11 December 2013, Monrovia – One of the most significant weaknesses with the Petroleum Act is that it gives the President the power to bypass competitive bidding procedures, and award petroleum agreements on the basis of direct negotiations, when the President decides that it is in the national interest.
While the President does have to publish the grounds for this decision, what constitutes the national interest is not defined under the Act, and this creates the opportunity for abuse.
According to a document which talks about how the draft Liberian Petroleum Acts should be amended to ensure accountability within the country’s emerging oil sector, the lack of constraints risk creating a parallel allocation process, one that lacks the transparency and value-maximization that competitive bidding should achieve.
Companies, which the government enters into direct negotiation with, must be pre-qualified, which will ensure some level of financial and technical capacity to operate.
However, the country will be unable meaningfully to assess whether the company is offering them the best possible deal.
A transparent, competitive bidding process also encourages more reliable firms to enter the sector, as it provides assurance that bids will be evaluated, contractual terms negotiated and concessions awarded fairly.
Chatham House’s report on good governance of the petroleum sector states that “transparent processes can increase competition and raise the standards of work programmes and generate more investment.”
The mechanisms to ensure that the country gets the best possible deal are also weaker for direct negotiations.
Contrary to the provision on bidding rounds, for direct negotiations the negotiating team does not have to
include individuals with knowledge of the oil industry, is smaller than for bid evaluations, does not include any representative from the LEITI, and does not have to be free from any conflict of interest.
Direct negotiation is also likely to favor the companies who have greater access to financial resources and technical expertise.