No privilege or all privilege to the Shell company in FBiH?

Eldar Trhulj i Nermin NiksicIt is likely that Shell Exploration Company will be granted concession on exploration and exploitation of oil and gas in Federation of BiH. This was decided on FBiH Government’s 89. session, held on November 28th 2013. Seemingly, there is nothing disputable about this fact. However, two years ago, when the Government signed the Memorandum of Understanding with this company, its officials were eager to dismiss charges of favouring Shell Oil, pledging that the MoU won’t give the company any privileges when time comes to award the concession for oil exploitation.

Specifically, in November 2011, when the MoU was signed, the FBiH Prime Minister Nermin Nikšić has stated that “nothing will be kept out of public scrutiny” and everything will be handled through regular legal procedure after Shell finishes the oil exploration agreed in the Memorandum. It has also been said that Shell “will not receive any privileges if the procurement process for oil exploitation is started” and all decisions on this matter will be made in FBiH Parliament.

Similar statement has been given by Eldar Trhulj, when he commented on FBiH Government’s agreement to sign the MoU, which was decided on October 13th, 2011. Since at that time there was no law in regulation of the field of oil exploration and exploitation, Trhulj had announced that his ministry is already working on The Law on Exploration and Exploitation of Oil and Gas, and that Shell will only be given partial right to exploit any oil found in the Federation BiH if the Parliament gives its consent.

These statements came as a reaction to public dissatisfaction with FBiH Government’s handling of matters related to the MoU with Shell. The MoU signing came after the government has passed a Decision on declaring the oil and gas geological researches on the territory of the Federation of Bosnia and Herzegovina of interest for the Federation of Bosnia and Herzegovina on August 24th, 2011. Just prior to the signing of MoU, SBiH party has sent an open letter to Federal Prime Minister Nermin Nikšić, asking him to explain how this specific company was chosen to perform exploration of oil and natural gas reserves, since no public call has ever been placed. After the MoU has been signed, there was a public outcry to make the document public, since it was, at first, kept a secret and treated as “confidential”. The Government did, however, publish it, upon which it faced harsh criticism over several disputable matters in the document. Namely, the MoU was given priority over domestic laws, stating that the document “shall be governed by and Interpreted in accordance with the laws of England and Wales”, while any dispute, controversy or claim arising out of or in connection with the MOU, shall be resolved by arbitration in accordance with the Arbitration Rules of the International Chamber of Commerce (the “ICC Rules”), while arbitration will be held in London, England, in English language. The FBiH Government has also agreed that “other than this MOU, Shell needs no further Government approvals, consents, licences or permits to conduct the activities contemplated by this MOU and pursue the Project Objectives.” Also, the MoU implicated that Shell would be the sole contractor regarding “hydrocarbon surveying, exploration or production rights” during the term of the MoU, which lead to the question of why the company is being given the rights to exploit oil without any public call or tender by the FBiH Government, which would make the process transparent and in accordance to the law. This particular detail is what prompted the reactions of Nikšić and Trhulj, who had repeatedly reassured the public that MoU is only connected to oil exploitation, while the concession for exploitation of oil and gas will be awarded in accordance to existing laws and without any special treatment of Shell as FBiH Government’s partner.

“Shell” has presented its report “Assessment of Perspectives for Exploration of Oil and Gas in FBiH” in the meeting held on September the 30th 2013, just a few weeks after the Law on Oil and Gas Exploration and Exploitation in Federation of Bosnia and Herzegovina was passed (the House of Representatives of FBiH Parliament voted it on the session held in June 23rd 2013 and the House of Peoples confirmed it on September 12th). The Law’s provisions stated that contracts on concessions which are labeled as “being of strategic interest” will be excluded from the existing Law on Concessions and could be decided by the government alone. On November 19th 2013, a Decision on determining the oil and gas exploration blocks in the territory of the Federation of Bosnia and Herzegovina has been passed by the FBiH Government, and the law has officially come into force on November 20th 2013. Only eight days later, on November 28th, the government passed a Decision on approval to the Contract on Concession for exploration and exploitation of oil and gas of strategic importance for the Federation of Bosnia and Herzegovina and Decision on approval to start the procedure of concession award for exploration and exploitation of oil and gas on the territory of the Federation of Bosnia and Herzegovina at its 89th session. These decisions gave the green light to the Ministry of Energy, Mining and Industry to undertake activities on signing a concession contract through direct negotiation, which would require no tender or public call for potential partners to be announced. The official statement of the Government on this session states that „Having in mind a clear commitment of Shell company to initiate negotiations, but also the company's significant experience in exploration of this resource and managing financial resources in this risky and costly geological research, the Government of FBiH has reached this decision today, with the aim to award the concession“.

On December the 4th 2013, a Decision has been adopted by which the Government had appointed a Commission in charge of choosing an expert consultant for the process of awarding the concession for exploration and exploitation of oil and gas. This Decision was revoked in January 2014 and a new commission has been formed on the same Government session. The Decision on approval of tender documentation and initiation of public procurance procedure for appointment of expert consultant of FBiH Government in the procedure of awarding concession for exploration and exploitation of oil and gas of strategic interest to the Federation of BiH has been passed on February the 19th 2014, on Government's 100th session.

The legislation which has been passed was clearly tailored to provide Shell with those exact privileges which Nikšić and Trhulj were claiming it won’t be given. Other than this, another inconsistency between Prime Minister’s words and actions occurred in relation to the very specific statement he gave when he said that “Shell will receive no privilege on the oil exploitation tender”. The question is – what ever happened with the afore mentioned tender? Instead of announcing a tender for the concession for oil and gas exploitation, the FBiH Government decided to go into direct negotiations with Shell as a single partner, rendering this Prime Minister’s promise a broken one.

“We could be signing this contract by the end of 2014”, Erdal Trhulj has confirmed for “Dnevni avaz” on December 2013, without even mentioning the tender announcement for such a contract. According to his statement, the drilling of first boreholes could be expected immediately upon the contract signing, and it is planned for the contract with Shell to last for a 25-year term.

In conclusion, government’s activities which followed the statements of Prime Minister Nermin Nikšić and Minister of Energy, Mining and Industry Eldar Trhulj, were clearly in breach with their claims of Shell receiving no special privilege in the field of oil exploitation because of the previously signed MoU. A series of legislation acts, as well as their own latter announcements and statements, showed significant inconsistency to their previous stands, arising, also, the question of why such an important project is being undertaken in a manner which bypasses existing laws and gives more than enough reason for suspicion and distrust by the public.



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