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Grafting Liberal Governance


on the Oil-exporting Countries:
Will the Transplant Take Root?

Bernard Mommer*

Paper presented to the


International Studies Association 42nd Annual Convention
20-24 February 2001 Chicago, IL

1 Economics and Natural Resources


1.1 Ricardian Rent Theory
1.2 Private and Public Mineral Ownership
1.3 US Oil
1.4 Conclusion

2 Liberal, Proprietorial, and Conciliatory Governance


3 The International Energy Agency
3.1 The National Oil Companies in the Consuming Countries
3.2 Conclusion

4 International Investment Treaties


4.1 Defining ‘Investment’
4.2 Trade-related Investment Measures
4.3 Making an Investment

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4.4 Dispute Settlement


4.5 Taxation
4.6 ‘Sovereignty over Energy Resources’
4.7 Conclusions

5 The National Oil Companies in the Exporting Countries


6 Conclusions

*Senior Research Fellow, Oxford Institute for Energy Studies and St. Antony’s
College, Oxford, England. E-mail: bernard.mommer@sant.ox.ac.uk

1 Economics and Natural Resources

In the early days of political economy, not surprisingly, land and landlords played a major role.
For the physiocrat Turgot, writing in 1766, all surplus value was groundrent whereas profits and
wages were not distinguished from each other. Land and labour were the two original factors of
[1] [2]
production. Hardly ten years later, Smith distinguished between land, la-bour and capital.
But forty years onwards, in 1817, Ricardo started to dismantle the trilogy and to bring it down to
[3] [4]
the binomial of modern economics, labour and capital. Land was “as-similated to capital”.
Natural resources had been taken out of the visible hands of the land-lords and placed into the
invisible hands of the market. It was deemed to be sufficient to con-sider land – i.e. natural
resources generally – no longer as a category of its own. From the viewpoint of bourgeois
economics at least, the revolutionary transformation was over. The same goes for Marxism,
though for Marxist economics land as a factor of production disap-peared somewhat later. Today
the question of land tenure is consigned to ‘development eco-nomics’.
1.1 Ricardian Rent Theory
The alleged irrelevance of land as a factor of production is based on the understanding that it has
no bearing on prices. According to Ricardian rent theory, the price of natural resources is
determined just like that of all other goods: by its marginal production cost including the usual
[5]
profit. Hence, the “appropriation of land and the consequent creation of [ground]rent” plays no
role at all. Nevertheless, tenants can always afford to pay some groundrent as long as there are

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economic rents even on the poorest land, generated by successive portions of in-vestment at
decreasing productivity. In other words, the empirical fact that tenants always pay some
groundrent may be compatible with the theoretical assumption that the marginal ground-rent on
production is zero. Moreover, competition amongst tenants will drive those economic rents, as
groundrents, into the pockets of landlords. Subject to competition in the product market,
however, they cannot afford to pay more. Thus, competition will compel the tenants to invest and
to expand production as long as it is profitable to do so, i.e. up to the point where marginal
production costs equal market prices.
Yet the crucial question is not if the marginal groundrent on production is zero, but if the
flow of investment is hampered. Even if marginal groundrent on additional investment in all
leases is zero, this does not preclude the possibility that some land has not been leased be-cause it
cannot command the groundrent the landlords are asking for. If this were the case, demand would
be met by investment into a restricted area, and necessarily at higher marginal production costs.
The outcome would be higher-than-otherwise prices. On the other hand, whether or not this is
true, is an empirical rather than a theoretical question.
But it gets worse. Ricardo’s model depends on the form of groundrent. If it is a fixed an-
nual payment, at the time already the most common form in British agriculture, then there is no
problem. Yet if we suppose that the tenants are sharecroppers and the groundrent con-sists of a
certain percentage of the harvest, then there is no marginal produce that does not pay groundrent
and, a fortiori, the flow of investment is restricted. Contrary to Ricardo’s expecta-tions,
sharecropping never disappeared completely in agriculture. Though it is, indeed, an an-cient form
of groundrent, it is also a modern one. It is actually quite widespread even in mod-ern economies
such as the United States.
1.2 Private and Public Mineral Ownership
Worst of all, however, in mining the equivalent of sharecropping, royalty, is still the dominant
[6]
form of groundrent. Ricardo, aware of this fact, resorted to excuses. Royalties, he argued, were
[7]
paid in “consideration of the valuable commodity” taken out of the land and, hence, they did
not constitute groundrent at all. But this is irrelevant. The relevant fact is that a roy-alty is paid to
the owner of the natural resource. The flow of investment is restricted because on top of technical
production costs and the usual profit, there is a royalty to be paid.
And there is yet more. In mining private landed property as such may cause a signifi-cant

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increase even in technical production costs. The classical debate on this subject took place in
revolutionary France, decades ahead of Ricardo’s writings. The French National As-sembly
accepted that as long as minerals were to be found close to the surface, private gov-ernance – the
land to the tiller – would guarantee a reasonable outcome. Thus, the Mining Act of 1791, to this
day the basis of the French law of mineral property, confirmed the surface owners’ rights to mine
all minerals “which may be worked open-air or with excavations and daylight down to the depth
[8]
of one hundred feet”. Yet the deeper the mines the more costly and difficult it would be to
adjust to the fragmentation of private surface property rights. (Op-timal techniques require that
reservoirs or deposits be exploited as natural unities. Failing to do so entails, for example, too
many wells or shafts to be drilled, which is the more costly the deeper the minerals are found).
Therefore, the search for, and production of, those minerals to be found in greater depths were
subject to a license or concession. These activities were pro-claimed to be of ‘utilité publique’.
Thus eminent domain rights would prevail over private surface property rights. Hence, public or
private mineral ownership is a question of efficient governance, i.e. different ways to hand over
the minerals to the miners.
My case studies of British coal and US oil fully validate this viewpoint. As a matter of fact,
even in US oil and in spite of the conservation policies in place, the technical costs of private
[9]
mineral ownership were, and are, at least as high as groundrent itself. In British coal these
costs became intolerably high with increasing mine depth, which lead to the nationali-sation of
the deposits in 1938. Regarding oil, in the twentieth century private mineral property disappeared
everywhere, with the sole exception of the USA. Governments, companies, and consumers, all
agree on public mineral ownership. Private mineral governance in US oil is a lonely relic, a quirk
of history.
1.3 US Oil
Highly competitive markets notwithstanding, in US oil marginal groundrent came not down zero
[10]
but to a customary groundrent. The most important component of that groundrent is a usual
[11]
royalty, of one-eighth in most of the USA but of one-sixth in some parts of the country. Most
remarkable is the stability of these rates, which developed in the 1870s. It was only in the 1970s
that the ‘OPEC revolution’ – an earthquake, quite at the top of the Richter scale – brought about
some movement, and one-fifth seems now to be the usual minimum royalty in many parts.

