Citizens for Justice-(CFJ) A report about Oil Exploration and Production in Malawi Policy and Legal Audit Area 47, Sector 4, Plot # 776, Lilongwe, Malawi Contact: [email protected]Phone: +2651761887 and +2651761886. Fax: +2651761885 Web: www.cfjmalawi.org
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Policy and Legal Audit - Mining in Malawi · 3.2 The taxation regime for oil mining is grossly inadequate. Government should either enact a law specifically on oil mining taxation
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Abbreviations and Acronyms ........................................................................................................................... 6
Terms of Reference .......................................................................................................................................... 7
Summary of Findings and Recommendations .................................................................................................. 7
Potential Areas of Project intervention by CFJ and Fellow Civil Society Organisations (CSOs) ........................ 10
4.2 General Revenues ................................................................................................................................ 22
EITI Extractive Industries Transparency Initiative
EMA Environment Management Act
ERP Economic Recovery Plan
EMS Environmental Management Systems
EPE Environmental Performance Evaluation
FPIC Free, Prior and Informed Consent
GOM Government of Malawi
ICMM International Council on Mining and Metals
IFC International Finance Corporation
ILO International Labour Organisation
IMF International Monetary Fund
IPA Investment Promotion Act
IUCN International Union for Conservation of Nature
MERA Malawi Energy Regulatory Authority
MGDS Malawi Growth and Development Strategy
MMA Mines and Minerals Act
MGGSP Mining Governance and Growth Support Project
OGP Oil and Gas Producers
WBMSR World Bank Mineral Sector Review
PEPA Petroleum (Exploration and Production) Act
PRT Petroleum Revenue Tax
PCC Petroleum Control Commission
RFCT Ring Fence Corporation Tax
SEA Strategic Environmental Assessment
SIA Social Impact Assessment
UNEP United Nations Environmental Programme
WHO World Health Organisation
7
Terms of Reference
The Terms of Reference for the Legal and Policy Audit of laws on Petroleum Exploration and
Production were as follows-
a) To critically analyse all statutes and policies regulating the oil industry in
Malawi for sufficiency;
b) To identify applicable international and regional instruments and practices
having a bearing on the oil industry in Malawi with a view to determine
adherence;
c) Make recommendations to Citizens for Justice (CFJ) on potential areas for
project interventions;
d) To produce an Audit Report on the state of the institutional, legal and policy
framework of the oil industry in Malawi incorporating potential areas for
project interventions by CFJ
Summary of Findings and Recommendations
1 Vesting arrangements
1.1 There is no mention of Minerals under the Constitution but the scheme of the
law indicates that minerals are recognised as part of land, which the
Constitution vests in the Republic. There are discrepancies between the PEPA
and MMA on the one hand and the Constitution on the other. The two statutes
should be aligned with the Constitution to vest minerals including petroleum in
the Republic without necessarily creating exceptions
1.2 The penalty for carrying out oil exploration and production without authority is
inadequate and should be enhanced to promote deterrence.
2 Oil Exploration and Drilling
2.1 The current licensing regime is grossly inadequate and ineffective. In order to
promote an efficacious, transparent and accountable licensing regime,
Government should establish an independent body under PEPA (such as a
Petroleum Exploration and Production Commission) to be charged with the
following responsibilities-
a) Receive applications for licenses
b) Issue licences
8
c) Regulate the health, safety and environmental standards in the oil extraction
industry
2.2 Public health issues do not form part of the requirements that determine the
granting of a licence for exploration or production. Public health issues should be
incorporated as an aspect of requirements for the granting of a licence for
exploration or production in the quest to promote sustainable oil mining.
2.3 The PEPA gives the Minister discretion to determine contents of petroleum
agreements. This is inappropriate. The Act should be amended to dictate the
contents of petroleum agreements to promote consistency and safeguard such
agreements against corruption, bias and uncertainties and also to reflect best
practice.
3 Petroleum Revenue Framework
3.1 The revenue framework for upstream activities is neither coherent nor
progressive. The petroleum fiscal regime should be redesigned to reflect
flexibility, neutrality and stability and in this quest government should provide
space either in legislation or petroleum contracts to enable the introduction of a
threshold of profitability after which tax increases linked to the investor’s
expectations of the profitability of the oil field.
3.2 The taxation regime for oil mining is grossly inadequate. Government should
either enact a law specifically on oil mining taxation or incorporate
comprehensive provisions in the Taxation Act to specifically regulate oil mining
3.3 The legislative framework does not address issues of community development to
facilitate distribution of revenue from the national level to the local level nor does
it address issues of community development agreements in the context of
petroleum revenues. There is need to incorporate these issues in legislation
regulating petroleum exploration and mining.
3.3 There is need for Malawi to take deliberate steps to join the global initiative, EITI,
in view of the interest that the country is generating globally as one of the
upcoming destination for oil mining in Africa. In order to join this global initiative,
EITI, Government should enact legislation to-
a) establish a body to ensure that all payments and revenues emanating from oil
operations are reconciled, applying international auditing standards
b) incorporate civil society to provide oversight functions in monitoring and
evaluating collection, allocation and management of petroleum revenue
9
c) require the publishing of receipts and payment of oil revenues in readily
accessible media for transparency and accountability
4 Legislative and policy framework in relation to the Environment
4.1 There are glaring discrepancies between the PEPA and the EMA regarding EIAs.
The two statutes should be harmonised to impose EIA for all oil mining projects
for which an exclusive prospecting licence is required.
4.2 Both the PEPA and EMA do not require the carrying out of a Social Impact
Assessment (SIA) as part of an EIA. It is important that both the PEPA and EMA
should be amended to require the mandatory carrying out of a SIA.
4.3 The requirement that an EIA should be carried out by the proponent of a project is
unsatisfactory since the proponent is an interested party in the issuing of a
licence. A better approach is to require that an EIA should be carried out by a
third party other than the proponent of a project or should be carried out jointly
with government and, in both instances, at the expense of the proponent.
4.5 There is no requirement under the law that local communities should be engaged
in EIA processes. Participation of local communities should be made mandatory
and an integral part of the EIA process to adhere to the aspirations of the
Constitution which advocates a participatory approach to environmental
management. This approach would also be in line with a key principle in
international law and jurisprudence related to indigenous peoples, that of ‘free
prior and informed consent’ (FPIC) as per ILO- 169 that empowers a community to
give or withhold its consent to proposed projects that may affect the lands they
customarily own, occupy or otherwise use
4.6 The Minister should promulgate Regulations under PEPA-
a) to regulate the standards of equipment and products to be used in petroleum
exploration and production
b) with respect to protecting the environment in petroleum operations in
recognition of the weaknesses of the EMA in this area and the hazards associated
with petroleum operations
5 Legislative and Policy Framework in relation to Public Health
5.1 Public health issues are completely neglected in the legislative and policy
framework regulating mining in Malawi. The legislative framework should be
10
reviewed to establish a comprehensive and coordinated ‘health impact
management system’
6 Offences and Penalty Regime
6.1 The offences and penalty regime is grossly inadequate in terms of breath and
deterrence. The legislative framework should be reviewed to introduce new
offences to promote sustainable and beneficial mining in Malawi, particularly in
areas of environmental protection and public health.
