Contracting and regulatory issues in

the oil and gas and metallic minerals

industries

Michael Likosky *

This article looks at key regulatory and contractual issues in the oil
and gas and also metal minerals industries. It provides an overview of
contract types and discusses several state-of-the-art issues. In discussing
contract types, it first provides a brief historical backdrop. It then turns
to the major contract types. Both the history of traditional concessions
and the enumerated present-day contract types are common to oil and
gas and also metal mineral extraction. For this reason, they will be
discussed together. Among state-of-the-art issues, the article considers
(1) contract renegotiations, mainly with regard to Bolivia, Ecuador and
the Venezuela; (2) the proposed Iraqi oil law; and (3) the handling of
human rights and environmental issues by projects.

Key words: extractive industries, contracts, Bolivia, Ecuador, Iraq,

Venezuela

1. Introduction
This article looks at key regulatory and contractual issues in the oil and
gas and also metal minerals industries. It provides an overview of contract
types and discusses several state-of-the-art issues. In discussing contract types,
it first provides a brief historical backdrop. It then turns to the major contract
types: (1) modern concessions; (2) production-sharing agreements (PSAs);
(3) joint ventures; and (4) service contracts, including risk service contracts,
pure service contracts and technical assistance contracts.1 Both the history
of traditional concessions and the enumerated present-day contract types

* This article was written while Michael Likosky was Global Crystal Eastman Research
Fellow in the Hauser Global Law School Program, New York University School of Law (2006–
2007). It was presented to the Human Rights Clinic at Columbia University Law School; thanks
are due to Peter Rosenblum and to seminar participants for their useful feedback. The views
expressed in this study are those of the author and do not necessarily reflect the views of the
United Nations, its member States, or the institutions to which the author is affiliated.
1
This taxonomy borrows from the three basic works in this area: Barberis, 1999;
Omorogbe, 1997; Smith et al., 2000).
are common to oil and gas and also metal mineral extraction. For this
reason, they will be discussed together. Among state-of-the-art issues,
the article considers (1) contract renegotiations, mainly with regard to
Bolivia, Ecuador and Venezuela; (2) the proposed Iraqi oil law; and (3)
the handling of human rights and environmental issues by projects.

2. Historical background
Historically, the principal contractual form in the extractive
industry was the concession. A concession essentially grants a private
company the exclusive right to explore, produce and market natural
resources. This contractual form has survived to this day, albeit in a vastly
different form. Our understanding of the modern concession and other
contractual forms for exploiting natural resources may be understood as
a reaction against some of the excesses of the traditional concession. For
this reason, it is useful to recount some of the basic features which sound
repugnant to modern ears.
Importantly, the financial bargain struck between the host
government and the foreign company was highly uneven, at times
teetering on the verge of the unconscionable. Companies paid small
sums to the host government for the rights over its natural resources.
Typically, the compensation was not tied to the value of the resource
itself. It was, however, tied to volume produced. For example, the Oil
Concession of 1934 between the State of Kuwait and the Kuwait Oil
Company Limited (United Kingdom) states:
“(d) For the purpose of this Agreement and to define the exact
product to which the Royalty stated above refers, it is agreed that
the Royalty is payable on each English ton of 2.40 lb. of net crude
petroleum won and saved by the Company from within the State
of Kuwait-that is after deducting water sand and other foreign
substances and the oil required for the customary operations
of the Company’s installations in the Sheikh’s territories” (Oil
Concession of 1934: Article 3(d)).
Because companies determined the volume of production, this meant
that the interests of governments and companies could and often did
diverge. That is, it was not always in the interests of companies to exploit
resources fully (Smith, 1991-2, p. 495).
In addition, the scope of the traditional concession was broad,
particularly with respect to duration and geography. For example,

2 Transnational Corporations, Vol. 18, No. 1 (April 2009)

a foreign company could be granted rights from 40 to 75 years. The
Kuwait contract was to run for seventy-five years (Oil Concession of
1934: Article 1. At times, the company secured rights over large tracts
of land. This control could extend to the entire country. (Omorogbe,
1997, p. 58). The broad remit meant that the interests of companies in
exploiting resources were not always congruent with those of the host
government. For instance, a company might not always have a financial
interest in comprehensive exploration. Thus, potential sources of revenue
for the host government might not be identified and pursued. Moreover,
since the contract granted exclusive rights to the foreign company for the
period of the concession, the Government could not seek out a different
“thirstier” company. Exploration was contractually tied up. At times,
certain parameters for exploration were set. This was the case in the
Kuwait contract which stated:
“(a) Within nine months from the date of signature of this Agreement
the Company shall commence geological exploration.
(b) The Company shall drill for petroleum to the following total
aggregate depths and within the following periods of time at such
and so many places as the Company may decide:
∙ 4,000 feet prior to the 4th anniversary of the date of signature
of this Agreement.
∙ 12,000 feet prior to the 10th anniversary of the date of signature
of this Agreement.
∙ 30,000 feet prior to the 20th anniversary of the date o f
signature of this Agreement.” (Oil Concession of 1934: Article
2(a) and (b)).
Importantly, these parameters allowed the company great freedom in
determining the nature, scope and extent of exploration.
These aspects of the concession agreement did not survive
decolonization, the New International Economic Order and the creation
of the Organization of the Petroleum Exporting Countries (OPEC).
Expropriations and renegotiations as well as newly formed contracts
saw to this. As we move towards the present-day partnership-based
contractual models, there is a concerted effort to rebalance specific
contracts so as to remove many of these outmoded features of the
traditional concession.

Transnational Corporations, Vol. 18, No. 1 (April 2009) 3

3. Contract types/regulatory models
Today, extraction contracts are premised on transnational public-
private partnerships (Likosky, 2006, Chapter 2). Together, a transnational
group of governments and companies generally share control over the
financing, exploration, production and marketing of natural resources in
varying degrees. For example, a foreign government may involve itself
in a project through an export credit agency which advances loans to a
project company.2 Through the involvement of export credit agencies,
foreign governments may influence project decision-making. This
influence may be amplified in situations in which several export credit
agencies are involved in a single project and coordinate their activities.
At times, intergovernmental organizations may also be involved in
a project.2 The involvement of the export credit agencies and the
international financial institutions will carry with it their own respective
project documentation, often in the form of loan agreements. The nature
and form of the overarching partnership, however, varies according to
contract type. Furthermore, the contractual clauses are often even more
important in defining the nature of the partnership than the contract type.
The basic contract types are (1) modern concessions; (2) production-
sharing agreements; (3) joint ventures; and (4) service contracts.
In a field in which nationalism and anti-foreign sentiments are rife,
the name attached to an agreement may be more important rhetorically
than in practice. The content of contracts is often less dependent on
type and more on specific terms. Nonetheless, from a developmental
perspective, service contracts arguably afford the most independence to
the host State. They are often associated with Middle Eastern countries
that have high levels of domestic expertise. Joint ventures are next along
the spectrum, because they involve substantial host State participation,
sometimes a majority equity stake. Such ventures are common
internationally. Thus, it will be important to identify the nature of the
venture, i.e. the relative percentages of ownership and control over the
overall enterprise. Production-sharing agreements (PSAs) are currently
a matter for intense controversy.3 At the same time, in situations in which
a large exploration risk exists, they may be the best way to advance
developmental interests.
2
For example, the Inter-American Development Bank is involved in the Camisea
project. Likewise, the International Financial Corporation is involved in the Baku-
Tbilisi-Ceyhan and Chad Cameroon pipelines.
3
In the former Soviet Union, there is some dissatisfaction with them in retrospect.
Moreover, in the Iraq context, non-governmental organizations argued that they were
not an optimal means for achieving development.

4 Transnational Corporations, Vol. 18, No. 1 (April 2009)

 Regardless of the contract type chosen, from a developmental
perspective, among other issues, it will be important to attend to the
levels of taxes and royalties as well as to clauses stipulating technology
transfer and local sourcing requirements. Given the fact that contracts
are rarely public and that conditions vary from country to country and
from project to project, it is difficult to provide an estimate of normal
revenue splits.
Furthermore, when assessing the development impact of the
different contractual forms and clauses, generalizations are difficult. Not
only do countries vary in the quality of their resources and in their level
of domestic expertise, but it is possible that, as we shall see in the Iraq
case, different projects within a country call for different contractual
types. It may be argued, however, that contractual clauses focusing
on national content, local training, host government control over key
decisions, and participation by State-owned corporations all advance
developmental objectives. From a human rights and environmental
perspective, it may also be that the involvement of public and private
international banks and also certain oil majors with relevant policies
influences such practices on a project-specific basis.
The overriding importance of contractual clauses in determining
the nature of revenue sharing makes it difficult to generalize about the
relationship between contract forms and revenue sharing. Royalty and
taxation rates will be contractually determined. This is one reason why
caution is important in making generalizations as to which contract
type is best for development and financial purposes. At the same time,
a qualitative difference exists between concessions, joint ventures and
risk-sharing agreements, on the one hand, and service contracts, on
the other. Under the former models, the company will have a share in
revenue, even though the extent will depend upon contractual clauses
and legislation. Under the latter model, however, the company will be
compensated generally by the host Government for services carried out.
Under such an arrangement, the company may not have any stake in
revenue: the company is contracted in to provide a set service and the
Government pays it accordingly in cash. As a result, the benefits of the
commercial productivity of the project do not accrue to the company.
Importantly, the evolution from the concession contract to the
modern participation agreements shows how the types of activities
which contracts govern have changed over time. Today, greater emphasis
is placed on the development of local capacity. For example, contracts
might now stress that the foreign company must, all things being equal,
purchase inputs locally. In addition, a host Government is more likely

Transnational Corporations, Vol. 18, No. 1 (April 2009) 5

today to play a role in projects through a State-owned company. Further,
human rights and environmental commitments are perhaps the most
significant recent development affecting projects. These commitments
are nowadays incorporated into project documentation at the impetus
of multinationals, private investment banks, or international financial
institutions. These areas will receive greater attention in the section
below on contractual clauses and, with regard to human rights and the
environment, within the section on such inputs below.
Before discussing relevant national and international legal
aspects of projects, it is important to underscore that the contract will
be the most important instrument by which benefits and responsibilities
from projects will be distributed. Importantly, national legislative
action may establish the enabling environment in which contracts are
negotiated and carried out. National regulatory action may also force
the renegotiation of key contractual terms. With regard to international
legal action, action by international organizations may impact on the
contractual relationships among parties as well as establish new ones.
For example, if the International Finance Corporation (IFC) lends
money to a project company, then it will be important to ascertain the
terms of the loan and the mechanisms for enforcing provisions. Further,
if, for example, the Multilateral Investment Guarantee Agency (MIGA)
provides political risk insurance for a project, this might influence the
allocations of responsibilities among project parties in a material way.
Because projects pull on international resources in differing ways and
because national legislation varies by country, it is not possible to arrive
at ironclad rules regarding the relative importance of different levels of
legal action. Nonetheless, the identification of actors involved in specific
projects is an important starting point for gauging relative influence.

