commercially viable, or if the economic, environmental and social costs are greater than the public benefits, it should be left in the ground. There is no reason to subsidize petroleum projects at public expense.
“Good Oil Field Practice” is not good enough; the law must be clear.
“Good Oil Field Practice” is cited 71 times, but is not defined clearly and is therefore unenforceable. Such vague wording is often used internationally, but Timor-Leste should learn from the widespread resource-driven devastation and conflict in the 20th century to develop a 21st-century standard.
The draft refers to “Applicable law” 105 times, and “applicable standards” nine times. If this law does not say what law or standard is applicable, how is an oil company or regulator to know? Legal clarity is essential to ensure proper checks and balances, oversight, audits and independent reviews by third parties, as well as to empower other state agencies, including the ministries responsible for environment, health, agriculture, land, and rural development, as well as oversight and judicial agencies.
Petroleum regulation is part of the State of Timor-Leste, not above it.
The drafters of this Decree-Law relied on the Organic Decree-Law for the Ministry of Petroleum and Mineral Resources. However, that law will soon be replaced as the new government defines its structure. Furthermore, as a Decree-Law it cannot override Parliamentary Laws and cannot grant MPRM powers which belong to other ministries. In particular, environmental licensing and oversight is the mandate of another ministry, as are land ownership and expropriation. Onshore petroleum operations must respect the laws, processes and powers of these bodies, rather than living under a separate regime.
During fifteen years as an independent nation, Timor-Leste’s ministers and legislators have enacted many laws. This draft decree-law ignores all except the Petroleum Activities Law, and contradicts or violates, among others, laws on land, expropriation, Petroleum Fund, civil code, labor code, criminal code, base law on environment, environmental licensing, protected areas, bidding rounds, private investment and procurement laws. Article 201 of this draft decree-law, would unconstitutionally revoke all of these existing laws, and must be removed.
Everyone has the right to appeal to court.
Timor-Leste’s judicial system applies sanctions and hears appeals from administrative decisions. The law should clearly state that anyone affected by petroleum operations can appeal such decisions to the Ministerial level and to the courts.
Provisions on Transparency and Public Information are shamefully bad.
Timor-Leste was a founding member of EITI and a leader in petroleum contract transparency. We hope that this nation continues to uphold these goals, and are disappointed that this draft Decree-Law has so few requirements for effective public notification, reporting or a public registry. (Our submission names about 40 articles which should be amended to require public information.) They law should require, rather than prevent, the sharing of information.
This draft law endangers the environment and confuses evaluation and licensing.
Timor-Leste enacted laws on environmental principles and environmental licensing five years ago. These laws spell out principles, evaluations, management, planning, approval processes, consultation, licensing and public information requirements which apply to petroleum projects, among others. For environmental regulation to be effective, it must be administered by an agency which is not also responsible for implementing a project, but this conflict of interest exists throughout the draft law.
The law should encourage reuse or recycling of “waste materials”, minimizing the amount to be discarded. Petroleum activities often create pollution and contamination which endure long after a project is decommissioned, and the draft law does not provide for long-term cleanup or monitoring or adequately consider or require restoration for long-term pollution affecting lands and waters to the condition they were in before petroleum activities began.
If a contractor leaves an area of private or public land because prospecting did not find anything commercial, the law should explain their clean-up responsibilities, including restoration. Abandoned exploration or production wells, pipes or other facilities need to be monitored better and longer, and contractors should be responsible to safely dispose of waste, toxic chemicals, and contaminated soil and water. Decommissioning Plans should be required as part of the initial environmental license.
Emergency response should protect local communities and clean up the mess.
This proposed decree-law does not adequately recognize the dangers posed to local communities by abnormal operation -- accidents, spills, fires, explosions and other unexpected occurrences. We should learn from the wide range of disasters in worldwide petroleum operations, and do better.