6.2 There is need to review existing penalties for meaningfulness and to promote
deterrence.
Potential Areas of Project intervention by CFJ and Fellow Civil Society Organisations (CSOs)
1 CSOs should lobby government (ie Ministry of Finance, Ministry of Mining,
and Malawi Revenue Authority) for the enactment of two key statutes in the
following specific areas: oil taxation, and oil revenue collection and utilisation.
CFJ should consider engaging consultants to develop draft bills as strategic
instruments to facilitate the lobbying exercise.
2 CSOs should advocate the review of the PEPA and should corroborate with the
Law Commission to ensure harmonisation of this law with other legislation
impacting on oil extraction and address issues such as those to do with the
licensing authority and licensing procedures; environmental protection; public
health and public participation borrowing from best practice.
3 CSOs should look at issues of local content and communities such as policies
regulating employment of locals, training of locals, and local procurement in
terms of creating supply chains.
11
1 Introduction
The mining sector is one of the priority sectors for economic growth and development by
the Malawi Government as outlined in the MGDS II. The sector has also been included in the
five priority economic sectors earmarked to underpin Malawi’s economic growth and
development in the Economic Recovery Plan (ERP) launched by Government in 2012. The
World Bank’s Mineral Sector Review (MSR) 2009 has projected the value of minerals output
reaching some US$250mn within three years with potential to double after 10 years
provided that some structural constraints are addressed.1
Currently, the sector contributes
10 to 12 % of GDP.2
The MGDS II predicts that mining shall contribute 20% of GDP by 2016.
The recognition of the potential of the mining sector has culminated in the establishment of
a stand-alone Ministry on mining in 2012 and the adoption of a mining sector reform
programme titled Mining Governance and Growth Support Project (MGGS) 2013 with the
broad objective of improving the efficiency, transparency and sustainability of mining sector
management.
However, the shift of economic focus from agriculture towards large scale mining in recent
years has taken place without an assessment of the capacity of the existent institutional,
policy and legislative framework to promote and ensure sustainable mining; accurate
estimation, transparent collection and utilization of resource revenue. Despite the shift, the
general regulatory structure in mines and minerals has seen little development consisting
largely of ad hoc and
secretive mining
agreements regulated
administratively whereas
ideally these should be
regulated under legislation.
The oil discovery on Lake
Malawi poses enormous
challenges for Malawi. The
Lake Malawi boundary with
Tanzania has to be settled.
The energy sector in
general is poorly regulated though it is a new area of focus by Government. It suffers from
inconsistencies and lack of compliance due to a fragmented legislative and policy framework
1
World Bank, Mineral Sector Review, 2009 2
GOM, Mining Sector Economic Report, Ministry of Energy and Mining, November 2012
12
characterized by the non-existence of effective and coherent monitoring and enforcement
mechanisms. The Energy Regulation Act3
which is the most recent law in this area only
regulates the downstream selling of energy or commercial activities and employs
ambiguous terms such as ‘Energy Laws’ without necessarily providing a clear definition of
what these constitute. Similarly, the Liquid Fuels and Gas (Production and Supply) Act4
which makes provision for production and distribution of liquid fuels and gas among other
things in a liberalized economy is concerned with downstream petroleum activities. There is
also a general perception of corruption, incompetence and a lack of care for environmental
and public health issues by responsible Government agencies.
The institutional framework for oil mining is grossly inadequate and huge reliance is placed
on an ill equipped office of the Commissioner for Petroleum Exploration and Production as
opposed to a robust agency as has been done with downstream operations entrusted to the
Petroleum Control Commission (PCC) under the Petroleum Control Commission Act5
and
the Malawi Energy Regulatory Authority (MERA) under the Energy Regulation Act.6
A host of other regulatory institutions and agencies concerned with the petroleum industry
face specific challenges in their respective sectors. These include the newly created Ministry
of Mining; the Ministry of Energy; the Ministry of Environment and Climate Change; the
Malawi Revenue Authority; and the Department of Water. Notwithstanding these
challenges, Malawi considers oil extraction a potential future source of foreign income, a
source of taxation revenue and employment and an opportunity for the transfer of
technology from developed economies.
Upstream petroleum operations include geophysical surveys, exploration and appraisal of
production wells, drilling, production and terminating production including
decommissioning of facilities. The production of oil and gas in a country inevitably creates
conflicting interests affecting four major stakeholders. These are: (a) the Government which
has commercial interest and at the same time is tasked to ensure that its citizens are
protected from the hazards of petroleum production; (b) transnational companies, that
invest at a risk and expect early returns on an investment; (c) the communities hosting the
production whose health and livelihoods may be at risk but may also stand to benefit from
the operations; (d) the environment at large including the future generation which must be
protected; and (e) the citizens of the country that wish to benefit from the exploitation of
3
Cap. 73:02 of the Laws of Malawi 4
Ibid 5
Cap 50:08 of the Laws of Malawi 6
Cap. 73:02 of the Laws of Malawi
13
their natural resources. To balance these conflicting interests host governments need to
devise coherent institutional, policy and legislative framework to promote efficient and
sound management of petroleum production operations.
In this context, the institutional, policy and legislative framework regulating oil industries in
the contemporary world generally seeks to address the following issues among other things:
the procedure for licensing, exploration periods, efficient development and the production
of the resource in accordance with good oil field practices; the financial benefits between
government and transnational companies and ensuring the utilisation of national goods and
services, subject to availability; the financial obligations of transnational companies and
their audit and monitoring; the acquisition and transfer of appropriate technology and the
training of nationals within the industry; and the standards for environmental protection
and health safety of the communities hosting the petroleum production, including the audit
monitoring of compliance with these standards and the resolution of disputes.
This legal audit critically analyses all statutes and policies regulating the oil industry in
Malawi for sufficiency and compliance with applicable international and regional
instruments and makes recommendations to Citizens for Justice (CFJ) on potential areas for
project interventions. The audit is divided into six broad themes incorporating subthemes
where appropriate. The thematic areas have been categorised as follows: vesting
arrangements; oil exploration and drilling; petroleum revenue framework; legislative and
policy framework in relation to the environment; legislative and policy framework in
relation to public health and offences and penalties regime.
2 Vesting Arrangements
The Constitution of Malawi is silent on vesting arrangements for mineral resources
specifically, but vests all land in the Republic.7
The Land Act8
does not define ‘land’. The
Registered Land Act,9
on the other hand defines land for the purpose of registration as
including ‘land covered with water, all things growing on land and buildings and other things
permanently affixed to land’.10
There is however a proposal to replace the Land Act with a
new land law. The proposed Land Bill,11
has sought to remedy the uncertainty occasioned
by the absence of an expansive definition of ‘land’ by incorporating the following definition
of ‘land’- 7
See section 207. 8
Cap. 57:01 of the Laws of Malawi 9
Cap.58:01of the Laws of Malawi 10
See section 2 11
See Gazette Extraordinary, the Malawi Government Supplement, 3rd
December, 2012
14
“land” means the material of the earth, whatever may be the ingredients of which
it is composed, whether soil, rock or other substance, and includes the surface
covered with water, all things growing on that surface...