4. National level
At the national level, laws, regulations and contract types are all
important. This section, however, focuses mainly on contract types. At
the same time, the importance of laws and regulations relative to contracts
may vary. For example, laws and regulations may be more significant
than contracts in the metal mineral industry of certain countries.4

4
Notwithstanding, Daniele Barberis, a leading commentator, makes the following
point about the mining sector, which is significant for our purposes: “Many governments
in developed countries use the unilateral licensing/leasing approach, while many
developing countries prefer the consensual approach and use mining agreements which
are negotiated with TMC [transnational mining companies]” (Barberis, 1999, p. 13).

6 Transnational Corporations, Vol. 18, No. 1 (April 2009)

 Perhaps the difference in this approach lies in the purpose of mining
legislation itself, which Barberis argues is to act as a signal of the host
Government’s position towards investment in the sector. In developed
countries, an investor would assume that a legislative signal amounts
to secure investment relatively free of legislative risk. In developing
countries, however, investors are keen to contractualize commitments
by the Government, arranging a reliable dispute resolution mechanism
for instance.5
Nonetheless, laws and regulations are important in setting out the
general enabling environment in which contracts will be negotiated and
executed. Often, a State-owned company or Government ministry acts
as the negotiating arm of the Government. In such cases, regulations
might explicitly delegate such authority to the public entity, which may
itself be created by legislation. Both laws and regulations are important
for reinforcing contractual relationships and also, at times, for altering
such relations. For example, they may be the instrument guiding contract
renegotiations. Legislated changes may be in the form of increases in
rates of taxation or outright nationalizations. The contract is important
in setting out the primary relationships among parties.
This section looks mainly at the different types of contracts,
pointing out their similarities and differences. In addition, attention
is paid to how well different contracts are suited to varied economic
situations. National laws and regulations will be discussed later in the
context of nationalizations and contractual renegotiations. In these
situations, a legal or regulatory change may gear itself towards redefining
the contractually determined relationship between host government
and investor. Nonetheless, although different contract forms will be
elaborated below in turn, in practice the types sometimes mix with one
another.
a. Modern concessions
Although the traditional concessionary contract is now a
relic, concessions survive and flourish in many parts of the world,
albeit sometimes as the less politically charged “license” or “lease”
(Omorogbe, 1999, p. 60). Fundamentally, what distinguishes these two
generations of concessions is the shift from an unequal bargain-based

5
Australia provides an example in which the licensing system predominates. On
the other hand, in Papua New Guinea mining agreements are of primary importance.
(Barberis, 1999, pp. 29–39)

Transnational Corporations, Vol. 18, No. 1 (April 2009) 7

model to a partnership-based one. As the other main contractual forms
are introduced below, the differences between the modern concession
and the other forms will be discussed. This section sets out the features
of the modern concession that underscore its use as a partnership-based
model.
The new generation of concession contracts aims to fulfil national
development and welfare goals as well as purely financial ones. For
example, the contract between Indonesia and P.T. Stanvac Indonesia
(PTSI) provides as follows:
“PTSI will plan and conduct all operations under this Contract in
the best manner possible for the sound and progressive development of the
petroleum industry in Indonesia, will at all times give consideration to the
aspirations and welfare of the people of the Republic of Indonesia and to the
economic development of the nation, and will cooperate with the Government
in promoting the growth and development of the Indonesian economic and
social structure by assisting in making available information and technical data
relating to enterprises and developments which would be of mutual benefit to
the Government and to the operations being conducted by PTSI as contractor
for PN” (Petroleum Working Contract Between Indonesia and P.T. Stanvac
Indonesia 1964: Article 15).

Just as with the first generation of concessions, today’s contracts

grant companies the right to explore, produce and market resources.
However, the latitude afforded to companies is relatively curtailed.
Control over projects is premised on partnership, not dominance.
Accordingly, leading commentators speak of the move from concession
to participation (Smith et al., 2000, pp. 418–425; Note, 1973, p. 774).
The actual distance between traditional and modern ones often depends
on the natural attributes of the country. The most important set of nations
in this regard are those that make up OPEC. Countries such as Saudi
Arabia, Islamic Republic of Iran, and Iraq all renegotiated traditional
concessions, replacing them with dramatically different profit-sharing
regimes (Smith et al., 2000, pp. 418–422). Nonetheless, the locus of
control has invariably shifted along the continuum towards partnership.
Unlike the production-sharing agreement, the terms of participation are
mainly based on a grant for a specified period of time.6

6
By way of contrast, the main aim of the production-sharing agreement is to
encourage a company to undertake the exploration risk and, in return, provide a flexible
period to recoup sunk costs profits.

8 Transnational Corporations, Vol. 18, No. 1 (April 2009)

 In many countries, the transmutation of traditional to modern
concessions happened through host Government-initiated renegotiations
and nationalizations. These contract amendments were most famously
carried out in Latin America and North Africa. The terms of the modern
contracts that emerged varied by country and project. Although projects
were renegotiated by each Government, in the oil sector, OPEC played a
significant role in pooling information on terms of renegotiation among
member countries (Smith et al,, 2000, p. 419). Most governments sought
to modify contracts so as to address the excesses of the traditional
concessions discussed above.
If the main criticisms of the concessions related to degree of
foreign control, geographical scope and duration and also financial
compensation, then it is unsurprising that the new contracts sought
to rebalance these terms. Governments might limit the acreage of the
concession and the duration of the contract. Thus, no longer would
companies be granted rights over an entire country. Further, host
governments are now keen to ensure that companies cannot leave areas
unexplored for long periods. Hosts now have a say in when a company
must hand control of unexplored land back to the Government. An
Indonesian contract between Indonesia and P.T. Stanvac Indonesia sets
forth a minimum expenditure on explorations by the oil company over
a number of years:
“a. PTSI must commence exploratory operations in the New Area
under this Contract not later than six (6) months after the date
the ratification of this Contract is promulgated. The minimum
amounts to be spent by PTSI in conducting operations during
the first eight (8) years following the date of ratification of this
Contract is promulgated shall in the aggregate, be not less than
hereafter specified for each of these eight (8) years as follows:
First Contract Year U.S. 1,000,000
Second Contract Year U.S. 1,000,000
Third Contract Year U.S. 1,500,000
Fourth Contract Year U.S. 1,500,000
Fifth Contract Year U.S. 1,250,000
Sixth Contract Year U.S. 1,250,000
Seventh Contract Year U.S. 1,250,000
Eight Contract Year U.S.1,250,000”

(Petroleum Working Contract Between Indonesia and P.T. Stanvac

Indonesia 1964: Article 4(a)).

Transnational Corporations, Vol. 18, No. 1 (April 2009) 9

 Likewise in an agreement between Egypt, the Egyptian General
Petroleum Corporation and Esso Egypt Inc. (United States), the
concession provides that: “ESSO shall spend a minimum of forty-eight
(48) million U.S. dollars on exploration over a period of twelve (12)
years”. It goes on to break down amounts that must be spent on a yearly
basis.7 The literature, as far as I am aware, does not provide evidence of
whether countries like Indonesia and Egypt have benefited from these
modern concession contracts or whether it has been wise for Indonesia,
for instance, to pursue PSAs subsequently. The main clauses found in
concessions are set forth below. Of course, contracts pick and choose
among such clauses and the specifics vary. With regard to finances,
royalties, which had previously been tied to volume of production, might
be made sensitive to the market value of the resources. Taxation regimes
might be instituted, eclipsing a legacy of either no or minimal taxation.
b. Production-sharing agreements
Indonesia was first to employ production-sharing agreements
(PSAs) (Fabrikant, 1975, p. 3030; Machmud, 1993, p. 179; Machmud,
2000). They are at the heart of present-day controversies over oil
extraction from regrets over their use in post-Soviet Russia (Stoleson,
1996-7; Timokhov, 2001-2) to their proposed employ in post-war Iraq.
They are less common in mining (Barberis, 1999, p. 155).8 This type of
agreement grants a company the right to explore for natural resources.
If resources are not found, then the company is out of pocket. However,
if commercially exploitable resources are discovered, then the company
has the right to recoup sunk costs and subsequently to share in profits.
This is the incentive for shouldering the risk of non-discovery.
The PSA differs from the concession in two main respects. First,
it does not grant the company ownership rights over the resource.

