Foreign exchange control across African oil and gas producing countries

Introduction

Foreign exchange regulation is a hot topic in a large number of hydrocarbon-producing countries in Africa. With the entry into force of the Monetary and Economic Community of Central Africa (CEMAC)'s new regulation no. 02/18/CEMAC/UMAC/CM on exchange control dated 21 December 2018 and effective from 1 March 2019 (the CEMAC FX Regulation) and the recent issuance by the Bank of Central African States (BEAC) of its various implementing instructions (all dated 10 June 2019, but with a six-month period to achieve compliance until 10 December 2019) (the BEAC Instructions), the regulatory landscape has been changing quickly and companies will need to adapt and react to these implementations in real time.

Following years of debate among the six members (Cameroon, Gabon, Central African Republic, Republic of the Congo, Chad and Equatorial Guinea) of CEMAC to address the lack of enforcement of the previous CEMAC regulation no. 02/00/CEMAC/UMAC/CM dated 29 April 2000 (the 2000 CEMAC FX Regulation), the CEMAC FX Regulation was finally adopted.

The CEMAC FX Regulation became effective on 1 March 2019, although the entities which are subject to it have an initial six-month period to achieve compliance. At the time of writing there are ongoing discussions regarding the postponement of the date for compliance/enforcement of the CEMAC FX Regulation to 10 December 2019. This postponement would allow for alignment between the enforcement date of the CEMAC FX Regulation and that of the recently published BEAC Instructions implementing the CEMAC FX Regulation. In this regard it is important to note that the CEMAC FX Regulation does not provide for "grandfathering" of pre-existing transactions.

Generally speaking, the CEMAC FX Regulation introduced relatively few changes to the 2000 CEMAC FX Regulation. For instance, the 2000 CEMAC FX Regulation already contained domiciliation and repatriation obligations as well as restrictions on opening onshore foreign currency accounts, all of which are also provided for by the CEMAC FX Regulation and the substance of which did not change.

Some of the key new elements set out in the CEMAC FX Regulation are:

• restrictions on the opening of offshore accounts;
• a requirement for renewal of authorisations from BEAC in relation to the opening/maintaining of onshore foreign currency accounts at two year intervals; and
• exemptions being granted by BEAC itself rather than individual national authorities.

We have seen companies active in the oil and gas sector (including international banks and financial institutions who provide financing to the sector) express concern as to how the changes would or could impact their operations and financing transactions in the region, in particular a change in approach to enforcement of the regulations. Even though foreign exchange regulations are restrictive in many emerging countries in which these companies operate, they generally provide for substantial carve-outs benefiting the oil and gas sector – unlike the CEMAC FX Regulation. In the absence of such treatment, the CEMAC FX Regulation has significant implications for many commercial transactions and on the structuring of project financing, reserves-based financing and pre-export/prepayment financing transactions throughout the CEMAC.

Set out below is a comparative analysis of certain key aspects of foreign exchange regulation in a number of hydrocarbon-producing countries in Africa, set against the backdrop of the new CEMAC FX Regulation with the intent to showcase how the regulations in each country align with, or diverge from, the CEMAC FX Regulation. This comparative analysis includes reference to:

• special carve-outs for the petroleum industry;
• the ability of resident corporations to open and hold foreign currency bank accounts:

      -     outside of the country/region; and/or

      -     inside the country/region;

• restrictions on residents paying for goods and services outside their jurisdiction;
• requirements to repatriate any export proceeds received abroad and conversion into local currency; and
• fines/sanctions for non-compliance and a general overview of the extent to which foreign exchange regulations are actually enforced.

This comparative analysis focuses on jurisdictions:

• within the West African Economic and Monetary Union (UEMOA) regional union: Benin, Burkina Faso, Guinea-Bissau, Ivory Coast, Mali, Niger, Senegal and Togo; as well as
• Algeria, Angola, Egypt, Ghana, Mauritania, Mozambique and Nigeria,
  (collectively the Analysed Jurisdictions).

In the absence of harmonisation, legislation in each of these jurisdictions provides for different rules, which are in addition to guidelines or implementing rules issued by the relevant central banks (and which are not always readily available/accessible and are subject to frequent amendments). The multi-layered and frequently changing legislation presents a difficult environment for operating companies to work through—this article will provide guidance on how to 'navigate the maze'.

Special carve-outs for the petroleum industry

The CEMAC FX Regulation does not provide for any specific carve-outs for the petroleum industry. This is also the case for the UEMOA foreign exchange regulation but it is not strictly enforced.

