Q&A on the Legal Framework of Upstream Petroleum Operations in Cameroon

By Jacob A. Akuo, Esq., Co-Founding Partner

Email: jacobakuo@dayspringlaw.com

Upstream petroleum operations which are a major backbone of Cameroon’s economy entail prospection and exploration, exploitation or drilling (onshore and offshore) of exploration wells and domestic transportation. Crude oil alone accounts for the biggest production and export of the extractive sector in Cameroon. Generally, it comprises an average of 40% of Cameroon’s export, and contributed about 3.54% to the country’s GDP in 2017 according to an Extractive Industries Transparency Initiative (EITI) 2017 Report. This is notwithstanding the fact that the country is far from its production heydays in the mid-1980s when it could boast of over 185,000 barrels a day.

Production figures have steadily plummeted over the years according to the reports of the Société Nationale des Hydrocarbures (SNH).  For example, in their annual reports for the years 2016 to 2018, the national production of crude oil was close to 34 million barrels in 2016, a decline of 3.6% from 2015; and just over 27.5 million barrels in 2017, a decline of 17% from 2016. The 2018 production was projected at 25 million barrels, a decline of about 8% from 2017.

One may argue that the decline in Cameroon’s crude oil production is partially due to a combination of a plunge of oil prices in the international market, especially over the past five years, as well as a seemingly antiquated legal framework. Which is why to cure the latter defect, Cameroon repealed its upstream petroleum Law No. 99/013 of December 22, 1999, and replaced it with Law No. 2019/008 of April 25, 2019. This new law ushers in some much-needed reforms and innovations that are meant to inspire the confidence of investors and petroleum operators in Cameroon.

The single most consistent economic policy of Cameron when it comes to the extraction industry is to use the income from hydrocarbons and other extractive minerals to execute its plans of diversification of the economy. The country intends to capitalize on the breath of fresh air brought in by the new Code to maintain existing relations with partners on the ground and entice new ones. This approach apparent in Cameroon’s National Development Strategy 2020-2030, wherein SNH has been empowered to optimise upstream petroleum activities by partnering with petroleum operators to grant authorizations in new oil fields in the North of the country, whilst also ensuring an exhaustive exploitation of existing blocks. This is in a bid to increase its reserves and revenue for domestic development.

Dayspring Law Firm in this Q&A will give you an all-inclusive insight into the legal framework of upstream petroleum operations in Cameroon as per the new Petroleum Code, alongside information as to the diverse institutions that are involved in the oversight of these operations.

1. What are the applicable legislations governing this sector?

There is a myriad of legislation that are applicable to upstream petroleum activities in Cameroon. Some of the key ones include:

• Law No. 2019/008 of April 25, 2019 to Institute the Petroleum Code which lays down the rules governing upstream petroleum activities such as prospection, exploration, exploitation, domestic transportation, storage, and processing.
• Decree No. 2000/465/PM of 30 June 2000 Laying down the Modalities for the Implementation of the Petroleum Code. It is noteworthy that, there are talks of either repealing or modifying this Decree in order to tailor it to the 2019 Petroleum Code which came after it. It only makes sense because the text is outdated.
• Decree No. 80/086 of March 12, 1980 creating the Société Nationale des Hydrocarbures (SNH) or National Hydrocarbons Corporation.
• Decree No. 2013/0171 of 14 February 2013 setting the procedures for carrying out Environmental and Social Impact Studies.
• Law No 96/12 of 5 August 1996 on a Framework Law for Environmental Management.
• Order No. 0069 of 8 March 2005 setting the Different Categories of Operations, the Completion of which is subject to an Environmental Impact Study
• The OHADA Uniform Acts.
• The Land Tenure Code and its multiple instruments of implementation regarding issues of land expropriation and use for the purposes of upstream activities and domestic transportation of petroleum.
• The Cameroon Labour Code and its texts of implementation.
• Immigration laws and regulations.
• The General Tax Code.
• CEMAC Customs Code.
• CEMAC Foreign Currency Exchange Regulation Nº02/18/CEMAC/UMAC/CM of 2018, etc.