7
See Egypt-Egyptian General Petroleum Corporation/Esso: Concession Agreement
for Petroleum Exploration and Production 12/14/74: Article IV (Egypt-Egyptian
General Petroleum Corporation/Esso: Concession Agreement for Petroleum Exploration
and Production 12/14/74: Article IV Work Program, Expenditures and Management of
Operation (b).
8
Daniele Barberis argues that they are unusual in mining, “because the Government
does not have a major interest in receiving the actual production of mining activities
as it does with petroleum” (Barberis, 1999, p. 155). Commentators have not seriously
considered whether production-sharing agreements should be used more fully in mining.
In Indonesia, it was ultimately decided that a preference of such agreements would have
an adverse impact on the ability to secure foreign investment insurance (Barberis, 1999,
p. 155).

10 Transnational Corporations, Vol. 18, No. 1 (April 2009)

Accordingly, the Government may take a greater interest in technology
transfer, preparing for the eventual turning over of the resources to its
hands. Further, unlike the concession, which grants the company rights
over the resource for a specified period of time, the PSA grants the
company an interest in the resource that is tied to the recouping of sunk
costs and, then of course, to the garnering of a profit. It may be useful for
a host Government that is keen to encourage a company to undertake the
risk of exploration. The company might find it more useful than a modern
concession, for instance, in the situation in which a company is uncertain
about its ability to recoup its sunk costs within the strictly definite time
period provided for by the modern concession. Dzienkowski identifies
the three key issues that PSAs must address: “(1) the existence of a
work program or minimum dollar contribution towards development;
(2) the duration of the exploration and development phase; and (3) the
sharing of benefits of production between the multinational and state
oil company if production is achieved” (Smith et al,, 2000, p. 454).
Importantly, during a successful post-discovery phase of cost recoup
and profit garnering, the Government does take a share of the financial
largess through taxation and royalty.
Roughly, PSAs have been devised to encourage private investment
in untested areas. Host governments appreciate certain attributes of
private companies, as can be seen from the Agreement on the Exploration,
Development and Production Sharing for the Shakh Deniz Prospective
Area in the Azerbaijan Sector of the Caspian Sea:9
“Whereas, Contractor has the technical knowledge and experience, the
administrative and managerial expertise, and financial resources to efficiently
develop and produce the Petroleum resources of the Contract Area, and desires
to contract with SOCAR for that purpose” (Final Consolidated Version 3/30/96:
Preamble).

As a result, companies are given special financial incentives to

invest, but must also shoulder the risk that no resources will be found.
Along these lines, the Azerbaijan contract grants the companies the
“sole and exclusive right to conduct Petroleum Operations within and

9
The agreement was signed between the State Oil Company of the Azerbaijan
Republic (Azerbaijan), on the one hand, and Socar Commercial Affiliate (Azerbaijan),
BP Exploration (Azerbaijan) Limited (United Kingdom), Elf Petroleum Azerbaijan
B.V. (France), Lukoil International Limited (the Russian Federation), Oil Industries
Engineering and Construction (Islamic Repbulic of Iran), Statoil Azerbaijan A.S.
(Azerbaijan) and Turkish Petroleum Overseas Company Limited (Turkey), on the other
hand.

Transnational Corporations, Vol. 18, No. 1 (April 2009) 11

with respect to the Contract Area” (Final Consolidated Version 3/30/96:
Article 2, Section 2.1).
To entice companies to seek out resources, the host Government,
upon discovery of resources, allows companies to recoup sunk costs
and to garner an agreed-upon profit. If the company does not succeed
in finding resources, then it is generally out of pocket. The Azerbaijan
agreement, for instance, provides:
“2.2. Except as expressly provided elsewhere herein, in the event
production resulting from Petroleum Operations, upon completion
of commercial production from the Contract Area at the end of
the term of this Agreement, inclusive of all extensions provided in
Article 4 is insufficient for full recovery of Contractor’s Capital
Costs and Operating Costs as provided hereunder, the Contractor
shall not be entitled to any reimbursement or compensation
for any of its costs not recovered” (Final Consolidated Version
3/30/96: Article 2, Section 2.2).
If a commercial discovery is made, then the company has the
right to recoup sunk costs and an agreed-upon profit. For example, the
Azerbaijan contract indicates:
“(a) Contractor shall be entitled to the recovery of petroleum costs
as follows:
(i) All Operating Costs shall first be recovered from Total
Production;
(ii) All Capital Costs shall then be recovered from a maximum
of fifty (50) percent of Crude Oil and fifty (50) percent of Non-
associated Natural Gas remaining out of Total Production after
Crude Oil and Non-associated Natural Gas required to recover
Contractor’s Operating Costs (‘Capital Cost Recovery Petroleum’).
(Final Consolidated Version 3/30/96: Article 11 Contractor’s
Recovery of Petroleum Costs and Production Sharing, 11.2 Cost
Recovery (a)(i) and (ii)).” (Final Consolidation Version 3/30/96:
Article 11 Contractor’s Recovery of Petroleum Costs and
Production Sharing, 11.2 Cost Recovery (a)(j) and (ii)).”
Afterwards, according to this particular agreement, profit sharing
between the host Government and the companies kicks in with a profit-
sharing formula (Final Consolidated Version 3/30/96: Article 11, 11.5
Profit Petroleum).

12 Transnational Corporations, Vol. 18, No. 1 (April 2009)

 Under PSAs, in the partnership forged between governments
and companies, the host maintains varying degrees of oversight over
decision-making. The life cycle of the project is important here. If a
project will eventually shift to Government control once the company
has recouped costs and captured a profit, then the host must plan from the
start for this eventuality. This means that decisional control is partially
reserved to the Government even during the period of robust private
involvement.
The Government must also ensure that it has the knowledge
and expertise necessary to eventually run the project. The attendant
increased micro-level Government participation is also in line with the
overarching emphasis on partnership.
c. Joint ventures
Also in line with the partnership-based approach, under the joint
venture (JV) arrangement, the foreign company does business with a
national State-owned company. The venture may involve creating a
jointly controlled project company. Like the concession and the PSA, it
is important to look to the specifics of the venture’s legal arrangement
in order to ascertain the extent to which the control over the companies
rests in foreign or domestic hands. As indicated, contract types often
blend into one another. What is important about the JV, in distinction
to modern concession and PSAs in the purest forms, is that it provides
a corporate-based, structured means for technology transfer and shared
decision-making. Of course, such goals may be accomplished through
other instruments; however, a corporate partnership may be the most
strategically attuned means available.
JV agreements may be found throughout the world. As contracts
are not generally public, it is not possible to conclude that they look the
same everywhere. Nonetheless, it is fair to assume that the contents of
JV contracts are shaped by political exigencies everywhere. Thus, when
the host Government is in a strong negotiating position, the local partner
may have greater rights than in a situation in which the local strength
is limited. The politicized nature of these arrangements is evidenced by
the recent controversy over the Russian Government’s intervention in
the Sakhalin-2 project, a JV among Shell, Mitsui (Japan) and Mitsubishi
(Japan).
Importantly, JVs may be incorporated into other contractual types,
such as PSAs. For example, the Azerbaijan contract involves mixed
corporate participation. The relevant clause is set out in the next section.

Transnational Corporations, Vol. 18, No. 1 (April 2009) 13

Likewise, the Camisea project discussed in the human rights section
below is a JV project. It is important to look to the specific clauses
included in the JV agreement. Once again, this may be more a matter of
picking and choosing than contract form-specific considerations.
Like the PSA, the JV arrangement puts a premium on technology
transfer. The aim is to foster eventual genuine independence by the State-
owned company. Inevitably, the prospect of independence runs counter
to the interests of foreign copanies. As a result, the extent of technology
transfer built into the joint venture is negotiated and varies depending
upon the bargaining strength of the national government.
d. Service contracts
Often, the Government seeks to exert greater control over the
exploration and exploitation of its resources. It may do this through
service contracts, whereby private companies are brought in to
accomplish carefully delimited tasks. Unlike modern concessions,
PSAs and JVs, service contracts are thought of as a device in which the
host Government exercises the greatest control over a project. In this
case, the host Government is only contracting in the foreign company to
perform a carefully delimited service. The company does not generally
share in the revenue produced. Thus, the host Government does not yield
control of the resource in a meaningful way. Under the service contract,
a host Government must have the requisite technological know-how and
access to capital. Often, this is not the case when exploration risk capital
is required. It is also important to remember that a service contract might
be for a minor task and thus preferable to the other contract forms. The
three main types of service contracts are the risk service contract, the
pure service contract and the technical assistance contract.
Risk service contracts. Like PSAs, risk service contracts address a
situation where a host Government is seeking to use private companies
to bear the risk of exploration. Two scenarios are envisioned: either
commercially exploitable resources are identified or they are not. If
they are, then the company receives cash remuneration for its efforts in
addition to a possible stake in the subsequent enterprise. If resources are
not found, then the company is out of pocket (Omorogbe, 1999, p. 63;
Neto, 1985). These types of contracts are generally out of favour. (Smith
et al., 2000, p. 511).
Pure service contracts. More straightforward are pure service
contracts, whereby a company is brought in to perform a defined
service and compensated accordingly. Unlike risk service contracts, the

