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Jude Nnodum

This post is by Jude Nnodum (Associate Editor of this blog and Doctoral Researcher at Sussex Law School). The post sets out how foreign investors protect their investments under international investment law and, with reference to a recent suit instituted against Nigeria by Agip (a foreign investor in the petroleum industry), it highlights the potential impact the foreign investor protection regime has on Nigeria's ability to tackle corruption and promote sustainable development.

1.      Introduction

Sometime in late 2020, it was in the news that a multinational oil company, Agip Exploration Limited (together with its parent companies), had instituted an investor-State arbitration claim at the International Centre for the Settlement of Investment Dispute (ICSID) against Nigeria on the basis that Nigeria's actions were in breach of foreign investor rights as protected under an international investment treaty – the 1992 Netherlands-Nigeria bilateral investment treaty (BIT). It is important to note that the case has not been heard or concluded on the merit and, as such, there is no intention to prematurely predict the outcome of the dispute here, as that may amount to some form of 'sub judice'; however, this article aims, amongst other things, to provide an understanding of how international investment law offers protection to foreign investors and its implication for Nigeria.

As such, while disclosing how foreign investors and investments are protected through investment treaties and investor-State arbitration, this article argues that international investment law could potentially stifle efforts by host States like Nigeria to address broad public policy matters (such as corruption, as is in the case under study), nevertheless it remains optimistic on how reforms could improve the investment regime. To this end, this work will be made across six sections with the present section introducing the subject. Section 2 contains the background facts of the case, while Section 3 briefly discusses the protection of foreign investors in international law. Section 4 analyses the impact the obligations to protect foreign investors may have on their host States, and Section 5 highlights investment reforms to address the issues raised. Section 6 summarises and concludes the piece.

2.      Background Facts of the Case

The brief facts leading to the present dispute, as reported, are that Eni and Shell (who is not a party in the present case but has previously instituted an investment claim against Nigeria) purchased interests in oil prospecting licence (OPL) 245, a deep-water block off the coast of Nigeria, from Malabu sometime in 2011 for over $1 billion. Malabu, on the other hand, was awarded interests in OPL 245 in the late 1990s during the tenure of Mr. Dan Etete, the then Nigerian Minister for Petroleum, whom, himself, is alleged to have substantial economic interest in Malabu – indicating conflict of interest and corruption. In fact, the purchase transaction transferring OPL 245 interests to Eni and Shell has been the subject of intense dispute by the Nigerian government, including a criminal case on allegations of corruption which was recently concluded at the Court of Milan with Eni acquitted of the charges, though the prosecution has lodged an appeal against the decision.

The above represents how the Nigerian government perceives the deal and a foreground of its actions/decision towards Eni. Ordinarily, the holder of an OPL is licenced to explore oil in the designated oil field, and where exploration is successful such holder may apply to the Nigerian government for an oil mining licence (OML) to be able to exploit – that is, produce and export – the oil discovered. However, due to the allegations of corruption surrounding the purchase of the rights in OPL 245 by Eni and Shell, which tainted the nature of the transaction, the Nigerian government refused to upgrade to an OML. At the time, Eni noted that though the OPL had not been revoked by the Nigerian government, refusal to grant an OML will not only affect their interest in the oilfield but will extinguish investments already made in exploration. By this, the failure of the Nigerian government to convert the OPL to OML would be considered a breach of Nigeria's investment obligations towards Eni.

3.      Protection of Foreign Investors/Investments in International Law

Two important components of foreign investment protection in international law are, for the purposes of the present study, bilateral investment treaties (BITs) and investor-State arbitration. On the one hand, BITs are agreements made between two sovereign States granting foreign investors (i.e., nationals of the contracting State) and investments various standards of protection. In other words, BITs contain State obligations towards foreign investors within the territory or jurisdiction of the host State. Generally, though not uniformly drafted, obligations towards foreign investors include these guarantees: not to expropriate the assets or property interests of foreign investors (expropriation standard); not to impose arbitrary, unfair and unequitable treatment on a foreign investor (fair and equitable treatment [FET] standard); not to act discriminatorily in favour of another foreign investor(s) or domestic investor(s) (most-favoured-nations [MFN] standard and national treatment [NT] standard) respectively, etc.

On the other hand, investor-State arbitration is considered the most utilised mechanism to settle investor-State disputes and by extension it is pivotal to foreign investor protection; other mechanisms include domestic litigation and more recently mediation. The often-preferred forum to conduct investor-State arbitration is the International Centre for the Settlement of Investment Disputes (ICSID), a brainchild of the World Bank established through the ICSID Convention, which enjoys almost universal assent by sovereign States. Considering ICSID's wide reach, BITs signed by States often mandate that disputes arising from its provisions are to be resolved under the auspices of ICSID, often by-passing domestic litigation. This offers foreign investors the privilege to institute investment claims against their host States at the international level. This has led to over 800 investment claims against host States.