2. Who are the government regulatory authorities and actors involved in the granting of permits, licenses, authorizations and in the oversight of upstream petroleum operations?

• The Presidency of the Republic which grants Exploration, Exploitation and Domestic Transportation Authorizations as well as Provisional Exploitation Authorizations.
• The Ministry of Mines, Industry and Technological Development (MINMITD), which enters petroleum contracts on behalf of the State of Cameroon, and issues recommendations to the Presidency to grant or not to grant upstream petroleum authorizations and conducts oversight on upstream petroleum operators,
• Directorate of Mines, which is under the MINMITD and conducts oversight on upstream petroleum operators.
• Directorate of Hydrocarbons, which is under the MINMITD and conducts oversight on upstream petroleum operators.
• The Société Nationale des Hydrocarbures (National Hydrocarbons Corporation), popularly known by its French acronym SNH. The Petroleum Code grants it authority to sometimes enter petroleum contracts on behalf of the State, where it is mandated to do so. In accordance with Decree No. 80/086 of March 12, 1980 regulates its operations, and its core mandate is to represent the State in the management of all the upstream petroleum activities in Cameroon as well as carrying out oversight on behalf of the State.
• The Prime Ministry and the Ministry of State Property, Surveys and Land Tenure (MSPSLT). The MSPSLT works in collaboration with the MINMITD to grant land rights and titles to operators as well as oversees and endorses all expropriation procedures of private land, national land, private property of the State, etc.
• Ministry of Finance as well as its three main agencies (Directorate General of Taxation for tax matters; Directorate General of Customs for customs matters; and the Treasury of the State for royalties from concessions, profit oil revenues, etc.
• The Ministry of the Environment and the Protection of Nature regarding he provision of various environmental permits and the monitoring of the implementation of environmental obligations. It is also involved in environmental impact studies that are carried out by upstream petroleum operators.
• The Ministry of Labour and Social Security regarding labour rights of employees and their social security. The social security obligations of the petroleum operators are also overseen by a specialized government entity to this effect known as the National Social Insurance Fund (commonly referred to by its French acronym CNPS). It collects social security payments and manages the pensions of employees in the private sector.
• The Ministry of Employment and Vocational Training for granting of work permits to foreign employees.

3. What are the different upstream petroleum contracts envisaged by the Petroleum Code?

The Petroleum Code provides for three main types of petroleum contracts which can be signed between the State of Cameroon through the MINMITD or the SNH, and the petroleum operator. They include:

• Concession Contract: this contract is entered into by the MINMITD and the petroleum operator prior to the granting of a hydrocarbon exploration permit. It defines the rights and obligation of the State and the holder during the validity of the exploration and is attached to the exploration authorization granted pursuant to the contract. Where commercially exploitable hydrocarbons are discovered because of the exploration activities, it is attached to the exploitation authorization that may be granted by the State. it is important to highlight that, such upstream petroleum activities pursuant to the contract are financed by the operator who enters this concession agreement. The contract also gives its holder the right to dispose of the hydrocarbons extracted in exchange for payment of royalties to the State.
• Production Sharing Contract (PSC): a PSC is entered into directly by MINMITD or SNH with a petroleum operator wherein the operator’s services are hired to exclusively carry out exploration activities in a particular area or field for the purpose of detection of hydrocarbons, and exploitation thereof in the event where commercially exploitable hydrocarbons are discovered.

In a PSC, the operator is responsible for financing such upstream activities while the hydrocarbons produced are shared between the State and the petroleum operator based on the terms of the PSC. Usually, a share of the hydrocarbon production (commonly known in industry terms as “cost oil”) is used towards covering the cost of production of the operator while the remainder (commonly known in industry terms as the “profit oil” or “production for compensation”) is divided between the operator and the State based on the PSC terms and conditions.

• Risk Service Contract: This is the third and last petroleum contract envisaged by the Petroleum Code. This contract is entered into by the MINMITD or SNH which confers exclusive hydrocarbon exploration and exploitation rights on a specified field or land area on petroleum operator who is responsible for the financial risk. In return, the State renumerates the operator in cash. The Risk Service Contract under the erstwhile Code used to be a part of a concession contract or a production sharing contract depending on the negotiation of the parties. In the 2019 Code, it has been clearly separated from the two into an independent contract in its own right.

