Oil Multinationals in Nigeria: Human Rights, Sustainable Development and the Law
©2015
Textbook
66 Pages
Summary
Decades of irresponsible oil exploitation in the Niger Delta have caused a water and air pollution which does not have many comparisons anywhere else. In an already fragile country as Nigeria, characterised by weak democratic institutions and poor economic governance, this situation has led to increasing discontent and violence towards both the government and the oil multinationals. These two actors co-operate for the maximisation of oil profits and revenues while, at the same time, excluding local host communities from the participation in the oil development projects, preventing them from achieving a sustainable development, violating their human rights, and compromising their livelihoods.<br>This book analyses the legal framework of Nigeria in the oil sector and the peculiarities of the country in order to provide a critical overview of the issues, demonstrating that the amendment of the domestic Acts dealing with the topic, as well as the remediation to the damages caused by oil multinationals, are no longer deferrable. The final aim is to suggest a pattern to sustainable oil development which, by means of applying the concepts of Corporate Social Responsibility, would help to quell the conflict, to improve the local people’s standards of life, and to make Nigeria emerge as a socio-environmentally responsible African resource-rich country.
Excerpt
Table Of Contents
3. CSR as a tool for sustainable development ... 45
3. 1. Self-regulation and legal regulation ... 45
3. 2. Participation and empowerment of local communities ... 49
3.2.1. Participation in the permit-awarding and law-making processes: indigenisation
for the people ... 49
3.3. Concluding remarks ... 51
4. The Corporate Social (shared) Responsibility ... 53
4. 1. The government's responsibility ... 53
4. 2. The oil MNCs' responsibility ... 55
4. 3. The communities' responsibility ... 57
4. 4. Concluding Remarks ... 59
Bibliography ... 61
11
Introduction
The starting point of this work lies in the need of deepening the study on the
Nigerian oil sector, as one of the world most astonishing examples of
mismanagement of energy resources.
Therefore, the research will be carried out with the aim of enlightening an aspect
of energy which is often omitted in the mainstream academic and institutional
panorama of developed countries.
Indeed, while the European Union and its member states, as well as the United
States, are increasingly stressing the importance of environment protection and
sustainability in energy development projects,
1
many major multinational
corporations (MNCs) based in the EU and in the US, are still heavily involved in
the pollution of those developing countries which are not able nor willing to regulate
their own energy sector in such a way to avoid harmful social and environmental
consequences. Nigeria a country where religious and ethnical separation and socio-
political contradictions are embedded in the daily life since the independence from
Britain is a typical example of this kind of situation.
Hence, the study will seek to clarify the problem of irresponsible exploitation of
oil resources in a country which does not have a proper legislative framework
dealing with the topic while, at the same time, protecting their citizens' rights.
1
As a way of example, see: European Commission, `Sustainable, secure and affordable energy for
Europeans' (europa.eu 2013). Available at: <http://europa.eu/pol/ener/flipbook/en/files/energy.pdf>
accessed on 15 August 2014, and
The Business Council for Sustainable Energy, `Sustainable energy in America. Fact-book 2014'
(bcse.org 2014). Available at:
<http://www.bcse.org/factbook/pdfs/2014%20Sustainable%20Energy%20in%20America%20Factbook.
pdf> accessed on 15 August 2014.
12
Oil activities in Nigeria began in the mid 1950s; nowadays the country is the
fifth exporter of crude oil, and the twelfth as regards crude oil production, despite
the fact that its oil consumption level is far less significant.
2
The research will take into particular consideration the role of oil multinational
corporations
3
in a three-fold relationship: MNCs and environment; MNCs and local
communities; MNCs and central government. These three elements will represent
the common thread across the entire study.
The vast national legal framework in the oil sector does not set a protection for
the communities and territories affected by the petroleum exploration and industrial
activities, leading to a situation in which the uneven allocation of land rights and
distribution of wealth causes conflict, environmental degradation and human and
peoples' rights violations.
The aim of the research is, firstly, to provide a deep account of the Nigerian
legal framework related to oil, in order to highlight the contradictions and lacunas
that led to the current situation; secondly, to link this analysis to the study of
ethnicity, society and environment in the country; thirdly, to match these features
with Corporate Social Responsibility, seeking to incorporate its concepts to the
national body of rules, in the view of the achievement of sustainability in the
development of such a controversial energy resource.
