South Africa: CEMAC Authorities Issue Special Foreign Exchange Regulations For Extractive Companies

Following a period of three years punctuated by discussions and moratoria on the enforcement of CEMAC Regulation No. 02/18/CEMAC/UMAC/CM relating to foreign exchange (the "2018 Regulation"), extractive companies with activities in the CEMAC area may finally see some light at the end of the tunnel thanks to two new CEMAC foreign exchange regulations specifically designed for them by CEMAC authorities in an attempt to adapt the 2018 Regulation to the operational complexities of the extractive sector while ensuring compliance with the 2018 Regulation.

As a result of the uproar among hydrocarbon and mining companies caused by the entry into force of the 2018 Regulation, the Bank of Central African States ("BEAC") addressed the concerns of the extractive companies by granting two moratoria extending the deadline by which extractive companies were required to comply with the 2018 Regulation, in order to allow the BEAC and extractive companies to discuss possible adjustments to the 2018 Regulation.

Discussions between the CEMAC authorities and representatives of the extractive companies which took place during this time span finally led to the adoption by the CEMAC authorities of two new regulations on 23 December 2021:

• CEMAC Regulation No. 01/CEMAC/UMAC/CM on the application of certain provisions of the 2018 Regulation to resident extractive companies; and
• CEMAC Regulation No. 02/CEMAC/UMAC/CM on the non-seizable nature of extractive companies' foreign currency accounts.

In order to further expand on and implement the specific exemptions granted to extractive companies under the new CEMAC Regulations, the BEAC replaced the existing instructions governing the opening of foreign currency accounts, imports and exports by three new instructions specifically designed for extractive companies on 4 February 2022¹:

• Instruction No. 001/GR/2021 on the declaration, domiciliation, payment and clearance of imports by extractive companies;
• Instruction No. 002/GR/2021 on the declaration, domiciliation, repatriation and clearance of exports by extractive companies; and
• Instruction No. 003/GR/2021 setting out the rules for the opening and operating foreign currency accounts by extractive companies.

The CEMAC Regulations and BEAC Instructions (the "New Regulations") grant a number of exemptions to extractive companies without replacing the 2018 Regulation entirely, as extractive companies remain bound by the 2018 Regulation in respect of all matters not dealt with under the New Regulations.

The key provisions of the New Regulations are as follows.

Scope of the New Regulations

The New Regulations apply to resident upstream oil and gas and mining companies, defined under the New Regulations as 'extractive companies'².

Opening and operation of onshore and offshore foreign currency accounts

Onshore and offshore foreign currency accounts may be opened subject to the BEAC's prior approval. The approval is granted within 30 days from the request for approval. In the absence of approval within that time period, the application is deemed approved. The authorisation is granted for the duration of the account's intended purpose.

The BEAC's decision to approve the opening of an onshore or offshore foreign currency account sets out the transactions which may be made using such foreign currency account.

In addition, the New Regulations set out a list of transactions which may be freely carried out using an onshore or offshore foreign currency account, including but not limited to (i) the payment of external commercial transactions (opérations de commerce extérieur); (ii) the repayment of loans; (iii) the payment of cash calls; (iv) the payment of dividends; (v) the crediting of an onshore account; and (vi) any other transaction necessary in light of the extractive company's activities.

The New Regulations further provide that any new type of transaction allowed by the BEAC in favour of an extractive company is automatically extended in favour of other extractive companies.

Repatriation of foreign currencies

Like the 2018 Regulation, the New Regulations provide that extractive companies must repatriate their foreign currencies.

However, under the New Regulations, the repatriation requirement is limited to a portion of such foreign currencies. The New Regulations provide that extractive companies are required to repatriate at least 35% of foreign currencies and further specify that this minimum rate can be revised upwards by the BEAC with regards to the CEMAC's financial situation³.

In addition, extractive companies are exempted from the repatriation requirement altogether in respect of foreign currencies arising from (i) operations carried out during the exploration phase; (ii) resource backed loans; and (iii) any other financing arrangement similar to resource backed loans allowed by the BEAC.

Payment of suppliers and subcontractors

Like the 2018 Regulation, the New Regulations provide that offshore foreign currency accounts may not be used for the payment of transactions carried out between resident companies. As an exemption to this rule, the New Regulations provide that offshore foreign currency accounts may be used for the payment of transactions between resident extractive companies where such transactions relate to the payment of cash calls.

In addition, the New Regulations expressly provide that onshore foreign currency accounts may be used for the payment of transactions between resident companies.

Debt repayment

The New Regulations expressly provide that offshore foreign currency accounts can be used for the repayment of loans. However, it is unclear whether the exemption applicable to the repatriation of proceeds of loans (allowing extractive companies to not repatriate loan amounts) would also apply to amounts required for the repayment of loans.

In the absence of any specific exemption to the repatriation requirement in respect of amounts required for the repayment of loans, such repayment would likely need to be made from the 65% foreign currencies which may be kept on an offshore foreign currency account.

It should be noted that under the New Regulations, onshore foreign currency accounts may also be used for the repayment of loans.

NB: As of 10 March 2022, the New Regulations (ie the new Regulations as well as the new Instructions) have not been officially published neither in the CEMAC's Official Journal nor on any "official" website (including the CEMAC's and the BEAC's website) and no official statement has been released by the CEMAC authorities in relation to their adoption. From a purely legal standpoint, this does not prevent the two new Regulations from entering into force. Indeed, under the CEMAC Treaty, regulations enter into force on the date they specify or, in the absence thereof, on the twentieth day following their publication. Both Regulations provide that they enter into force on the date of their signature, meaning that technically, both Regulations have entered into force on 31 December 2021. However, the lack of official publication, as well as any public release or acknowledgment in relation to the adoption of the New Regulations can raise doubts as to its enforceability in practice.

Footnotes

1. The BEAC initially issued, on 13 December 2021, Instructions No. 6, 7 and 8 relating to the opening of foreign currency accounts, imports and exports, respectively. Instructions No. 1, 2, 3 which were issued by the BEAC on 4 February 2022 have replaced these instructions.

2. A limited number of provisions of the New Regulations apply to resident subcontractors and transport companies of the extractive sector. For instance, said subcontractors and transport companies may open onshore foreign currency accounts under the same conditions as extractive companies. However, the rules governing the opening and operation of offshore foreign currency accounts do not apply to subcontractors and transport companies.

3. The rate can be revised upwards according to a schedule and under the conditions and procedures determined by an instruction of the BEAC. We understand that this instruction has not been issued by the BEAC at this time.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.