The Petroleum Code provides for an exhaustive list of provisions that must be contained in a petroleum contract as well as the annexes that should be attached to this contract such as geographical coordinates of the contractual area, the accounting procedures, the participation agreement as well as a letter of guarantee for the entirety of the petroleum operations. This letter of guarantee is one of the innovations brought in by the Code.

It is worth emphasizing that, all petroleum contracts signed by Cameroon and any petroleum operator are governed exclusively by Cameroon law as per provisions of the Petroleum Code. The Cameroonian courts have jurisdiction to hear matters arising out of the contract though parties have the right when negotiating the contract to add an arbitration clause choosing an arbitral tribunal outside of Cameroon as an alternative to the Cameroon judicial system.

Lastly, the Code provides for the option for parties to the petroleum contract to negotiate a “Stabilization Clause”. This clause may provide for the stabilization of economic conditions, particularly where conditions for the execution of said petroleum contract are aggravated by the introduction of new laws and regulations. In other words, a stabilization clause in a petroleum contract may mean future legislation that fundamentally negatively affects the rights petroleum operator or status quo of the petroleum contract may not apply to the holder.

4. What are the various authorizations or permits needed in upstream petroleum activities in Cameroon?

The Code provides for five upstream petroleum authorizations or permits. They are:

• Prospection authorization.
• Exploration authorization.
• Provisional Exploitation authorization.
• Exploitation authorization.
• Domestic transportation authorization.

5. What is a prospection authorization or permit?

A prospection authorization can be granted to a natural or moral person. It is a permit that confers on its holder/operator the non-exclusive right to carry out preliminary prospecting rights in a particular field covered by a petroleum contract. The Code specifically states that it does not amount to a petroleum mining title and is equally not transferable. it is granted by the MINMITD after technical advice and opinion from SNH. The fact that it is granted on a specific area covered by a petroleum contract does not mean that it confers on its holder the right to enter a petroleum contract or obtain a petroleum mining permit.

6. What is an exploration authorization or permit?

An exploration authorization or permit confers on its holder or an operator the exclusive right to carry out, at their own risk and expense, hydrocarbon prospection and exploration in a particular field or area, except as otherwise provided for in the petroleum contract. It is usually exclusive in the case where the petroleum contract is a PSC.

The holder of this authorization enjoys the right to dispose of the hydrocarbons that are extracted during its upstream activities, in accordance with the petroleum contract. It is valid for a period of three years, and up to five years where it is granted on a special petroleum operation zone. Generally, it can be renewed up to two times, with each renewal having a maximum period of two years. All in all, the permit plus renewal cannot exceed seven years or nine years in the scenario of an authorization in a special petroleum operation zone.

The authorization and its renewals are granted by Decree of the President of the Republic of Cameroon. As a matter of fact, the authorization can be considered granted once the petroleum contract is signed, but it still de jure materializes with a Presidential Decree. This authorization is usually attached to the petroleum contract.

There are many requirements spelt out in the Petroleum Code and the implementing text to obtain this authorization one of which is a bank guarantee by the operator or parent company from a “AA” rate financial institution.

Among the many obligations incumbent on the operator which come with the authorization such as environmental obligations, the one that stands out is an obligation for the operator to communicate his discovery to the State within fifteen days upon such discovery. Where such discovery provides evidence of commercially exploitable hydrocarbons, the operator may seek and be granted an exploitation authorization or permit.

A provisional exploitation authorization may be granted to the holder of an exploration authorization during its validity of the exploration authorization. It is granted by Decree of the President and it is valid for a maximum period of two years. This authorization allows the holder to carry out prolonged production tests or operate productive wells on a provisional basis. The holder is similarly obliged to continue the exploration to determine whether there is commercially exploitable oil in the area.

7. What is an exploitation authorization or permit?

This is the main and most important petroleum permit in the Code. As mentioned above, the holder of an exploration authorization may request to be granted this authorization where his explorations lead to the discovery of commercially exploitable hydrocarbons.