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The point here is that the market generated standard contracts, for quite obvious rea-sons.
There is a very significant saving of time and money in not starting negotiations from scratch for
every single lease but from a standard form, which includes a customary ground-rent. This
minimum has to be important enough to whet the appetite of the landlord. The cus-tomary
groundrent thus represents to the landlord the equivalent of the usual profit to the in-vestor.
However, it also establishes a level playing field for the competing companies. Next, it becomes
an established right, and it may actually become a legal problem to offer less. Fi-nally, a complex
legal and economic structure evolved. This governance structure was as dif-ficult and costly to
change as the gauge of railroads. Once a governance structure is in place, competition settles into
the new order. US oil went through an extreme variety of market con-ditions without it affecting
the essence of its governance. However, this does not mean that it not continued to develop and
adapt to changing circumstances in one way or another. Yet fundamental changes, creating new
governance, require extraordinary circumstances, and an equally extraordinarily strong political
will, i.e. power. The power of the market itself is not sufficient; it requires the kind of power that
creates markets.
1.4 Conclusion
Ricardian rent theory is obviously wrong in assuming that competition between landowners
would suffice to guarantee a smooth and frictionless flow of investment. Yet there is no at-tempt
to look back and to reintroduce land as a factor of production into economic theory. Looking at
the real world, economists will at best discover that it is imperfect, but not that there is something
wrong with the theory.
Thus, the idea that landlords might rise again from the dead in the second half of the
twentieth century and, worse, be reincarnated as sovereign states joining together in a cartel
playing a significant role in the world economy, was simply unimaginable. In the 1960s all
energy economists forecasting oil prices agreed that OPEC was not worth their trouble. Landed
property in international oil was a none-issue. It was rarely mentioned, and then only in order to
be dismissed as irrelevant. This explains their complete failure to analyze the problem ever since
it turned not just into an issue but also indeed into by far the most impor-tant one in the
determination of prices. Thus the OPEC revolution of the early 1970s took the governments of
the consuming countries completely by surprise.
Still, economics had something very important to offer to these governments: a model of a
perfect world, able to provide guidelines for political action according to the device that land and

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landlords should have no bearing on prices.

2 Liberal, Proprietorial, and Conciliatory Governance

The irrelevance of land and landlords in the determination of prices defines liberal mineral
governance. It entails that concessions are granted as soon as the land may command a usual
profit without paying groundrent. Still, there may be a groundrent, but only if there are ex-
traordinary profits and, of course, the groundrent-collecting device has to conform to Ricar-dian
rent theory. In other words, it has to be designed so as not to hamper the smooth flow of
investment. Marginal groundrent has to be zero. Obviously enough, liberal mineral govern-ance
is based on consumers holding sovereign power.
On the contrary, proprietorial mineral governance is based on a sovereign power where the
interest of landed property prevails over consumers. It is thus able to restrict the ac-cess to the
land maximizing groundrent, and marginal groundrent is certainly not zero. Be-tween these
extremes an interval of stable equilibria exists as shown by the example of US oil. Hence, it may
be qualified as conciliatory governance. Landed property plays a role and has a bearing on prices,
but it does so basically as a ‘sleeping partner’ of the intermediaries, the tenant companies.
Thus, the history of international oil in the twentieth century may be summarized as fol-
lows. The conciliatory governance of US oil provided a first reference to international oil, which
was fully implemented by the 1950s. The oil-exporting countries then benefited from the same
usual royalty rates as landowners in the USA. Moreover, as sovereigns, they also benefited from
the same federal corporate income tax rates. All in all, this amounted quite neatly, though
accidentally, to a fifty-fifty profit sharing. But that level of groundrent, by the end of the 1950s,
no longer satisfied these countries, which controlled the most prolific oil fields in the world.
Collectively they began to build up their own proprietorial governance, claiming their sovereign
rights to do so. In the context of the liberation movement in the Third World in general, they
were most successful. At the heart of their policy in the 1960s was the increase of marginal
groundrent, in spite of falling prices. The outcome was the OPEC revo-lution of the early 1970s,
the explosion of oil prices, and the nationalization of the interna-tional tenant companies.
In the exporting countries national oil companies (NOCs) replaced the nationalized com-
panies. In the consuming countries governments had to step in, first of all to guarantee security of
supplies. More important in the long run, regarding prices, these governments would promote
liberal governance, which they introduced, to start with, only in their own ter-ritories. Nowhere

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was this done more radically than in the British North Sea. At present, the governments of the
consuming countries intend to graft liberal governance on the oil-export-ing countries.
If one looks for one single indicator for liberal vs. proprietorial governance in oil, the best
one is probably the relation between proven reserves and production, compared to the world
average. Regarding crude oil, in 1998 OPEC produced 42.5% of the world’s output, though 76%
of the world’s proven reserves were located within its area. This has to be com-pared with the
most liberal oil-producing country of the world, the UK, with 0.5% of the world’s proven
reserves producing 3.8% of the world’s output. What we may call the utilisa-tion ratio of the
natural resource is only 56% in OPEC, but 787% in the UK. The USA, with 451%, holds an
intermediate position.

Liberal vs Proprietorial Governance in Crude Oil:


Utilisation Ratio of the Natural Resource

1998 Proven Reserves Production Utilisation


(1,000,000 b) (%) (1,000 bd) (%) Ratio
OPEC 809,044 76.0% 27,739 42.5% 56%
USA 22,546 2.1% 6,243 9.6% 451%
UK 5,191 0.5% 2,506 3.8% 787%
World 1,064,128 100.0% 65,273 100.0% 100%
Source: Republic of Venezuela, Ministry of Energy and Mines, Petróleos y otros datos esta-
dísticos, 1998; pp. 203, 208.

