In this blog we are looking at Dispute/ conflict Resolution by Arbitration in the Nigerian Oil and Gas Industry, Nature of Petroleum Dispute, Arbitration as a Dispute Settlement Mechanism and Arbitration in Petroleum agreement.
INTRODUCTION
Disputes are generally an inevitable part of human relationship, which may arise in the economic aspect of human relationship, social, political, business and even international relationship. Nonetheless, what is of essence is the way in which such dispute is resolved or handled between the disputing parties. Petroleum industry plays a major role in the economy of Nigeria. However, disputes abound also therein in the course of contractual relationship between government and Petroleum companies, among the Petroleum companies and/or with host community, etc.
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The Nigerian Petroleum industry being the most lucrative sector of the Nigerian economy is poised to be faced with diverse disputes owning to the myriad contractual arrangement and nature of activities that are being carried out in the upstream sector (exploration and production); midstream and downstream sector (refining, transportation and marketing of Petroleum).
The dynamism of the industry had drawn disputing parties and their advisers to possible choices in a spectrum of dispute resolution mechanism some of which are litigation, arbitration, mediation, negotiation, conciliation among others. Arbitration is progressively becoming an indispensable tool in resolving disputes around the world.
What is Arbitration?
Arbitration can simply be defined as when dispute or difference between two parties or more is referred to an independent person for resolution. It is a device whereby the settlement of a question which is of interest for two or more parties, is entrusted to one or more persons (the arbitrator or arbitrators) who derive their powers from a private agreement, not from the authorities of a state and who are to proceed and decide the case on the basis of such an agreement.
Nature of Petroleum Dispute
Disputes often arise when an issue occurs which has not been prepared for or agreed on in the principal agreement between the parties, whether this is a delay in the delivery of equipment, maritime boundary issues, a problem with an indigenous community or an unexpected pipeline incident. Petroleum is one of the must dispute-intensive industries in the world and the types of disputes arising from relevant contracts include disputes among operators, non-operators and joint ventures in property acquisition, exploration development, supply and marketing arrangement and construction projects, among others.
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Over a while there has existed tension between foreign investors from the developed world and developing countries for several reasons some of which are as a recourse to colonial history, prioritization of interests, etc. Be that as it may, the interests of these parties diverge and constitute a source of grave tension.
Petroleum Tax Dispute is also referred to as Tax Dispute. This type of dispute occurs between companies engaged in petroleum operations and tax authorities. There are cases that discuss tax disputes.
Arbitration as a Dispute Settlement Mechanism for Petroleum Disputes
Petroleum has become the power house of the Nigerian economy. Many of the disputes arising from the Petroleum industry are settled through international commercial arbitration. However, in order to have free access, user friendly and fair financial terms for dispute resolution, the international community designated Lagos as the international commercial arbitration Centre for West Africa.
However, Nigeria has accepted and ratified all international conventions and rules pertaining to international commercial arbitration. Nigeria now makes use of the 1998 version of the international chamber of commerce (ICC) Rules. Our Arbitration and Conciliation Act is derived from the UNCITRAL Model law – an international convention sponsored by the United Nations. Nigeria has also adopted and ratified the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards in 1958. There are several instances wherein arbitration can be applied to Petroleum disputes. Some of such areas are: Agreement of parties, investment dispute, statute, commercial disputes.
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Arbitration in Petroleum agreement
The Petroleum industry routinely employs arbitration agreements in contractual agreements. Some of such contracts as well as arbitration clauses are as follows:
- Government And Petroleum Company: The Petroleum Company and the government come into a contractual relationship, for instance, by the grant of oil exploration license, oil prospecting license or oil mining lease by the state to a licensee/lessee and the grant of fiscal incentives by the government in form of a memorandum of understanding or side letter.
- Joint Concession Holder: Contractual agreement may be made between and Petroleum Company and a designated state enterprise to create a joint interest or to grant a general exclusive authorization to the Petroleum Company in respect of a certain area (license area). Similarly, joint ownership agreement may exist between Petroleum Companies.
- Contracts between Petroleum Company: Common types of contracts between Petroleum Companies are utilization agreements and contracts granting third party access to oil field facilities. The utilization agreement is an agreement by the owner of a single oil field which extends into more than one license to develop that field as a single unit.
- Petroleum operators and service contractors: The list of services provided by contractors to operators in the Petroleum industry is endless, ranging from major construction and rig leasing contracts top minor supply contracts. Arbitration clauses are a common feature of contracts in this category with the operator often providing standard forms of contract.
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CONCLUTION
The Nigerian Petroleum industry is an area of the economy that has been faced with various disputes arising from the inability of a party to fulfil his contractual obligation at the detriment of the other party. Environmental dispute, fiscal (tax) disputes, ownership of land where there is oil, etc., and a wide range of areas bothering on dispute resolution in the Nigerian Petroleum industry have been treated, giving us an understanding of the dynamics of the industry with dispute resolution.
Timely settlement of this disputes among the partners/operators of an oil and gas project is very key to stability, sustenance of commercial harmony, and to keeping the oil and gas fields in operation and ultimately securing the rents, royalties and taxes to government while helping asset holders to fulfil the conditions of their licenses. It is evident that arbitration is recognized, incorporated and in use in the oil and gas industry in Nigeria and the law continues to be fine-tuned to meet the current realities based on the legal regime.