Accordingly, Chapter 1 carries out the critical analysis of the Nigerian legal
framework in the oil sector; Chapter 2 explores the peculiar social and
2
CIA, 'The World Fact-book Nigeria' (cia.gov 2014). Available at:
<https://www.cia.gov/library/publications/the-world-factbook/geos/ni.html> accessed on 25 July 2014.
3
The debate about the difference between Multinational Corporations and Transnational Corporations
originated during the early discussion on international enterprises having their headquarters in one country
but carrying out business in various parts of the world. Here, this difference is not relevant: for the purposes
of this work, Transnational Corporations and Multinational Corporations are regarded as the same kind of
international business.
13
environmental asset of the country, in order to demonstrate the need of a revision of
the legislative framework; Chapter 3 proposes recommendations on the possible
avenues which can eventually be followed by Nigeria; Chapter 4 concludes.
The innovative contribution of the study lies in its approach, and, in particular,
in the attempt of drawing a scheme by which every element involved in the oil
management would work together and help each other for the improvement of the
environmental and social situation and the achievement of a sustainable oil
development pattern.
Federal government, local governments and communities, and MNCs shall
assume their own share of responsibility in this process.
14
1. The Nigerian legal regulation of the oil industry
This chapter will focus on the analysis of the main Nigerian Acts relating to the
oil sector. The aim is to offer a critical overview of the legislative and regulatory
framework in the country. Beside the national law, attention will be also paid to the
international law instruments on human rights and environmental issues, as well as
related to the control of multinational enterprises: oil exploration and production
affect the environment in the Niger Delta and the livelihoods of the resident
communities, which is tantamount to a violation of human rights.
The significance of studying the legal scheme lies in the fact that, as regards
developing countries and especially Nigeria, the reasons behind the harmful
consequences of a major industry's activities (like oil development) can be found,
first of all, exactly in the contradictions and loopholes of domestic Acts and
Regulations. As a result, a better understanding of the law will help in considering
how CSR can improve the legal standards and not only be regulated by them.
1. 1. National legislation
1.1.1. The Land Use Act (LUA) 1978
The Land Use Act (LUA) is the pillar of the Nigerian legal structure related to
the management of land. It has a remarkable impact in the regulation of oil
activities, given the characteristics of this sector.
15
Emerging from the scrutiny of the LUA, it is possible to say that it systemically
transfers the land rights from the local communities and state governments to the
federal state: this has led to a situation in which oil multinationals take advantage of
the national low standards in the field of compensation, thus avoiding to comply
with the standards set at the international level.
To be more precise, the reference, here, is to Section 28, which states that land
may be appropriated from the federal State for "overriding public interest", and
provides that the central government can require the land "for mining purposes and
oil pipelines or for any purpose connected therewith."
Ako
4
demonstrates how the historical evolution of the Nigerian nation has led to
a subtraction of land's rights from those communities who were traditionally
entitled of the ownership and use of the lands and resources, by the federal
government. According to the author, vesting all rights to lands and natural
resources in the government is equivalent to a subtraction of the communities'
environmental rights. As also argued by Atsegbua, indeed: "the denial of the
existence of environmental rights is primarily responsible for the under-
development of the Niger Delta area."
5
The 2003 WAC Global Services Report, entitled "Peace and Security in the
Niger Delta", recognises that the main cause of conflict is not represented by the
corporate policies, but by the actual practices. Nonetheless, the same report also
4
R T Ako, `Nigeria's Land Use Act: an antithesis to environmental justice', [2009], JAL 53:2 289-304.
5
L Atsegbua, `Environmental rights, pipeline vandalisation and conflict resolution in Nigeria', [2001] IELTR
5 89-92.
16
states that "aspects of current policies (land acquisition, oil spill compensation,
hiring and contracting) may feed into, or even create conflict."
6
(Emphasis added).
The subtraction of the land from the local communities to the benefit of the oil
sector constitutes one of the main reasons at the basis of the Nigerian environmental
disaster, as well as the main cause of discontent and instability in the Niger Delta
region.
The main outcome of the above discussion is that, although the MNCs claim
their compliance to the law,
7
this is not sufficient to identify corporate good
practices, based on justice and equity grounds.