14 Transnational Corporations, Vol. 18, No. 1 (April 2009)

host Government shoulders all risks. Under this type of contract, the
company also acquires an interest in the extracted resource (Omorogbe,
2000, pp. 63–64).
Technical assistance contracts. Technical assistance contracts
represent the last main type of service contract. Their scope is narrower.
As with the other service contracts, the company is brought in to perform a
defined task for which it receives a fixed compensation. Unlike the other
service contracts, however, the company has no possibility of acquiring
an interest in the resource (Omorogbe, 2000, p. 65). Importantly, the
technical service contract appears closest to a transnational public-
private partnership, in which the host Government is the strongest party.
Once again, it is important to recognize that contract choice is tied as
much to rhetorical needs as anything else:
“The technical assistance agreement is one of several types
of arrangements that can be used to take advantage of the
multinationals’ technological and managerial expertise and
capital resources while allowing the host country to maintain at
least the appearance that its State oil company has control and
ownership” (Smith et al., 2000, p. 512).
Often, service contracts are held out as the ideal choice in
situations characterized by nationalism. However, the value of a host
country’s natural resources may be more determinative of contract form
choice. Nonetheless, as indicated above, the meaning of the contract
may ultimately lie in the content of the clauses.
e. Contractual clauses
As indicated above, the choice of contract type might be less
important than the content of particular contract clauses. Dzienkowski
argues:
“As stated before, although one can attempt to offer conceptual
and theoretical differences among the three [contractual types],
in reality it may be difficult to classify petroleum agreements into
one category. This difficulty may result from a harmonization
of agreements whereby the parties are borrowing the best type
of agreement to fit a particular situation” (Smith et al., 2000, p.
472).
In a joint venture arrangement, a contract may specify the
percentages held in the enterprise by the various contracting parties. For
example, the Azerbaijan contract provides the following breakdown:

Transnational Corporations, Vol. 18, No. 1 (April 2009) 15

 “1.1 The Rights and Obligations under this Agreement of each of
the Contracting Parties shall be held in the following respective
percentage of Participating Interests as of the date this Agreement
is executed:
CONTRACTOR PARTIES PERCENTAGE
SCA 10.0%
BP 25.5%
Elf 10.0%
Lukoil 10.0%
OIEC 10.0%
Statoil 25.5%
TPAO 9.0%
TOTAL 100.0%
(Final Consolidation 3/30/96: Article 1 Participating Interests, Section
1.1.).

The number of parties to such an agreement and their according shares

will, of course, be project dependent.
Another important clause in a contract is the one setting out
reimbursement for sunk exploration costs. In some cases, the project
company will shoulder this risk, as under the risk-sharing agreement.
In other cases, the host Government may cover all or part of this cost.
A clause might indicate the company’s responsibilities during the
exploration phase. This might include a commitment to spend a specified
amount of money on exploration or to undertake an agreed level of
exploration. There may be a provision within the contract indicating the
circumstances under which the company may be granted an extension of
the time allotted for exploration.
A different set of provisions may govern the discovery phase. For
example, the company will be obligated to notify the host Government
in the case of a discovery of a commercially exploitable resource. The
Azerbaijan contract here provides:
“4.4 Discovery

Before the end of the Exploration Period or if the Contractor enters

the Additional Exploration Period then [sic] before the end of the
Additional Exploration Period, Contractor shall notify SOCAR
in writing of a Discovery and its commerciality, summarising
relevant information relating to said Discovery, including but not
limited to the following, to the extent same are available: location

16 Transnational Corporations, Vol. 18, No. 1 (April 2009)

 plan, geographical maps and interpretations, seismic and other
geophysical data, drilling reports, well logs, core samplings,
lithographical maps and description of formations, drill stem
tests, completion reports, production tests including quantities of
fluid produced, build-up/draw down tests and pressure analysis,
and analyses of oil, gas and water samples and other information
consistent with generally accepted Petroleum industry
practice” (“Notice of Discovery and its Commerciality”). (Final
Consolidation 3/30/96: Article 1, Section 4.4).
Contractual clauses may also set out specific terms governing the
production phase. This phase may last a number of years and a clause
may set out the conditions upon which it may be extended. It may be
important for the host Government to set out specific commitments
during this phase, because, as indicated earlier, it is possible that host
Government and company interests may diverge, that is, it might not
be in the commercial interests of the company to exploit fully reserves
within a time frame that the Government desires.
As indicated in the section on PSAs, many of the decisions
regarding the strategic exploitation of reserves may be governed by an
oversight committee with representatives from the host Government and
the companies. A mechanism for decision-sharing may be a useful way
of resolving conflicting commercial and political interests.
Contracts may also stipulate certain local content preferences. For
example, a contract may include a clause indicating that the company is
to employ local workers, as long as they meet certain qualifications. For
example, the Azerbaijan contract provides:
“(b) Contractor shall require Operating Company to give
preference, as far as is consistent with efficient operations, to
employ citizens of the Azerbaijan Republic in the performance
of Petroleum Operations to the extent reasonably practicable,
provided that such citizens have the required knowledge,
qualifications and experience. Such citizens shall be eligible for
training in Accordance with Article 6.8” (Final Consolidation
3/30/96: Article 1, Section 6.7(b)).
The host Government might require that the company train locals.
Likewise, a company may agree to source goods locally. For example, the
agreement between Egypt, the Egyptian General Petroleum Corporation
and Esso Egypt Inc. (United States) provides in the relevant part:

Transnational Corporations, Vol. 18, No. 1 (April 2009) 17

 “ARTICLE XXIII
LOCAL CONTRACTORS AND
LOCALLY MANUFACTURED EQUIPMENT
(a) The Operator and its contractors shall: –
(1) Give priority to local contractors as long as their prices
and performance are comparable with International prices and
performance. The Operator shall, however, subject to the preceding
sentence, be exempted from the provisions of Presidential Decree
No. 1203 of 1961 as amended.
(2) Give preference to locally manufactured materials, equipment,
machinery and consumables, however, such material may be
imported for operations conducted hereunder if the price of locally
manufactured material at Operator’s stores is more than ten (10%)
per cent higher than the price of the imported material at Operator’s
stores.” (Egypt-Egyptian General Petroleum Corporation/Esso:
Concession Agreement for Petroleum Exploration and Production
12/14/74: Article XXIII(a)(1) and (2)).
It is also worth noting that contracts may require the company
to keep certain records of its operations. Governments may find
such provisions useful in determining taxation and royalty rates.
Governments may not always have the expertise or capacity to enforce
certain revenue schemes. Thus, such clauses may reduce the burden on
the Government.
Moving forward in the project cycle, contracts may provide for
the transfer of control away from the company and towards the host
Government. For example, a clause may provide that facilities will
transfer to the Government as the company leaves the country. The clause
may stipulate the condition of the facility, for instance. And, lastly, as
indicated in the section on renegotiations below, a contract will typically
include a clause indicating how possible disputes will be resolved; both
the forum and choice of law may be stipulated in the contract.
In conclusion, it is important to note that one cannot generalize
about revenue-sharing and the prevalence of specific contract clauses
within agreements. Such information is not publicly available. At the
same time, it can be debated whether it would be in the interests of
developing countries to have such information published. At present, it
is the sort of information that experienced countries and active law firms
might hold privately.

18 Transnational Corporations, Vol. 18, No. 1 (April 2009)

5. Bilateral and multilateral agreements
Although this article focuses mainly on different contract types, it
is important to point to some key bilateral and multilateral legal issues.
Because of space constraints, this section considers a few selected issues
rather than providing a cursory survey. It first looks briefly at bilateral
investment treaties (BITs) and bilateral subsidy programmes before
turning to the multilateral level, looking at the subsidy programmes of
international financial institutions.
Parties to an investment agreement generally stipulate the choice
of law and forum in which any contractual disputes will be heard. A
dispute might be heard in an international arbitration tribunal or else
in the national courts. Parties may have to exhaust local courts before
turning to the international tribunal. In situations of ambiguity, a relevant
BIT between the governments of the respective parties may provide
guidance.10
Many international projects rely on public and private sources
of financing, domestic, foreign and international, raising various legal
implications. National public banks and insurance agencies play a role in
facilitating projects through subsidy programmes. These subsidies range
from the political risk insurance provided by the United States Overseas
Private Investment Corporation (OPIC) to the loans offered by the
United States Export-Import Bank or the French COFACE. These public
subsidies are used by project companies to encourage private banks to
invest in projects that are otherwise too politically risky. Importantly,
developing countries increasingly have their own export banks which
play a role in facilitating South–South investment. Public banks may
facilitate private investment through finance sweetening insurance
policies, loan agreements and feasibility studies. They may also mitigate
political risk through informal political intervention. In other words,
their involvement may mean that the home State government of the
multinational involved might be willing to step in should a conflict arise
with the host Government and use diplomacy to smooth the situation
out.

10
Otherwise, it is worth noting that legal scholars are currently debating the
significance of BITs for development (Elkins et al.,2006; Rose-Ackerman and Tobin,
2005). To date, however, legal studies have not isolated oil and gas or hard mineral
extraction for study. Thus, given the early stage of these studies and the lack of relevant
sector-specific published data, it is too early to generalize about the relationship between
BITs, investment and development in our area.

Transnational Corporations, Vol. 18, No. 1 (April 2009) 19

 At the international level, subsidies similar the bilateral-based
ones exist. The Energy Charter Treaty is relevant in this context as it
advances sustainable, sovereignty-respecting development. The most
important public subsidies are offered by the World Bank Group through
the IFC and MIGA. The Oil, Gas, Mining and Chemicals Department of
the IFC is particularly relevant. For example, the Baku Tbilisi Ceyhan
oil pipeline relies on a diverse set of public agencies. The pipeline part
of this project runs through several countries, including Azerbaijan,
Georgia and Turkey. Among others, this pipeline is financed by seven
export credit agencies, the European Bank for Reconstruction and
Development, the IFC and fifteen commercial banks.11 Each bank,
public and private, will have its own set of project documentation. This
may mean multiple loan agreements, each with its own set of terms and
conditions. At the same time, the actions of multiple public and private
banks are often coordinated.
These public agencies may attach certain conditions to their
subsidies. For example, both OPIC and the Export-Import Bank often
attach environmental and human rights conditions to their loans.
Complying with these conditions may mean establishing special
entities or else hiring consultants to ensure that wishes are fulfilled.
Such conditions will be discussed in detail below. Importantly, they
must be understood in tandem with international efforts through the
IFC and MIGA. They must also be related to the initiative by the major
private investment banks involved in projects, the so-called Equator
Principles.

