Petroleum Legislation and Regulations

5. International law

International law recognises the State’s sovereignty over its natural resources under the 1958 Convention of the Continental Shelf, which was later carried over to the UN General Assembly (GA) Resolution 1803 on Permanent Sovereignty over Natural Resources in 1962.To further emphasise that a host country fully owns and controls petroleum resources under its jurisdiction, a further UN Resolution 3281 (XXIX), Charter of Economic Rights and Duties of States is adopted by the UN GA in 1974.

Acknowledgement of permanent sovereignty meant that the host states could nationalise or expropriate foreign company assets. However, they could only do so for reasons of public utility, security or national interests and if compensated in accordance with the host state’s laws and international law. A more elaborate and modern version of this rule is contained in the Energy Charter Treaty (ECT), signed in 1994 between the then newly emerging former Soviet Union states of resource rich Central Asia and Europe, as well as Japan, Russia and Turkey.

Article 18 of the ECT also recognises permanent sovereignty over natural resources but reiterates the standard tests for expropriation: it is only allowed when it is undertaken for the purpose of the public interest; it is not discriminatory; it adheres to due process of law and it is accompanied by prompt, adequate and effective compensation. The ECT also has a comprehensive investment protection chapter (Part III of the Treaty) which has become the standard of investment treatment in many successive Bilateral Investment Treaties (BITs).

The ECT’s executive body, the Energy Charter Secretariat, produced a model intergovernmental and host-government cross-border pipeline agreement for natural gas which has been the basis of a few pipeline agreements in Central Asia, such as Baku-Aktau pipeline agreement. With regards to off-shore exploration and laying of subsea pipelines, the UN Convention on the Law of the Sea Treaty provides fundamental rules and international rules, including rules on obligations for the removal and disposal of offshore installations and structures.