1.1.2. The Oil Pipelines Act (OPA) 1956 and the Petroleum (Drilling and Production)
Regulations 1969
Beside the misappropriation of rights to land and resources, it is appropriate to
consider the compensation problem. The domestic Nigerian law is set in order to
avoid the payment of fair and adequate compensation for the losses deriving from oil
activities, both related to land acquisition and to environmental pollution.
When analysing the Nigerian legal framework in the oil sector, it could often
appear that the provisions concerning this particular issue are clear enough to solve
any dispute arising from eventual pipelines leakage or from any hazardous activity
related to the oil industry.
In particular, Section 11(5) of the Oil Pipelines Act prescribes:
6
Nyheim, Zandviliet, Morissey, 'Peace and Security in the Niger Delta: Conflict Expert Group Baseline
Report,' (npr 2003) <http://www.npr.org/documents/2005/aug/shell_wac_report.pdf> accessed on 12
February 2014.
7
See, for instance: Shell, `Politically sensitive regions' (shell.com). Available at:
<http://www.shell.com/global/environment-society/society/business/politically-sensitive-
regions.html> accessed on 16 August 2014.
17
"The holder of a licence shall pay compensation to any person whose
land or interest in land [...] is injuriously affected by the exercise of the
rights conferred by the licence [...]; and to any person suffering damage
by reason of any neglect on the part of the holder or his agents, servants
or workmen to protect, maintain or repair any work structure or thing
executed under the licence [...]; and to any person suffering for any
damage (other than on account of his own default or on account of the
malicious act of a third person) as a consequence of any breakage of or
leakage from the pipeline or an ancillary installation."
However, the actual practices regarding compensation work in the opposite
direction, since it is not always easy to achieve the agreement on the compensation
amount, which is required by the OPA in order to avoid the issue to be brought to
court.
8
Sections 21(2) and 23 of the Petroleum (Drilling and Production) Regulations
1969 set in accordance with the Petroleum Act 1956 contemplate the payment of
"fair and adequate compensation", respectively to the owners of economic trees in
the event that these are cut or taken off for oil development purposes, and to
fishermen, if the owner of a license unreasonably interferes with the exercise of their
fishing rights.
As argued by various authors,
9
the legal framework on compensation represents
an easy viable avenue for oil companies who want to escape liability for harmful
consequences arising from oil activities.
8
The last line of Section 11(5)(c) of OPA states: "If the amount of such compensation is not agreed between
any such person and the holder, it shall be fixed by a court [...]."
9
E.g. K S A Ebeku, `Compensation for damage arising from oil operations: Shell Petroleum
Development Company of Nigeria v Ambah revisited' [2002] IELTR 155, 156,
J G Frynas, Oil in Nigeria, Conflict and Litigation between Oil Companies and Village Communities. LIT,
London 2000, and
O Adewale, `Oil Spill Compensation Claims in Nigeria: Principles, Guidelines and Criteria' [1989]
JAL, 33, 91-104.
18
According to Ebeku, the onus probandi, placed by Sections 21(2) and 23, on
farmers and/or fishermen who actually suffer from these damages, turns to appear
overwhelming for the claimants: this is an avenue through which "an oil operator
[might] escape liability."
10
Ebeku concludes that the wording of this provision "virtually robs the statute of
its substance".
11
Frynas maintains that "[in] Nigeria, oil companies have often alleged that
damage from oil operations is due to sabotage, which is considered an act of a
stranger."
12
The strategy adopted by the multinational companies operating in the
country and sued for oil pollution consists in rebutting charges by claiming that the
spills were caused "by the malicious act of third persons." Multinationals are
allowed to do so by the already mentioned Section 11(5)(c) of the OPA, that obliges
oil operators to pay compensation for damage resulting from oil spills, unless it
occurred on "account of [the suffering person's] own default or [...] the malicious
act of a third person." This provision, if not amended, deprives the clause contained
in the Environmental Guidelines and Standards for the Petroleum Industry in
Nigeria (EGASPIN) according to which "operators incur responsibility for the
containment and recovery for any spill discovered in their area, whether or not its
source is known"
13
of its significance.
10
K S A Ebeku, supra note 9, p. 156.
11
Ibid.
12
J G Frynas, supra note 9, p. 196.
13
Department of Petroleum of the Federal Republic of Nigeria, Environmental Guidelines and
Standards for the Petroleum Industry in Nigeria, S 4.1. Emphasis added.
