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.