[12]
3 The International Energy Agency

The governments of the developed consuming countries – the OECD countries – took the lead in
[13]
confronting OPEC. In 1974 they founded the International Energy Agency (IEA). Not sur-
prisingly, it first adopted an International Energy Programme (with the status of an interna-tional
treaty, like the OPEC Charter) to deal with emergencies. In 1976 a Long-Term Pro-gramme
followed. The goal was to reduce dependency on imported oil. This was to be achieved, on the
one hand, by reducing demand and, on the other, by increasing domestic production of oil and
gas and alternative sources of energy. In this paper we concentrate on the latter.
To increase domestic production, licensing and fiscal regimes should be revised “so as to

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[14]
encourage timely development” of the reservoirs. Member countries were also encouraged
“to exploit all economically (…) appropriate opportunities to minimise declines in their own
[15]
indigenous oil production”. The same principle applied, of course, to alternative sources of
en-ergy such as coal, relatively abundant within OECD countries. In 1979, after the renewed
doubling of oil prices during the time of the Iranian revolution and the ensuing Iraq-Iran war, the
IEA agreed on minimising the use of oil for electricity generation. National energy policy
planning should preclude “new or replacement base load oil-fired capacity; progressively
[confine] oil to middle and peak loads; and [make] maximum use of fuels other than oil in dual-
[16]
fired capacity”. Member countries had also to ensure “that fiscal regimes, e.g., govern-ment
royalties and severance taxes, (…) do not adversely affect the viability of coal mining
[17]
developments”.
Until then royalty had been omnipresent, being an unquestioned part of the US refer-ence.
In the North Sea, for example, the typical US royalty rate of one-eighth prevailed. Yet in 1983 the
British government took the lead in scrapping royalties for new developments. Thus, new acreage
was brought into exploration, some previously non-commercial discover-ies became
commercially viable, and the closure of ageing oil fields was postponed. In other words, the
marginal groundrent was brought down to zero, and the scope of fiscal regimes was
systematically limited to Ricardian rents. Regularly held licensing rounds granted a con-tinuous
flow of land.
In the US federal offshore the government started in the 1980s a programme of ‘area wide
leasing’ to the same effect. And in the 1990s on federal lands some timid attempts were made to
make royalties more flexible downwards. Nevertheless, the liberal oil policy in this country
achieved only modest success, as (private and public) royalties are widespread and deeply rooted.
Moreover, member countries were urged, “to promote diversified investments in world-
[18]
wide production”. Indeed, at present non-OECD countries consume more than half of world
energy. Of course, of special interests were the “developing countries with significant potential
for future hydrocarbon supply”, where the IEA would “support activities of interna-tional
[19]
organisations to help improve investment regimes”. The campaign against royalties as a rent-
[20]
collecting device and in favour of excess profit taxation went worldwide.

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3.1 The National Oil Companies in the Consuming Countries


The European countries founded the first NOCs early in the twentieth century as part of the set up
of the concession system in the Third World, as their (onshore) natural resource base was very
poor. Most of the NOCs of the Latin American consuming countries, on the other hand, were
founded between the two World Wars. They were supposed to explore, to pro-duce, and to refine
domestically, within a general policy of import substitution. The exporting countries started to set
up their national oil companies only in the 1950s. Conceived as agen-cies of the landlord state,
they dissolved into the NOCs resulting form nationalization in the 1970s. The last wave of NOCs
in relatively resource-rich consuming countries was triggered by the OPEC revolution.
Concerned about security of supply and the economic threat of high prices, Canada and the
United Kingdom, for example, set up PetroCanada and the British Na-tional Oil Company
(BNOC). By the end of the 1970s the USA was the only significant oil producer without a NOC.
This last wave of NOCs was short-lived. The issue of security of supply at reasonable prices
was taken up collectively by IEA/OECD within the context of a strong liberal envi-ronment. The
new NOCs came to be seen as an inappropriate answer to the OPEC revolution. They were
dismantled and privatised during the late 1980s and early 1990s. On the other hand, the old
European NOCs had lost their raison d’être with the nationalization of those concessions. Hence
they too were privatised. The UK took the lead in both cases, privatising BNOC and BP.
The Latin American NOCs suffered a similar fate. The old idea that the international oil
companies were not interested in the development of national reservoirs but only in im-porting
from their highly profitable concessions elsewhere, was now obsolete. Moreover, the model of
protectionist, import-substituting economic development in Latin American coun-tries was in a
deep crisis. In the 1990s, under increasing external pressure, they turned to pri-vatisation and
liberalisation. Argentina privatised Yacimientos Petrolíferos Fiscales (YPF), the oldest Latin
American NOC, and in Brazil Petrobras, the youngest one, is being privatised at this moment.
This leaves us at present only with one important set of NOCs: the NOCs of the export-ing
countries, the agencies of the landlord states.
3.2 Conclusion
Overall, whatever could be done within the consuming countries would never be enough. Their
natural resource base is insufficient. 76% of the world’s crude oil reserves are located within
OPEC, with another 6% in the former Soviet Union (a net oil-exporting area). Re-garding natural
gas – an energy source of similar importance to crude oil with world-wide re-serves equivalent to

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about one trillion (1012) barrels – OPEC holds 42% of world reserves, and the former Soviet
Union 39%. Within the OECD coal is the only abundant source of fuel, but in an increasingly
environmentally conscious world it is stigmatised as the dirtiest source of energy. Nuclear
energy, for a variety of reasons, never lived up to expectations.
Thus, despite high prices, the OECD only succeeded in restraining but not in eliminat-ing
dependency on OPEC oil. OPEC production peaked in 1979 at about 30 million b/d, and by 1985
had fallen to half that level. Prices collapsed in 1986. But then the growth of demand for OPEC
oil resumed with the growth of the world economy. Today OPEC production is back to 30
million b/d, albeit at lower prices. The IEA has estimated that by 2010, due to both demand
increasing to 45 million bd and declining domestic production, the OECD countries will have to
import 70% of that demand. Demand in the ‘rest of the world’ is expected to grow even faster.
This increase is likely “to be met primarily by the major Middle East pro-ducers and Venezuela”,
[21]
despite the widespread consumption of coal and, more recently, natu-ral gas in power
generation.
There was no way out of the dilemma for the OECD countries. There had to be some
coexistence with OPEC. But was it not worth a try to bring OPEC, or at least some member
countries, into the liberal governance of international oil? After all, since the ‘OPEC revolu-tion’
the performance of member countries had been appalling. Apart from wars between some
members, military and civil unrest in others, and foreign indebtedness in most of them, not one
delivered the promised political and economic development. By 1989, some of them were
internally very weak and divided, and they began to give in to the mounting pressure to re-open
upstream oil to private investment. And then came the surprise of the century, the fall of the
Berlin Wall and the collapse and disintegration of the Soviet Union, at that time the second most
important oil-exporting country. With the victory of capitalism over communism and the end of
the Cold War, new territories rich in hydrocarbons were suddenly and unex-pectedly opening up
to foreign investors.
This new international political context provided a unique opportunity for the consum-ing
countries to advance in their agenda on a truly global scale. The nascent liberal govern-ance of
international oil, so far still limited in its scope to the consuming countries, was sud-denly
upgraded to a model for a new world of global capitalism.