This proposed definition is in line with the commonly acceptable legal significance of land
that is understood to encompass gases and liquids below the surface of the earth.12
The
vesting of lands under the Constitution should therefore be understood in this context.13
The vesting of land in the Republic recognises and promotes the principles enunciated in the
African Charter on Human and Peoples Rights (ACHPR)14
under Article 21 which stipulates
that ‘all peoples shall freely dispose of their wealth and natural resources’ and that ‘this
right shall be exercised in the exclusive interest of the people’ and that ‘in no case shall a
people be deprived of it’. The Charter goes further to provide that the ‘free disposal of
wealth and natural resources shall be exercised without prejudice to the obligation of
promoting international economic cooperation based on mutual respect, equitable
exchange and the principles of international law.’ In this regard state parties to the Charter of
which Malawi is one, are tasked to ‘undertake to eliminate all forms of foreign exploitation
particularly that practiced by international monopolies so as to enable their peoples to fully
benefit from the advantages derived from their national resources.’15
Malawi has domesticated this international obligation under section 4 of the Environment
Management Act (EMA)16
which provides that the natural and genetic resources of Malawi
shall constitute an integral part of the natural wealth of the people of Malawi and shall be
protected, conserved and managed for the people of Malawi. The Act further provides that,
save for domestic purposes, natural resources shall not be exploited or utilized without the
prior written authority of the Government. This obligation places people at the centre as
beneficiaries of natural wealth and underscores the trusteeship role of Government.
The Petroleum (Exploration and Production) Act (PEPA) which is the principle legislation
regulating upstream oil and gas operations defines land to include ‘land beneath water’17
and vests the entire property in and control over petroleum in land in Malawi in the Life
12
See Butt, P., Land Law, 9 (2th
ed. 1988) 13
See also Black’s Law Dictionary which defines land to constitute a portion of the earth surface, the space above and below the surface. 14
Adopted June 27, 1981, OAU Doc. CAB/LEG/67/3 rev.5, 21 I.L.M. 58 (1982), entered into force Oct. 21, 1986 15
See Article 21 16
Cap. 60:02 of the Laws of Malawi 17
See section 2 of the Act
15
President on behalf of the people of Malawi.18
Similarly, the Mines and Minerals Act (MMA)
which makes provision with respect to searching for and mining minerals vests the entire
property in and control over minerals in land in Malawi in the President on behalf of the
people of Malawi. The only exception is where a Mineral Right exists by virtue of a
Certificate of Claim or ownership of land made by or on behalf of the British Crown.19
Where mining operations are to be carried out on public water, it is important to note that
the Water Resources Act20
vests ownership of public water in the President.21
The Act
further vests the control of all public water in the Minister. Though rights to resources
below land or below water may be separately owned, it follows from a reading of the legal
framework that no person may carry out petroleum exploration or production operations
whether on land or water without a licence.22
Similarly, no person may carry on
reconnaissance, prospecting or mining operations without a non-exclusive prospecting
licence, a claim or mineral permit.
A number of issues arise in respect of the legal framework regulating the vesting of
petroleum and mineral mining in general in Malawi. First, there is need to align the MMA
and the PEPA with the Constitution which has removed the vesting of minerals on land in an
office and vests such in the Republic. Second, there is need to amend section 2 (2) of the
MMA which violates the Constitution by providing an exception where the Constitution has
unequivocally vested minerals and land in the Republic regardless of a land tenure regime.
The section may be perceived also to discriminate against citizens since beneficiaries of land
under Certificates of Claim or other dispositions made by or on behalf of the British Crown
were largely British subjects.
Further, though section 28 of the Constitution protects the right to property and prohibits
arbitrary deprivation of property, with the vesting arrangements discussed above, where oil
or other minerals are discovered on one’s land, the land can be acquired compulsorily for
public use. This is due to economic benefits associated with mining for developing countries.
It is worthwhile to note that both the MMA and the PEPA prohibits the holder of a licence
from exercising any of his rights under the licence or law except with the written consent of
the lawful occupier thereof. However, where the Minister considers that consent is being
unreasonably withheld by the lawful occupier he may direct in writing that the need for
18
See section 2 (1) 19
See section 2 (2) 20
Cap. 72:03 of the Laws of Malawi 21
See section 3 of the Act 22
See section 2 (2)
16
consent shall be dispensed with.23
This discretion conferred on the Minister may promote
arbitral deprivation notwithstanding that the law requires payment of fair and reasonable
compensation in such circumstances.
3 Oil Exploration and Production
3.1 The Licensing Authority
The basis for granting a licence for petroleum exploration or production is derived from
section 10 of the PEPA, which provides that with the consent of the Life President, the
Minister on behalf of the Republic may enter into an agreement with any person or body
corporate with respect to the granting of a licence … including the conditions to be included
in the licence. Applications for licences under the Act are to be made in accordance with the
Petroleum (Applications) Regulations promulgated in 2009 and are to be submitted to the
Minister or to the Commissioner if it is so provided in the Regulations. The Regulations have
not provided for instances where an application may be made to the Commissioner. It
follows therefore that the Minister is the final and sole licensing authority for petroleum
operations in Malawi. This scenario is not ideal for transparency and accountability.
Furthermore, though this Act was enacted two years after the Mines and Minerals Act, it
does not spell out the linkages or
complementarities of the
functions of the Commissioner for
Petroleum Exploration and
Production and that of the
Commissioner for Mines and
Minerals.
In considering applications for
exploration or production of oil or
gas, the law does not require the
Minister to liaise with or refer the matter to any other authority which might have a vested
interest in oil exploration activities whether from the perspective of resource revenue,
public health or environmental protection. In other jurisdictions in the region, such as in
Ghana whose discovery of oil reserves is recent, the practice has been to establish a
government agency to coordinate the licensing procedure for upstream oil and gas
operations. The Minister on receiving applications for licences refers them to this body for
evaluation and due diligence. The body issues a report which leads to negotiations between
the coordinating authority, Ministry of Justice, Ministry of Finance, the Revenue Authority,
the Ministry of Environment and the oil company. A draft petroleum agreement is then sent
23
See sections 103 of the MMA and section 63 of the PEPA respectively
17
for the approval of Cabinet and Parliament. A licence is granted only after Parliament
ratifies the Petroleum Agreement. The advantage of this approach is that it ensures a
holistic and highly participatory approach by government agencies in addressing conflicting
interests. It also increases transparency if the contract is ratified by Parliament and ensures
that critical matters are taken into account, for example, environmental and public health
issues. The disadvantage is that it promotes excessive bureaucracy which might not be
opportune in the business world. A process should therefore be implemented so as to
streamline these processes, rather than let the potential for bureaucracy preclude
introduction of systems which increase transparency and review.
Consequently, Malawi might consider the establishment of a Petroleum Exploration and
Production Commission to be charged with the responsibility to receive applications and
issue licenses for specific upstream activities to promote an efficacious and a transparent
licensing regime. The Commission may also be charged with the responsibility of regulating
the health, safety and environmental standards in the industry. The Commission should
have ex- officio representation on its Board from relevant Government Ministries, for
example, Energy, Minerals and Mining, Environment, Justice, Finance.