On the contrary, most of the Analysed Jurisdictions provide for carve-outs for the petroleum industry in relation to the obligation to repatriate export proceeds, opening of onshore foreign currency accounts, opening of offshore accounts, and the ability to make payments in foreign currency.

In Ghana for instance, companies which operate under so called 'retention agreements' with the Ghanaian Central Bank and hold offshore accounts are exempted from the obligation to repatriate export proceeds. In Mauritania the petroleum code contains special carve-outs for petroleum companies, which benefit from a special and very favourable regime.

Where petroleum companies are not expressly exempted from the general (restrictive) foreign exchange regime, they may avoid the application of the foreign exchange provisions because they are not considered 'residents'. For instance in Egypt and Algeria, which have some of the strictest foreign exchange regulations, petroleum companies are not required to be incorporated in-country in order to carry out petroleum activities. As a result, in multiple cases, petroleum companies are not treated as residents but are considered as 'non-residents' and are therefore exempted from key obligations and restrictions set out in foreign exchange regulations.

In all the Analysed Jurisdictions apart from those jurisdictions covered by the CEMAC and UEMOA regulations, foreign exchange restrictions have been adopted at a national and not a regional level. This means that States are generally able to grant contractors carve-outs in petroleum contracts, which is often applied in practice. For instance, the model form petroleum contracts for Mozambique, Ghana and Egypt contain a number of carve-outs from the requirements to obtain a prior approval for opening and operating onshore and offshore foreign currency accounts and from the obligation to repatriate export proceeds.

The key issue and concern with the new CEMAC FX Regulation is that since it is enforced at a regional level, exceptions granted locally in petroleum contracts may no longer be valid or applicable. Petroleum codes of certain CEMAC member states as well as model petroleum contracts contain an important number of carve-outs that may no longer be enforceable after the CEMAC FX Regulation becomes effective.

Ability of resident corporations to open and hold bank accounts outside of the country/region

Whereas the 2000 CEMAC FX Regulation was silent on the ability to open offshore accounts, article 41 of the CEMAC FX Regulation now expressly provides that legal persons residing in the CEMAC are prohibited from having offshore accounts unless they have been specifically authorised by BEAC. Pursuant to BEAC Instruction no. 005/GR/2019, those authorisations are granted at the discretion of BEAC upon substantiated request and need to be renewed every two years (there is a lack of clarity as to how many renewals may be granted). As a result, unless BEAC authorisation is obtained before 10 December 2019, any offshore account opened by companies operating in the CEMAC will have to be closed and any funds credited thereto will have to be repatriated to the relevant CEMAC country. Similarly, if an authorisation expires and/or if a renewal of an authorisation is denied then within 30 days the account closure and repatriation obligations will apply.

Mozambique and UEMOA foreign exchange regulations are akin to that of CEMAC to the extent that they allow residents to hold offshore accounts, subject to obtaining authorisations from the relevant authorities (from the Central Bank of Mozambique and from the Minister of Finance of the relevant jurisdiction after Central Bank of UEMOA's assent, respectively).

Algeria is the only jurisdiction that strictly prohibits the holding of offshore accounts by residents. However, as mentioned above, petroleum companies are not necessarily required to be (and therefore are not necessarily considered) residents in Algeria. Angola does not in principle allow corporations to hold offshore accounts but there are carve-outs for the petroleum industry.

Nigeria and Ghana do not require any prior approval for opening offshore accounts (as was also the case under the 2000 CEMAC Regulation). Mauritania only requires a declaration to the Mauritanian Central Bank, not an authorisation.

Ability of resident companies to open and hold foreign currency bank accounts inside the country/region

Article 43 of the CEMAC FX Regulation prohibits legal persons residing in the CEMAC from holding onshore foreign currency accounts in the CEMAC, unless they are authorised by BEAC. The same BEAC Instruction no. 005/GR/2019 applies to onshore accounts, giving BEAC discretion in granting those authorisations. If an authorisation expires and/or its renewal is denied then within 30 days the account will have to be closed, and the foreign currency held in onshore accounts will in most cases be required to be surrendered to BEAC in exchange for FCFA.

In most of the Analysed Jurisdictions, residents are entitled to open onshore accounts in foreign currency without any specific authorisation, even in jurisdictions which have strict foreign currency regulations (such as Algeria and Egypt).

Mozambique and UEMOA are the only jurisdictions requiring prior approval for opening onshore foreign currency accounts (from the Central Bank of Mozambique and from the Minister of Finance of the relevant jurisdiction after Central Bank of UEMOA's assent, respectively).

