Senegal - Côte d'Ivoire: Comparison of production sharing contracts (PSCs) in the hydrocarbons sector

Senegal and Côte d'Ivoire, two major players in the West African oil and gas industry, have each set up specific legal frameworks to govern production sharing contracts (PSCs) in the hydrocarbons sector. Although these contracts are both aimed at attracting foreign investment and maximizing the economic benefits for the state, there are some notable differences that need to be examined.

Legal and regulatory framework

Senegal

In Senegal, the legal framework for the hydrocarbons sector is mainly governed by the 1998 Petroleum Code, revised in 2019. Senegal's CPP is designed to attract foreign investment while ensuring a fair share of profits for the state. Senegal's CPP stipulates that oil companies finance exploration and production in exchange for a share in future production.

Côte d’Ivoire

In Côte d'Ivoire, the legal framework is based on the 1996 Petroleum Code, revised in 2012. Côte d'Ivoire's PPCs are also designed to attract foreign investment, but grant greater flexibility to investors in terms of cost recovery and production sharing. Côte d'Ivoire has also introduced tax incentives and exemptions to encourage investment in the sector.

Financial structure and revenue sharing

Senegal

Senegal's CPP is structured to guarantee cost recovery for the oil companies, but with strict limits to ensure a significant share of revenues for the state. After cost recovery, remaining production is shared between the state and the oil companies according to a predefined formula. Generally, the state receives an increasing share of revenues as production increases.

Côte d’Ivoire

In Côte d'Ivoire, CPP also enables cost recovery, but with slightly more favorable conditions for investors. The share of production earmarked for cost recovery is generally higher, and the state receives a larger share of the revenues remaining after cost recovery. Ivorian contracts may also include stabilization clauses to protect investors against adverse regulatory changes.

Local requirements and sustainable development

Senegal

Senegal has strict local content requirements, obliging oil companies to favor local businesses and employ Senegalese workers. Senegalese PPCs also include provisions for sustainable development and environmental protection, reflecting the country's commitment to the responsible use of natural resources.

Côte d’Ivoire

Côte d'Ivoire also has local content requirements, but these are often more flexible than in Senegal. Oil companies must collaborate with local businesses and employ Ivorian workers, but conditions can vary according to specific contract negotiations. Côte d'Ivoire also emphasizes sustainable development, but with an approach more geared towards incentives rather than strict regulation.

Points of convergence and divergence

Despite their differences, the Senegalese and Ivorian models share a number of common features. Both countries place a premium on state participation in oil and gas projects, through the national hydrocarbons company (PETROSEN in Senegal and PETROCI in Côte d'Ivoire). This participation enables the State to control operations, benefit from a share of revenues and develop local expertise in the sector.

However, the two models differ in their degree of flexibility and incentives. Senegal favors a more flexible approach, tailored to each project, while Côte d'Ivoire relies on a more structured framework and attractive tax incentives to attract investment.

The choice between the Senegalese and Ivorian models will depend on the priorities and objectives of each investor. Companies looking for flexibility and transparency may be attracted by the Senegalese model, while those seeking a more structured framework and tax incentives may prefer the Ivorian model.

It is important to note that these models are constantly evolving, according to the economic and political realities of each country. Investors should therefore keep abreast of the latest legislative and regulatory developments to make informed decisions and maximize their chances of success in the West African hydrocarbon sector.