Improvements are needed in terms of public notice, what events are reportable, disclosure in annual reports, pipeline and storage facility plans. Emergency Response and Oil Spill Contingency Plans should be approved by environmental authorities, and need to be more comprehensive to cover all possible events, including sanctions if the plans are not implemented after an accident or spill.
Health and Safety require better protection.
La’o Hamutuk identified a number of issues which should be changed, and a thorough review by more qualified people would find many more. Our submission describes six specific weaknesses.
This law violates people’s right to access and own land.
Expropriation can only be used for "public use," and it would be unfortunate and illegal to expropriate land temporarily for prospecting which does not find a commercial discovery. The law needs to be clearer about petroleum activities on private land -- what is the landowner entitled to, can they be temporarily displaced, and what other rights and obligations do they have? Since the recently-awarded PSCs cover more than one-eighth of Timor-Leste’s territory, most of which is privately or communally owned, these are urgent and important questions.
The Laws on Expropriation and Spatial Planning were just promulgated, and this onshore decree-law was drafted before they were finalized. Other areas which need to consider land implications include seepage use, safety zones, protected areas, "restricted use," surface activities, compensation for environmental damage, appeals and insurance.
Local content benefits from the petroleum industry are illusory.
The extensive discussion of Local Content in this draft decree-law implies that employment and subcontracts could be a major contributor to Timor-Leste’s development. This is not true, and leads to unrealistic expectations. The petroleum industry is among the least efficient job creators of any economic sector -- money spent on health care creates three times as many direct and indirect jobs, while spending on education creates five times as many.
TimorGAP should not get special favors; the playing field should be level.
A principal motivation for this draft decree-law is attracting international oil companies, but some provisions undercut this by giving favors to the TimorGAP national oil company. ANPM and this decree-law should safeguard the national interest, not only the interests of TimorGAP, which should have to follow the same standards for qualifications, transfer fees, liabilities and decommissioning as other companies.
The law gives TimorGAP immediate, automatic ownership of equipment brought in by other companies, which will deter them from coming. Similarly, TimorGAP should not be able to pre-empt other companies if an interest in a PSC is sold, and should have to carry its share of exploration costs.
This decree-law should not require that the nonexistent Suai Supply Base be used for operations far from Suai or for which another facility would be more appropriate, forcing other companies to subsidize a state project of dubious viability.
Current law describes open bidding for new contracts, but this proposed decree-law makes no reference to open tenders, and does not refer to a Model PSC. Individual, secret contracting opens the door to corruption and favoritism. Since 2007, Timor-Leste has signed two offshore and two onshore Contracts, all through direct awards without open bidding, and all involving TimorGAP. This pattern, encouraged by this draft law, betrays the open, fair policies which underlie the 2005 Petroleum Activities Law. It could scare away legitimate companies and attract unscrupulous ones looking to take advantage of Timor-Leste.
The proposed law requires companies to supply petroleum to the domestic market. Will Timor-Leste have to buy petroleum from local producers even if it costs more than it would from other sources? This could be a backhanded way to force Timorese citizens or consumers to subsidize an unviable petroleum project.
Lejislasaun iha 2017
Although regulations had not been enacted, on 7 April 2017, the ANPM awarded two contracts for onshore oil and gas exploration to a joint venture equally owned by TimorGAP and Timor Resources, which is part of the Australian Nepean Group of companies. Timor Resources will be the operator for both PSC TL-OT-17-08 (Covalima and Bobonaro municipalities, area A on map at right) and PSC TL-OT-17-09 (Manufahi and Ainaro municipalities, Area C), totalling 2,000 square kilometers.
The contracts were celebrated by Timor-Leste's government (also 7 MB video), ANPM, TimorGAP and Timor Resources (also Technical press release). Although Timor-Leste's project proponents hoped for "maximum benefits for Timor," Australian news coverage in NT News and the Financial Review expected Darwin to benefit economically by providing logistical supply, as well as a possible refinery.
more to come
Updated and additional information may be available on our page on Production-Sharing Contracts.
Projeitu iha rai maran