4 International Investment Treaties

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‘Permanent sovereignty over natural resources’ was the catch phrase of Third World countries in
the 1960s. This referred to the dismantling of the cobweb of concessions and other con-tracts,
which still covered their natural resources after independence. The OPEC revolution took it up
more radically then any other group of countries. Thereafter, however, OPEC stag-nated. There
was nothing OPEC would ever agree on again beyond prices and quotas. In the 1960s, OPEC
collectively confronted the international tenant companies, the dominant play-ers of the
conciliatory governance structure then in force. During that period it produced a most notable
[22]
Declaratory Statement of Petroleum Policy in Member Countries. But in the 1980s and
1990s there was no collective answer whatsoever to the governments of the devel-oped
consuming countries, the new dominant players in the set up of liberal governance. The weakest
member countries could now be chosen individually and, isolated, be worked on.
In order to contain and confront the concept of ‘permanent sovereignty over natural re-
sources’ in the ‘rest of the world’, given the majority of Third World countries in the UN, the
developed consuming countries – first the Europeans, then the USA and other members of OECD
– started to negotiate a series of Bilateral Investment Treaties (BITs). Usually these BITs were
concluded between one developed and one underdeveloped country. The flow of investment was
predictably in one direction only, and the rules agreed upon were those to the liking of the capital-
exporting developed countries. Traditional international law was thus re-vitalised – though it was
no longer called international law of ‘civilised nations’ – as it was endorsed by many Third
World countries, whatever their public discourse in multinational fora.
After the demise of the Soviet Union the trickle of BITs turned into a torrent. A major-ity of
them were concluded, of course, between OECD member countries and Russia, the Newly
Independent Republics and the Eastern European countries. Then the European Union (EU) with
its eyes on the hydrocarbon riches of the former Soviet Union grasped the opportu-nity to initiate
multilateral negotiations (rendering hundreds of individual BITs unnecessary). The first result
was, in December 1991, a non-binding European Energy Charter. This was the starting point for
the subsequent negotiation of a binding Energy Charter Treaty (ECT), which was concluded in
December 1994.
In the developed world, apart from the EU, the 1989 USA-Canada Free Trade Agree-ment
(USACFTA) deserves mentioning. In spite of its name, it also covers investment and applies to
[23]
upstream oil. In 1993 this treaty was extended to the North American Free Trade Agreement

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(NAFTA), including Mexico, though for the time being the relevant set of rules was not applied
[24]
to Mexican oil. Last but not least, regarding world trade, GATT’s languish-ing Uruguay
Round was also given a new boost leading to its successful conclusion in 1994 and the
foundation of the World Trade Organisation (WTO). Though a treaty on trade, it has, as we shall
see, some relevance to investment. Thus, in the five years from 1989 to 1994 the consuming
countries achieved very significant advances in setting up a liberal governance of international oil.
4.1 Defining ‘Investment’
BITs, as their name suggest, consider investment. The ECT is generally regarded as a multi-
lateral investment treaty and nothing else. Yet the term ‘investment’ in these treaties is typi-cally
defined in an all-inclusive way. Thus “contractual rights, such as (…) production or revenue-
sharing contracts, concessions, or other similar contracts”, as well as “rights con-ferred pursuant
to law, such as licences and permits”, are simply ‘investments’. Hence, up-stream contracts in oil
[25]
are dealt with as “investment agreements”. We quote here as an exam-ple the USA-
Azerbaijan BIT. It really does not matter very much which BIT one chooses as, for example, a
[26]
comparison with the Canada-Venezuela BIT shows. On the other hand, the ECT defines
‘investment’ as, amongst other things, “contractual rights, such as (…) produc-tion or revenue-
sharing contracts, concessions, or other similar contracts”, as well as “any right conferred by law
or contract or by virtue of any licences and permits granted pursuant to law to undertake any
[27]
Economic Activity in the Energy Sector”, or simply “returns”. Conse-quently, though these
treaties cover all kind of upstream contracts, they only deal with the rights of ‘investors’. Natural
resource ownership is completely ignored.
4.2 Trade-related Investment Measures
The USA-Azerbaijan BIT also outlawed trade-related investment measures (TRIMs) in ac-
cordance with GATT/WTO. Moreover NOCs were forbidden to favour national suppliers of
goods and services in their procurement policies and, more generally, to link an ‘investment’ to
national development:
Each Party shall ensure that its state enterprises, in the provision of their goods or
services, accord national and most favoured nation treatment to covered in-
vestments.
Neither Party shall mandate or enforce, as a condition for the establishment,

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acquisition, expansion, management, conduct or operation of a covered in-


vestment, any requirement (including any commitment or undertaking in con-
nection with the receipt of a governmental permission or authorisation):
(a) to achieve a particular level or percentage of local content, or to purchase, use
or otherwise give a preference to products or services of domestic origin or from
any domestic source (…).
(e) to transfer technology, a production process or other proprietary knowledge to
a national or company in the Party’s territory (…).
(f) to carry out a particular type, level or percentage of research and develop-ment
[28]
in the Party’s territory.

The Canada-Venezuela BIT contains the same clauses, except that it does not outlaw a ‘buy
Venezuelan’ policy of state enterprises. The ECT stipulates, “a Contracting Party shall not apply
any trade-related investment measure that is inconsistent with (…) GATT”. With its typical
ambiguity, the ECT adds exceptions and clauses allowing signatories to opt out, and others
designed to maintain the pressure on reluctant signatories to keep moving in the desired direction.
[29]

4.3 Making an Investment


Upstream investment, there is no other way, depends on some kind of permit from the natural
resource owner and, ultimately, on the support from sovereign power. Mining companies need
this support more than any other kind of enterprise. A car factory may choose its loca-tion;
mining companies have to mine where the deposits are found. Thus the sovereign owner may
‘discriminate’ and concede permits to selected investors, e.g. national companies, private or
public. Similarly, if privatising NOCs, the state may favour national private companies or buyers.
This was specifically outlawed in the USA-Azerbaijan BIT:
With respect to the establishment, acquisition, expansion, management, con-duct,
operation and sale or other disposition of covered investments, each Party shall
accord treatment no less favourable than that it accords, in like situations, to
investments in its territory of its own nationals or companies (…) or to in-
vestments in its territory of nationals or companies of a third country (…)
[30]
whichever is most favourable.

The Canada-Venezuela BIT does not cover the making of an investment, the so-called pre-in-

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vestment phase. And in the more complex multilateral ECT, which includes countries less
desperate than Azerbaijan to attract foreign investment, agreement on such an unambiguous
wording was impossible. Each Contracting Party would only “endeavour to accord” such a non-
[31]
discriminatory treatment. Further pressure, however, was put on the reluctant signatories of
the ECT to agree to a firmer commitment, through a “Supplementary Treaty” still to be ne-
[32]
gotiated.
4.4 Dispute Settlement
In the USA-Azerbaijan BIT, private investors – not the governments – are given a menu of
choices for the settlement of an ‘investment dispute’, from national courts to international ar-
bitration, independently of whatever may have been written into the ‘investment agreement’ in
[33]
question or into a foreign investment law. The same applies to the Canada-Venezuela BIT.
The dispute settlement provisions in the ECT, heavily influenced by the precedents created with
[34]
the USACFTA and NAFTA, were worded almost identically. This was certainly the most
important achievement of the ECT. It entered into force upon signing the Treaty, even before it
being ratified by the member countries (though there was a possibility to opt-out).
4.5 Taxation
In the USA-Azerbaijan BIT sovereign taxation is referred to in relation to expropriation:
Neither Party shall expropriate or nationalise a covered investment either di-rectly
or indirectly through measures tantamount to expropriation or nationali-sation
(hereinafter referred to as ‘expropriation’) except for a public purpose; in a non-
discriminatory manner; upon payment of prompt, adequate and effec-tive
[35]
compensation.

