Regulatory reforms boost Congolese economic growth

Contributing over 60% to the national tax system, oil represents the largest sector of the economy of the Republic of Congo, and taking advantage of its reserves of 2.9 billion barrels of crude oil and 10 trillion feet cubes of natural gas, the Central African country has been committed to building a competitive hydrocarbon market to help serve as a major catalyst for socio-economic development.

As the Republic of Congo continues to experience an economic recession due to the underperformance of the oil sector, mainly due to declining production and volatility in world oil prices, the Congolese government has remained committed to introducing more favorable conditions for operators and investors, aimed at attracting new investments and developing its hydrocarbon industry through the implementation of changes to the main legal and regulatory frameworks.

Oil price shocks stemming from the COVID-19 pandemic have weighed on the country’s economy, which contracted 6.8% in 2020 after contracting 0.6% in 2019. Recently, however, the contraction in oil production eased as investment and access to oil fields picked up. By ensuring robust infrastructure development and directing investment towards exploration and production, the Republic of Congo has made significant progress towards establishing a competitive and export-based hydrocarbon industry.

Through strategic changes to its fiscal framework, as well as the introduction of two tenders – launched in 2015 and 2018-2019 respectively – the government of Congo has been proactive in developing an attractive market for international investors. The government launched a licensing round for hydrocarbon production in October 2015, with 13 blocks available for bidding, leading to the award of five licenses to the oil supermajor, TotalEnergies; independent oil and gas company, Perenco; and deepwater exploration and production company, Kosmos Energy. The second licensing round in 2018-2019 offered 15 additional blocks for tender, three of which were awarded to Italian oil and gas company Eni; the Russian energy multinational, Lukoil; and Cosmos Energy.

In addition, the government of Congo introduced a revised Hydrocarbons Code to accelerate exploration and increase production and revenues in 2016. The revised Code reduces natural gas royalties from 15% to 5%, and royalties on crude oil – for offshore fields located at depths greater than 500 meters – from 15% to 12%. The 2016 Hydrocarbons Code also contains industry-specific regulations for foreign investment and maintains the interest of the Congolese government and SNPC. According to the Code, petroleum contracts require government approval and must be structured either as a production-sharing contract or a services agreement, requiring a minimum 15% to 25% stake from participating Congolese private oil companies.

IOC participation, prudent debt management and the finalization of fiscal policies that continue to offset trade-offs by prioritizing socio-economic objectives have collectively served to accelerate production in recent years with notable developments. These include the Moho Bilondo Phase 1B deepwater project and the Moho Nord extension – offshore Pointe-Noire – with a joint production capacity of 14,000 barrels per day (bpd), the Nene offshore development Marine with a capacity of 50,000 bpd and the Lianzi offshore area. development with a capacity of 40,000 bpd.

Meanwhile, an executive decree issued by the government on November 15, 2019 obliges international companies to ensure that 80% of management positions and 90% of all other positions are filled by local Congolese workers. In addition to this, foreign companies are required to enter into joint venture agreements with the country’s national oil company, La Société des Pétroles du Congo (SNPC). SNPC retains its status as the country’s exclusive concessionaire of oil exploration permits, with a minimum stake of 15%.

Despite the global transition to low-carbon economies presenting notable challenges to the existing fragility in the country’s hydrocarbon sector, the Republic of Congo serves as an example of how an African market can improve its sectoral attractiveness and stimulate associated energy investments and development.

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