Part I: Making the case for expropriation in the Context of Rights to Surface and Subsurface Use in the Petroleum Industry

Introduction

Unethical practices by Transnational Oil Companies (TOCs) have had a detrimental impact on the socioeconomic and environmental development of resource-rich countries, which are usually developing, poverty-stricken states. These practices often reflect a colonial and imperialistic attitude that seeks to appropriate natural resources to benefit a privileged minority to the exclusion of societies that are entitled to be enriched by these resources. This blog series highlights the importance of expropriation as a tool for transformation in the African petroleum industry. Part I of this blog discusses the role of TOC in contributing to the continuous underdevelopment of Africa.

The Role of Colonialisation and Unethical Practices in Transnational Oil Companies in Creating the “Resource Curse”

Most countries endowed with natural resources fail to derive economic benefits from these resources and are resultantly trapped in perpetual poverty.[1] This phenomenon is commonly known as the ‘resource curse’. It is a known fact that poor governance regimes in developing resource-rich jurisdictions contribute to the resource curse problem. However, the focus on this contributing factor ignores the role in which the TOCs, and to a broader extent, the legacies of colonisation, play in the persisting failure of developing states to achieve economic growth from the exploitation of their natural resources.

History provides that one of the main motivations for the European scramble for Africa was to gain full control of the continent’s natural resources for the accumulation of economic power and to fuel the ongoing industrial revolution.[2] This fast-tracked the socio-economic development of the European countries.[3] Legislative provisions and policies were promulgated to divert the ownership of natural resource discoveries to the respective colonial powers, to the exclusion and detriment of all indigenous African people.[4]  For example, the British colonial powers in Nigeria enacted the Minerals Oil Ordinance No. 17 of 1914, which vested all land and petroleum resources to the Crown. Section 6 of the Ordinance provided that no lease or license shall only be granted to British citizens or companies registered in Great Britain or British colonies.

The colonial powers proceeded to grant exploration and production rights over entire territories of the colonised states to a select few western TOCs, creating monopolies in the oil and gas industry.[5] Several decades after they gained independence, foreign oil companies still dominate African states' oil and gas industries. These states’ petroleum resources continue to enrich Western countries at the expense of their people’s well-being.[6] It is evident that the conquering of African land for its natural resources not only stripped African people of their cultural and spiritual ties to their ancestral land but also deprived Africans of the opportunity to determine their processes in controlling their land and natural resources in ways that would benefit their communities.[7]

How TOCs contribute to the resource curse today…

The TOCs perpetuate the unjust exploitation of African countries by upholding imperialistic attitudes and unethical practices in the business of extracting oil and gas. The companies often devise ways to gain maximum economic benefits while drastically reducing the amounts payable to the host states.[8] Stiglitz explains that the public scrutiny of private oil companies is often far less than that of the state because it is understood that it is the state’s primary duty to protect its citizens’ human rights and freedoms by improving the citizen’s quality of life.[9] Therefore, the scope for diversions by TOCs is greater, especially in corrupt and politically unstable states, because the general public is less likely to notice any misappropriation of funds. More recently, Glencore Energy UK was found guilty of bribing officials of oil companies in multiple African countries to gain access to their oil resources. They pleaded guilty to seven corruption charges in June 2022.

The ‘project’ of transforming a state’s legal and socio-political infrastructure after centuries of colonisation and political unrest has proven to be challenging. TOCs and foreign investors take advantage of developing countries' institutional weakness by concluding complicated petroleum contracts before developed legal frameworks regulating oil and gas exploration and production, working tax regimes, and administration and corporate governance structures were implemented by the states.[10] Further, the increased pressure placed on developing countries from leading financial institutions to privatise the development of their natural resources means that privatisation occurs before these countries are afforded the opportunity to develop their institutions.[11] Weakened governing institutions mean that there are no adequate measures in place that mandate the socio-economic development of the state and that there are no surveillance systems in place to keep corruption and the bribery of government officials by TOCs at bay.

Part II of this blog analyses the use of expropriation of subsurface rights as a means of transforming the petroleum industry in developing countries to alleviate persistent socio-economic issues.