Is there the political or national will to renegotiate oil contract?

Jan 16, 2025 Letters

Dear Editor,

I read an interesting letter in one of our national newspapers, captioned “Article 32.3 circumvents our Sovereign Powers,” by Mr Jamil Changlee, on which I will offer my opinion as well.

Firstly, let me state from the outset that I am not legally trained, but as a lawmaker, I am exposed to many laws and engaged in research and debates about them. In this regard, I believe that Article 32.3, as Mr. Changlee alluded to, raises a significant legal issue regarding a nation’s sovereignty in regulating its own laws, particularly in relation to international agreements with foreign contractors, as was made pellucid in the “infamous” 2016 Petroleum Agreement between ESSO, CNOOC, and HESS. Most Guyanese believe Guyana should have received a better deal, and most are of the view that the contract should be renegotiated.

Now, specifically, the said clause regarding the effect of legal changes on the contractor’s economic benefits, as well as the arbitration clause, raises questions about the government’s and judiciary’s power in maintaining national control and ensuring that foreign contracts do not undermine the state’s authority.

I believe it is important for us as Guyanese to explore the sanctity of this contract and whether such clauses therein are indeed enforceable, unchangeable and how they interact with our national sovereignty, and whether they can be overridden by the nation’s laws or constitutional principles.

It is vital for us to accept and understand that International contracts involving states, particularly in high risk sectors like petroleum and several other natural resources, often include “stabilisation clauses” like the one mentioned in article 32.2, which states, “If at any time after the signing of this Agreement there is a change in the laws of Guyana, whether through the amendment of existing laws (including the hydrocarbons law, the customs code or tax code) or the enactment of new laws or a change having the force of law in the interpretation, implementation or application thereof (whether the change is specific to the Agreement, the Contractor or of general application) and such change has a materially adverse effect on the economic benefits, including those resulting from the fiscal regime provided by this Agreement, accruing to the Contractor hereunder during the term of this Agreement, the Government shall promptly take any and all affirmative actions to restore the lost or impaired economic benefits to Contractor, so that Contractor receives the same economic benefit under the Agreement that it would have received prior to the change in law or its interpretation, application, or implementation.”

These clauses are placed and are designed to protect investors against changes in the law that could undermine their economic benefits. It is important to note that these clauses are a form of legal protection for foreign investors, often incorporated in developing countries like ours to encourage foreign direct investment (FDI). However, such clauses must and should be balanced with the state’s right to regulate its own affairs, including the enactment of laws to protect its people, the environment, and the country’s national interests.

One should be reminded that national sovereignty over legal matters is an essential part of international law, which is generally governed by principles such as the sovereign immunity doctrine and states’ rights to regulate within their own borders. These principles are rooted in customary international law, codified in the United Nations Charter (Article 2.7), and reinforced in legal cases such as the Barcelona Traction (Belgium v. Spain), where the International Court of Justice (ICJ) upheld the sovereignty of a state over its own territory, even in the context of foreign investments.

Further, in the European Union, the European Court of Justice (ECJ) also dealt with the issue of national sovereignty versus international agreements. In cases where member states have negotiated treaties with non-EU countries, the ECJ has sometimes ruled that such treaties cannot override EU laws, particularly in cases where they contravene the EU’s foundational principles (such as non-discrimination and state aid rules).

In Argentina’s 2001 Sovereign Debt Crisis: In 2001, Argentina faced a financial crisis and implemented various measures to deal with sovereign debt, including defaulting on debt obligations. Some international creditors, however, had clauses similar to the one described (which protected their investments), but the Argentine government took steps to override these clauses based on national emergency powers. This issue led to numerous lawsuits and arbitration proceedings. The Argentine courts, along with international tribunals, weighed national sovereignty and the principle of economic necessity against contractual obligations.

The question of whether the government of Guyana can or should maintain its sovereignty in the face of such contractual provisions hinges on several principles: One such is constitutional supremacy. In many countries, the constitution is the highest legal authority, and any international agreement conflicting with constitutional provisions may be challenged. For example, if implementing a stabilization clause violates principles of public law or constitutional provisions related to natural resources or sovereignty, a national court may have the authority to invalidate or modify the contract.

Additionally, courts in various jurisdictions have recognised that national policy, particularly in sectors such as natural resources, should take precedence over private contracts when national welfare or public policy is at stake. For example, in Brazil, the constitutional court has, in several cases, ruled that national sovereignty and economic interests must come before private agreements if there is a direct conflict with the country’s constitutional or legal framework.

Further, arbitration and judicial authority is also another dimension. As the article in question provides for arbitration in case of disagreements, it is important to note that arbitration clauses in contracts do not automatically supersede a nation’s judicial authority. While international arbitration is binding in principle, many states, including those in Latin America, have demonstrated a willingness to challenge the jurisdiction of international arbitral tribunals, particularly when the state’s sovereignty is involved.

In addressing legal tensions, some countries facing similar issues have responded in a variety of ways, such as resource nationalism. Countries like Ecuador and Bolivia have implemented policies of resource nationalism, where they seek to regain control over their natural resources, often in opposition to foreign contracts. This approach involves revising laws or even nationalizing resources, in defiance of international agreements.

Moreover, investment treaty reforms: Many countries, particularly in Latin America, have reformed their investment treaties to protect their sovereignty. For instance, some countries have withdrawn from bilateral investment treaties (BITs) or included carve-outs to ensure that national laws supersede foreign investment agreements.

In the final analysis, the conflict between stabilization clauses and state sovereignty in relation to international agreements is not uncommon. Legal frameworks in various countries demonstrate that while international agreements are generally binding, national sovereignty and constitutional principles often take precedence. The government’s ability to enact new laws or amend existing ones, even in the face of such clauses, will depend on the judiciary’s interpretation of the contract, the constitution, and international legal norms.

Further, in the case of legal conflict, our courts in Guyana could potentially assert the primacy of national law, particularly if the change in law pertains to public interests such as environmental protection, tax collection, or national resources. Case law from various jurisdictions, particularly those dealing with sovereign debt and resource extraction agreements, provides insight into how this tension has been addressed by other nations.

The question to be answered is: Is there the political/national will to act, here in Guyana?