It gives the holder the exclusive right to carry out at its risk and expense, all petroleum operations within the limits of the relevant area, as well as the right to dispose of all or part of the hydrocarbon production, in accordance with the terms of the petroleum contract to which it is attached. Usually, the authorization covers an area or field of commercially exploitable hydrocarbon.

It can take two main forms depending on the petroleum contract. Where the petroleum contract is a concession, it can take the form of an exploitation concession. Where the petroleum contract is a PSC or a risk service contract, it takes the form of an exclusive exploitation authorization.

In accordance with the provisions of the Code, it is valid for a period of twenty-five years in the case of liquid hydrocarbons, and a period of thirty-five years in the case of gaseous hydrocarbons. It can be renewed for an additional period of ten years insofar as the holder operates in accordance with the obligations in the petroleum contract, the environmental obligations, and can equally demonstrate that he can continue commercial production of hydrocarbon beyond the original validity period. The terms of the petroleum contract can be renegotiated in these circumstances.

This authorization and its renewal is likewise granted by Decree of the President of the Republic of Cameroon, and the Decree spells out the duration and marks out a delineation of the area or oil field.

8. What is a domestic transportation authorization?

A domestic transportation authorization is granted to the holder of an exploitation permit upon request during the validity of the petroleum contract. It comprises of approvals for construction of pipelines and related facilities.

This authorization confers a right upon the holder of an exploitation permit the right to transport their hydrocarbon products or share of thereof, to any collection, export, processing, refining or storage point within Cameroon using their facilities or those of third parties, whist maintaining ownership.

It is similarly granted by Decree of the President of the Republic of Cameroon and is valid for the period of the commercial exploitation of the oil field or area.

9. Can the rights and obligations of a petroleum contract and various authorizations be assigned or transferred to a third party?

With the sole exception of a prospection authorisation, the rights and obligations arising out of a petroleum contract, an exploration permit, a provisional exploitation permit, and a domestic transportation permit can be assigned or transferred in whole or in part to a third party.

This subject to fulfilment of two main conditions: first there must be a prior approval by the Minister in charge of Hydrocarbons. Failure to grant the approval leads to a withdrawal of the authorization and forfeiture of the petroleum contract. This provision is one of the new reforms ushered in by the Code. The second condition is that parties, especially the State have the right to renegotiate and amend the rights and obligations arising from the terms and conditions of the petroleum contract. It is worth also mentioning that parties to the petroleum contract may even expressly provide for a provision that allows for the assignment and transfer of the petroleum contract or authorization.

Another important reform launched by the Code is the State enjoys a pre-emptive right regarding any assignment made by the petroleum operator.  In circumstances where the State declines to exercise its pre-emptive right, and where the petroleum authorization has multiple holders, the co-holders have the pre-emptive right to the assignment. Consequently, they must be informed within ninety days of the intended date of transfer.

10. Can the rights and obligations arising from a petroleum contract and the respective authorizations be relinquished?

Holders of an exploration authorization, an exploitation authorization, and a domestic transportation authorization enjoy the right to relinquish in whole or in part their rights to these authorizations provided certain conditions are fulfilled:

• The holder(s) must provide notice to the MINMIDT. The validity of this notices varies from one authorization to another. For an exploration authorization, notice must be provided at least two months before the date of relinquishment; for the holders of an exploitation permit and the holder of a domestic transportation permit, notice must be provided at least one year before the date of relinquishment.
• The relinquishment must be approved by the Minister of MINMIDT.
• The holder of the authorization must have upheld his end of the bargain or obligations as contained in the petroleum contract.
• The holder must also have respected all regulations in force, especially environmental regulations and regulations relating to abandonment of deposits, wells and facilities.

The relinquishment takes effect from the date of approval by the Minister. In a situation where the relinquishment is total, the petroleum contract automatically lapses.

11. What are the land tenure rights and obligations of the holder of a permit?

Upstream petroleum almost inevitably has land tenure consequences. This is principally the case where such activities or operations are carried out onshore. Consequently, the Petroleum Code lays out the requirements and procedures for careful coordination between the main actors in upstream petroleum activities such as the holder of the petroleum contract or authorization, the MINMITD, SNH, and the Ministry of State Property, Surveys and Land Tenure.