3.2 The Licensing Procedure
Best practice demands that the licensing procedure should
be transparent. For example, it is important that the law
should require the publication of all applications, set out
clear evaluation criteria, and pre-qualification criteria such
as minimum financial and technical standards and
minimum work programmes. It is also important that
Malawi should develop a clear plan prior to allocating
licences, outlining what the country wishes to achieve from the development of its
petroleum resources to provide a basis on which to evaluate applications for petroleum
exploration and production.
Many countries use a competitive bidding system for allocation of licences. The potential
advantage of such a system is that it can overcome information asymmetries by revealing
the market value of the resources (assuming that companies will bid what they consider,
based on their analysis, of what the resource is worth) and that by making fiscal elements
biddable, the value will be increased. It is also possible to make other factors biddable too,
depending on the country’s priorities, for example, infrastructure and local content.
However, there are administrative challenges associated with competitive bidding. It is
important that if Malawi were to take this route, it must as a country develop the necessary
capacity to run the bids in order for the system to achieve any benefits. There is therefore a
need to weigh carefully the potential advantages of the system.
18
The Petroleum (Applications) Regulations require that an application for a petroleum
exploration licence should include the name/s and nationality of the applicants, if a body
corporate the name and place of incorporation, names and nationality of the directors and if
it has a share capital, the name of any person who is the beneficial owner of more than five
per cent of the issued share capital; identify the block or blocks in respect of which it is
made; include a statement giving particulars of work to be carried out and minimum
expenditure, including an estimate of any significant effect of the proposed exploration
operations on the environment and on any monument or relic in any such block; and a
statement giving particulars of the applicants proposals with respect to the employment
and training of citizens of Malawi.
The procedure for an exploration licence raises a
number of issues that require immediate attention.
First, the requirement for proposals for employment
and training plans of Malawians provided in the
regulations conflicts with the Policy of Government
under the Investment Promotion Act (IPA)24
regarding
labour practices advocated by that Act. The Statement
of Investment Policies incorporated under a Schedule
to the IPA in its pursuit of promoting private investment and FDI provides that the
Government shall not interfere in employers’ choice of workforce’ in recognition of the fact
‘that investments may require expertise not available in Malawi.’ Further, notwithstanding
this conflict, the Regulations are also weak in that they have not provided for the detail
required in the plans and how government will monitor compliance with such plans.
Second, there is an obvious gap in terms of information on the financial status, technical
competence and experience of the applicant regarding exploration activities. It is important
that the law should demand this information from applicants to enable the authority
determine feasibility of an application. Third, it is important that in seeking to regulate the
beneficial owners with more than five per cent of issued share capital, the law should go
further to extend this requirement to the entire chain of ownership of companies with an
interest in the company applying for the mining licence. This is in view of the fact that most
companies interested in oil exploration and mining are transnational, and often such
companies will incorporate a subsidiary which will hold the licence. It is therefore important
that all of the necessary information is provided as to the chain of ownership of that local
subsidiary. Generally, the local subsidiary has no asset other than the licence itself.
Therefore in the event of non- compliance, the Government will not have recourse to any
compensation. Consequently, Government should demand security from the holder of the
licence, such as bank guarantees or parent company guarantees, to cover potential liabilities
24
Cap. 39:05 of the Laws of Malawi
19
under the licence, so that in the event of non-compliance the government can access these
funds.
In terms of petroleum production licences, the particulars required of persons or
corporations are similar to those for exploration licences. The point of departure is that the
applicant is required to give full information of his financial status, technical competence
and experience; the number of the applicant’s petroleum exploration licences, if any; the
period for which the production licence is sought; identify the composition of the petroleum
which it is intended to produce; a comprehensive report of the petroleum deposit including
its description, the form of the petroleum, an estimate of the petroleum and the reserves;
technological report on production and processing possibilities.
The applicant is further required to include in the application a proposed programme of
production and processing operations including proposals for the prevention of pollution;
treatment of wastes; safeguarding of natural resources; progressive reclamation and
rehabilitation of lands. It is important that the law should go beyond the requirement of
rehabilitation of lands and demand a closure or decommissioning plan in the interest of
promoting sustainable oil extraction.
The applicant is also required to include proposals for the minimization of extraction on
adjoining or neighbouring lands, a statement of any significant effect of petroleum
production on the environment and any monument or relic and proposals for controlling or
eliminating that effect, detailed forecast of capital investment including operating costs,
sales revenues and the anticipated type and source of financing, proposals with respect to
the employment and training of Malawians, and a report of the goods and services required
for the production and processing operations which can be obtained within Malawi and the
applicant’s intention in relation thereto. In essence this constitutes what may be loosely
termed as a development plan.
These requirements strive to comply with international practice. The aim is to promote
efficient development and the production of the petroleum resource in accordance with
‘good oil field practices’.25
It is also intended to optimise the financial benefits between
government and transnational companies and ensure optimum utilisation of national goods
and services, subject to availability, and the acquisition and transfer of appropriate
technology and the training of nationals within the industry.
However, mere legislating for these requirements is not enough as has been the experience
with the operations of the Kayerekela Uranium Mines.26
There is need for Government and
25
Note that there is no consensus on what this terminology implies. The practice in most jurisdictions has been to incorporate specific standards in legislation and licences. 26
See Citizens for Justice, Scramble for the Yellow Cake (Friends of the Earth (Malawi)) 2011
20
civil society to be vigilant in monitoring and enforcing compliance. Government should also
be given the right to audit under the law.
There is also need to address the over imbalance in emphasis. Too much emphasis is placed
on the standards for environmental protection to the exclusion of the health and safety of
the communities hosting the petroleum exploration and production. This creates a gap in
the procedures for licensing and may create a perception that public health issues are non-
consequential in oil mining.
3.3 Licensees
The PEPA differentiates between a licence for exploration and a licence for production in
terms of eligibility of prospective licensees. It is however obvious that the Act seeks to
promote oil exploration and production by Malawian citizens or companies. For example, an
individual applying for an exploration or a production licence has to be a citizen or a
resident for a period of not less than 4 years. If it is a company or corporation applying for
an exploration licence it must be incorporated in Malawi.27
External companies have to be
approved by the Minister. However, a petroleum production licence shall only be granted to
companies or corporations incorporated in Malawi. So far companies or corporations that
have shown interest to engage in oil mining are transnational.28
This has been due to the
highly technical and expensive nature of oil mining ventures.
3.4 Petroleum Licensing Agreements
Licensing agreements under the PEPA are of two types: petroleum exploration licenses and
petroleum production licenses. The issue that arises pertaining to these licenses concern
their legal nature. Are they contractual or regulatory? It is not very clear whether the
provisions under PEPA seek to prohibit unlicensed exploration and exploitation of
petroleum resources or merely underscore the proprietary rights of the President exercised
through the Minister. English case law appears to favour the latter interpretation. For
example, the much cited case of Rederiaktiebolaget Amphitrite V. The Crown29
established
the principle that the Crown ‘cannot by contract hamper its freedom of action in matters
which concern the welfare of the state.’30
Similarly, in Commissioners of Crown’s Land v.