The word ‘indirectly’ alludes to taxation. In the same indirect manner, it is stated, “no provi-sion
of this Treaty shall impose obligations with respect to tax matters”. This is followed by several
exceptions, the most important of which refers to ‘investment disputes’ based on “an investment
[36]
agreement or an investment authorisation”. The latter, in plain English, are conces-sions or
licences, while the former means:
a written agreement between the national authorities of a Party and covered in-
vestment or a national or company of the other Party that (i) grants rights with

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respect to resources or other assets controlled by the national authorities and (ii)
the investment, national or company relies upon in establishing or acquiring a
[37]
covered investment.

Thus, this clause covers upstream contracts signed between NOCs and foreign investors – a most
important point we will come back to later. The reader should keep in mind that no landlord-
tenant relationship is supposed to exist. According to the Ricardian rent model groundrent is
never passed on to consumers. To make sure that this is actually the case, the governments of the
consuming countries always have wanted to subject taxation to their sov-ereignty. Accordingly,
the treaty established the following procedure:
A national or company, that asserts in an investment dispute that a tax matter
involves an expropriation, may submit that dispute to arbitration (…) if:
(a) the national or company concerned has first referred to the competent tax
authorities of both Parties the issue of whether the tax matter involves an ex-
propriation; and
(b) the competent tax authorities have not both determined, within nine months
from the time the national or company referred the issue, that the matter does not
[38]
involve an expropriation.

Thus even investors without any contractual relationship are offered the option of interna-tional
arbitration in tax matters as long as one of the parties – the USA or Azerbaijan govern-ment – had
not ruled, within nine months, that a new tax or tax increase ‘does not involve an expropriation’.
The Canada-Venezuela BIT establishes a period of only six months. The ECT, while including its
usual diplomatic caveats, generally adopted the same procedure.
[39]
4.6 ‘Sovereignty over Energy Resources’
The only developed oil-exporting country, Norway, was part of the negotiation of the ECT (the
UK is a marginal exporter, and firmly committed to liberal governance). Its presence probably
explains why the question of sovereignty was taken up at all, though it was treated under the
heading ‘Sovereignty over Energy Resources’ and no longer ‘Permanent Sover-eignty over
[40]
Natural Resources’.
State sovereignty and sovereign rights over energy resources were recognised, though only
if they were “exercised in accordance with and subject to the rules of international law”. In the

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same way, “the rules in Contracting Parties governing the system of property owner-ship of
energy resources” were not at stake, but they should not affect “the objectives of pro-moting
access to energy resources, and exploration and development thereof on a commercial basis”. It
was also agreed that “Contracting Parties undertake to facilitate access to energy re-sources, inter
alia, by allocating in a non-discriminatory manner on the basis of published criteria
authorisations, licences, concessions and contracts to prospect and explore for or to exploit or
extract energy resources”. All this suggests that the next step could be to oblige the sovereign
power, in one way or other, to put those ‘energy resources’ on the market. Re-markably enough,
this possibility had to be formally denied:
Each state continues to hold (…) the rights to decide the geographical areas within
its Area to be made available for exploration and development of its en-ergy
resources, the optimalization of their recovery and the rate at which they may be
depleted or otherwise exploited, to specify and enjoy any taxes, royal-ties or other
financial payments payable by virtue of such exploration and ex-ploitation, and to
regulate the environmental and safety aspects of such explo-ration, development
and reclamation within its Area, and to participate in such exploration and
exploitation, inter alia, through direct participation by the gov-ernment or through
state enterprises.

In this paragraph the desperate, and somehow funny, effort to avoid any suggestion of a link
between energy and natural resources, especially non-renewable ones, is particularly striking.
While the language may sound odd, there is nonetheless a recognition of the states’ property
rights: rights to deny investors access to particular ‘areas’, to get compensation for its natural
resource, to set production levels, and to participate with its NOCs in exploration and produc-
tion. This could hardly be more contrary to the spirit, and even the letter, of the rest of this
Treaty. Its essential purpose, so systematically and carefully expressed, was to hammer into the
head of resource-rich signatories the idea that there was no such thing as an international landlord-
tenant business relationship but only a state-taxpayer one. Yet this alien Article had to be grafted
onto the ECT; without it, the complex multilateral negotiations would have failed. No such clause
is to be found in the Azerbaijan-USA and Canada-Venezuela BITs.
4.7 Conclusions
Liberal governance of international oil, which the developed consuming countries have been
building since the early 1970s, evolved into a grandiose framework of international trade and
investment treaties, an attempt to create one global economy united by free trade and free in-

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vestment. In this global economy, mineral resources would be subject to the global sovereign:
consumers.
NAFTA and the ECT also promoted new rules between the developed countries. In both
treaties the arbitration rules were innovations and went far beyond whatever the EU or the OECD
had agreed to before. In the euphoria following the success of the ECT, the OECD launched the
idea of a general Multilateral Agreement on Investment (MAI). Yet this attempt failed, largely
due to the resistance of France. Since then, ECT and WTO stopped moving at the breathtaking
velocity that they had displayed after 1989.
[41]
The ECT became effective with its ratification by thirty signatories, in 1998. Yet, not
everything went smoothly. The USA had pressed hard to be part of these negotiations to pre-vent
the ECT from becoming a ‘European’ treaty as originally intended. However, in the end it was
the USA that refused to sign. It regarded the approach to the pre-investment phase as too soft
compared with standards already established in some BITs, and it was not willing to swallow the
article on sovereignty. It believed that the ECT would create negative precedents regarding new
BITs (for instance with Russia) and multilateral treaties (for instance with Latin American
[42]
countries). It was nonetheless largely the US presence in these negotiations that produced,
among other things, the far-reaching arbitration clauses.
Russia signed, but it has not ratified so far. This is, of course, a major failure of the ECT.
After all Russia controls 74% of proven reserves in crude oil of the former USSR, and 85% in
natural gas. “Negotiations [were] largely led, on the Russian side, by the reformist groups, and
the negotiations and their results [were] a strategy of the reformers aimed at im-posing the
[43]
Treaty’s market economy model on the internal policy debate”. Yet, back home, various
national interest groups retained a great deal of power, not least in the oil and gas sector in which
over 60% of Russian exports and fiscal revenues originate. From their per-spective, the ECT was
difficult if not impossible to accept. From the viewpoint of the Newly Independent Republics
things looked somewhat different, as stated by Kazakh President Nursultan Nazarbayev: “I do not
think that in today’s world weapons can do anything to pro-tect a country. Our main security
[44]
guarantee (against Russia) will be a powerful Western busi-ness presence in Kazakhstan.”
In practice, private foreign investors have not been very successful in getting their hands on
Russian oil. By 1998 cumulative spending in the projects involving ARCO, BP, ENI, and Shell,

