Petroleum Licensing and Contracting

16. Industry view

Overall, in any investment, and more so in the extractives sector, which is capital intensive and where returns on investment are achieved only after an extended period of time, investors need to ensure that their investment is secure and that there is certainty and predictability about the laws and regulations under which they will operate. Although an investor can seek compensation from the state or turn to investment dispute mechanisms if a licence is adversely affected by state action or a challenge to irregular procedures by aggrieved applicants, investors prefer to avoid such dispute alternatives.

During the licencing process (be it by competitive bidding or direct negotiations), investors are mostly concerned about the transparency and legitimacy of the licencing procedure. Quite apart from concerns about future state actions once a licence is granted, an investor would be concerned to ensure that the licencing process is beyond reproach, and that the rights granted are not subject to challenge by other aggrieved applicants or by oversight  and audit by other state agencies (such as parliamentary committees). Another emerging concern for investors is government support in obtaining a social licence and community acceptance of the investment. Competitive bidding processes are preferred due to their transparency. Open door or direct negotiation processes can be made more transparent if governments publish information on negotiations and the qualifying criteria.

Once a licence is granted, an investor will need to know that the licence will run its full course and that there is certainty and protection of their rights under the licence. High on the list of an investor’s goals in any negotiation with a host government is to mitigate any legal or political risks that may be associated with the investment.