All change: A new law to increase government review of energy contracts promises wide-reaching effects for the industry

Days before Tunisia’s first democratically representative constitution was ratified on January 26 2014, Article 13 was overwhelmingly adopted by the National People’s Assembly 182 votes to 1. The article aims to ensure transparency in the energy sector, particularly for extractive industries. “Natural resources belong to the people of Tunisia,” it reads. “The State exercises sovereignty on their behalf. A special parliamentary commission examines investment contracts. Agreements relating to those shall be subject to ratification by the National People’s Assembly [Parliament].”

The article was welcomed by Tunisian civil society, especially pro-transparency activists, as a symbol that the country was moving beyond the days when government and extractive companies were able to sign opaque contracts with zero accountability from the public. The Natural Resources Governance Institute called the legislation “a significant step forward for Tunisia, where the Arab Spring was born of unrest closely associated with the government’s poor management of natural resources.”

Local Review

The new law, in a sense, falls in line with a broader push by hydrocarbons producers around the continent to increase the local benefits of extractive industries, through new royalty regimes, local content requirements or – as with Article 13, which was proposed by Mohamed Chafik Zarguine, the head of the Constituent Assembly’s energy committee – increased government review of contracts. “I insisted on changing the fundamental law, so that any regression toward impunity and corruption will be difficult,” Zarguine said just after the January vote.

Push For Clarity

However, requiring parliamentary approval for energy contracts may have an impact on the sector’s overall investment attractiveness, increasing scope for politicisation. During the legislative process leading up to the passage of Article 13, the private sector primarily sought to encourage more modest changes to the existing regulatory framework, which is governed by the Hydrocarbons Code of 1999 and the Mining Code of 2003, rather than proposing a far-reaching constitutional article. The article still requires enabling legislation, which means it may yet be narrowed somewhat in order to limit the scope for politicisation. The exact details of Article 13 are currently being worked out in by-laws being debated in Parliament.

Power Balance

Currently there is a push from private sector representatives to encourage the by-laws to shift more decision-making power to Tunisia’s newly formed Ministry of Energy. Expanding executive control of the review process would help maintain transparency, while limiting political risk. Some companies have expressed concern that parliamentary debate about their investment requests may unnecessarily attract public scrutiny and speculation about their intentions.

Regardless of what transpires with Article 13’s enabling legislation, there is a need to ensure that Tunisia maintains its investment attractiveness. Tunisia imported an estimated 51% of its gas from Algeria in 2014 – that number rose to 54% by 2015, a year in which only three wells were drilled by international oil companies.

Domestic oil production has dropped around 10% per year and, according to Tunisian press reports, some upstream companies – such as the UK’s Enquest – are leaving the country due a range of issues, from work stoppages to the non-renewal of drilling permits. In 2014 the energy committee refused renewal of all hydrocarbons permits, emphasising that Article 13 and its attached laws and by-laws must be completed first in order to proceed in an ethical and legal manner.