27
See section 13 (a) 28
Examples include Surestream Company and Paradin 29
[1921] 3 K.B. 500 30
Ibid., per Rowalt, J., at p.503
21
Page31
Devlin L.J. emphatically expressed the position of the law in relation to the
limitations on all contracts entered into by the Crown and all public authorities as follows-
‘When the Crown, or any person is entrusted, whether by virtue of the prerogative or
by statute, with discretionary powers to be exercised for the public good, it does not,
when making a private contract in general terms, undertake to fetter itself in the use
of those powers, and in the exercise of those powers.’
It is interesting to note that the provisions in the PEPA do not regulate the contents of
petroleum agreements and leaves this critical aspect to the discretion of the Minister. In
contrast, the Namibian Petroleum (Exploration and Production) Act of 1991 describes
critical information that should be included in petroleum agreements such as terms and
conditions relating to the basis on which the market value of petroleum may be determined
from time to time, minimum exploration or production operations to be carried out;
participation including acquisition of equity share capital by the state; financial and
insurance agreements and guarantees to ensure the due and proper performance by the
company of its operations.32
The arrangement under PEPA exposes this important aspect of licensing to corruption and
uncertainties including perceptions of bias. The MMA33
exhibits the
same weakness in relation to agreements granting mineral rights. 34
It
is important that petroleum legislation in Malawi should provide for
critical information that should be included in petroleum agreements
rather than require individual agreements with each licensee to
contain detailed terms. Aside from the issue of corruption and bias,
this would ensure transparency and limit the amount of issues
available for negotiation. This is critical for Malawi, a developing
nation, where resources available to the Government to negotiate agreements are generally
limited and far less than those available to the companies. Information asymmetries often
exist, which means that the country does not achieve the optimal deal.
In Malawi, licensing agreements have also been found to be inadequate due for example to
the insufficient involvement of technical staff during their preparation, and the inadequate
sharing of information between government institutions involved in the compliance
enforcement of agreements. In this increasingly global village, transparency of agreements
31
(1960) Q.B. P.274 32
See section 13 33
The Act defines a mineral right as a ‘reconnaissance licence, an exclusive prospecting licence or a mining licence’. 34
See section 10 of the Act
22
is vital. Many countries are now moving towards publishing all of their contracts for natural
resources so that the public can be aware of their terms. Malawi should consider taking this
direction to address perceptions of corruption and promote dissemination of information
about the exploitation of natural resources in the country.
4 Petroleum Revenue Framework and the Fiscal Regime
4.1 Contextual Issues
An effective petroleum revenue framework for upstream operations should seek to
promote efficient collection, allocation and management of revenues; provide for
transparency, accountability and public oversight of collection, allocation and management
functions; and provide for both internal and external audit of accounts of petroleum
revenues to avoid the ‘resource curse’ normally associated with oil or mineral mining on the
continent. It is therefore not surprising that there is a global movement advocating for
transparency over payments by companies from the oil and mining industries to
governments and government linked entities, as well as transparency over those revenues
by host country governments in terms of allocation and management through the Extractive
Industries Transparency Initiative (EITI). The heart of the EITI is
the report which consists of information provided by companies
about what they pay to governments, combined with
information provided by governments about what money they
receive from companies. These two sets of figures are then put
together in an independently-verified reconciliation report in a
process overseen by a multi stakeholder group.35
4.2 General Revenues
The legislative regime in this area for Malawi is scattered over a number of statutes and is
not coherent. The regime is also inadequate in terms of breadth. The two key statutes in
this area, the PEPA and the MMA largely focus on the issue of royalties. Royalty provides
early flows to the government before companies recoup their investment revenue and are
easier to administer. Royalties therefore ensure that government has guaranteed revenue in
any accounting period during the production phase. There is however a downside to
royalties. They raise the marginal cost of extracting oil and can deter investors if too high.
Royalties may also discourage development of marginal fields that have been discovered
35
See Report of the Natural Resources Forum, Proceedings of the Natural Resources Forum, 6-8 April, 2011
investment. This is due to the fact that international capital is mobile and investors will go
elsewhere if the regime is uncompetitive. It is however important to note that the peculiar
nature of the extractive industry dictates that the commodity determines where investors
invest. The key statute for Malawi in this area is the Taxation Act,40
particularly the Second
Schedule to that Act. The Act defines mining operations for tax purposes as meaning ‘any
operation for the purpose of winning a mineral from the earth’ or ‘any operations for the
purpose of winning a mineral from any substance or constituent of the earth’.
Consequently, mining companies are taxed on taxable income at 30%, and if foreign
incorporated taxed at an additional 5%. Mining companies also pay a resource rent tax of
10% if the company’s rate of return exceeds 20%.41
This tax is designed to capture
economic rent and is progressive and based on deemed profitability after an investor earns
a minimum rate of return. In order to attract investors, Government policy promotes
income tax incentives for the mining sector in the form of 100% expensing of capital
expenditure in the initial year.42
The IPA under its Statement of Investment Policy provided
in the Schedule to the Act justifies this policy as a way of further enhancing Malawi’s
investment climate and international competitiveness. The Statement proclaims that the
‘Government is committed to continue the process of reducing rates of taxes and duties’
through the on-going tax and trade reform programmes.
The IMF has criticized the wanton and wide spread use of tax incentives in Sub-Saharan
Africa, particularly the provision of tax holidays as a mechanism for attracting investment.
The IMF laments that ‘such incentives not only shrink the tax base but also complicate tax
administration and are a major source of revenue loss and leakage from the economy’. Mc
Kinsey has also condemned popular incentives such as tax holidays as only serving to
‘detract value from those investments that would likely be made in any case.’43
Malawi
therefore needs to reconsider its position regarding these incentives.
The taxation regime for mineral mining is a typical developing country regime with royalties,
rentals, and income tax generally applicable across the board. For bigger investment such as
uranium mining government may also negotiate free carried interest (a percentage
ownership in a mining operation without investment). The key question is whether it is
40
Cap. 41:01 of the Laws of Malawi 41
See Phiri C.M., ‘Present Tax Regime for Mining’, Paper presented at Symposium on Extractive Industry
Transparency Initiative: The role of Members of Parliament in Providing Policy Direction and Oversight in Malawi,
Lilongwe Hotel, 8th – 9
th
November, 2012
42
Ibid 43
See Mc Kensey & Company, New Horizons: Multinational Company Investment in Developing Economies, www.mckinsey.com/insights/economic_studies/new_horizons_for_multinational visted on 24th March 2012.
adequate and appropriate to treat oil mining in the same manner as any other mining in
terms of taxation. With these arrangements, Malawi will not obtain for the Consolidated
Fund anything like the share of the ‘take’ of oil operations on Lake Malawi that other
countries are obtaining within their territories on the continent particularly those that have
discovered oil recently. Indeed at present the only certain revenue from oil operations is the
royalty and licence payments. This situation needs redress. It is not farfetched to argue that
profits from oil operations could be offset by extraneous losses and capital allowances.
It is important that Government in ensuring a fairer share of profit for the nation while also
ensuring that oil companies receive a suitable return on their heavy capital investment,
should enact legislation to specifically regulate oil taxation given the unique nature of the
industry. This could be in the form of a standalone statute or the incorporation of
comprehensive provisions on petroleum in the Taxation Act. For example, Belize which
discovered oil in 2005 has adopted a three tier taxation approach and has adopted a
separate petroleum taxation law that has pegged petroleum tax at 40% while income tax is
pegged at 25% and corporate tax is based on gross revenue rather than income.
