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Takudzwa T Mutevedzi

Part 2

These emphasised the idea of developing states, especially former colonies, exercising full autonomy over their natural resources within their national jurisdiction in accordance with their laws and regulations and in conformity with their national objectives and priorities.

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 vs 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 above mentioned 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.

Conclusion

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. 

By way of example, interesting discussion points arise concerning the position of a full protection and security clause in the case of the LNG site attack at Pemba in Mozambique in light of the Ampal v Egypt case.

Takudzwa T Mutevedzi is a lawyer and student of OGM law currently pursuing an LLM in Oil, Gas and Mining at an energy law university in the United Kingdom. He writes in his personal capacity and can be contacted on [email protected]; Takudzwa Takunda Mutevedzi on LinkedIn.