19
The Guidelines state that MNCs have the duty to implement actions to remedy
to the oil spillage no matter the cause. But, they are no more than soft law, and, as
such, not enforceable.
Hence, the liability for damages, arising from oil operations, and, as a
consequence, the obligation to pay compensation, according to the Nigerian
domestic framework, is not strict being the claimant "required to prove negligence
on the part of the operator."
14
If the common corporate practice, consisting in avoiding negotiation and
mediation in order to set the disputes against local claimants in courts or in arbitral
tribunals,
15
is also taken into account, it is possible to argue that the burden of proof
pending on the plaintiffs is actually unbearable.
Local communities and people's interests are not taken into account in the
decision to use their land to the purpose of devoting it to oil development, nor in the
phase of compensation for eventual harmful consequences arising from oil
operations (by means of mediation and negotiation between MNCs and
communities themselves): the want of commitment by MNCs to make the local
communities participate in the development of their own territory can be regarded
as a want of corporate best practices.
1.1.3. The Companies and Allied Matters Act (CAMA) 1990
The establishment of parent companies' liability for damages arising from their
local subsidiaries' activity is another challenging aspect. Various observers and
14
O Adewale, supra note 9, p. 95.
15
K S A Ebeku, supra note 9, p. 155.
20
commentators have highlighted the fact that oil MNCs in Nigeria take advantage of
the combination of bad practices and loose legal and regulatory framework.
Section 54(1) of the CAMA represents a crucial provision in the view of the
attribution of liability to MNCs operating in Nigeria. According to it, "[...] every
foreign company [...] incorporated outside Nigeria, and having the intention of
carrying on business in Nigeria shall take all steps necessary to obtain incorporation
as a separate entity in Nigeria for that purpose [...].
"
Prima facie, such provision could be interpreted as the acme of the indigenisation
policies, carried out in Nigeria ever since the acquisition of independence, with the
principal aim of nationalising the main industrial sectors, fully controlled and
managed by the European until then.
After a more careful analysis, however, Section 54(1) can be considered as one of
the tools that MNCs can rely upon to avoid liability for harmful actions perpetrated
within the Nigerian borders. Indeed, the fact that MNCs operate in Nigeria through
subsidiaries which are legally incorporated under domestic law, gives way to
problems related to the choice of jurisdiction in the event of disputes arising from
the breach of the contracts or as was the case in Akpan v Royal Dutch Shell Plc
16
from the attempt to obtain compensation for damages caused to the communities'
livelihoods.
In his commentary to this case, McConnell gives an exhaustive overview of the
international doctrine regarding the attribution of such liability. To be more precise,
the author underlines that, although the UN Secretary General's 2009 Special
Representative for Business and Human Rights' Framework confers to the states the
16
Akpan v Royal Dutch Shell Plc [2013] No. 337050/HA ZA 09-1580 (District Court of the Hague).
21
primary "responsibility to protect their citizens from corporate actors' "
17
possibly
dangerous activities, often states "lack the resources to do so, or may even be
complicit in violations."
18
Despite adhering to the "international trend holding parent companies liable for
the harmful practices of their foreign subsidiaries",
19
the Dutch court in front of
which the case was brought by four Nigerian plaintiffs in a joint action with Friends
of the Earth Netherlands manifested doubts as whether, in the case the allegations
against the parent company (Royal Dutch Shell) were dismissed, the claims against
the Nigerian subsidiary (Shell Petroleum Development Company Nigeria SPDC)
were to be dismissed, too, on the grounds of lack of jurisdiction.
Even though the Dutch court decided that such dismissal was not appropriate,
this cannot be regarded as a well-established juridical trend.
Furthermore, it has been observed that the fact that the Nigerian government is
a partner of the MNCs in their oil development projects (another measure beside
the domestic incorporation of subsidiaries contained in the CAMA which is
supposed to work for the indigenisation of the oil industry in the country
20
), is
deleterious for the genuine work of the regulatory agencies, and, as a result, for the
17
Sanctioned, amongst others, by the United Nations Draft Norms on the Responsibilities of Transnational
Corporations and Other Business Enterprises with Regard to Human Rights.
18
L J McConnell, 'Establishing liability for multinational oil companies in parent/subsidiary
relationships' [2014] ELR 50, 51.