The holder of a petroleum authorization ought to submit to the Ministry of State Property, Surveys and Land Tenure a land enquiry file. The objective of this land enquiry is to determine the status of the land covered by the authorization or petroleum contract; the identity and rights of the of the holder of the property on the land concerned; the conditions for compensation of the holders of the land as result of expropriation; and sensitization of the population on the petroleum operation.

Once findings have been made, the holder of the petroleum contract and authorization shall apply for land use to the competent authorities usually through the MINMITD to the Minister of State Property, Surveys and Land Tenure.

Where the application relates to national land, private or public State land, an authorization for the land use shall be granted by the Prime Minister based on conditions laid down by applicable legislation on Land Tenure in Cameroon.

Where the land is privately owned by physical or moral persons, a request for expropriation for this land shall be made by the Minister MINMITD to the Minister of State Property, Surveys and Land Tenure in order for the Minister to acquire such land and put it at the disposal of the petroleum contract or authorization holder. The holder is responsible for compensating the owners of the land in accordance with criteria and indicators relating to compensation for expropriated private land. Same shall apply when it comes to rights of way that are needed for the construction of domestic transportation facilities for the hydrocarbons.

Protected areas shall be created to preserve buildings, human settlements, springs, access roads, engineering constructions, and public interests work, etc. On the other hand, the holder is allowed to fell trees for wood required for its petroleum operations, harness waterfalls and springs, as well as other works outside the land covered by the petroleum authorization. They are permitted to carry out other ancillary activities on the land such as construction of buildings and power plants, telecommunication systems, emergency facilities, storage and warehouse, staff accommodation, access roads, railways, bridges drains and maritime ports, and demarcation marks for the assigned area. The holder of a petroleum contract and authorization is responsible for any damage that is done to the land, environment and ecosystem.

12. What are the rights and obligations of petroleum operators under the Code?

The rights of petroleum operators under the Code range between the following:

• The conduct of the petroleum operations.
• Compulsory insurance for civil liability.
• Local content.
• Environmental protection.
• Technical supervision and financial and accounting control.
• Rules governing control and disclosure.

13. How should the petroleum operations be conducted and what are the civil insurance requirements?

For starters, operators are supposed to ensure that all their petroleum operations and ancillary activities are carried out in strict and diligent reverence to the provisions of the Petroleum Code, the petroleum contract, rules, and regulations existing under Cameroon law, as well as accepted international standards and practices in the upstream petroleum sector. As a matter of law, holders are obliged to have a skill in the art of upstream petroleum activities.

In like manner, their subcontractors ought to be responsible and well qualified in petroleum operations, especially as they relate to upstream petroleum activities. They are similarly bound by the provisions of the Code as well as all domestic regulations and laws in Cameroon. They are expected to adhere to rigorous hygiene and safety standards that are prescribed for petroleum operations by legislation or the most recent and cutting-edge international standards and practices.

Where there is an accident during petroleum operations, a holder of the petroleum authorization or petroleum contract is obligated to inform administrative authorities within 48 hours of the accident’s occurrence. The Minister of MINMITD has the prerogative where need arises to compel the petroleum operators to install equipment that eliminate dangers or substantially reduces same at their expense.

Worth emphasizing is the provision that, an authorization or petroleum contract for upstream petroleum activities as defined by the Code does not grant the holder the authorization under any circumstances to engage into downstream petroleum activities or operations. Such a permit must be sought for and obtained separately in the manner prescribed by the law on downstream petroleum.

Where the petroleum contract obliges the holder of the authorization or petroleum contract to satisfy the hydrocarbon needs of the domestic market, the government has a priority right to be supplied the hydrocarbon they are entitled to either through the MINMITD or through SNH.

Regarding the risks of damage, holders of authorizations and their subcontractors are required by the Code to take out insurance policies from local insurance companies to cover their liability for civil damages that may arise from conducting their petroleum operations.