As noted above, BITs contain investment obligations or guarantees by a host State (i.e., Nigeria) which in turn grant rights to foreign investors. By this, Nigeria assures that its actions or measures shall not breach a foreign investor-protected right. As such, a foreign investor could allege that Nigeria's action (or inaction, as the case may be) has breached its right granted under a BIT. Depending on how an investment claim is drafted and argued, and the philosophical stance of the investment arbitrator, investment obligations could potentially have far-reaching effects, extending to a wide range of actions or decisions of all tiers and arms of the Nigerian government. Put differently, most sovereign actions of the Nigerian government could be alleged to be – and found – in breach of investment obligations contained in, for instance, the FET standard or expropriation standard provision.

Although the details of the investment claim(s) against Nigeria are not publicly available, it is certain that Eni is alleging breach(es) of foreign investor rights as protected under international investment law. In this case, Eni is relying on the 1992 Netherlands-Nigeria BIT to challenge the Nigerian government's action – that is, the refusal to convert the rights in OPL to OML – before investor-State arbitration. The Netherlands-Nigeria BIT represents the 'old generation' BITs, as the provisions of such treaties were predominantly focused on foreign investment protection – granting rights to foreign investors – with little or no consideration towards the sustainable development of the host State, which includes matters on environmental protection or human rights or issues of corruption in the host State as in the present case.

4.      Issues: Impact on Host States

The potential impact of an investment claim on a host State like Nigeria is twofold. First, when host States are sued, the amount claimed is usually in millions, and sometimes in billions, of dollars. This means that the host State is liable to pay such amount where the claim is successful. Therefore, a successful claim may have substantial financial impact on the respondent host State, more so where it is a State with a developing economy like Nigeria. Second, due to the potential financial liability that may arise from an investment claim, Nigeria, as a host State, may be forced to shun actions/measures ordinarily aimed to tackle broader public policy issues, such as protecting the environment or fighting corruption if such action will affect the interests of a foreign investor. This is known as 'regulatory freeze or chill'.

Currently, Nigeria faces significant socio-economic, as well as political, challenges, which may require stringent and, often, drastic measures. In the present case, the OPL 245 deal has been widely claimed to be tainted by corruption, considering how the rights were originally obtained. This is not to confirm the veracity of the corruption allegations or suggest that foreign investors should not be protected, but to highlight that in a situation where, for instance, corruption could be proved (considering the difficulty and standard of proof required) a foreign investor may still be entitled to seek protection under a BIT. In other words, the intention notwithstanding, (i.e., to tackle corruption), if the State's action affects a foreign investor, the host State could be found in breach of its investment obligations and liable to pay the amount claimed. Therefore, Nigeria may not only be liable to an investment claim but also such claim may prevent it from taking further actions.

5.      Looking Forward

The impact of foreign investment protection on the host State has led to various reactions from States, international institutions, and stakeholders in the international investment regime. There have been several efforts to reform the international investment law regime including at the international level by the United Nations Conference for Trade and Development (UNCTAD) and ICSID, but for the purposes of this study focus will be on how to reform BITs. The reason this aspect of investment reform is not only important but also suitable in the present case is because it requires efforts from Nigeria, and it is not necessarily subject to or determined by external influence. In other words, the option to reform BITs gives Nigeria more control and autonomy, which in turn ensures that investment obligations align with Nigeria's domestic needs and peculiarities.

According to publicly available data, Nigeria is a party to 30 BITs (15 in force) signed with different States at different stages of economic development across the globe. To reform the BITs, it is suggested that Nigeria needs to first develop a model investment treaty (MIT) for two reasons. First, an MIT provides the opportunity to incorporate provisions that will, for instance, give Nigeria the policy space to take actions or measures aimed at promoting sustainable development without breaching obligations towards foreign investors. This may be included in different parts of a BIT: in the preamble, in the body as a substantive provision or as an exemption provision. Second, an MIT would serve as a model to future BIT negotiations, and as such reduce the likelihood of being bound by obligations drafted in a manner that does not reflect or fails to recognise the concerns of Nigeria as a potential host State to foreign investors.

It is important to highlight that implementing the above option may come with its own challenges which includes, amongst others, the political will to undertake the reform and the ability to persuade a contracting State to accede to new provisions. However, it presents a better and readily available option for Nigeria considering that it is largely within its control. As such, in the present case, where such provisions are adequately incorporated in Nigeria's BITs, actions taken in line with promoting sustainable development in the economy, may be precluded from being in breach of foreign investor/investment protection provisions as mentioned. For instance, a decision to tackle corruption – that is, refusing to convert an OPL 245 to an OML due to suspected corruption in the manner the transaction was undertaken – may absolve Nigeria from liability that would ordinarily arise from an investment dispute with the foreign investor.

6.      Conclusion

This article aimed to provide an understanding of how foreign investors protect their investments under international investment law. With reference to the recent suit instituted against Nigeria by one of the foreign investors in the petroleum industry, Agip, it highlighted the potential impact the foreign investor protection regime has on Nigeria's ability to tackle corruption and promote sustainable development generally. It concluded that Nigeria's foreign investment protection regime could potentially stifle efforts to promote sustainable development, including efforts to tackle corruption. To address this, the article proposed that investment reforms such as developing a model investment treaty for future BITs, incorporating provisions in BITs that allow host State's actions aimed at, for instance, promoting sustainable development or combatting corruption without breaching investment obligations may absolve Nigeria from liability arising from an investment dispute with a foreign investor.

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