6. Selected state-of-the-art issues

Talk of oil and gas and also metal mineral projects regularly
occupies our headlines. This section seeks to focus on three bones
of contention: (1) contract renegotiations; (2) the proposed law for
governing resources in Iraq; and (3) human rights and environmental
contractual issues.
a. Contract renegotiations
Contract renegotiations have recently dominated the public
reporting of Bolivia, Ecuador and Venezuela. In each country, the

11
See www.bp.com/genericarticle.do?categoryld=9006669&contentld=7014358.

20 Transnational Corporations, Vol. 18, No. 1 (April 2009)

Government has justified the renegotiations on development grounds.12
This section briefly presents the controversy, discusses legality issues
that may emerge and provides some observations on the relationship
between the present wave of renegotiations and development.
In Bolivia, the Government passed Hydrocarbon Law 3058 in
2006. This law repealed the 1996 Hydrocarbon Law which had privatized
the sector, moving control over resources back to the State. Control
over resources was thus transferred to the State agency, Yacimientos
Petroliferos Fiscales Bolivianos. Nonetheless, foreign companies are
likely to continue to play a role in the future as well given the lack
of national expertise. Accordingly, although the 2006 law cancelled
contracts, it also directed the negotiating of new ones but on terms
more favourable to the Government, including higher tax and royalty
rates. As in Venezuela, the aim is to establish a series of joint venture
agreements.13
In Ecuador, the new hydrocarbons law set off a policy of contract
renegotiation and increased Government revenue from projects. In a
parallel but thematically related action, the Government entered into a
dispute with Occidental (Vasqueez, 2007). In turn, Occidental brought
an action in connection with demands for the payment of value-added
taxes.14 Investments in Venezuela must now be pursued through the State-
owned company, Petroleos de Venezuela, S.A. Both service contracts
and joint ventures are possible. In 2001, the Government passed a new
hydrocarbons law. In part, it required that future investments be under
51 percent control by the State company (Hydrocarbons Law of 2001:

12
In Bolivia, for example, the renegotiations are themselves being driven in part
by protests, and in Ecuador, protests have hit the bottom line of Petroecuador (Kerr,
2007). Meanwhile, the President of Venezuela, Hugo Chavez, has made the case that
State control over natural resources is popularly motivated and has used funds from
the State-owned oil company, Petroleos de Venezuela, to finance social programmes at
home and abroad.
13
“Bolivia: a lot of gas for partial takeover?” The International Review, Fall
2006.
14
Among other things, the company claimed that Ecuador had expropriated its
property – a claim that the tribunal dismissed (Occidental Exploration and Production
Company v. The Republic of Ecuador 7/1/04; Republic of Ecuador v. Occidental
Exploration and Petroleum Company 2005). Similarly, in a separate claim brought to an
arbitration tribunal by EnCana Corporation, also over tax payments, the tribunal decided
that expropriation had not occurred (EnCana Corporation v. Republic of Ecuador LCIA
2/3/06).

Transnational Corporations, Vol. 18, No. 1 (April 2009) 21

Article 22). However, the Government has progressively renegotiated
existing contracts to comply with this requirement. A presidential decree
in February 2007 expropriated projects in the Orinoco River Belt. In
doing so, it formed mixed corporate entities charged with exploiting
resources. Petroleos de Venezuela is to hold majority stakes in these
entities. Further, the decree provides that any disputes regarding the
Orinoco projects will be heard in Venezuelan courts according to
Venezuelan law (Dugan and Profaizer, 2007). Also significant, Article
44 of the Hydrocarbons Law raises royalty rates.15
At times, talk of the introduction of new taxes, royalties or
price ceilings extended to Algeria, Argentina, Chad, the Russian
Federation and others (AFX International Focus, 2006). For example,
Chad plans to establish a State-owned oil company and renegotiate
certain contracts. Similarly, Equatorial Guinea also aims to renegotiate
contracts. Mauritania has sought to sever certain contracts. The Russian
Federation has changed positions on the advisability of production-
sharing agreements.
No clear evidence in the legal literature exists as to whether
the present wave of renegotiations advances developmental goals. A
consensus has emerged that previous negotiations had some justification
given the need to combat the legacy of colonialism. At the same time, a
case might be made that the present wave could promote development
goals if the renegotiations guaranteed an equitable redistribution of
revenues from resources. Whether this is achievable will depend on the
terms of renegotiations, the micropolicies of State-owned companies,
legislative action and also the ability of governments to maintain foreign
financial and corporate interest in their projects.
Legal arguments for and against renegotiations and nationalizations
occur along a spectrum. At one end, detractors argue that contracts should
include stabilization clauses, freezing the law governing the contract to
the one in force at the time of contract formation. Such arguments are
based on the principle of “sanctity of contract”; the position that the
wishes of the parties as embodied in the terms of the agreement should
govern. An Egyptian contract provides an example of a contract that
avoids renegotiations:
“(b) The rights and obligations of EGPC and ESSO under, and for
the effective term of, this Agreement (as well as matters relating
15
For a critical discussion of the Venezuela Law and its legal basis see Rentner
(2004).

22 Transnational Corporations, Vol. 18, No. 1 (April 2009)

 to the Joint Company subject to Article IV hereinabove) shall be
governed by and in according to the provisions of this Agreement
and can only be altered or amended by mutual agreement of the
parties.” (Egypt-Egyptian-General Petroleum Corporation/Esso:
Concession Agreement for Petroleum Exploration and Production
12/14/74: Article XVI Rules and Regulations (b)).
The Russian law governing PSAs provides investor protections
against changes in legislation, while specifying certain exceptions:
“2. In the event that within the duration of the agreement the
legislation of the Russian Federation, the legislation of subjects
of the Russian Federation and normative acts of self-government
set norms deteriorating the commercial results of the investor’s
activities within the framework of the agreement, amendments
shall be made to the agreement which shall safeguard those
commercial results of the investor which he would have obtained
if the legislation of the Russian Federation, the legislation of the
subjects of the Russian Federation and normative legal acts of local
self-government effective as of the conclusion of the agreement
would continue to apply. The procedure for the introduction of
such amendments shall be specified in the agreement.
The aforesaid provision concerning a change of the terms and
conditions of the agreement shall not apply in the event that the
amendments are introduced by the legislation of the Russian
Federation to the standards (norms, rules) for the safe conduct
of works, the protection of the subsoil, the natural environment
and the health of the population, including their modification to
adapt them to similar standards (norms, rules) which are accepted
and generally recognised by international practice.” ([Russian]
Federal Law on Production Sharing Agreement 1996: Article
17(2)).
A middle position is that parties may voluntarily incorporate a
renegotiation clause into the contract itself. An example of a renegotiation
clause occurs in the agreement between Kuwait and Aminoil (United
States):
“If, as a result of changes in the terms of concessions now in
existence or as a result of the terms of concessions granted
hereafter, an increase in benefits to the Governments in the
Middle East should come generally to be received by them,
the Company shall consult with the Ruler whether in the light

Transnational Corporations, Vol. 18, No. 1 (April 2009) 23

 of all relevant circumstances, including the conditions in which
operations are carried out, and taking into account all payments
made, any alterations in the terms of the agreements between the
Ruler and the Company would be equitable to the parties” (quoted
in Kroll, 2004).
Renegotiation clauses are inserted in many contracts.
Renegotiations generally can be squared with national and international
laws, although with some contrary voices. For example, Abba Kolo and
Thomas Wälde argue that the spirit of the contract may be more important
than the actual written text. They acknowledge that in principle:
“[t]he philosophy behind renegotiation is that the contractual
relationship is more important than the formal contract document
itself and that parties will make all efforts to let this relationship
survive if and to the extent that it is in their interest to let the
relationship survive – and sometimes send a signal to the outside
world over the ‘reasonableness’ of the government or company in
dealing with its partners on a long-term basis of mutual benefit
and trust” (Kolo and Wälde, 2004).
Zeyad A. Al Qurashi argues that “a renegotiation clause may play a
facilitative role in stabilizing long-term agreements such as international
petroleum agreements, whose nature creates a high risk of instability”
(Al-Qurashi, 2005, p. 268). As a practical matter, it could be argued
that it is within the sovereign’s prerogative to renegotiate contracts, if
not de jure then certainly de facto. Generally speaking, as a matter of
doctrine, it would be difficult to sustain the position that renegotiations
are absolutely contrary to national or international law.
Nonetheless, the conflict in international law is between freedom
of contract and sovereign prerogative, on the one hand, and sanctity of
contract and stabilization, on the other. Unsurprisingly, the host State
might seek to have disputes heard within its own courts applying its
own laws. On their side, investors have sought to guard against host
State legislation or regulation that modifies the terms of the host State
agreement both through choice of law and forum provisions and also
the insertion of stabilization clauses (Muchlinski, 1995, p. 494). With
regard to the former, the aim is to have disputes resolved in more
investor-friendly international tribunals. Furthermore, investors seek
to have a law friendly to their interests govern the dispute. The use of
a stabilization clause aims to freeze the national law applicable to the
contractual relationship to that one in force at the time the contract was
entered into.

