Section 1- Some causes of the violation of petroleum
contracts
(Here, it is just about a transition chapter because did
not found a lot to say)
1- Breach of contract;
The violation of petroleum contract comes from the breach of
contract. But what is in fact the breach of contract? We can talk about the
breach of contract when there is unilateral revocation of the contract by one
of the contracting parties. It also happens that the breach of contract comes
from the non-fulfillment or incapacity of one the contracting party to respect
its contractual obligations. This is the case of dispute between the partners
of a joint venture company SONATRACH and REPSOL and GAS Natural. Since
September 2007, the company Sonatrach just confirmed the termination of a
contract concluded in 2004 with Repsol and Gas Natural for the integrated
project of petroleum development.
2-Change of legislation;
Political regimes and governments can follow one another and
the laws can be changed. In several stable countries, after the presidential or
legislative elections, the new governments have always tendency to change their
laws in their countries to satisfy their people. Even after a «military
coup d'Etat», the new regime may be attempted to change the petroleum
contract if the former regime was selling cheaply the petroleum in their
country to certain countries or foreign companies which have their industrial
activities in this area. Even in some countries where peace reigns, in view of
these serious crises or for the needs of management openness of petroleum
resources, of (good) governance, of autonomy and financial independence or
economic, certain governments may seek renegotiation or revision of former
petroleum contracts. This is the case of Venezuela (with the President Huguo
Chavez) or Libya (26/12/2007). However all revision can be done only by mutual
agreement between the contracting parties of petroleum contract and whether the
contract contains of course a stabilization clause. Any revision of the
petroleum contract made without the agreement of the other signatory party is a
pure and simple breach of contract. Certain revisions of petroleum contracts
consist in:
- making all contracts and all new agreements in compliance
with the production sharing
agreements applicable to all petroleum
agreements between a government and foreign
petroleum company for instance
for a period of 25 years, renewable for other 5 years. Cases
of Libya (26/12/2007);
- allowing the State to achieve the greatest benefit from the
exploitation of natural resources and an increase from 25% to 50% national
share in a state-owned firm of transport of gas across the Line maritime and
the increase in National participation in the marketing of gas to other
countries;
- creating a unified petroleum and gas producing company which
will be in charge of management of petroleum operations, of the execution of
projects targeted promotion and the achievement of the highest possible
capacity of petroleum and gas reserves by the intensification of development
projects of oilfields, the use of mechanisms of the new legislation on the
petroleum production sharing agreements;
- reviewing a memorandum on the revision of the process of
contracts with the foreign petroleum
companies40;
- establishing a memorandum relating on the development of the
basic conditions for the signing of contracts for the prospecting and
production-sharing of certain marine areas while emphasizing the need for
training and reinforcement of national staff capacity during the period of
prospecting;
- revising of the technique of contract and production sharing
zones and oilfields with foreign companies41 and
the drop in the share of the foreign partner and ratify certain provisions and
the fundamental conditions stipulated by sharing agreements, so as to achieve
an increase in the daily income.
3-Damages caused to the investment by local
messes;
When civil war, disorders or any local messes cause
substantial damages to investment or the investments of the private foreign
investor, this is seen as a breach of petroleum contract. A host country of the
investment is supposed to protect the assets of the foreign investor. This
failure could be described as a breach of contract.
4-The problems born to the legislation on the
environment;
If the petroleum contract included a clause of respect for the
environment in the host State of the investment, and that if the private
foreign company does not respect its environment, the host country can
unilaterally break petroleum contract after several warnings. And also if
40 case of the decision of the
Libyan supreme energy jurisdiction, the Libyan High council oil and gas in
their meeting held on December 26, 2007 on Western American companies
«Oxydental» and Austrian «OMV" for the reduction of their
current shares and the implementation of new programmes for the promotion,
production and exploration in the areas and oilfields in which these companies
operate.
41 case of the aforementioned
decision of the High council of Libyan oil and gas company with the "Petro
Canada"
the law of the host country relating to the respect of
environment change, it should not overly affect the rights of foreign private
companies, if not this situation can also lead a legal dispute between the
contracting parties. This situation is also one of the causes of the breach of
petroleum contracts.
5-Problems of the nationalization or the expropriations
of enterprises;
When a state contract or a petroleum contract is signed
between a State and a petroleum company, in any clause it may be mentioned that
the host state can nationalize or expropriate this alien company. Include such
a clause in a petroleum contract would be suicide for a foreign investor. But
sometimes it happens that in certain circumstances that the host State
nationalizes or expropriates a private foreign company. Such a decision would
be considered a violation and at the same time as a breach of contract. Any
nationalization or expropriation must be done according to the rules
established by international investment law. Such is the case law
Kuwait v. Aminoil42. In this case, in 1948, a
concession was granted to Aminoil by Kuwait "for the exploration and
exploitation of petroleum and natural gas in what has been called Kuwait"
Neutral Zone "(the Neutral Zone of Kuwait). In 1961, Kuwait became completely
independent, and the concession was amended by a supplementary agreement. In
December 1974, OPEC (Organization of Petroleum
Exporting Countries) adopted the "Abu Dhabi formula" which effectively
increased taxes on oil produced by Aminoil; Aminoil protested against this new
law. Negotiations between the parties were unsuccessful, and in 1977, the
Kuwait expropriated the assets of Aminoil43
In an international arbitration award, the company Aminoil
claimed that the action of OPEC countries, which has caused the expropriation
of its assets, was a violation of the stabilization clause contained in the
concession agreement or in their petroleum contract. In a nutshell, the
expropriation is seen here as a cause of a breach of petroleum contract.
6-Political risks.
A political risk is a risk associated with unanticipated
changes (or unexpected) in the law of any country, and which seriously affects
an investor (or a petroleum company). This risk is likely to reduce the value
of its investment. It is also the result of unexpected government intervention.
These kinds of risks are possible or even inevitable when in crisis situations
of hydrocarbons in the world, a country becomes one of the world's largest
producers of crude oil and natural gas; and also when its petroleum industry is
in lack of capital, good management and technology to effectively exploit its
vast reserves, the country may be attempted to amend or restructure the entire
legal regime for the petroleum industry.
42 Government of Kuwait v.
American Independent Oil Company (Aminoil) 66 ILR 518 (Mar. 24, 1982) (Reuter,
Sultan, and Fitzmaurice Arb.)
43 See also the discussion of
the Aminoil case in the paper written by Fernando R. Tesbn, «State
Contracts and Oil Expropriations: The Aminoil Kuwait
Arbitration», 24 VA. J.IW'L L. 323 (1984); and Geoffrey Marston,
The Aminoil Kuwait Arbitration, 17 J. WORLDT RADLE. 177
(1983).
We must know that these kind of political risks include: the
increase of taxes in the framework of import and export, tax increases; the
imposition of new regulations; nationalization or expropriation of goods or
assets of the investor. In view of this kind of situation caused by government
intervention, the options of the investor can be very limited, especially if
the country does not have an independent judicial system capable of controlling
its powers of legislation. We noticed that in most cases, some governments act
so because they know that investors (or the petroleum companies) have no status
under the terms of international law, with regard to this kind of situation, to
appeal to an international court because the international law traditionally
considers these kinds of matter as relating in the jurisdiction and discretion
of the host country of the investment concerned. It is important to note that
the recent trends in international law suggest that this principle can not be
applied if violations of the human rights of the investor are
involved44.
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