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[45]
still amounted to very little and the outlook is not very exciting. Yet, the Rus-sian
government is under continuous pressure to ratify the ECT. In April 1998 at the G8 Energy
Ministerial in Moscow, the Energy Charter Secretariat and the IEA presented a joint paper on
‘Energy Investment’, largely based on “valuable studies carried out by or under the auspices of
[46]
the World Bank and the European Bank for Reconstruction and Development”. Its executive
summary strongly argues that royalties, a groundrent collecting device that con-cedes virtually no
freedom to investors to minimize their fiscal liabilities – their only choice is to produce or not –
should be scrapped:
Experience has shown that an unstable or unbalanced tax system can be the single
most important factor in deterring investors. This has been particularly true where
taxation is based on gross revenues rather than on profits, with al-lowance for
[47]
incurred costs.

This point is further developed elsewhere:


Profit-based systems are more self-adjusting and give a better basis for inves-tors
to assess the fiscal impact over the life of their investment project (…). Finding the
right tax structure is of particular importance to Russia where the oil industry
[48]
accounted for 70 per cent of federal government revenues in 1997.

As a matter of fact, the homeland of fiscal regimes based on royalties and severance taxes is the
USA. Yet this country is also the homeland of the largest, most prosperous and successful private
petroleum industry in the world. And nowhere have fiscal regimes been more stable. Profit-based
systems, however, concede a maximum of freedom to investors to minimize their fiscal liabilities.
The joint paper ends with some ‘Recommendations’. On the issue of equal pre-invest-ment
opportunities it asserts, “national economic benefits arising from an (…) investment will not be
determined by the nationality of the investing company”. Privatisation opportunities should “be
open to companies without discrimination on grounds of nationality. There should be no
constraints on the subsequent resale and purchase of shareholdings or other assets after
privatisation”. On energy trade, it recommends that WTO rules should be followed as closely as
possible. Last but not least, it concludes that Russia “should continue to pursue, as a matter of
[49]
priority, ratification of the 1994 Energy Charter Treaty”.

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5 The National Oil Companies in the Exporting Countries

One may wonder why oil-exporting countries should subscribe to such investment treaties? These
bilateral and multilateral investment treaties represent the negation of ‘permanent sov-ereignty of
natural resources’. One can hardly be more radical. Still, as far as the really des-perate Newly
Independent Republics are concerned, one may not be surprised. Their problem, above all, was to
keep in check Russia. But how can one explain that less desperate, experi-enced, and relatively
developed oil countries such as Venezuela subscribe to this kind of trea-ties? The general answer
is, of course, their poor performance since nationalisation. In these countries exist ‘reformist
groups’, keen if not desperate to impose a ‘market economy model on the internal policy debate’.
And the consuming countries may threaten quite effectively to exclude, in a kind of tit for tat, the
non-oil sector of the exporting countries from the benefits of international trade and investment.
Yet, this is hardly sufficient. Signing and ratifying this kind of international treaty is not
enough. To implement it effectively requires some powerful liberal agency, be it reform-ing the
old proprietorial one, the Ministry of Petroleum, or creating a new one. There are cer-tainly
several political options one can think of. But there is one important feature to be ob-served
everywhere: the privatisation of the NOCs is not on the top of the liberal agenda in the exporting
countries. Typically, in the joint paper the Russian government was told that:
major studies have noted that the existing Joint Venture licensing arrangements are
based on an administrative system that views the Subsoil Licence as the su-preme
document, while the agreement among parties to the Joint Venture is only
secondary. This exposes the investor to several significant risks. The terms of the
licence to use the subsoil are subject to unilateral change by new legislation and
are terminable by the governments on various grounds. It is subject to all
applicable taxes at all levels of government, and no protection is provided against
adverse changes in tax laws or other laws (…). Disputes are not subject to
impartial adjudication because there is no contractual relation-ship between the
[50]
Joint Venture partners and the government.

As a matter of fact, all developed countries grant concessions or licences in exactly the same way
as intended by Russia, even if these countries have, or had, NOCs (for example, Norway, and
until recently Canada and Great Britain). However, in the exporting countries the prob-lem, from
the viewpoint of the consuming countries, is to limit their sovereignty – beyond the sovereign act
to be granted access to the land. National investment treaties were playing their part, but more

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[51]
could be done combining these treaties with ‘production sharing agreements’ or similar types
of upstream contracts. The NOCs are thus involved in the business. Their im-portance lies, of
course, not in their role as business partners but as ‘umbrellas’ or ‘hostages’. They guarantee that
they will absorb detrimental changes in legislation, most importantly in taxation, be it through
paying directly on behalf of the foreign ‘partners’, or be it through paying indemnities. Thus,
indirectly, through so-called ‘stabilization clauses’, the NOCs de-liver actually the state as a
hostage. And the NOCs with their international investment or, at least, with their international
sales, have something the ‘partners’ can take on to enforce these clauses and those treaties. Of
course, it is in this context that international arbitration is of crucial importance. Hence, though
privatisation is certainly on the agenda further down the road, the priority is getting the transplant
firmly rooted. Meanwhile the solution is some kind of ‘partnership’ with the NOCs. Azerbaijan,
proceeding exactly along these lines, is quoted in that paper as the example to be followed. – It
may be worth pointing out, that this construc-tion is based on the triangle of state, NOC, and
foreign investment; national investment does not fit into the picture.
Next, one wonders, why not try and transform the NOCs into liberal licensing and con-
tracting agencies? Though in the past they had been the groundrent collecting agents of the
landlord states, their role had expanded enormously with nationalisation and, inevitably, principal-
agent problems had begun to arise. These companies were outgrowing their roles as mere
operators, becoming fully-fledged producing companies and, as such, groundrent paying tenants,
resentful of their high tax bills and – in the case of OPEC members – resentful of quotas.
Frustrated, within an environment of general frustration, the respective NOCs could be the object
of an agency-capturing strategy. In their new role they could be politically ex-tremely helpful
dressing liberal governance in a national costume minimizing adverse domes-tic reaction and,
thus, the danger of the liberal transplant being rejected.
Venezuela and Petróleos de Venezuela (PDV) provide an extreme example. After nation-
alization, PDV gradually took over Venezuelan oil policy, displacing the Ministry of Energy and
Mines in the process. Already in the 1980s it engaged in minimizing fiscal reve-nues through
transfer pricing, acquiring refineries in Europe and the USA. In response to the IEA coal policy
the company promoted Orimulsion (a mixture of water and extra-heavy oil), which comes
basically down to sell extra-heavy crude to power stations at the price of coal. This involves a
discount of a few dollars per barrel undermining the international price struc-ture of oil. In the
1980s, but more radically in the 1990s, it largely succeeded in dismantling the royalty-based