24 Transnational Corporations, Vol. 18, No. 1 (April 2009)

 Tribunals have taken different sides on this debate. On the one
hand, in certain cases, international tribunals have sided with contract
stabilization and sanctity of contract, most notably in Texaco’s dispute
with Libya. The general position has, however, gone the other way, with
“fundamental change of circumstances” sometimes cited as justification
(Muchlinski, 1995, pp. 493–497). As argued by one scholar: “despite
the above-mentioned arguments favouring the strict stability of
international investment agreements, international practice in this field
has increasingly favoured the periodic renegotiation of such agreements
[…] In these circumstances the international legality of renegotiation
per se can no longer be doubted” (Muchlinski, 1995, p. 497). At the
same time, coercive action, duress and discrimination must be guarded
against (Muchlinski, 1995, pp. 498–501). Where “a foreign investor is
irrevocably deprived of its contractual rights in a joint venture created
under an investment agreement, such an interference will give rise to
a right of compensation” (Muchlinski, 1995, p. 501). Although it is
outside the scope of this article, the appropriate standard for determining
compensation is contested and positions taken on it will depend upon
the strategic interests of disputants.16
Renegotiations have been triggered by a variety of factors, and
tribunals have addressed the fallout. The issue has not been entirely
whether changed circumstances justify the renegotiations, but rather
a focus on how the renegotiations themselves have been conducted.
Generally, a norm has emerged which concentrates on the renegotiation
process, taking into account the original agreement, good faith between
parties, and the need for a tailored renegotiation period.17 Importantly,
a duty to renegotiate in due faith has been established by at least one
tribunal. In another important case, the trigger was the Iranian revolution
(Al-Qurashi, 2005, pp. 292–299).
The shift from traditional concessions to the modern partnership-
based agreements often involved contract renegotiations and sectors

16
On compensation see Muchlinski (1995, pp. 506–514).
17
For example, in the AMI-NOIL case, a rise in oil profits in the early 1970s led to
an attempt by three Arab States to reformulate the revenue share. Subsequent negotiations
failed, and the Government of Kuwait severed its agreement with AMINOIL. The
renegotiation had occurred under the auspices of a contractual clause, and the court
in part decided on whether the renegotiation had in fact been carried out properly.
Thus, the concern was with establishing a new contractual equilibrium. In another case
regarding relinquishment, the tribunal took the original contract into consideration when
determining the new equilibrium.

Transnational Corporations, Vol. 18, No. 1 (April 2009) 25

mainly during the nationalizations of the 1970s and 1980s and generally
occurred in the extractive industries (Muchlinski, 1995, p. 493). In
addition to the OPEC renegotiations, as Kolo and Wälde point out,
others have taken place in Papua New Guinea (1967), Chile (1967–
1971), Jamaica (1974), the Dominican Republic (1987, 1988), Peru
(1985) and Colombia (1996).18 Importantly, they have not been limited
to developing countries; advanced capitalist economies such as the
United Kingdom have pursued renegotiations. Further, they have not
just been instigated by governments. At times, companies have pushed
for them (Kolo and Wälde, 2004).
Commentators often tie the recurrence of renegotiations to
the nature of the underlying contract between host State and foreign
corporation. These contracts in the extractive sectors are often long term.
As a result, over their lives, the value of the commodity may fluctuate.
Perhaps unsurprisingly, as prices rise significantly, governments seek
a larger share of profits. Renegotiations generally occur in a “period
of increased prosperity, in which the sense of dependence on foreign
investors may be reduced and nationalistic sentiments heightened”
(Muchlinski, 1995, p. 493). Similarly, writing in an earlier period of
recession, another scholar argued that:
“When conditions change, it is reasonable to assume that the
developing countries will once again make efforts to assert
‘permanent sovereignty’ over their natural resources in whatever
way possible and that since it is their second time around, they
will achieve greater success. Any supposed ‘incentives’ or
stabilization measures which have come into existence during
this period and which appear to run counter to nationalistic ideals
are likely to prove problematic in the long run” (Omorogbe, 1997,
p. 30).
The present wave of renegotiations may simply mean reallocating
profit shares between governments and companies. Accordingly, in a
situation of renegotiation, a company will remain in a project so long
as the proposed reallocation is financially still in its interests. The
Government will accommodate the company in this respect, so long as it
still relies upon the company’s expertise. Further, the Government must
take care not to upset other potential investors: companies and banks,
ratings agencies and insurers.

18
For an overview of these renegotiations see Kolo and Wälde (2004).

26 Transnational Corporations, Vol. 18, No. 1 (April 2009)

 Commentators disagree over whether the present wave of contract
renegotiations advances development goals. Importantly, literature
touching on this issue is sparse. Nonetheless, arguments exist on both
sides. A pro-renegotiation law-based position has been advanced by a non-
lawyer, Joseph Stiglitz. His argument was put forward in relation to the
Bolivia renegotiation in the form of a newspaper piece, not an academic
article. Stiglitz argues that the Bolivian renegotiations were justified
based on their “attempt to represent the interests of the poor people of
[the] country” (Stiglitz, 2006), maintaining that the privatizations which
the recent renegotiations sought to overturn were themselves not legally
valid, having not passed through Congress as required by law. He thus
likens the renegotiations to the return of stolen artwork:
“Moreover, many deals were apparently done in secret by previous
Governments – and apparently without the approval of Congress.
Indeed, because Bolivia’s Constitution requires the approval of Congress
for such sales, it isn’t clear that Morales is nationalizing anything: the
assets were never properly sold. When a country is robbed of a national
art treasure, we don’t call its return ‘re-nationalisation’, because it
belonged to the country all along” (Stiglitz, 2006).

Thus, the Bolivian people, the argument goes, are entitled to a fair
share of profits from their natural resources. Whether the argument put
forward by Stiglitz can be generalized to renegotiations throughout the
region requires further study. Nonetheless, his argument that contracts
must be made in an open and transparent manner does seem a prerequisite
for any development inducing renegotiation.
A broader point might be made regarding transparency
and contracts in this area. The overriding norm is non-disclosure.
Nonetheless, important progress has been made by the Extractive
Industries Transparency Initiative (EITI) and other initiatives, which
crucially do not abrogate the principle of non-disclosure. For example,
in Azerbaijan, efforts have been made to publish relevant information
in the aggregate so as to assuage confidentiality concerns. Promisingly,
these initiatives are leading to the publication of revenue information,
and inquiries into how revenues are being directed have on occasion
been initiated. At the same time, it is important to move towards the
publication of contracts themselves. As the discussion of the contract
types and clauses above showed, development issues may be found in
many areas of a contract. In Ghana, companies have moved to publish
how revenue streams have been directed to areas such as education,
health, and infrastructure. Similarly, Nigeria has started to ask related

Transnational Corporations, Vol. 18, No. 1 (April 2009) 27

questions. Effective public oversight requires disclosure of key terms.
Arguably, disclosure will depend on the willingness of corporations
to support transparency. It has not been proven that so-called Western
companies are more likely to participate in transparency initiatives than
their developing country counterparts. In an era of multinational joint
ventures, it may be that any difference is arguably diminished.
Without the broad publication of contracts, it is difficult to
determine the practical significance of renegotiations for development.
It may be that determination of the developmental aspects of these
renegotiations requires the publishing of contracts, both before and
after renegotiation. The focus on making revenue information public by
countries such as Kyrgyzstan is promising. Otherwise, it is not obvious
where the new revenue is being allocated. It is also not clear whether
the structure of the relationships between host governments and firms is
itself being reformulated to serve development goals.19
Others argue that the present renegotiations run counter to
the interests of developing countries and should only be pursued in
exceptional circumstances. They distinguish the OPEC renegotiations
from the present wave. In doing so, the argument made is that sanctity
of contact is a pillar of development-inducing globalization. Thus,
contracts should be respected. If a country goes wayward, it may not
be legally sanctioned. However, the logic of the market will reverse
any perceived gains. Kolo and Wälde underscore this impact: “loss of
reputation and credibility, not the threat of legal sanctions (which does
matter a lot) […] The fear of being ostracized, isolated and boycotted
by other players may not only have a psychological effect but may
influence, in a practical and positive way, respect for contracts” (Kolo
and Wälde, 2004, p. 28).
What then are the lessons from the present wave of contract
renegotiations? For one, determination of the developmental impact of
renegotiations should not turn on questions of legality, not because of
jurisprudential uncertainty but instead because of the infrequency of
recourse to tribunals to resolve today’s disputes. At the same time, Kolo
and Wälde correctly observe that threats of litigation may be important,
although this is a difficult variable to measure. From a developmental
perspective, however, law is nonetheless important in at least two respects.
First, it will be important to look at the actual terms of the renegotiation
as embodied in the amended or new contract. For example, does the

19
Examples here and elsewhere of transparency initiatives may be found in the
Extractive Industries Transparency Initiative, Source Book (March 2005).

28 Transnational Corporations, Vol. 18, No. 1 (April 2009)

renegotiated contract place new responsibilities on the multinational
when it comes to alleviating poverty? If the contract is simply a
reallocation of profits, a second point arises: is the host Government
using the revenues itself either through legislative or regulatory action
in a manner that advances the interests of development? There is no data
on the renegotiations in this regard. However, in situations in which
international financial institutions are involved in projects, human rights
and environmental conditionalities may be monitored by the hiring of
consultancy firms.20
From a legal perspective, in answering these questions, it will
be necessary to monitor the evolution of legislative and contractual
provisions aimed at achieving development through renegotiation. The
literature on these issues is understandably provisional given the state
of knowledge. Furthermore, as we will see in other areas, it is necessary
to attend not only to legal pronouncements, but also how laws function
in practice.
b. Iraq
This section discusses two issues raised by the proposed
Iraqi legislation covering oil and gas. It looks at contract choice and
renegotiations. Importantly, the contract types provided in the legislation
accord with the general public-private partnership approach, given the
importance of commercial interests in providing “technical, managerial
and operational skills as well as robust capital resources” (Preamble).
At the same time, it favours “substantial national participation” through
overarching management as well as through national companies,
“Iraqi products and services”, “training and technology transfer”, and
also “affiliations, joint ventures and other forms of partnership and or
cooperation in order to promote the rapid growth of an Iraqi private
sector capable of assisting and enhancing Petroleum Operations to the
mutual benefit of the said holders and the nation” (Article 15). It is
within this backdrop that the identified issues should be understood.
A few initial words might be said about the Federal Oil and Gas
Council. It plays an advisory role to the Council of Ministers. It may
propose legislation. It coordinates regions. The Council has the power
“to approve major changes in ... plans and policies”. (Article 5(c)), which
includes altering contracts. Significantly, it may choose the “appropriate

20
For example, in the Camisea case discussed next, monthly reports have been
filed focusing on compliance with such social development clauses.