14. What are the local content requirements that are envisaged by the Code?

Even though the erstwhile Petroleum Code contained a local content provision, for years the domestic industry and Cameroonians have cried foul about its inadequateness and called for concrete reform that guarantees their sufficient representation in the value chain of upstream petroleum operations. In this light, the new Code has expanded the local content requirement as well as patently spelt out the obligations of all holders of petroleum contracts and authorizations, including their subcontractors.

Local content is defined as all activities of the national petroleum industry relating to local capacity building, use of local skill human and material resources, technology transfer, use of local industrial and service companies, and the creation of measurable value added for the local economy.

The petroleum operators and subcontractors must ensure that Cameroonians are given the necessary training and priority to fill positions that they are qualified for over their foreign peers. There is also the plan of gradual Cameroonization of socio-professional positions. In like manner, Cameroonian companies are given the priority in the award of construction contracts, insurance, goods and services, materials, equipment, products, supply contracts directly or indirectly related to the petroleum company that operates under Cameroonian law.

15. What are the environmental protection obligations that are envisaged by the Code?

In the same spirit as most upstream petroleum legislations, the legal framework of upstream petroleum in Cameroon obliges operators to carry out their petroleum operations with rigorous respect for the environment, persons and property, natural surroundings, and the ecosystem.

Even before being granted an authorization or commencing operations, the operator must provide the Minister of MINMITD an environmental impact assessment which they carry out at their expense. This environmental impact assessment must profoundly evaluate the direct and indirect impacts of the petroleum activities on the ecological balance of the contract and the surrounding areas, the people’s living environment and quality of life and the environment in general. This document makes up one of the most essential documents that must be furnished to obtain an authorization. Similarly, the holder must submit to the Minister in charge of environmental protection and the Minister of MINMITD waste management plans for the waste resulting from the hydrocarbons.

The implementing text also sets up Committee for the Protection against Contamination by Hydrocarbon, a consultative body whose mission is to assist the Government in the application of the laws and regulations in force in the field of environmental protection and the security of petroleum operations.

16. How can companies (foreign and domestic) get petroleum contracts and authorizations to prospect, explore or exploit hydrocarbons in Cameroon?

Any company foreign or domestic with a proven track record and experience in the petroleum industry as well as financial capacity may be awarded a contract for petroleum prospection, exploration, or exploitation in Cameroon. Usually, the Minister of MINMITD determines the area in which such a contract can be granted. Granting this contract is entirely at the discretion of the State.

As a matter of fact, or even as per the law, these contracts are mostly granted after bids are made pursuant to a call for tenders by the Minster of MINMINTD or SNH. The call for tenders may be national or international. Irrespective of this, it must mention the terms and conditions of the tender, the conditions for the award of the contract. award criteria, the date of submission of tenders and, if applicable, the blocks and their dimensions that are the subject of the call for tenders. Whoever wins the bid must enter a petroleum contract with the State, be it a concession contract, PSC, or risk service contract.

Regarding the petroleum contract, the State of Cameroon has a standard contract drafted by order of the Minister of MINMITD which represents the position of State as well as serves as the basis for negotiation of the petroleum contract. Once the contract is concluded and signed either by the Minister or SNH on behalf of the State, the President grants a Petroleum Authorization by way of Decree to which the petroleum contract is attached.

Notwithstanding the above, petroleum companies, foreign and domestic may enter into direct negotiations with the Minister or SNH and submit independent of any call for tenders, propositions to carry out petroleum prospection and exploration activities in order to determine whether there is commercially exploitable petroleum in a particular area. As a matter of fact, the government welcomes such initiatives to increase its reserves, foster development and enhance employment opportunities for Cameroonians.

As mentioned earlier, in the recently released National Development Strategy 2020-2030 by the Cameroon Government, for the next decade, it plans to develop, “directly by SNH and through association agreements with international partners, exploration and enhanced recovery in the current productive basins, and ensure that the potential of new on-shore basins in the North is fully explored”. It also intends “stepping up prospecting efforts to increase reserves, maintain and increase production” of oil in Cameroon. What this means is that there will be in the next decade an increased call for tenders for petroleum contracts or renewal of existing contracts with petroleum operators already on the ground. It equally means that petroleum companies have an increased chance of getting a deal with the government should they meet the technical and financial requirements.