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fiscal regime in favour of excess profit taxation and, last but not least, in bringing down taxation
[52]
levels in general. From 1976 to 1993, the fiscal contribution of PDV was, on average,
equivalent to 70% of export revenues in oil. Today, this percentage has fallen below 40%. This
percentage is even lower in the new upstream contracts with private investors, successfully
promoted by PDV after 1989. In all these contracts PDV assumes the role of an ‘umbrella’, or
‘hostage’, guaranteeing effectively the exemption of the private part-ners from sovereign
taxation. It was a pioneer in introducing international arbitration first at the contractual level, and
then in pressurising the government into negotiating BITs, most notably with Canada and the
USA. The BIT with Canada went through, though the one with the USA failed. Still PDV,
lobbying heavily, managed to push through a USA-Venezuelan treaty on double taxation and,
even more important and despite the radical political changes, the Investment Promotion and
Protection Law. The Investment Law was passed in October 1999. It contains the same definition
of ‘investment’ as quoted above, and suggests that BITs are the right instrument to promote
foreign investment. However, PDV failed to prevent one policy change: the new Natural Gas
Law established a royalty rate of 20% as a minimum, and the government has announced that the
same rate will apply to all hydrocarbons.
The success of a policy of agency capturing depends, of course, on a variety of circum-
stances. It completely failed so far, for example, in Mexico. However, the reader should be
reminded that this is by no means the only strategy possible. Overall, in all oil-ex-porting
countries the role of NOCs as the government’s tax collecting agencies can no longer be taken for
granted.

6 Conclusions

The political and diplomatic bureaucracy of consuming countries, the employees of interna-tional
oil companies, independent consultants, and captured NOCs constantly insist that oil-exporting
countries have to compete to attract foreign investment. They rarely admit that competition may
also work in reverse, with foreign investors competing for access to scarce reserves. This is so
obvious that, inadvertently yet unavoidably, it is admitted from time to time. The joint paper
recognises that recently “companies have been forced to drill in deeper waters and in more
[53]
technically difficult environments”. This, of course, is because they have nowhere else to go.
Even so there are places where drilling would be much cheaper:

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High cost energy resources have been and are developed world wide, while
cheaper resources are left in the ground. This is an unfortunate consequence of the
geographical concentration of resources and monopolistic behaviour cou-pled with
large political uncertainties [sic!]. This waste of resources can be re-duced through
closer economic and political co-operation, underpinned by in-ternational treaties.
[54]

Indeed, both investors and consumers could save very significant amounts of money through
lower prices. Hence, the natural resource owners are urged to adopt profit-based fiscal re-gimes
with the necessary downward-elasticity regarding prices, and upward-elasticity re-garding costs.
Yet under such regimes, there is no question that the oil-exporting countries would lose out.
Michael Klein, chief economist of Royal Dutch-Shell in London, recently suggested a
scenario of this kind, the ideal Ricardian world:
With declining real oil prices the fight over upstream rents continues to inten-sify.
Many oil-exporting countries crucially depend on oil revenues (…). As population
grows and the price of oil declines, producer countries open up all parts of the oil
and gas business for foreign investors. They revise tax regimes to attract investors.
In particular, countries with marginal fields abolish royal-ties (…). To provide
relief to the fiscal authorities more and more countries are privatising their national
oil companies (…). The public authorities realise that they get the best deal as
owners of oil and gas when several oil companies compete for acreage (…). Over
time, auction design is streamlined and many contracts are awarded to the bidder
of the highest marginal tax rate rather than an up-front signature bonus. Bidding on
the tax rate improves risk sharing (…) by 2040 all national oil companies are
privatised and tax systems for upstream operations converge to regular corporate
[55]
tax regimes as upstream rents dimin-ish.

This is hardly a scenario that oil-exporting countries will feel comfortable with. Especially taking
into account that gross-revenue taxation of petroleum products, so condemned in the oil-
producing countries, is heavily and systematically used by the consuming countries to re-strain
demand by raising the price of petrol at the service station to several times its refinery-gate price.
It seems more likely to me that the world by 2040 may look similar to the USA today,
where the federal government has not been able to prevent Alaska and other oil producing states
from collecting very significant groundrents. It seems unlikely to me that the world by 2040 may
look similar to Great Britain with its centralized political structure, where the Scot-tish never got
hold of a penny of groundrent, in spite of the fact that almost all of British oil is produced in

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Scottish waters.
On the other hand, although international oil companies, especially the big European ones,
now support liberal fiscal regimes and are antagonistic towards royalties, this may change once
they recover some share of production in the exporting countries. Their alliance with consumers
may weaken when they will have to deal, once again, with the governments of the exporting
countries and their peoples. They may well re-discover the virtue of gross-value based fiscal
regimes. To produce oil without paying groundrent may turn out to be the more costly alternative.
The oil-exporting countries are likely to lose much of their relative importance over the next
few decades, and liberal governance structures have already made significant inroads into some
oil-exporting countries. Still, it seems highly unlikely to this author that the land-lord states will
relinquish their groundrents only to embrace the dogma of liberalism. They may be forced to
accept it today for both domestic and international reasons. They may also be very much
confused about the nature of the treaties and contracts they are signing. But in the long run they
are bound to become aware of their losses, and they will have a new and closer look at the
accounts of their tenants.
The strategy of agency capturing may also backfire. It is a divisive strategy, designed to
deepen the political and economic crisis of the targeted countries. The outcome may not be as
expected. Venezuela is a case in point. PDV’s ‘hidden agenda’ was one major cause for the
collapse of the political regime in that country. In the end, the company, in a desperate effort to
push ahead with its liberal agenda, got deeply involved in the 1998 Presidential elections, to no
avail. Hugo Chávez Frías, the leader of the failed military coup d’État of 1992, won the elections.
[56]
Though his success was due to the appalling performance of the non-oil economy, with the
liberal oil policy playing a very minor role, this policy nevertheless lost most of its thrust. Yet it
[57]
is still too early to know the final outcome. Also in other oil-exporting countries it is not
difficult to forecast that the liberal agenda in oil will run into trouble sooner rather then later. It is
an extremist agenda, which just doesn’t make sense. Hence the conflict-ridden history of oil in
the twentieth century is very likely to extend well into the twenty-first cen-tury.
________