Transnational Corporations, Vol. 18, No. 1 (April 2009) 29

contract type”. It may hire consultants, nationals and foreigners, to assist
its work. The proposed law sets out the membership of the Council,
whose president is the Prime Minister or his/her representative, as
comprising:
• Federal Government Ministers from the Ministries of Oil, Treasury,
Planning, and Cooperative Development;
• The Director of the Iraqi Central Bank;
• A regional government minister representing each region;
• A representative from each producing province not included in a •
region;
• Executive managers of from [sic] important related petroleum
companies including the national Iraqi oil company and the oil
marketing company;
• Three or less experts specialized in petroleum, finance, and economy
to be hired for a period not exceeding five years based on a resolution
by the Council of Ministers.
The Council shall represent all the different basic components of
the Iraqi people (Article 5(c)). It is noteworthy that number 5 above
seems to allow for the inclusion of foreign oil companies on the Federal
Oil and Gas Council.
In accordance with the dictates of the Iraqi Constitution, the
proposed Oil Law recognizes that ownership of the country’s oil and
gas lies in the people as a whole. Control over the resources is held
by the Federal Government, producing governorates, and regional
governments. The proposed law provides some idea of how control
will be shared among these entities. As indicated above, representatives
from each of these entities sits on the Federal Oil and Gas Council.
Generally, the Federal Government seems to wield primary control over
resources. Thus, the federal Ministry of Oil is the authority. The Federal
Government owns the main pipelines.
The Ministry of Oil consults with the producing provinces and
regional authorities in devising policies and plans. The provincial
authorities feed into federal decision-making. For example, they make
proposals and assist in discussions leading to the finalization of federal
plans. They also play a role in licensing exploration and production.
Moreover, the authorities monitor operations. The aim is to work with

30 Transnational Corporations, Vol. 18, No. 1 (April 2009)

the Ministry in order “to ensure uniform and consistent implementation
throughout the Republic of Iraq” (Article 5(F)). The Ministry must
include the producing provinces in every contract negotiation (Article 7
Operation 7). Together they take decisions on exploration (Article 8(E)).
While regions have the ability to enter into contracts themselves (Article
9(A)), the Federal Oil and Gas Council may void contracts concluded
by regions (Article 10(B)). Municipal and local governments may levy
taxes (Article 33(3)).
In the Kurdistan region, the proposed legislation provides a process
for reviewing these contracts which are to be judged with the aims of
the proposed legislation in mind. The final say over the validity of the
contracts lies with the Bureau of Independent Experts (Article 40(A)),
which is contracted by the Federal Oil and Gas Council (Article 4(38)).
With regard to other pre-existing contracts, the proposed legislation
stipulates that the Ministry will review them before the Federal Oil and
Gas Council undertakes a review (Article 40(B)). For both the Kurdistan
region contracts and the others, the interests of the Iraqi people as a
whole are to be a guiding principle.
With regard to contract choice, it is problematic to draw more
than tentative observations from the proposed Iraqi legislation. The
legislation provides wide latitude to the Government and its agents
in designing specific contracts. It aims to choose “the appropriate
contract type for the field nature or exploration area that guarantees the
maximum benefits for the Iraqi people” (Chapter II, Article 5(C)). The
proposed legislation presents a menu of contract types including service
contracts, exploration and risk contracts, and exploration and production
contracts (Chapter II, Article 9). Caution should be exercised in drawing
conclusions about contract choice issues. It will be important to know
both the appropriateness of contracts chosen for specific situations and
also the clauses used. These decisions will become clear in time.
However, emphasis should be placed on employing contract
clauses that reinforce local capacity. For example, attention must be paid
to the extent to which the Iraqi National Oil Company is involved in
projects. Further, untested areas obviously require ceding greater control
to companies than does the exploitation of proven reserves. Political risk
should not be confused with exploration risk, although it is possible that
international banks may be more willing to finance projects with greater
foreign private participation.
Finally, a few words on renegotiations. Legislation leaves open the
possibility of honouring, renegotiating or repudiating pre-war contracts.

Transnational Corporations, Vol. 18, No. 1 (April 2009) 31

This flexibility also applies to new contracts that might be subject to
future legislative changes. The proposed legislation states in the relevant
part that:
“The exploration and production contracts mentioned in Article
10/A must include the following: ‘The contract is valid unless the
Federal Oil and Gas Council objects, in accordance to this law
(number of 2007). This includes the negotiation and contracting
mechanisms, contracting models, and any related future changes
in this concern issued by the Federal Oil and Gas Council’”
(Article 10(B)).
Thus, in conclusion, the proposed legislation is noteworthy for
its flexibility. For this reason, overarching statements regarding its
advisability from a development perspective are difficult. It seems to err
on the side of host Government discretion. At the same time, if it is in the
contract formation that decisions will ultimately be made, it is important
to promote transparency so as to mitigate political risk and also to foster
a sense of legitimacy. Here, transparency along with public debate over
contract choices and clauses could lessen the validity of criticism that
decisions over Iraqi resources are made abroad.
c. Human rights and environmental legal
challenges
In the legal realm, human right and environmental issues in the
extractive industries are often viewed through the lens of litigation
under the Alien Torts Claim Act (ATCA). Such cases have been limited
recently in certain respects. Similar cases have, however, emerged
internationally in the courts of Australia, Canada, Japan, India, and the
United Kingdom (Baxi, 1990; Engle, 2005; Joseph, 2004; Muchlinski,
2001). The European Union is also encouraging similar routes into the
courts of its Member States. Well-publicized cases that have been written
about extensively have been brought against Unocal and Total and also
against Chevron and Shell for their alleged roles in perpetrating human
rights abuses in Burma and Nigeria respectively. The broader movement
of which this litigation is a part is referred to as either “transnational
public interest litigation” (Baxi, 1990; Engle, 2005; Joseph, 2004;
Muchlinski, 2001) or “plaintiff’s diplomacy” (Slaughter and Bosco,
2002). Essentially, it involves the use of the courts to advance human
rights and environmental policies internationally. This human rights
litigation appears to be gaining in popularity, despite some jurisprudential
setbacks. However, in practice, human rights and environmental issues

32 Transnational Corporations, Vol. 18, No. 1 (April 2009)

are more often addressed by extractive industry projects through non-
litigation means, that is, through contracts, voluntary codes, loan
agreements and Government regulations (Likosky, 2005, 2006).
It is difficult to generalize about the extent to which projects
contractualize human rights and environmental concerns. However,
assumedly private international investment banks that have signed on
to the Equator Principles incorporate such commitments in their project
documentation. Likewise, when international financial institutions
such as the IFC, the Inter-American Development Bank and others
are involved in financing projects, then similar human rights and
environmental documentation will be present. Further, the involvement
of export credit agencies may carry with it such commitments in the
project documentation. In other words, if all of the major project
financiers have made commitments to incorporate these issues in the
projects they are funding, then the project documentation assumedly
reflects these commitments. As with even the most commercial aspects
of agreements, the fact that contracts are not public makes it difficult to
authoritatively assert their contents.
To illustrate the importance of non-litigation measures, this section
looks at the handling of human rights with the Camisea natural gas
pipeline in Peru.21 Camisea is a transnational public–private partnership
involving a multinational mix of public and private actors – domestic,
foreign and international. A case-based approach is chosen because
of space constraints. Nevertheless, it is possible to generalize lessons
learned from the Camisea project to other oil, gas and mineral projects.
The Camisea gas project is representative of human rights and
environmental practice more broadly. In this respect, four generalizable
features may be identified:
Mixed transnational financing: Camisea is financed by private
investment bankers, national export credit agencies and an international
development bank. The involvement of each type of actor implies
certain human rights and environmental conditions. For example,
the United States Export-Import Bank’s environmental practices, the
private international banks’ Equator Principles and the Inter-American
Development Bank’s human rights loan conditionalities are all important.
The meaning of legal commitments to human rights and the environment
must ultimately be understood by how they are implemented in practice.

