Resource exploitation on cards
Business vehicles available for investors as Madagascar plans development
IN MADAGASCAR, the fifth largest island in the world, foreign and domestic private entities may freely establish, own, and dispose of business enterprises, as well as engage in all remunerative activity.
Being a former French colony, the Malagasy judicial system is based on French civil law. Malagasy and French are the two official languages. The national currency of the 22-million strong republic is the ariary.
Company law provides several business vehicles, among which the most attractive for investors are:
The société anonyme (SA), which is similar to a larger limited liability company with either a board of directors or a general director; or
The société à responsabilité limitée (SARL), which is similar to an English limited liability company and is administered by one or more managers called “gérants”.
Joint ventures are often formed in the mining and petroleum sectors.
The Economic and Development Board of Madagascar is a one-stop office in which all procedures relating to the incorporation of a company are centred.
Although regulatory decisions can impede start-ups in particular industries, the normal business registration process has been streamlined by the board and generally takes one week.
The new investment law grants land and property to Malagasy companies controlled by foreigners, under certain conditions, together with an authorisation from the development board. However, foreigners cannot own land in Madagascar and a system of longterm leases (up to 99 years) was established to allow them land access.
Endowed with a very rich subsoil and sea, Madagascar has a considerable reserve of natural resources, which the new president (Hery Rajoanarimampianina, elected last year for a five-year term) and the new minister in charge of strategic resources plan to promote and develop.
The discovery of Bemolanga and Tsimiroro, two giant oil fields, at the beginning of the 20th century started petroleum exploration activities in Madagascar. These fields still provide an annual production of 2.7-billion barrels although oil production is no longer limited to those sites. Other major multinational oil companies, including Vanco Energy Co, Sterling Energy, Exxon Mobil, Tullow Oil, Total and Madagascar Oil, are present and their works are at an advanced stage.
Oil and gas research and production in Madagascar is governed by laws relating to the petroleum code and the exploration, exploitation and transportation titles. The regulatory entity for the upstream petroleum sector is the Office des Mines Nationales et des Industries Stratégiques (Omnis).
Exploration or exploitation licenses are granted to Omnis by way of a presidential decree. Omnis is entitled to transfer the rights and obligations resulting from the licences to any petroleum company or group of companies having the necessary financial and technical capacity and ability to undertake exploration and exploitation activities. In this regard, Omnis and the company or group of companies must enter into a production-sharing contract that will govern the rights and obligations of each party in the petroleum activities. If the Omnis contractor is a group of companies, the company with the highest participating interest rate in the production sharing contract is appointed as the operator, acting on behalf of the rest.
A petroleum company operating in Madagascar must comply with the following requirements. It must:
Have the financial and technical capacity and ability to operate the concerned activities;
Enter into a production-sharing contract with Omnis;
Obtain presidential approval for the production-sharing contract;
Deposit financial guarantees through an authorised Malagasy-incorporated bank covering the spectrum of its contractual work commitments;
Comply with international and local standards on the protection of the environment;
File and implement a training and employment programme for nationals;
Contribute to the supply of oil and gas in the national market; and
Have its subsidiary or branch in Madagascar (mandatory for operators only).
Mining is one of the key sectors of Madagascar’s economic development. Its considerable mineral resources are a wealth that the state manages carefully through a number of laws.
Applications for any type of mining permits can be made either by a Malagasy citizen or by a Malagasy-registered company at the mining registry, the Bureau du Cadastre Minier de Madagascar ( BCMM). The BCMM, attached to the ministry in charge of strategic resources, manages mining permits. It operates on a first-come, first-served basis. The BCMM is one of the largest systems in Africa.
There are three basic types of mining permits in Madagascar: small mining, exploration and exploitation.
Madagascar has experienced an economic crisis since the coup in 2009 and the issuance, renewal, transformation and transfer of mining permits have been suspended since the transitional period. Application for a new mining permit, renewal, transfer or transformation can be filed at the BCMM but neither a mining permit nor a decision will be issued at present. However, the new government provides a ray of hope for investors. The ministry in charge of strategic resources with the BCMM has reassured investors that the procedure will reopen soon.
Investor confidence could be restored by the stability of the political environment as the new government has shown its willingness to improve the economy, triggering a new starting point in its development.
RIPE FOR DEVELOPMENT