The United Kingdom on the other hand enacted an Oil Taxation Act in 1975 following the
recommendations of the White Paper issued by the department of Energy in 1974.44
The
Act imposed a Petroleum Revenue Tax (PRT) that specifically targeted the profits from oil
production. One of the innovations of this statute lay in the use of the oil as the basis of
taxation. There were three main objectives behind the PRT: allow a project rapidly to
recover its cost, then tax it an appropriate rate; ensure that tax due was paid as early as
possible; and ensure that projects where no economic rent was likely were protected from
tax.
The Act also introduced a ring fence around corporation tax profits from UK oil production
known as the Ring Fence Corporation Tax (RFCT) to prevent profits from UK oil resource
being diluted by losses or allowances on other activities. For a developing country such as
Malawi, such a tax may provide the necessary security to protect government ‘take’ since oil
exploration is risky business. Moreover, absence of ring fencing provisions may postpone
government revenue because companies that engage in a series of development projects
would be allowed a deduction from the income of the projects that are already generating
taxable income.45
Though the United Kingdom consolidated the Oil Taxation Act alongside
all other UK oil Industry taxation provisions under the 2009 and 2010 Corporation Taxation
44
See White Paper, ‘United kingdom Offshore Oil and Gas Policy’ Cmnd 5696 45
See Emil M. S., et al. ‘Revenue from the Oil and gas Sector: Issues and Country Experience,’ in J.M., Davis, et al
ed., Fiscal Policy Formulation and Implementation in Oil Producing Countries (New York, USA, IMF Graphics Section,
2003) 45-83
26
Acts, the PRT has not changed by these consolidating Acts for those fields which were
granted approval prior to April 1993 and the substance of the RFCT remains substantially
unchanged. There has been introduced also a ‘supplementary charge’ since 2002 which is an
additional tax applied on the same basis as corporate income tax, for example to the ring
fenced profits, except there is no deduction of financing costs.
4.4 Issues for consideration
The above analysis of the fiscal regime associated with the petroleum industry in Malawi
points to a royalty and tax regime as opposed to a production sharing arrangement.
Consequently, this arrangement implies that Malawi seeks to derive its share of oil and gas
through the levying of loyalty on production and tax on profits. The expected inflow includes
royalty, income tax, and resource rent tax and surface rentals. In pursuing this approach,
Government should ensure that the petroleum fiscal regime should reflect the actual
conditions on the ground. It should be designed to reflect flexibility, neutrality and stability
to sustain government’s desire to maximise revenue over short and long term, and sustain
investment. One way of achieving this, is for the Government to maintain the resource rent
tax that introduces a threshold of profitability after which tax increases linked to the
investors’ expectations of the profitability of the field. This should be enshrined in legislation
for transparency and general application. However, the threshold of profitability after which
a resource rent tax applies would be project specific. It is also important that the
Government should ensure that the fiscal regime is internationally competitive to reflect the
risk inherent in the oil industry sector relative to other mining sectors bearing in mind the
context of the objectives that Malawi is seeking to achieve through exploration and
production of oil resources.
There is also need to take into account the strengthening of the capacity of the
administration to monitor and audit compliance in designing the fiscal regime. One way of
achieving this would be for the Government to establish a body to ensure that payments
and revenues emanating from oil operations are reconciled, applying international auditing
standards. Provision for the establishment and responsibilities of such body should be made
in a law to regulate oil revenues. It is important also to incorporate civil society under the
law as a governance sector to provide a watch dog role in monitoring and evaluating
collection, allocation and management of petroleum revenue and generally for contributing
to public debate. Further, Government should adopt a practice of publishing receipts and
payments of oil revenues in readily accessible media for transparency and accountability.
Addressing all these issues in a piece of legislation could promote an approach that would
ensure that Malawi adheres to the standards set by EITI and make the country qualify for
membership to this global initiative.
For example, in order to adhere to EITI, Ghana as a country where oil mining is a new
phenomenon, has enacted a separate statute on petroleum revenues as a neater and
27
efficacious way of promoting good governance in this area and enhancing the watchdog role
of civil society to ensure that public interest is served.46
If Malawi were to take this
approach, such a statute may provide for the following matters among other things:
(a) an expansive definition of petroleum revenue;47
(b) establishment of petroleum accounts that can be easily monitored;
(c) the management and investment of petroleum funds in a transparent
manner;
(d) auditing, both internal and external;
(e) transparency, accountability and public oversight through civil society.
CFJ may take a lead role in this area and lobby for this necessary law and also specifically for
the establishment of a body under this law comprising of civil society to monitor and
evaluate compliance with the law by Government and other relevant institutions in the
discharge of their duties for the following specific objectives:
(a) in relation to the collection, use and management of resource revenues;
(b) to provide a formal active voice in the collection, use and management of
petroleum revenues by providing space and the platform for the public to
debate whether spending prospects and management revenues adhere to
development priorities;
(c) to ensure that petroleum revenue is used for the benefit of current and
future generations of citizens;
(d) to provide independent assessments on the use and management of
petroleum revenues and resources to assist Parliament and the Executive in
the oversight of, and performance of related functions.
Furthermore, the current legislative framework does not address issues of community
development to facilitate distribution of revenue from the national level to the local level
nor does it address issues of community development agreements in the context of
petroleum revenues. There is need to incorporate these issues in legislation regulating
petroleum exploration and mining.
46
See Ghana Petroleum Revenue Management Act 2011 47
For example, in Ghana this includes royalties from oil and gas, additional oil entitlements, surface rentals, receipts
from oil operations, sale or export of petroleum, income tax receipts, dividends and capital gains tax from sell of interest in
petroleum agreements.
28
5 Legislative and Policy Framework Relating to the Environment 5.1 Impacts of Oil Mining and International Perspective
Oil mining has the potential to cause severe environmental degradation. The Table below illustrates potential environmental problems in upstream operations at different stages of oil mining.
