The Republic of the Congo’s energy sector is experiencing a revival. Its recent admission to OPEC and its continued collaboration with the organization has brought the small oil-producing nation a degree of recognition and a seat at the decision-making table. In recent years, the Congo has doubled down on efforts to attract investments in its oil & gas sector, licensing, for instance, two rounds for hydrocarbon production with 28 blocks bidding between 2015 and 2019. In order to strengthen and increase the performance of its own oil & gas industry, the Congo has also operated changes at the legislative level, revising its outdated 1994 Hydrocarbons Code. This time around the impetus is on the development of human capital and technology transfer.
Like many African oil-producing countries, the Congo is still reeling from the 2014-2016 oil crisis, as well as the economic downturn caused by the Covid-19 pandemic. Following 2020’s steep decline in global oil demand and OPEC’s decision to limit annual oil production, the Congolese economy contracted by 6.8% compared to 0.6% in the previous year. Yet, as the Congo eases its way out of the crisis, the country has also focused on tackling long-standing issues like human capital and the contentious topic of technology transfer.
Human Capital Index
The Congo’s Human Capital Index (HCI) score is among the lowest in the world – slightly above the sub-Saharan African average set at 0.40 compared to the global average of 0.57. Policies geared toward improving education, health, and food security will help increase the productivity and prospects of future generations. The region has already witnessed considerable advancements in higher-level education development, increases in school enrollment, and in health services in the last two decades. However, more tailored measures have been implemented in order to foster the growth of the most valuable industries. Oil rich countries lacking the expertise or technology to conduct large-scale E&P activities themselves design policies destined to bridge the skills and technology gap. A majority of African oil-producing countries have formulated local content requirements, delineating obligations to favor local labor force, goods and services in order to increase domestic capacity through technology transfer. The 2016 revision of the Hydrocarbons code does exactly that.
The revised code explicitly states that Congolese nationals should be recruited in priority in all areas of upstream activity. IOCs are required to implement mentoring and training programs to facilitate their progress and acquirement of relevant qualifications. It is also expected that IOCs prioritize or train Congolese nationals for senior level positions. Contracted subsidiaries and service providers are equally obligated to prioritize, train, and promote nationals and are required to set up permanent training programs.
Whereas the 1994 Hydrocarbons Code had merely stipulated the necessity to employ Congolese subsidiaries whenever possible without implementing clear control mechanisms, the 2016 Code contains specific guidelines, which offer the government oversight to appraise the implementation of regulations. The Congo aims to accelerate the pace at which it will secure a sizable, adequately trained local workforce. By doing so, it has capitalized on the presence of IOCs in the country and their know-how, while simultaneously guaranteeing job creation.
Moreover, IOCs, subsidiaries and service providers must contract national public and private companies for supplies and services, even in instances where the commercial offer is superior (up to 10%) to those of other companies. What’s more, the 2016 Code includes the negotiation of clauses in partnership agreements between foreign and domestic private companies, as well as Congolese universities or institutes guaranteeing technology transfer, exchange of general expertise and capacity-building.
Additionally, the new legislation secures the involvement of the Société Nationale de Pétrole du Congo (SNPC), the country’s national oil company, in all petroleum operations as it is the exclusive concessionaire of petroleum mineral titles and is mandated to have a least 15% of all permits issued. Another minimum participating interest of 15%-25% is reserved to private national oil companies. Lastly, all contracts must be approved by both chambers of Parliament and include a 15% royalty on oil net production (reduced to 12% for offshore operations in waters deeper than 500m) or in case of gas net production, 5%.
The 2016 Hydrocarbons Code addresses more adequately the challenges facing the Congolese oil & gas industry. It has largely succeeded in striking the right balance between creating long-term sustainable partnerships with IOCs while remaining focused on improving its industry through comprehensive human capital development as well as technology transfer and expertise. The renewed private sector interest in the country’s energy sector confirms this. The Congo garnered considerable praise during OPEC’s recent state-visit for the improvements made to its industry and IOCs like TotalEnergies, Eni, and Perenco expressed their desire to continue investing in its oil & gas sector. While the Congo still faces other significant challenges, adopting changes in its most profitable sector might be part of an astute and sound strategy.
Energy Capital & Power will launch Congo-Brazzaville’s first ever energy sector specific report, Africa Energy Series: Congo-Brazzaville 2022, in the second quarter of 2022, which will outline the country’s COVID-19 recovery strategy and unpack its ambitious plans for the development of its hydrocarbons industry including natural gas development; environmental and social governance; and the energy transition.