Nigeria's far-advanced ambitions to join the Energy Charter Treaty (ECT) have sparked outrage among labour unions and civil society organizations. Their perplexity derives from the fact that the ECT gives reaching rights to foreign investors in the energy sector and access to Investor-State Dispute System (ISDS). This investor-State dispute resolution mechanism has been criticized around the world for allowing investors to sue governments for millions of dollars at the expense of employees and citizens.
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Enrolling in ISDS reforms while still signing onto the ECT is a zero-sum game for Nigeria. It nullifies all the years of work to improve ISDS.
They also expressed surprise that the Nigerian Energy Commission was leading the process to join the ECT, even though the government had begun a reform process in 2016 under the Federal Ministry of Industry, Trade, and Investment to eliminate or limit the exposure of Bilateral Investment Treaties (BITs) access to ISDS.
“Enrolling in ISDS reforms while still signing onto the ECT is a zero-sum game for Nigeria. It nullifies all the years of work to improve ISDS,” said Adeniyi Peters Adeyemi, PSI Vice President and General Secretary of the Non-Academic Staff Union of Educational and Associated Institutions (NASU).
What is the Investor-State Dispute System
The Investor State Dispute System (ISDS) is a litigation mechanism in bilateral investment treaties (BITs) and other multilateral or bilateral trade agreements with investment provisions such as the ECT. It enables big corporations to sideline domestic courts and sue national governments when they believe policies and actions of a government jeopardizes the chances of making profits off their investments. These government decisions and policies could be a rise in the minimum wage, policies to protect public health or the environment, re-municipalization of public services, tax reforms or efforts to keep the price of public services affordable. Once investors feel these decisions could harm their current and future profits, they can sue the government in an international tribunal, often based in Washington at the World Bank.
Between 1993 and 2010, Africa's loss due to ISDS cases was reported to be more than $50 million.
According to a report, Impacts of Investment Arbitration against African States, by the Transnational Institute (TNI), between 1993 and 2010, Africa's loss due to ISDS cases was reported to be more than $50 million. In 2007, the Nigerian government was involved in a legal battle with Shell over an oil field known as OPL 245. The Nigerian government agreed to a settlement in 2011 that favoured Shell and its Italian partner Eni in exchange for a 1.3-billion-dollar concession offer. One may ask, can governments then also sue investors when their actions affect the economy and livelihood of people? Under the ISDS, only investors have the rights to sue governments.
In view of the undemocratic, one-sided, and resource pillaging nature of the ISDS, public institutions, labour unions, Civil Society Organizations (CSOs), trade experts have called on National governments through the United Nations Commission for International Trade Law (UNCITRAL), to exit BITs and other trade agreements with such broad investment provisions, and to not sign new ones like the ECT.
Nigeria Reform process
Luckily, Nigeria is among few African countries taking steps to reverse the negative effects of signing onto BITs that give far reaching rights (and no obligations) to foreign investors, including access to ISDS. Since 2015, under the chairmanship of the Federal Ministry of Industry, Trade and Investment, Nigeria has set out to develop a new model Bilateral Investment Treaty; modernize existing stock of old generation treaties; and develop a coherent domestic legal framework that allows for fair and transparent access to international disputes.
The deputy director of the legal department of the Nigeria Investment Promotion Commission (NIPC)”, Patience Okala, had said, “the aim of the reform process is to establish a new model BIT which complies with “global standards on labour, human rights, environment, corporate social responsibilities” and provides safeguards to Investor-State dispute settlement (ISDS) provisions."
For example, the new model establishes a Joint Implementation Committee made up of investors and government who ensure local remedies and the use of domestic courts are utilized before resorting to international arbitration mechanism. The results of the reform process have reflected in the THE NIGERIA- MOROCCO BIT, described as “a balanced “new generation” investment treaty.