Table 1: Petroleum Environmental Problems in Upstream Operations48
Activities Problems Impacts
Seismic survey a. Physical presence b. Acoustic emission c. Accidental spills
Visibility and clearance Ground vibrations Pollution of water and land
Exploration and appraisal
a. Physical presence b. Drilling discharges / cuttings c. Atmospheric emission d. Accidental spills / blowout e. Waste disposal (solid) f. Noise
Visibility, interference with farming, shipping, fishing, etc. Land and marine pollution and effects on plants and soils Air pollution, human health Ground and marine pollution / safety Soil and water contamination Nuisance for inhabitants and animals
Development and production
a. Physical presence b. Operation discharges c. Atmospheric emission d. Accidental spills e. Waste disposal f. Noise g. Transportation collision h. Community i. Issues of ethics
Visibility interference Ground and marine pollution Air pollution Pollution of water and land Soil and water contamination Nuisance for inhabitants and animals Various environmental and safety risks Social, culture and biological effects Human rights and indigenous people
Abandonment a. Physical closure / removal b. Waste disposal c. Leave in situ (partial or total) d. Dumping at sea
Human safety On and off shore pollution Hazard to other human activities such as fishing and navigation Pollution, fishing and navigation hazards
48
Table compiled by Zhiguo Gao in Gao, Z., ‘Environmental Regulation of the Oil and Gas Industries’ The Journal
*NORM-Naturally Occurring Radioactive Material **Refining typically includes a higher concentration of lighter hydrocarbons and, possibly, heavier hydrocarbons such as polycyclic aromatic hydrocarbons
Mining projects may also present opportunities for improvement of public health. For
example, if a mining company incorporates primary prevention measures into project
design, this can contribute to wider health goals. Such positive health impacts include
investment in malaria and vector control programmes to help the health and performance
of workers. However, most countries in Africa have failed to harness these opportunities
79
Compiled by Robert Markussen in Markussen, R.W., Occupational and Public Health Issues in the Oil and Gas
Industry: Emerging Trends and Needs for Emphasis at www.touchbriefings.com/pdf/25/westmark.pdf
40
due to lack of awareness or good practice examples to influence the way in which health is
considered as part of policies, plans, and decisions taken in the natural resources sector.80
Consequently, development partners such as the World Health Organisation (WHO) and
United Nations Environment Programme (UNEP) have initiated a movement to encourage
countries to adopt a ‘health impact management system’ – a system which can be used to
monitor public health impacts affected by the growth of a sector such as the extractive
industry and mobilize resources to address those health impacts. With such a system in
place, the aim is to provide government with an overarching view of cumulative health risks,
benefits and opportunities associated with the sector.
Recently, the mining sector published an important document regarding the health of
communities, the International Council on Mining and Metals (ICMM) Good Practice
Guidance on Health Impact Assessment, 2010. The guide-book describes health beyond the
presence and absence of disease or environmental exposures. Identified determinants of
health include income and social status, social support networks, employment and working
conditions, social environments, physical environments, personal health practices and
coping skills.
6.2 National Policy and Legislation
One of the principles of national policy provided under section 13 of the Constitution
requires the state to provide adequate health care, commensurate with the health needs of
Malawian society and international standards. The state is also tasked to manage the
environment responsibly to provide a healthy living and working environment for the
people of Malawi.
The National Environment Policy specifies as one of its goals the securing ‘for all persons
now and in the future, an environment suitable for their health and wellbeing.’81
The Public
Health Act82
a comprehensive statute that professes to consolidate the law on preservation
of public health is silent on public health issues stemming from the mining sector. Similarly,
the EMA is silent on environmental issues concerning public health.
The PEPA on the other hand, requires the holder of a licence to take all reasonable steps
necessary to secure the safety, health and welfare of persons engaged in petroleum
80
ibid 81
Supra note 50 par.2.2.1 82
Cap. 34:01 of the Laws of Malawi
41
operations in and about the exploration or production area.83
This is as far as the Act has
attempted to address issues of public health. It is worthwhile to note that this requirement
is imposed as a work place practice as opposed to a guiding factor to influence the decision
of the Minister to grant a licence. Interestingly, one of the factors to be taken into account
by the Minister in deciding whether to grant a licence or not under section 47 is the need to
conserve and protect natural resources emphasising the importance of this ideal. The
importance of promoting and protecting public health of surrounding communities as an
ideal in granting petroleum mining licenses is conspicuously absent. Section 47 should
therefore be amended to provide for this.
The MMA follows the same pattern as the PEPA. It is more concerned with the protection of
the environment and emphasises the need to conserve natural resources as a consideration
for the Minister to grant a mining licence.84
However, section 95 recognises the importance
of safeguarding the health of people living in adjoining or neighbouring areas by giving the
Minister discretion to include in a Mineral Right conditions aimed at minimizing the effects
of mining on such areas. The weakness of the provision lies in the fact that this is not
mandatory. There is an obvious need to redress this.
Another important law in this area is the Occupational Safety, Health and Welfare Act.85
The Act incorporates provisions that seek to promote the health and welfare of employees
including their health and safety. The Act among other things make provision for the
regulation of the conditions of employment in workplaces as regards the safety, health and
welfare of persons employed therein and the prevention and regulation of accidents
occurring to persons employed or authorised to go into work places. In this context, section
16 (1) of the Act imposes a duty on every person having control of any premises to use the
best practicable means for preventing emissions into the atmosphere of noxious or
offensive substances and for rendering harmless such substances. Additionally, section 51
demands that in the use of all materials containing hazardous substances and in the removal
and disposal of wastes; the health of the workers and of the public and the preservation of
the environment be safeguarded. Contravention of these requirements attracts a fine of
K10, 000 and K500 for a continuing offence. The Act is however ill equipped to deal
adequately with issues of public health in general as they concern mining operations. Its
major focus is the protection of the health, welfare and safety of workers as opposed to
communities surrounding mining operations.
83
See section 48 (1)(b) 84
See section 94 85
Cap 55:07 of the Laws of Malawi
42
6.3 Issues for consideration
It is clear that the public health mining legislative framework is very porous and grossly
inadequate. Considering the health hazards associated with mineral mining, in particular oil
mining, there is need to review the legislative framework to establish a comprehensive and
coordinated ‘health impact management system’ to monitor public health issues in the
growing mining sector as an identified key strategic area for economic growth for Malawi.
CSOs may take up this issue as an area of project intervention to determine and propose the
modalities of setting up such a system within the current legislative framework.
7 Offences and Penalties Regime
7.1 Illegal Exploration or Production Operations
The PEPA prohibits petroleum exploration or production operations without a licence issued
under the Act and creates an offence attracting a fine of K1, 000 or imprisonment for two
years in the case of an individual, and fine of K50, 000 in case of a body corporate.86
The
MMA prescribes similar penalties for illegal reconnaissance, prospecting or mining
operations.87
The PEPA creates also the offence of obstructing a licensee and provides for
the same penalties.88
These penalties are inadequate to deter would be offenders.
However, it is worthwhile to note a global pattern that indicates that these offences are not
considered serious. For example, the Petroleum Act of Nigeria prescribes a similar offence
and imposes a fine not exceeding two thousand naira.89
Similarly, the Petroleum Act of
Northern Territory of Australia of 2011 imposes a fine of 100 penalty units or imprisonment
for six months in the case of a natural person and for a body corporate 500 penalty units.90
In terms of the offence of obstructing or interfering with the holder of a licence, the
Nigerian Act imposes a fine not exceeding two hundred naira or imprisonment for a period
not exceeding six months.
Notwithstanding, there is need to revise the penalties prescribed in the MMA and the PEPA
to reflect the importance of the mining sector as a vehicle for development in recent years.
86
See section 2 of the Act 87
See section 2 of the Act 88
See section 74 of the Act 89
See section 13 of the Act 90
See section 109 of the Act. Note that a penalty unit is AU$133, so the fine is AU$66,500, arguably not a large
amount to a company found to be in contravention of the Act, depending on the size of the company.
