Interesting news on the international trade front in light of my recent post on international law and another on international investment law–the President of Chad has apparently expelled (2) two large oil companies, Chevron and Malaysia’s Petronas, on allegations they have not met unspecified “tax obligations.”
What apparently happened is this. In 1988 Chad (ranked last year as the world’s most corrupt state, next to Louisiana (okay, that’s a joke)) entered into an agreement with an oil-producing consortium led by Exxon Mobil; Chevron and Petronas were the other two members. I would assume that this was done by some form of “internationalized” investor-state agreement, or concession, that attempted to lock Chad’s obligations down under international law. Under the 1988 agreement with the consortium, “Chad gets 12.5 % of the wellhead value of total production”. The current President, Idriss Deby, now wants to renegotiate this agreement, because he thinks he, I mean Chad, is receiving too small a share of the oil revenue. “Chad only gets 12.5 % of royalties from the oil revenues … I didn’t sign the agreement, it was my predecessor… it’s a fool’s agreement.”
So, Chad forms the Chad Hydrocarbons Company, a state oil company, and wants it to enter into the consortium, as part of the “renegotiations”. I suspect the allegations of tax improprieties is nothing more than a way to cover what is really going on.
Now in cases like this, there are often several possible remedies available to the investor. It can base a claim on violation of an investment treaty standard, if one exists; it can take advantage of local legal remedies, if they exist; it can rely on the rights provided in an investor-state agreement (concession), if there is one; or it can try to get its home state to apply pressure to the host state. In this case, Chad’s actions seem to be a pretty clear violation of typical investment treaty protection standards; however, there is no bilateral investment treaty in place between Chad and the US or Malaysia, so there is no obvious treaty violation here. I believe Chad’s investment law also does not provide for direct investor-state arbitration, so that probably cannot be appealed to. The action here may be an expropriation in violation of customary international law, depending on the facts, which are not yet clear. Therefore, Chevron and Petrogras, if they cannot work out some settlement or compromise with Chad, will have to rely on the terms of the concession. Their dispute resolution remedies will depend on the terms of the concession, and whether it is sufficiently “stabilized” (whether the agreement is drafted so that it is “subject to international law” and does not permit the host state to unilaterally change the investors’ rights by just changing its own municipal (local) law. I suspect the 1988 agreement probably did adequately internationalize the agreement and that it provides for international arbitration in some neutral venue like Switzerland. Most likely, what will happen is Chevron and Petrogras will sue Chad, and “win”, relying on the agreement. (For further discussion of these issues, see my overview article, Reducing Political Risk in Developing Countries: Bilateral Investment Treaties, Stabilization Clauses, and MIGA & OPIC Investment Insurance; a more detailed discussion can be found in my recent legal treatise Reducing Political Risk in Developing Countries: Bilateral Investment Treaties, Stabilization Clauses, and MIGA & OPIC Investment Insurance.)
Somewhat murky, or at least eyebrow-raising, aspects to this development, at least for the uninitiated, are that the World Bank is also heavily involved here, and has for some reason been dictating to Chad how it can spend its share of the oil revenues. Also interesting was this quote: Chadian President Idriss Deby “did not say why Exxon Mobil was not singled out.” Hmm.
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Why shouldn’t Chad nationalize their oil? Iran did. Because Iran has a large army but we can smash Chad in an afternoon?
It’s often said by some activists that governments in developing countries are at the mercy of big MNC:s who supposedly can dictate terms of their investments and governments are forced to accept these. Real situation is of course different since already made investments are easy targets to nationalization. Recent examples are Venezuela, Bolivia, Ecuador and now Chad. Outright nationalization is still rare since these countries usually need capital and expertise to use their natural resources so kind of bargaining and blackmailing game is started.
Could that be true that Exxon has made some kind of deal with the govt so that they could get more of revenues at the expense of their former partners even if the govt’s share of oil revenues is increased ?
Adi said;
“Could that be true that Exxon has made some kind of deal with the govt so that they could get more of revenues at the expense of their former partners even if the govt’s share of oil revenues is increased ?”
Gee, ya think?
Yet OPIC and the World Bank continue to subsidize this kind of corporate malfeasance with taxpayer money.
OPIC? Is that the Organization of Petroleum Importing Countries?
OPIC is Overseas Private Investment Corporation–a US agency that guarantees US investments overseas. Similar to MIGA. More of this is in the article described plus there are resources here.
TGGP,
http://www.google.com/search?hl=en&q=OPIC
you wasted more keystrokes posting your Q, then you would have expended opening a new browser, dialing up GOOG, and punching in: OPIC.
hi, everyone here,
i am glad to find this blog to give my perspective on the issu of oil in Chad. I am from Chad and my first language is french so please forgive me for my Englesh.
What happened with the oil business in Chad is a perfect exemple of western and big corporation Extorsion of poor countries’s natural ressources. It is the biggest corporate scam.
They forced the gouvernement of tchad using the world bank to accept the deal that give only 12.5% of royalties to Chad. The world bank convinced the donnors that 80% of the oil revenu will go to developpement projects . But 80% of what?
Imagine, in one dollar of oil sold chad will receive 12.5 cents et the big compagnies will get 87.5 cents, then the chadian money will be deposited in a foreign bank the gouvernement have to ask permission and give a good reason to the world bank before any withrawal. In 2000 they lied to the governement of chad that the 3.7 billion investement will not be profitable before at least a decade. In less than 3 year of production, the companies sold more than 5 BILLIONS yes 5 BILLIONS dollars worth of chadian OIl in the international market. And how much Chad received from that? A crumbs, 399 millions less than what the CEO of exxon received for his retirement. So my friends, If this is how we can help poor countries get out of povery we have long way to go.
There are people who blame corruption for the situation but you can not steal a country’s natural ressource in the pretext of the existing state of corruption . Deby will leave power some day but the chadian people will be there for ever and will ask to renegociate the deal.
I don’t like deby, i am opposed to his regime but i tell you clearly that he is doing something honorable for the country right now.
It ‘ time for Chad to think like Venezuala and other countries to get the maximum from its oil.
The Chadian people are not stupid neither or president and even chutting off the oil well should be on the table.
thanks
But momo, what on earth gives the government of Chad any rights over oil that they neither discovered nor extract? Same with Venezuela, Saudi, Canada, …
M. E Hoffer: actually, I use firefox and have a google bar I can type stuff in, so it was even more wasteful than you think! Thanks for the pointer though. However, in my defense I’d like to say that google cannot read the minds of people here and let me know what exactly they are referring to.
momo: I don’t think you have a very good idea of where you are. You might want to stick around and read some of the articles that appear on the main page rather than the current events type stuff that appears on the blog.
To Peter: It is only common human decency that you share resources with millions of starving people instead of selfish exploitation. How many mansions and dollars does a oil company CEO need to make him happy? How much of that money could go to decent homes and water supplies where it is most needed. There is enough resources in the world to give each person a comfortable living if only we get over the idea of selfish hording. The world only need two rules – “Do unto others as you would have done unto you” and “show loving kindness to everyone including youself”.
THANK YOU HERvoice,
you are a true citizen of world. If we have just handfull of people with your mind , we will not talking about Chad my country’s oil situation.
My prime objective was to let good people like you to be aware of the problems of big corporate’s extorsion of poor countries’ ressources justifiying that with corruption and other reasons that if you look closer it’ s just a tactic to get more for selfish and greedy reasons.
Chad is the only country in the world who gave its soverenty to foreign power concerning its natural ressources.
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