Petroleum Licensing and Contracting

3. Areas of potential conflicts between national law and international law 

Recently, some conflicts between national law and international law have occurred in producing countries when implementing the Mining or Petroleum Codes and exploration and production contracts. These conflicts arose because of investors started to use national and international laws to benefit from conditions better than those intended under a country’s Mining/Petroleum and tax laws.

To prevent legal uncertainties, conflicts of law or aggressive tax planning, it is advisable for Governments to take the following steps:

  • Clarify whether the country’s “Investment Law” and its incentives should apply to petroleum upstream operations.  Generally, this is not the case, because the Petroleum or Subsoil Law should be the specific Investment Law for the exploration and production sector.

  • Analyse the possible interaction and identify any conflicts between the Petroleum Code and any Bilateral (and Regional) Investment Treaties (BITs) entered into at a country level to promote or protect investments. These conventions may contain a “fair and equitable treatment” (FET) clause not intended for the petroleum sector, and which may be used in a way that is detrimental, for example in arbitration cases dealing with termination.

  • Analyse the way in which investors may seek to use any Double Tax Treaties (DTTs) in force. These treaties, or a combination of two or more of these bilateral treaties, may be used by some investors in an unexpected way for long-term tax planning, with a possible negative impact on the payments by companies, contractors and sub-contractors.