17. What are the investment incentives in upstream petroleum activities?

There are several investment incentives to holders of petroleum contracts or authorizations which may be granted by the government as a prerogative. Some of the notable ones include:

• Waiver from paying the signature bonus for petroleum contracts entered into from May 2019.
• Exemption from payment of corporate income tax for a maximum period of five years for liquid hydrocarbon operations and seven years for gaseous hydrocarbon operations.
• Possible reduction of state participation in exploitation.
• Possible modification of the “profit oil/” cost oil” for PSCs.
• Possible reduction of royalty proportions for concession contracts.
• Tax consolidation of exploration expenses.
• Possibility to recover in a given area, expenses related to seismic acquisition and dry exploration incurred during conduct of petroleum operations.

18. Is Cameroon a member of international petroleum or energy organization or initiative?

Cameroon is a member of the African Petroleum Producers’ Organization (APPO). The main mission of this organization is to galvanize and promote cooperation between its members in the field of hydrocarbons in order to foster a fruitful collaboration and partnership utilizing petroleum as a catalyst for energy security, sustainable development, and economic diversification. Whether or not it is a cartel akin to OPEC is a matter of interpretation.

Cameroon is also a part of the Extractive Industries Transparency Initiative (EITI), a global standard to promote the open and accountable management of oil, gas, and mineral resources. The aim of the Initiative is to put in place a transparency obligation especially on governments, to disclose information along the extractive industry value chain from the point of extraction, to how revenues made their way through government and its agency, and finally to how this benefits the public. Its standards are implemented by 55 countries, wherein they are supported by a coalition of government, companies, and civil society. EITI monitors how countries are progressing towards the meeting of its standards, grading them within a scale ranging from “inadequate/suspended progress”, “meaningful progress” to “satisfactory progress.”

In its last report on Cameroon in 2017, it recognized that Cameroon was making “meaningful progress” in implementing the EITI Standards, noting that the “EITI in Cameroon had gone beyond the minimum required by the EITI Standard in disclosing export and voluntary social expenditures”. It however urged Cameroon to improve EITI implementation on among other things, civil society engagement, MSG governance, license register, policy on contract transparency, state-participation, production data, in-kind revenues, SOE transactions, distribution of revenues, subnational transfers, State-owned enterprises quasi-fiscal expenditures, public debate, and documentation of impact.

19. What is the taxation regime for holders of petroleum contracts and authorizations in Cameroon?

The Cameroon taxation regime for upstream petroleum activities involves varying taxes contained both in the Petroleum Code and the General Tax Code. They include:

• Production Royalty: This is paid by the holder of a concession contract. It is paid monthly and is proportionate to the amount of production. The rate varies from liquid hydrocarbons to gaseous hydrocarbons. This rate including the methods of collection are specified in the concession contract. It may be paid in cash or in kind.
• Additional Petroleum or Gas Levy: Equally paid by the holder of a concession contract based on the profitability of the petroleum operation. The terms are likewise specified in the concession contract.
• Flat Rate Fees: Paid during application for grant, renewal, relinquishment, or assignment of a petroleum contract and authorization and the amount is fixed by the applicable Finance Law.
• Annual Surface Rental Fee: This is paid annually by holders of petroleum contracts and authorizations, and the amount is fixed each year by the Finance Law.
• Signature Bonus and Production Bonus: These bonuses are paid by the holder of a petroleum contract to the State as a proportion to the quantities of hydrocarbon produced, in accordance with the terms of the petroleum contract.
• Profit Oil or Production for Compensation: This arises out of a Production Sharing Agreement. It is the remainder of the total share of a hydrocarbon production when the “cost oil” or “cost recovery production” (cost actually incurred by the holder during the petroleum operations), is deducted by the holder of the petroleum contract from the hydrocarbons produced. The “profit oil” or “production for compensation” is shared between the Government and the holder of the production sharing contract in accordance with the terms of the contract. Though it may not be a tax in the strict sense of it, it is however a payment to the government.
• Corporate Income Tax: holders of petroleum contracts and authorizations as well as their partners are liable to pay a corporate income tax calculated based on the net profits derived from all their exploration and exploitation activities in the contract. The rate of the corporate income tax is set at 35% by the Petroleum Code. The setting of this tax at 35% is an innovation and simplification of the previous regime which make the amount vary based on the scenario leaving room for complications.
• The holder of a petroleum contract or authorization is also liable to pay other taxes and fees under ordinary law such as registration, stamp duties, toll fees, land registration, motor vehicle taxes,
• Withholding tax: taxes deducted at source on behalf of the Treasury, particularly taxes on salaries, profits, revenue, and property with the exception of taxes on interest paid to non-resident lenders for funds reserved for the development of investments.