Pertaining to this and highlighting the peculiarly intricate situation in the management of the oil
sector in Nigeria Ploch stresses the point of the political complicity in the criminal activities related
to oil: the deriving proceeds are used for the funding of electoral campaigns and other political
activities. See: Ploch, 'Nigeria: Current Issues and U.S. Policy' (Federation of American Scientists
2012). Available at: <http://fas.org/sgp/crs/row/RL33964.pdf> accessed on 15 July 2014.
19
Ibid.
20
In this regard, it is possible to link the discussion to the opinion of Ogutuga, who argues that the
transposition of international law instruments into national law has to be carried out in a particularly careful
way in the developing countries. See: M Ogutuga, `CSR obligations of Transnational Corporations and legal
enforcement mechanisms in extractive industries: how effective are these mechanisms in the protection of
Human Rights in Africa?' [2009] CELMPM Annual Review, Vol.13.
22
genuine enforcement of regulations in the field.
21
This is the reason why the
Revenue Watch Institute has observed that, if the proposed Petroleum Industry Bill
will fail to amend the disclosure provisions for the state-owned companies, its
efforts for a higher transparency in the Nigerian oil sector will be vain.
22
The next paragraph will analyse the amendments put forward by this Bill and
its main shortcomings.
Beside the issue of foreign businesses' incorporation into Nigerian law, the
CAMA also deals with the question of disclosure. Amao (backed up by Ejims and
Villiers) observes that the disclosure requirements only encompass duties to the
companies' shareholders, evidencing an approach that, more in general, emerges
from the typical structure and wording of the investment contracts between MNCs
and Nigeria.
23
Amao stresses that, according to Section 279, "company directors owe duties
only to the company (interpreted as its shareholders), and therefore have no legal
responsibility or capacity to embark on any other duty apart from their duty to the
company and its shareholders."
Moreover, "the directors' report requirement under
21
As an example, see: E Oshionebo, 'Transnational corporations, civil society organisations and social
accountability in Nigeria's oil and gas industry' [2007] AJICL 107, 108.
22
Sayne, Mahdavi, Heller, Schreuder, 'The Petroleum Industry Bill and the Future of NNPC'
(RevenueWatch.org 2012) available at:<http://www.revenuewatch.org/publications/petroleum-industry-
bill-and-future-nnpc> accessed on 14 February 2014.
23
See: O O Amao , `Corporate Social Responsibility, Multinational Corporations and the Law in Nigeria:
Controlling Multinationals in Host States' [2008] JAL 52 89-113,
O Ejims, 'The impact of Nigerian international petroleum contracts on environmental and human
rights of indigenous communities' [2013] AJICL 345, 349, and
C Villiers, Corporate Reporting and Company Law (1st, Cambridge University Press, e.g. Oxford 2006),
xi.
23
Section 342 of the CAMA relates solely to the company's financial performance
[...]."
24
It is possible to argue that the two above-mentioned provisions reflect a general
paradigm in the current trend regarding the drafting of commercial agreements
between multinational companies and developing countries. This trend can be
described as based on an "overly commercial approach",
25
which does not take into
account the interests of the communities living in the areas where the development
projects take place.
This paragraph has analysed how the CAMA affects, firstly, the attribution of
liability to subsidiaries and parent companies in the event of problems arising from
oil operations, and, secondly, the possibility to access corporations' documents.
The two matters are of crucial importance to understand how multinational oil
enterprises behave when faced with claims by local people. In addition, the way in
which the CAMA is drafted further prevents individuals and groups from
participating in the oil development.
1.1.4. The Petroleum Industry Bill (PIB) 2007-2012
First proposed in 2007, the PIB is still under the Nigerian National Assembly's
examination. In essence, the PIB seeks to reform the structure and the functions of
the Nigeria National Petroleum Corporation (NNPC). One of its main intended
outcomes is to enhance the transparency and the accountability of the state-owned
24
Both quotes are from: O O Amao, supra note 23, p. 101.
25
O Ejims, supra note 23, p. 349.
As regards the particular issue of the disclosure of corporate documents, see: C Villiers, supra note 23,
xi.
Details
- Pages
- Type of Edition
- Erstausgabe
- Publication Year
- 2015
- ISBN (eBook)
- 9783954898695
- ISBN (Softcover)
- 9783954893690
- File size
- 343 KB
- Language
- English
- Publication date
- 2015 (February)
- Keywords
- multinationals nigeria human rights sustainable development