Back to Paper Archive Back to ISA

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[1]
Anne Robert Jacques Turgot: The Formation and the Distribution of Riches.
[2]
Adam Smith: The Wealth of Nations.
[3]
David Ricardo: On the Principles of Political Economy and Taxation, 3 ed., London, 1821.
[4]
Mark Blaug: Economic Theory in Retrospect, Homewood (Ill.), 1968; p. 78.
[5]
Ricardo, op. cit., p. 45. – At the time of Ricardo the term ‘rent’ only applied to groundrent.
[6]
Marx apparently shared Ricardo’s prejudice against sharecropping and royalties as medieval and incompatible
with capitalism. See Karl Marx, Das Kapital, Vol. 3, Marx-Engels-Werke, Vol. 25, 1966; pp. 795 ff.
[7]
Ricardo, op. cit., p. 67. – Ricardo never used the term ‘royalty’. At his time this term still referred exclusively to
mineral groundrents paid to the Royals.
[8]
Honoré-Gabriel Victor de Riqueti Comte de Mirabeau: Collection complète des travaux de M. Mirabeau l'aîné, à
l'assemblée nationale, Vol. 5, Paris, 1792; p. 491. – Our translation.
[9]
Bernard Mommer: Private Landlord-tenant Relationship in British Coal and American Oil: A Theory of Min-
eral Leases, OIES Paper EE20, Oxford Institute for Energy Studies, 1997.
[10]
Marx used in this context the term absolute groundrent. Marx, op. cit., pp. 756 ff. However, a customary
ground-rent is not necessarily an absolute groundrent. For example, in the oil-exporting countries the customary
groundrent in the 1950s was a fifty-fifty profit sharing, but prices at that time were determined on marginal lands in
the USA.
[11]
The same obtains for British coal. See Mommer, op. cit.
[12]
Richard Scott: IEA The First 20 Years. Vol. 1: Origins and Structure (1994); Vol. 2: Major Policies and Ac-
tions (1995); Vol. 3: Principal Documents (1995). Published by the OECD/IEA.
[13]
However, the membership of OECD and IEA is not identical. France joined IEA as late as 1992. Norway is
only a conditional member. Mexico joined OECD in 1994, but not the IEA.
[14]
Scott, op.cit., vol.2, p.169.
[15]
Scott, op.cit., vol.2, p.169.
[16]
Scott, op.cit., vol.3, p.224.
[17]
Scott, op.cit., vol.3, p.227.
[18]
Scott, op.cit., vol.2, p.169.

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[19]
Scott, op.cit., vol.2, p.347.
[20]
For a detailed discussion of liberal and proprietorial fiscal regimes see Bernard Mommer: Oil Prices and Fiscal
Regimes, OIES Paper WPM 24, Oxford Institute for Energy Studies, 1999.
[21]
Scott, op.cit., vol.2, p.64.
[22]
OPEC Resolution XVI.90 (1968).
[23]
USA-Canada Free Trade Agreement, Chap. XVI: Investment.
[24]
North American Free Trade Agreement, Chapter VI: Energy.
[25]
Treaty Between the Government of the United States of America and the Government of the Republic of
Azerbai-jan for the Encouragement and Reciprocal Protection of Investment, Art. I. This treaty was signed by
President Clinton and President Aliyev on 1 August 1997.
[26]
Agreement between the Government of Canada and the Government of the Republic of Venezuela for the
Promo-tion and Protection of Investments. Signed on 1 July 1996, this treaty entered into force in January 1998.
[27]
The Energy Charter Treaty, Art.1.6.
[28]
Treaty USA-Azerbaijan, Art.II.1, Art.VI.
[29]
ECT, Art.10.
[30]
Treaty USA-Azerbaijan, Art.II.1, Art.VI.
[31]
ECT, Art.10.2, 3.
[32]
ECT, Art.10.3, 4.
[33]
Treaty USA-Azerbaijan, Art.IX.3.
[34]
ECT, Art.26.
[35]
Treaty USA-Azerbaijan, Art.III.1.
[36]
Treaty USA-Azerbaijan, Art.XIII.
[37]
Treaty USA-Azerbaijan, Art.I.
[38]
Treaty USA-Azerbaijan, Art.XIII.2.
[39]
ECT, Art.18.

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[40]
UN General Assembly Resolution 1803 (1962).
[41]
The only institutions created under the ECT are the Charter Conference and the Secretariat.
[42]
On the other hand, in December 1994, at the same time the ECT was signed in Lisbon, in Miami the Summit of
the Americas was held, the largest ever meeting of Heads of States in the Western Hemisphere. The Summit agreed
to create a ‘Free Trade Area of the Americas’, extending NAFTA all over the Americas. An integral part of this
design is the ‘Energy Initiative of the Americas’ with its annual ministerial meetings.
[43]
Thomas W. Wälde: “International Investment under the 1994 Energy Charter Treaty”, in Thomas W. Wälde
(ed.): The Energy Charter Treaty – An East West Gateway for Investment and Trade, Kluwer Law International,
London 1996; p.316.
[44]
Mehmet Ögütçü: “Eurasian Energy Prospects and Politics: Need for Longer-Term Western Strategy”, in Wälde
The Energy Charter Treaty…, op. cit.
[45]
Energy Investment, joint paper by the Energy Charter Secretariat and the International Energy Agency pre-
sented to the G8 Energy Ministerial in Moscow, 1 April 1998; p.5.
[46]
Energy Investment…, p.1.
[47]
Energy Investment…, p.ii.
[48]
Energy Investment…, p.21-2.
[49]
Energy Investment…, p.25-6.
[50]
Energy Investment…, p.20.
[51]
Cf. Energy Investment…, p.ii.
[52]
Bernard Mommer: The New Governance of Venezuelan Oil, OIES Paper WPM 23, Oxford Institute for Energy
Studies, 1998.
[53]
Energy Investment…, p.3.
[54]
Energy Investment…, p.18.
[55]
Michael Klein: “Energy Taxation in the 21st Century”, Oxford Energy Forum, Issue 40, Oxford Institute for En-
ergy Studies, Oxford, December 1999; p.13-4.
[56]
Bernard Mommer: “Venezuela: Politics and Petróleos”, MEES Vol. XLI, No. 50 (14 December 1998).
[57]
Bernard Mommer: “Ese chorro que atraviesa el siglo” in Asdrúbal Baptista (ed.): Venezuela siglo XX – Vi-siones
y testimonios, Fundación Polar, 3 vol., Caracas, 2000; vol. 2, pp. 560-2.

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