Moldovan NGOs urge government to cancel oil and gas concession deal with Frontera

Moldovan NGOs urge government to cancel oil and gas concession deal with Frontera
By Iulian Ernst in Bucharest April 6, 2017

A group of independent experts and NGOs including think-tank Expert Grup have called for a 50-year oil and gas concession contract signed by the government to be cancelled. Under the contract, Frontera Resources International has been given exploration and production rights over one third of country’s area. 

The contract was signed earlier this year upon what the government claimed to be a competitive bid. Nonetheless, Expert Grup claims that the bid was in fact not transparent and the US-registered company had contacted top officials from the senior ruling party, the Democrat party of Moldova (PD) before the bidding procedures started. 

Frontera Resources International, a fully owned subsidiary of US-based oil and gas exploration and production company Frontera Resources Corporation, signed a joint declaration protocol with the Moldovan government regarding the exploration, production and development of hydrocarbon resources on March 3. The contract covers 12,000 sq km, and is valid for 50 years including an initial exploration phase of up to ten years.

At a press conference on April 5, the Moldovan experts called for a broad committee to be set up with the participation of independent experts and members of the anti-corruption prosecution office and competition body, to investigate the case.

So far the only indication of irregularities spotted by the NGOs is a meeting between the senior ruling party’s president Vlad Plahotniuc and Frontera’s CEO Steve Nicandros in May 2016. However, the size of the perimeter contracted and the length of the contract justifies a more transparent procedure or at least better public communication.

Expert Grup also explained that although the government claimed production rights will be extended only after exploration is completed, Frontera’s press release mentions production and development as well.

Furthermore, having consulted the contact, the experts claim that the government has committed to assist the investor in obtaining all the necessary permits. This generic provision, common to such contracts and obviously confining the government’s promises to the existing legislation, was emphasised by Expert Grup as well. 

“Frontera Resources set up a subsidiary in Chisinau in October 2015, one and a half years before bidding,” Expert Grup said. However, NGOs were given only two days to submit their requests for the nomination of a representative to the committee that picked the winning bidder, the independent think-tank noted. Furthermore, the nominations were restricted to hard-copy (no nominations were accepted by email or fax). Eventually, a member of an academic body subordinated to the government was appointed to the committee.

As regards the content of the contract, Expert Grup claims that it does not include penalties for the excessive use of chemicals in the process of exploration or production, asking the investor only to “reduce as much as possible the use of toxic substances”.

The concerns related to the environmental effects of the exploration and possibly production might turn the NGOs’ concerns into a broader protest against the US investor following similar cases in Romania. The situations are technically very different (the Romanian explorations were aimed at fracking, a more environmentally hazardous technology) but this might not play an important role in environmentalists’ rhetoric. The involvement of a credible NGO like Expert Forum makes the whole debate relevant for the future of the contract.

In addition, the size of investments earmarked for the first five years by Frontera, $6mn, is very small for the size of the land under investigation and would most likely include a broad seismic survey. 

Previously Moldovan officials stressed the importance of the contract for the country, which imports most of its energy from Russia. 

“There had been prior information that there is petrol and gas. The previous governments obstructed the exploration and exploitation of the deposits so that we should stay dependent in terms of energy to the Russia Federation. Previously, Russia companies were allowed to make explorations there,” Moldovan Environment Minister Valeriu Munteanu commented at the time the contract was signed.

Besides the extraction during Soviet times, Moldova tried to restart oil and gas extraction in 1995, when American Record LTD was given an exclusive concession for 20 years, reported. In 2007, the company’s exclusive rights were confiscated by the government which said the company had not fulfilled its obligations. In 2008, Valiexchimp took over the extraction rights.

Georgian controversy

Frontera is also involved in exploration work in Georgia. However, its subsidiary in the country has filed for bankruptcy and refused to pay $30mn claimed by the government. The company said it is not liable for the $30mn debt that its Georgian subsidiary has incurred and that is due on August 1, reports.

The company has made several exploration attempts in Georgia and even claimed to have discovered 3.8trn cubic metres (cm) of gas, but the Georgian government has been circumspect of the commercial value of its findings. On July 21, the company filed for bankruptcy in the US and is refusing to take charge of the $30mn in convertible notes that its subsidiary issued. Frontera's management claims that the notes were issued on an unsecured basis and without a guarantee from the parent company.

Frontera has said that it will continue with its exploration activities in Georgia, where works have been progressing on schedule and should lead to increased production that will boost its revenues.