Restrictions on residents paying for foreign goods and services

Under the CEMAC FX Regulation, payments must be processed through banking correspondents in the currency of one of the two parties to the transaction or in any currency accepted by the two parties. The settlement of foreign transactions must be carried out exclusively through local banks and transactions between two resident entities cannot be settled through bank accounts domiciled abroad. The import of goods and services exceeding Francs CFA (FCFA) 5 million (USD 8,400) must be made through a local bank. In addition, the settlement of foreign transactions must be notified to BEAC and to the competent authorities. In most Analysed Jurisdictions, payments usually need to be made through local banks, but payments abroad in foreign currency are generally allowed.

Residents can generally convert local currency to foreign currency to pay foreign vendors (except for in Angola and Algeria) but payments between residents have (in principle) to be made in local currency.

Requirements to repatriate any export proceeds received abroad and conversion into local currency

Pursuant to the CEMAC FX Regulation, export proceeds must be repatriated within 150 days from the export date. Article 59 of the CEMAC FX Regulation provides that intermediation or any other transaction-related fee may be withheld from the funds to be repatriated, thereby providing a mechanism by which not all export proceeds must be repatriated. However, article 17 of BEAC Instruction no. 006/GR/2019 provides that the amount that may be withheld as an intermediation or any other transaction-related fee pursuant to article 59 cannot exceed 10% of the amount of the export proceeds for each repatriation transaction.

In addition, article 38 of the CEMAC FX Regulation provides that local banks must transfer all foreign currency they receive, save for foreign currency held in an authorised onshore account, to BEAC for conversion into FCFA. BEAC Instruction no. 003/GR/2019 clarifies that at least 70% of the foreign currency a local bank receives must be transferred to BEAC, for conversion into FCFA, within 3 days from the date of receipt. The balance may only be used for the day-to-day foreign currency needs of the local banks.

In most Analysed Jurisdictions, there is also an obligation to repatriate (partially or fully) export proceeds and often there is also an obligation to transfer (at least partially) foreign currency to the central bank or to transfer foreign currency to local banks.

The only jurisdiction that does not provide for the obligation to repatriate is Egypt.

Similar to the CEMAC FX Regulation, regulations in Algeria, Angola and Ghana provide for the obligation to convert part of export proceeds into local currency.

However, as mentioned above, there are exemptions in some of the Analysed Jurisdictions from the obligation to repatriate export proceeds (and therefore from the obligation to convert foreign currency to local currency). For instance, in Algeria, during the exploitation period, any non-resident company is entitled to keep abroad proceeds relating to exports. In Mauritania the Central Bank can grant exemptions from the obligation to repatriate and the Mauritanian petroleum code provides carve-outs for petroleum companies, entitling them to collect and keep abroad export proceeds.

Fines/sanctions for non-compliance and general overview of the enforcement of foreign exchange regulations

The CEMAC FX Regulation aims to remedy the lack of enforcement of the 2000 CEMAC FX Regulation, in particular with a complete shift from national to regional enforcement and with a detailed information communication system between companies and commercial banks on the one hand, and between commercial banks and BEAC on the other hand. To this end, BEAC issued Instruction no. 0013/GR/2019 which sets outs the rules for the communication of information required for the monitoring of the enforcement of the CEMAC FX Regulation.

The CEMAC FX Regulation provides for sanctions for non-compliance by both residents and local banks and BEAC Instruction no. 0014/GR/2019 sets out the procedural rules for the application of sanctions. All of the Analysed Jurisdictions also impose fines and sanctions for non-compliance with the foreign exchange regulations for both corporations/individuals and banks.

Apart from Nigeria, Mauritania and Egypt where foreign exchange regulations are not consistently enforced, they are generally applied and enforced in the Analysed Jurisdictions.

It remains to be seen whether further adjustments will be made to the CEMAC FX Regulation ahead of 10 December 2019, or interpretive guidance offered. Alternatively, the market will need to wait to see how enforcement of the CEMAC FX Regulation will operate in practice, and what flexibility may be offered.

Acknowledgements

Authors: Yann Alix, Tom Longmuir, Quentin Robinson, Claudia Cicone

With thanks to Caroline Durran and William Toutain for their contribution.

This article has been prepared in conjunction with the following legal counsel in their respective jurisdictions:

Algeria: Bennani & Associés LLP

Angola and Mozambique: SRS Advogados

Egypt: Sharkawy & Sarhan Law Firm

Ghana:

• ENSafrica
• Aelex

Mauritania: cabinet Yarba Ould Ahmed Saleh

Nigeria:

• Aluko & Oyebode
• Aelex

Please contact a member of the Ashurst global oil and gas team or a member of the Ashurst Africa team should you wish to discuss this matter further.