The holder of the petroleum contract and authorization as well as its subcontractors may be exempt from the following taxes:

• VAT: On the supply of all kinds of goods and services including studies directly related to the conduct of petroleum operations.
• Any tax or duty on profits and dividends paid to the holder’s shareholders subject to the tax convention signed by Cameroon.
• Any direct tax on revenue derived form petroleum operations carried out on behalf of the State, regional or local authorities and any legal person under public law.
• Special tax on petroleum products (STPP) or similar taxes on the supply of all kinds of goods and services including studies directly related to the conduct of petroleum activities.
• Special tax on revenue in the General Tax Code as it may relate to assistance, rental of equipment and materials, and the provision of services to the holder of the petroleum contract by its subcontractor during the conduct of petroleum exploration and development operations.
• Registration fees in relation to loans, guarantees and contracts directly related to the petroleum operations.

20. What are the customs duties regime for holders of petroleum contracts and authorizations in Cameroon?

The Code also contains custom duties requirements and obliges petroleum contract and authorization holders to comply with the provisions of the CEMAC Customs Code.

• Import duties and taxes: materials and equipment for petroleum prospection and research operations shall be imported duty-free.
• Equipment, machinery, and tools used directly to carry out the activities of the holder and its subcontractors shall be eligible for temporary admission under normal or special procedure where such materials are intended to be re-exported after use in Cameroon.
• During the petroleum development phase covering the first five years of commercial production under the exploitation authorization, machinery, tools, and chemicals shall be imported by the holder and its affiliates/subcontractors at an overall reduced rate of 5% import duty ad valorem. This is likewise applicable to the two years of the provisional exploitation authorization. It expires after five years and ordinary customs duties as per the CEMAC Customs Code kick in.
• Export duties and taxes: holders shall export their share of hydrocarbon under the petroleum contracts free of all export taxes and duties.
• Computer Service Tax: Petroleum contract holders shall be liable for a 0.45% computer service fee, capped at XAF 100,000 per declaration.

21. What are the foreign exchange regulations and obligations of petroleum contract holders?

Foreign exchange is governed by the provision of the Code in addition where necessary, the provisions of the 2019 CEMAC Foreign Exchange Regulation. For starters, petroleum contract holders who are carrying out petroleum operations in Cameroon are authorized to keep their accounts in US Dollars and denominate their share capital in US Dollars. Holders enjoy the following rights regarding foreign exchange regulations:

• Right to open in Cameroon and abroad, local, and foreign currency accounts for their transactions.
• Right to receive and freely keep funds acquired or borrowed abroad, including proceeds of sale of share of production, etc.
• Right to transfer freely and keep abroad funds and revenue from sale of hydrocarbons, dividends and returns from invested capital as well as proceeds from liquidation.
• Right to pay directly abroad, suppliers of goods and services used for the petroleum operations.

22. How can Dayspring Law Firm assist you?

Dayspring Law Firm prides itself as one of the leading Law Firm in the CEMAC area in oil and gas law and practice. Our team of lawyers and legal consultants have amassed a wealth of experience and knowledge within the jurisdiction. Our breadth and depth of practice and our diversity of experience stretching into other extractive industries. Our corporate practice gives us a strategic advantage that brightly reflects in our sound legal advice and representation. In addition, our professionalism and commitment to our clients drives us to exploit our professional networks and savoir-faire in negotiating, drafting, and reviewing petroleum contracts, applying for, and conducting due diligence for authorizations, assignments, mergers and acquisitions, taxation and customs duties, foreign exchange regulations, etc.

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