Abstract
This paper makes a critical analysis of the principle of permanent sovereignty over natural resources and contract stability as applicable to transnational petroleum investment contracts. It considers the extent to which these concepts affect foreign direct investment in the petroleum industry. This work further demystifies the theory of contract stability as a panacea to the tense environment contrived by the principle of permanent sovereignty over natural resources. The doctrine of pacta sunt servanda as applicable to stabilization clauses is considered towards explicating how it procures stability in oil investment contracts. In this wise, other like devices like renegotiation, clausula rebus sic stantibus, etc are not left out, particularly as they introduce some element of flexibility and attenuate the hardships that might arise due to strict insistence on the application of principle of pacta sunt servanda to the dynamics of the petroleum industry. This work adopts the synthesis and analysis as well as the comparative methodology in reviewing the relevant materials consulted in the course of this work. It argues that parties to transnational petroleum contracts should pursue stability in such agreements through the employment of such devices that ensure flexibility within the context of a dynamic petroleum industry. Keywords: Permanent Sovereignty, Contract Stability, Petroleum Investment Contract, Stabilization Clauses DOI: 10.7176/JLPG/111-09 Publication date: July 31 st 2021
Highlights
It is beyond dispute that the ‘black-gold’ is the main stay of most countries where it abounds in commercial quantities and in Nigeria, accounts for more than 80 percent of government revenues
See section 44(3) of the 1999 Constitution of the Federal Republic of Nigeria; section 1 of the Petroleum Act; and section 1 of the Minerals and Mining Act. This trend is a necessary precipitate of the evolutionist principle of resource nationalism as provided in articles 1 and 2 of the United Nations Declaration on Permanent Sovereignty over Natural Resources adopted by United Nations General Assembly (UNGA) Resolution 1803 (XVII) of 14th December 1962, and sees developing countries take all steps necessary to ensure that they exercise permanent sovereignty over their natural resources and maximize the benefits accruing from the exploitation of such natural resources (Mato 2012)
It has been seen that the discourse of foreign direct investment invariably involves long term agreements between the host State and the foreign investor
Summary
It is beyond dispute that the ‘black-gold’ (i.e. petroleum) is the main stay of most countries where it abounds in commercial quantities and in Nigeria, accounts for more than 80 percent of government revenues. In the case of Libyan American Oil Company (LIAMCO) v Libya (1977) ILR 141, the arbitrator held that, ‘the said Resolutions, if not a unanimous source of law, are evidence of the recent dominant trend of international opinion concerning the sovereign right of States over natural resources’ This clearly shows that even arbitral tribunals recognize the general resolutions on permanent sovereignty over natural resources as evidence of customary law. It has been argued that a rigid application of the principle of pacta sunt servanda to stability clauses in transnational petroleum contracts involving IOCs derogates from the sovereign rights of the host country to her natural resources such that the applicability of the doctrine need be relaxed. Any modern investment contract, in the oil industry is “an invitation to a ball” and the absence of flexibility in the contract may lead to acrimony
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