19 November 2012

Africa: Legal Roundup - Oct/Nov

Drawing on the latest legal and regulatory developments, This is Africa presents investment-related intelligence covering business reforms and legal news on the continent. This edition reviews Niger Delta oil pollution cases against Shell launched in the Netherlands, the UK and US; South Africa's cancellation of a bilateral investment treaty; delays to Uganda's petroleum bill; an OECD Guidelines review of BHP Billiton in Mozambique; and a new World Bank fund to help African countries negotiate national resource contracts.

World Bank

The World Bank has launched a $50m fund to help African countries in their legal negotiations over natural resource contracts with international companies. The fund, which is not yet operational, would offer legal services, support reduced environmental risks and provide technical assistance to address social risks from the extractive sector. Eligible countries are those that express demand, have significant oil, gas or mineral reserves in the process of being negotiated, and face social or environmental challenges "of significance".


Three legal challenges against Shell for pollution charges in the Niger Delta could set precedents for how multinational companies are sued for environmental damages in developing countries. All three inquiries - in the UK, the Netherlands and the US - are being judged in countries other than the one in which damages are said to have occurred.

Shell's trial in the Netherlands, for which evidence was submitted in October, is thought to be the first time a Dutch company has been brought before a home court to answer charges of environmental damage caused abroad. It is also the first time a parent company has been sued at home over environmental issues involving a subsidiary abroad - SPDC (Shell Petroleum Development Company of Nigeria) over which, Shell argues, it had no involvement.

Claimants are seeking redress in other countries largely because they lack confidence in Nigerian courts. Hundreds of legal cases are brought by victims of oil pollution each year but many become "stranded in the inefficient and corrupt Nigerian legal system", says Friends of the Earth Netherlands.

Depending on the outcome - due to be announced in January next year - the Netherlands trial could be "a really important case," says Professor Jonathan Verschuuren, environmental law expert at the Netherlands' Tilburg University. "If [the claimants] are successful, it is a big step in cases where Western multinationals commit acts that cause pollution. Up until now, you had to go through a developing country's courts".

South Africa

Pretoria has unilaterally given notice that it will terminate a bilateral investment treaty (BIT) with Belgium and Luxembourg, according to Investment Arbitration Reporter, the newsletter. The move is the first of many expected as the government looks to cancel first wave BITs signed early in the post-apartheid era.

These agreements enable foreign investors to bring international arbitration claims outside of national courts, even when the government is acting in accordance with constitutional requirements, as with South Africa's Black Economic Empowerment programme. The cancellations come after a government review in 2010, later endorsed by the South African cabinet, which concluded that early era bilateral investment treaties "pose risks and limitations on the ability of the government to pursue its constitutional-based transformation agenda".

South Africa has 13 agreements with EU member states, all rumoured to be up for cancellation as they come up for renewal. European businesses need bilateral agreements to secure affordable insurance to raise capital for foreign ventures and for some countries - notably Germany - political risk insurance can only be secured if the country in question has a BIT with Germany.


The development of Uganda's nascent oil sector faces continued delay due to the stalling of new legislation to regulate the sector, caused by an impasse between lawmakers and ministers.

A parliamentary moratorium on new oil deals was passed in October 2011, pending new petroleum laws aimed to better regulate the industry both upstream and downstream. But legislators have clashed with ministry officials over amendments to the two oil bills, which were tabled in February 2012 and moved to the floor for debate in September.

Parliament was sent on a month-long recess in October after lawmakers demanded amendments including greater legislative oversight, higher environmental standards and limits to the oil minister's powers. Global Witness, the watchdog, has criticised the draft laws for giving too much power to the executive and failing to guarantee disclosure of necessary information.

Further delays are now expected on the licensing of new oil blocks, and analysts at Eurasia, the political risk consultancy, said that mounting opposition within President Yoweri Museveni's own party and a backlash against his autocratic oil sector management will likely force modest revisions to the two bills. But delays at both the legislative and executive levels will postpone oil production until late 2017 at the earliest, with implications for both the country's much-needed oil revenues and for groups like Total, which are allegedly interested in further exploration.

At the executive level, less than six months after Uganda approved Tullow Oil's long-delayed $2.9bn deal to split its oil licences with CNOOC and Total, Mr Museveni is also withholding approval of the companies' development plan due largely to a dispute over his desire for them to part-fund a large refinery.

Uganda discovered oil along its border with the Democratic Republic of Congo in 2006. Reserves are estimated at 3.5bn barrels although only 40 percent of the basin has been explored.


BHP Billiton's defence against claims of environmental harm caused by a Mozambique smelter upgrade has been accepted by the UK and Australian National Contact Points for the OECD Guidelines for Multinational Enterprise, a voluntary standard. The UK NCP led an investigation into complaints by the NGO Justiça Ambiental, which also filed complaints at the International Finance Corporation and the European Investment Bank complaints offices.

Justiça Ambiental claimed BHP Billiton failed to adequately consult with communities over a short-term period of air pollution related to a smelter upgrade, and argued that exhaust fumes would have a negative effect on communities up to 100km away. Environmental assessments were inadequate, the group claimed, and disclosure of information was incomplete and contradictory. The group also queried whether BHP's upgrade was authorised by the relevant government agencies and claimed a breach of Mozambique's 2004 constitution.

The report cited two independent studies commissioned by BHP Billiton and completed by PAE Holmes and SE Solutions, in which both concluded that the risk of human impact was "unlikely" or "negligible".

The UK NCP considers that BHP Billiton "acted in accordance with... the [OECD] guidelines and has established and maintained a system of environmental management appropriate to the enterprise in relation to the bypass of the two fume treatment centres".

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