With the Government having recently concluded an oil and gas exploration agreement with Geo Associates, which is controlled by Invictus Energy, an Australian entity, the atmosphere is abuzz with positivity.
Conversely, recent attacks on oil and gas projects in Pemba, the capital of the Cabo Delgado Province of Mozambique, will also excite the interest of Oil, Gas and Mining Law (OGM) scholars.
Considering that this is the first instalment of a series of articles on this subject in the Zimbabwean context, it behoves me to give a general overview of oil and gas mining investments. OGM law is a discipline that stretches across investment law, environmental law, human rights law and project finance.
The entire Southern African nation is agog as people expect a petroleum driven economic turnaround.
The mood is exacerbated by reports coming from conflict-ridden neighbouring Mozambique that if its LNG projects take off properly, the country could be looking at profits in the region of US$60 billion by 2023, which will significantly dwarf its 2020 GDP of US$14,56 billion.
Environmentalists also have a vested interest. Oil and Gas Environmental Law is a branch of OGM law on its own, which is not the subject of this discussion. However, in summary, it finds base in international law in its various sources but mainly treaties such as the Stockholm Treaty, the Rio de Janeiro Principles, the Kyoto Protocol, the ESPOO Convention and the Paris Agreement.
Recent calls by environmentalists to cut on extraction of carbon-based fuels in order to curb greenhouse gas emissions were anchored on policies like the “Not in my Backyard”, the “Keep It In the Ground” and the “Free Prior and Informed Consent” (social passports) movements.
OGM actors have attempted to consider environmental law principles in different ways as will be shown in a separate discussion on another day.
Equally the association of OGM investments with armed conflicts as seen in the case of the BTC pipeline project and the Armenia and Azerbaijan dispute and, more recently, the LNG plant at Pemba inevitably attracts the attention of human rights lawyers. OGM law straddles all these fields.
The actors are the host states (OPEC), state owned companies, foreign multinational companies and NGOs. Recent developments coming from the Dutch appellate courts in the case of the Royal Dutch Shell vs Efanga & Others (Niger Delta spills) reaffirm that local communities now wield stakeholder status and are actors at OGM law.
Generally, OGM law is based on the treaties, host-government and party agreements, case law (international arbitral awards), authorities and domestic law.
OGM investment law is an interesting field of law which is always evolving. Therefore, the sources cannot be understood without putting the matter in its right perspective.
Traditionally, OGM law was a lopsided game for investors regardless of the nature of the agreement with the host-governments. Host states wielded inherent powers which perpetually kept investors on the back-foot given the capital intensive nature of OGM investments.
Further, the duration of these contracts made investors vulnerable to obsolescing bargaining, direct expropriation and creeping expropriation.
This realisation became apparent post World-War Two with OGM investments nationalisations and expropriation in countries like Iran, Mexico, Kuwait and Libya.
The evolution of OGM investment law is rooted in the clash between the permanent sovereignty of states and the desire of Sending States to protect their subjects (ie multinational companies).
Evolution of OGM law
Permanent sovereignty is a principle of international oil and gas investment law which is predicated on sovereign nations having domain over their resources, entering into agreements on exploration, extraction and exporting of the resources as well as regulating these activities legislatively.
Early oil and gas investment case law like LIAMCO v Libya, TEXACO/Calasiatic v Libya and Anglo-Iranian Oil Company vs The Government of Iran hinted on this idea of states having permanent sovereignty over their natural resources in oil and gas mining.
This position was further buttressed by international resolutions at United Nations General Assembly level such as the United Nations General Assembly Resolution 523 (VI) of 12 January 1952, the Declaration on the Establishment of a New International Economic Order of 1974 and the 1974 General Assembly Resolution 3281 (XXXIX) Charter of Economic Rights and Duties of States.
In response to this, states entered into Bilateral Investment Treaties “BITs”. Multilateral Trade and Investment Agreements “MTIAs” like the famous Convention on the Settlement of Investment Disputes Between States and Nationals of Other States of 1965 “ICSID” and the Energy Charter of 1994 “ECT” emerged. The MTIAs created and empowered arbitral bodies to adjudicate arbitration cases between states and foreign investors. An argument is often advanced that the subjection of states to the jurisdiction of arbitral tribunals amounts to an attack on the permanent sovereignty of states. This argument is the subject of a separate discussion.
At this point it should be understood that at OGM law, states were the parties to the agreement. An investor could not, on its own, bring a treaty based claim against a state. It needed the intervention of its parent state. BITs contain treaty based protection mechanisms which, invariably, take the form of clauses like the fair and equitable treatment, legitimate expectation, non-discrimination clauses (national treatment and Most Favoured Nation) and full protection and security. The main clause is the umbrella clause (internationalisation of the contract) which is a blanket protection clause. This clause elevates a contract claim between the investor and the state to the level of a treaty claim between the same parties. These principles will be discussed extensively in subsequent articles.
For now it is important to know that these principles shaped the interpretation of OGM investment disputes as seen in recent cases like Bear Creek Mining Corporation v. Republic of Peru and Petrolane, Inc., Eastman Whipstock Manufacturing, Inc., and Seahorse Fleet, Inc. vs The Government of The Islamic Republic of Iran among several others.
On the side of the Host-Government Agreements (“HGAs”), the clauses also evolved. The key clauses in OGM law are what are known as stabilisation clauses. Joint Venture Agreements and Production Sharing Agreements in OGM Law include stabilisation clauses which generally take the form of freezing clauses, intangibility clauses, economic equilibrium clauses and hybrid clauses. These clauses are usually supplemented by the arbitration clause and the choice of law clause which, when read together with the abovementioned umbrella clause in the BIT, “internationalise” the HGA.
Violation of an OGM contract between a host government and a multinational company becomes violation of a BIT.
The discovery of oil and gas should be supplemented by proper legal frameworks on both sides to protect the interests of contracting parties and other stakeholders. Consequently, the law surrounding OGM is an interesting field indeed. Herald