21
In doing so, it draws on Chapter 6 of Likosky (2006).

Transnational Corporations, Vol. 18, No. 1 (April 2009) 33

What we see in most projects is a common set of commitments that are
applied differentially.
Mixed transnational participants: The project itself is carried out
by a group of national and foreign companies. These actors are involved
in varying degrees at the different project stages. Significantly, companies
may themselves have human rights and environmental policies. As we
shall see, Shell’s policies in this regard were important to Camisea in the
early stages. They are similarly important in projects internationally.
Two types of human rights: In its conception and execution, the
project raises what I have classified elsewhere as two types of human
rights issues: (a) positive human rights, the promise of public goods;
and (b) negative human rights, the possibility that human rights will be
infringed upon in the process of production (Likosky, 2006: Chapter
3) Also, consultations and participation by affected communities is
emerging as an important norm in projects (Bastida et al., 2005, p. 2;
Williams, 2005, p. 49).
NGO advocacy: Lastly, a group of local and international non-
governmental organizations (NGOs) have chosen to target the project
because of perceived environmental and human rights shortcomings.
Some of these NGOs play a role in other projects internationally.
Although the relative importance of each of these features varies
with country and project, they recur internationally.
The Camisea natural gas pipeline is over 25 years old. Shell and
Mobil were originally involved in the project. Despite major discoveries,
however, disagreements between Shell and the Government resulted in
the company’s withdrawal. Yet during the period of Shell’s involvement
in the project, human rights and environmental concerns influenced
company policy.
This was mainly as a result of the campaign against Brent Spar
in Nigeria that made the company recognize that “We know the eyes
of the world are on us” (Watts, 1997) in adopting extensive human
rights and environmental-related directives.22 Shell’s policies ranged
from measures to prevent contact with indigenous communities to the
vaccination of workers and local communities to biodiversity initiatives.
The project involves extraction in the Nahua-Kugapakori Reserve,
which is home to a number of indigenous communities including the

22
On the Shell policies, see Dabbs and Bateson (2002).

34 Transnational Corporations, Vol. 18, No. 1 (April 2009)

Nahua, Kirineri, Nanti, Marhiguenga and Yine (Grumble, 2003).23 Shell
hired an anthropologist to design policies to safeguard the human rights
of indigenous groups through whose communities the project would run
(Chaterjee, 1997). It also hired a local NGO.
When Shell and Mobil withdrew from the project, the Peruvian
Government began a search for a successor. From an environmental
and human rights perspective, it was unclear what the post-Shell period
would portend. Peru eventually settled on two consortia of international
companies. The first would be responsible for producing the gas, and
included Pluspetrol Peru Corporation (Peru), S.A., Hunt Oil Company
(United States), SK Corporation (Republic of Korea) and Tecpetrol
SA (Argentina). The second was responsible for distribution and was
made up of Tecgas N.V.(Brazil), Pluspetrol Resources Corporation
(Peru), Hunt Oil Company (United States), SK Corporation (Republic
of Korea), Sonatrach Petroleum Corporation B.V.I. (United Kingdom),
Tractebel (Belgium) and Grana y Montero S.A.(Peru). Gas was to be
produced and then distributed to Lima for consumption and, as available,
distributed internationally by Tractebel (Belgium).24
Camisea was regulated by the Peruvian Law for the Promotion
and Development of the Natural Gas Industry. The Peruvian Energy
Tariffs Commission is charged with levying tariffs. The project is carried
out through a common public-private partnership contractual scheme,
the build-operate-transfer (BOT) arrangement.25 Legal services were
provided for both the upstream and downstream consortia by Sullivan
and Cromwell (Sullivan and Cromwell). Clifford Chance represented
the Inter-American Development Bank, along with Rodrigo, Elias &
Medrano. Peru was also represented by Sullivan and Cromwell, along
with Miniz y Associados (Latin American Oil and Gas Deal of the Year
2004 3/05). NGOs sought to influence the post-Shell human rights and
environmental practices of Camisea by targeting private international
investment banks, the United States Export-Import Bank and the Inter-
American Development Bank. Each targeting involved a different set of
legal obligations.

23
“Bush, the rainforest and a gas pipeline to enrich his friends”, London
Independent, 30 July 2003.
24
www.camisea.com.pe.
25
Under this scheme, a project company builds the project, operates it long
enough to recoup sunk costs and garner a profit and then transfers it ultimately to the
Government. Even during the period of nominal private control, the project is premised
on a public–private partnership.

Transnational Corporations, Vol. 18, No. 1 (April 2009) 35

 Several of the private international investment banks involved in
financing the Camisea project had signed on to the Equator Principles
– a set of human rights and environmental guidelines.26 The Equator
Principles apply to project finance-initiated projects costing over ten
million United States dollars. Together, the banks that have signed on
to the Principles represent 80% of the market. In the “Preamble” to the
Principles, the banks set out their main purpose:
“The Equator Principles Financial Institutions (EPFIs) have
consequently adopted these Principles in order to ensure that the
projects we finance are developed in a manner that is socially
responsible and reflect sound environmental management
practices. By doing so, negative impacts on project-affected
ecosystems and communities should be avoided where possible,
and if these impacts are unavoidable, they should be reduced,
mitigated and/or compensated for appropriately. We believe that
adoption of and adherence to these Principles offers significant
benefits to ourselves, our borrowers and local stakeholders
through our borrowers’ engagement with locally affected
communities. We therefore recognise that our role as financiers
affords us opportunities to promote responsible environmental
stewardship and socially responsible development” (Equator
Principles: Preamble).
Although banks sign on to a common set of principles, they
implement them in bank-specific ways. The impact and thus significance
of the principles will become clear with time.27 If a project is financed
by the IFC and an Equator bank, there will inevitably be some overlap in
the commitments imposed by each on the project companies.
It is early to assess the significance of the Equator Principles. In
fact, Equator bank projects such as Camisea have been sharply criticized.
It may be useful nonetheless to view their significance as groundwork-
laying strategies: “It is much more difficult to fight and win battles at
project level on issues of broad policy when such general policy is not
yet clearly formulated or enacted” (Cernea, 2005, p. 75). Oil projects
have increasingly come under the umbrella of the Equator Principles
and at times similar IFC commitments. We can expect to see disputes

26
On other private initiatives focusing on mining, see Ostensson (2005).
27
Compare Sullivan & Cromwell LLP (20/03), Linklaters(2003) and Norton Rose
(2003).

36 Transnational Corporations, Vol. 18, No. 1 (April 2009)

over IFC projects resolved in inspection panels within the World Bank
Group and regional development banks.
However, it is not yet clear where disputes over the Equator
Principles will be managed. Potential litigants would have to establish
standing to sue, which is difficult since the general public is not a party to
these agreements. The seeming absence of practical justiciability limits
the legal implications of the Equator Principles. Further, the trend towards
greater competition from the Government of China in funding projects
may mean that the international financial institution commitments may
become less significant. It does not seem at present that the Government
of China will attach such human rights and environmental conditions
to the projects it funds. Regardless of the financing institution, the lack
of transparency at the contractual level makes it difficult to challenge
particular clauses on human rights or environmental grounds; if
commitments are not public, then how do we know what clauses are
capable of being breached?
Camisea companies sought financing through the United States
Export-Import Bank, which offers loans and other inducements for
domestic nationals to travel overseas. When the Export-Import Bank
was considering loans, NGOs targeted it, seeking a declination on
environmental and human rights grounds. The Export-Import Bank
takes these considerations into account in its lending. In international
projects involving United States companies, the Bank is a major focus of
human rights and environmental pressure. Other countries have similar
banks. It may be that the Bank places more stringent requirements
on its project lending than other banks. Indeed, this is often assumed
in informal discussions. Such assumptions have not, however, been
subject to rigorous, systematic empirical study. Such an assessment
might be made more difficult by the fact that loan decisions take into
consideration multiple factors and it is difficult to isolate human rights
and environmental considerations. A related issue is the question of
whether China-financed projects are less respectful of human rights and
the environment in practice than World Bank ones. This is a topic that
has received media attention recently. In the case of Camisea, the Export-
Import Bank ultimately declined funding. Although it did not officially
base its denial on human rights or environmental grounds, NGOs saw
it as significant in that respect nonetheless. Camisea companies did
successfully garner financial support from the export credit agencies of
Germany and Italy.

Transnational Corporations, Vol. 18, No. 1 (April 2009) 37

 Following the Export-Import denial, the front line quickly shifted
to another financier, the Inter-American Development Bank, which
ultimately agreed to issue (1) a direct loan for seventy-five million US
dollars; and (2) sixty million United States dollars in privately syndicated
loans for the project (World Watch, 2003). The United States holds a
30% voting share at the Bank. Its representative abstained from the vote
on the project in part on environmental grounds (Ichniowski, 2003).
Significantly, the Inter-American Bank attached many human rights
and environmental conditions to its loans, financing an implementation
programme. In another context, an important contractual dimension to
this commitment was explained:
“In an unprecedented move by the IDB, the failure to comply
with the human rights [and environmental] conditions is grounds
for default on its loans. As well, although the IDB only loaned
money to the upstream component, it made its loan with the
upstream consortium companies also conditioned upon the
implementation of human rights [and environmental] conditions
in the downstream component of the project. This condition
resulted from the adjustment of several contracts ‘to comply with
internationally recognized social and environmental standards.’
In an effort to ensure compliance with the loan conditionalities,
over four hundred consultations on the environmental and human
rights impact of the project were made during the design phase.”
(Likosky, 2005, pp. 126–127).
The ability of Camisea to realize the goals of the Equator Principles
and the Inter-American Bank conditions will depend on the success
of the implementation programme. It is too early to make a confident
assessment. The significance of these and other soft laws in Camisea
and other projects lies in both the nature of legal commitments and
also in their implementation, often through the execution of contractual
clauses.

7. Conclusion
An overall move away from the unequal traditional concession
and towards more modern transnational public-private partnership-
based contractual arrangements has occurred in the extractive sector.
At the same time, the power balances of these present-day partnerships
vary according to the natural resource wealth and indigenous expertise
of the host state. These factors will determine the choice of contract
and also the specific terms governing relationships. When looking at

38 Transnational Corporations, Vol. 18, No. 1 (April 2009)

issues such as contract renegotiation, Iraq’s proposed oil law and also
human rights and environmental issues, each of these issues relates to
(1) the appropriate allocation of responsibilities and benefits within
the partnership agreement; and (2) the correlation between the nature
of contractually determined responsibilities and the promotion of
development.
Although it is not possible to advocate for a one-size-fits-all contract
for any purpose, it seems reasonable to argue that host governments
should focus on maximizing revenue. One of the successes of the OPEC
renegotiations was that countries were able to share experiences, and
this sharing led in turn to more favourable contractual terms for all
members. Arguably, the publishing of contracts broadly may serve a
similar purpose. It would also perhaps lead to more effective clauses
aimed at technology transfer and local training. Such clauses are to be
recommended to developing countries to the extent that their negotiating
strength allows. Further, in the human rights and environmental context,
a need exists for the publishing of best practices. Thus, an overall
recommendation might be made for transparency, subject to reasonable
disclosure.

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