43
7.2 Pollution
Pollution attracts both civil and criminal liability. In terms of civil liability, the PEPA requires
reimbursement to any person (including the Republic) that suffers damage caused directly
by contamination following a discharge during petroleum operations.91
The licensee is also
required to pay for the cost of any measures
reasonably taken after the discharge for the
purpose of reducing or preventing damage
including reimbursement to any person
(including the Republic) that suffers damage
caused directly by any measures so taken.92
This position reflects the trend in the region
regarding civil liability flowing from oil
mining operations.93
The EMA, on the other hand empowers the Minister in his discretion to require the cleaning
up or removal of any pollutant in such manner, and within such time as the Minister shall
direct.’ It is important to note that the prohibition and the ‘polluter cleans’ rule are
expressed as general principles.94
The MMA simply indicates that there may be included in
a Mineral Right conditions with respect to the prevention, limitation or treatment of
pollution. It does not address issues of civil liability. Similarly, the Water Resources Act does
not create any civil liability for pollution of public water.
In terms of criminal liability for pollution, the PEPA and the MMA do not create any offences
in this regard. An analysis of statutes in the region including the Namibia Petroleum
(Exploration and Production) Act 1991, the
Sierra Leone Petroleum Exploration and
Production Act of 2001 exhibits the same
pattern. This pattern reflects the
competitiveness of oil mining in developing
countries and the zeal on the part of
governments to attract rather than scare
investors with the threat of criminal
penalties.
91
See section 55 (1) (a) Note that section 61 imposes compulsory insurance against liability for pollution. 92
See section 55 (1) (b) and (c) 93
See sections 54 and 55 of the Sierra Leon Petroleum Exploration and Production Act of 2001 94
See sections 42 and 44
44
The EMA on the other hand provides that any person who discharges or emits any pollutant
into the environment in contravention of that Act is guilty of an offence and liable to a fine
of not less than K20,000 and not more than K1,000,000 and to imprisonment for ten
years.95
The Act also penalises the violation of any environmental standard or guidelines
prescribed by the Act and stipulates a fine of not less than K5, 000 and not more than K200,
000 and to imprisonment for two years.96
These amounts are very low, the maximum being
the equivalent of US$2,700, so would not act as a deterrent to a company. Further, there is
need to empower the Government under the law, in particular the PEPA, to shut down
operations in the event of non-compliance with environmental laws.
Statutes such as the Water Resources Act creates the offence of pollution of public water
and provides a general penalty of a fine of K500 and imprisonment for six months; and the
Penal Code97
provides for the offences of fouling water and fouling air under sections 197
and 198 respectively as misdemeanours (minor offences). These penalties need revisiting
for inadequacy.
7.3 Miscellaneous Offences
The PEPA stipulates that any person who knowingly or recklessly includes false or
misleading information in connection with any application, report or affidavit; places or
deposits or is accessory to the placing or depositing of any petroleum or substance in any
place with the intention of misleading others as to the possibility of a petroleum reservoir is
guilty of an offence punishable with imprisonment for two years or, a fine of K20, 000 in the
case of a body corporate.98
The MMA provides similar offences and penalties, with slight
variation for the liability of a body corporate pegged at K30, 000.99
In other jurisdictions
such as India, the offence of providing false information attracts the penalty of a hefty fine
to the exclusion of imprisonment.100
The MMA creates additional offences prohibiting illegal possession of reserved minerals.
The penalties are a fine of K1, 000 and imprisonment for a term of two years, and in the
95
See section 67 of the Act 96
See section 65 of the Act 97
Cap 7:01 of the Laws of Malawi 98
See section 76 99
See section 127 100
See section 17 of the Indian Oil and Gas Act 1999, stipulating a fine of not less than $100,000
45
case of a body corporate, a fine of K20, 000.101
If the intention is to achieve a well
regulated and easily monitored mining sector, it is clear that the penalties incorporated
under these two laws are on the lower side and may not promote compliance to achieve the
intended objective. There is therefore an urgent need to revisit these penalties to create a
coherent regime of penalties.
The EMA prescribes penalties for failure to prepare an EIA report or knowingly giving false
information in such report. The penalties are a fine of not less than K5,000 and not
exceeding K200,000 and to imprisonment for two years.102
There is need to remove the
discretion conferred on the Minister in the PEPA regarding the issue of EIA and introduce
provisions to penalise failure to prepare an EIA in view of the hazards associated with oil
mining.
It is also important that for serious contraventions of law or contractual provisions such as
environmental non-compliance, failure to comply with work programmes, transfer of
licence without notification to the government, the Government should be empowered in
legislation to suspend operations. This would be an important deterrent to companies.
8 Conclusion
This legal and policy audit has sought to compare the policy, legislative and institutional
regulatory framework of oil mining in Malawi against applicable international and regional
instruments and other emerging practices for adequacy, efficacy and efficiency. The audit
has revealed serious deficiencies necessitating urgent attention in view of Government’s
identification of the mineral sector as one of the priority sectors for economic growth and
development. The need to introduce comprehensive provisions and harmonise the laws
regulating the mining sector in general, and the petroleum industry in particular, is apparent
in view of the fact that Malawi is progressively becoming a premier destination for
international mining, oil and gas industry. The current efforts to revise the MMA Act; to
develop a Minerals Policy; and the recent launch of the Mining Governance Support Growth
Project 2013 are all steps in the right direction. However, it is critical that Government
should take steps to revise the PEPA in relation to the following issues among others: the
licensing authority and licencing procedures; definition of revenue, revenue collection
including the fiscal regime; the legislative and policy framework in relation to the
environment, including the promulgation of relevant regulations; the legislative and policy
framework relating to public health; and the offences and penalties regime. There is also
urgent need to enact new legislation to regulate oil taxation and oil revenue in general in
terms of scope, collection and utilization.
101
See section 101 102
See section 63
46
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Oversight in Malawi, Lilongwe Hotel, 8th – 9th
November, 2012
Shandro, J.A., et al., (2011) ‘Perspective on Community Health Issues and the Mining boom-
Mines and Minerals Act (Cap. 61:01 of the Laws of Malawi)
National Parks and Wildlife Act (Cap. 66:07 of the Laws of Malawi)
Occupational Safety, Health and Welfare Act (Cap. 55:07 of the Laws of Malawi )
Petroleum (Exploration and Production) Act (Cap 61:02 of the Laws of Malawi)
Registered Land Act (Cap.58:01 of the Laws of Malawi)
Taxation Act (Cap. 41:01 of the Laws of Malawi)
Local Government Act (Cap. 22:01of the Laws of Malawi)
Water Resources Act (Cap. 72:03 of the Laws of Malawi)
GOM, National Energy Policy (2003-2011)
GOM, National Environmental Policy Ministry of Mines, Natural Resources and Environment
June 2004
Regional and international legislation and Instruments
Africa Charter on Human and Peoples Rights (ACHPR) Adopted June 27, 1981, OAU Doc. CAB/LEG/67/3 rev.5, 21 I.L.M. 58 (1982), entered into force Oct. 21, 1986
Oil and Gas Act of India
Petroleum Act 1990 of Nigeria
Petroleum Profits Tax Act 1990 of Nigeria
Petroleum Act of Northern Territory of Australia 2011
Petroleum Revenue Act 2011 of Ghana
Petroleum (Exploration and Production) Act 2001 of Sierra Leone
Petroleum (Exploration and Production) Act of 1991 of Namibia