11 Dec Western Sahara: Developing Natural Resources by Forward-Planning Foreign Investments Extra-Territorial Protection
[Danilo Ruggero Di Bella is a lawyer at Bottega Di Bella.]
The Sahrawi Arab Democratic Republic or Western Sahara is one of the seventeen Non-Self-Governing Territories (NSGTs) that remain yet to be decolonized, according to Chapter XI of the UN Charter. Originally, a Spanish protectorate who proclaimed its independence in 1976, Western Sahara has been recognized as a State by several countries. However, two third of its territory are under Morocco’s occupation, whereas in theory Spain can still be regarded as the “administering Power” mandated with a wide range of responsibilities. Awaiting a referendum on self-determination, Western Sahara’s natural resources are exploited by Morocco to the detriment of its indigenous people – the Sahrawis – who are compelled to live in the inner and more inhospitable part of Western Sahara and in refugee camps in Algeria. Can the Sahrawis turn the table on Morocco to benefit from their own natural resources instead?
The controversial Madrid Agreement, the obligations of the Administering Powers concerning natural resources and the resource management rights of Non-Self-Governing Territories
In 1975 Spain entered into a trilateral agreement with Morocco and Mauritania by concluding the Declaration of Principles on Western Sahara (the so-called “Madrid Agreement”). By virtue of this agreement, Spain purported to transfer its powers and responsibilities as the administering Power of Western Sahara to a temporary tripartite administration. However, according to the 2002 Legal Opinion of Mr. Hans Corell, Under-Secretary General of the United Nations and head of the UN Office of Legal Affairs, the Madrid Agreement did not transfer sovereignty over Western Sahara, nor did it confer upon any of the signatories the status of an administering Power, as Spain could not have transferred such status unilaterally. Hence, the alleged 1975 transfer of administrative authority over Western Sahara to Morocco and Mauritania did not affect the international status of Western Sahara as a NSGT, de jure still administered by Spain. In fact, notwithstanding Spain’s and Mauritania’s withdrawal from Western Sahara, respectively in 1976 and 1979, Morocco had not become the administering Power of Western Sahara. Morocco, indeed, does not appear on the UN list of NSGTs as the administering Power of Western Sahara and, therefore, has not transmitted the relevant information on that Territory pursuant to Article 73(e) of the UN Charter.
Accordingly, Spain – as the official administering Power – still has certain obligations concerning, inter alia, the development of Western Sahara’s natural resources by the Sahrawis, who in turn enjoy wide resource management rights under international law. Such international obligations and correlative rights stem from Chapter XI of the UN Charter as developed further by the UN bodies. Starting with the 1960 Declaration on the Granting of Independence to Colonial Countries and Peoples up to the more recent 2015 UN General Assembly resolution 70/95, a consistent international legal framework upholding the right of NSGTs to manage their own natural resources has come into existence. Simultaneously, such a framework articulates the obligation of the administering Powers to safeguard and guarantee the resource management rights of NSGTs as well as to protect the property rights of the peoples of NSGTs. Since Spain, in its capacity as the administrative Power of Western Sahara, is disregarding its obligations in this respect, is there a way for Sahrawis to develop effectively their natural resources by counting on international cooperation and by relying on international law?
Foreign investors’ good faith nationality-planning to protect their investments in Western Sahara
The 2002 Legal Opinion of the UN Legal Counsel left clear that the only exploration and exploitation of natural resources that can be conducted in Western Sahara in compliance with international law are the ones conducted with the consent of the Saharawi authorities.
Just as any State, Western Sahara may receive the support of foreign capitals to develop effectively its natural resources. However, the question is how to attract foreign investors in a country presenting such a complex and volatile situation? In other words, how to guarantee that foreign investments in Saharawi natural resources will be adequately protected under Saharawi and international law?
Foreign investors may prospectively structure their investments with the Saharawi authorities in Western Sahara in such a way to both deter Morocco’s interference as well as encourage Spain’s protection. The planning of investments protection through International Investment Agreements (IIAs) is a wide-spread as well as accepted practice by arbitral tribunals as long as it is done for the purpose of engaging in an economic activity before an actual investment dispute arises (see for instance Aguas del Tunari v Bolivia, Decision on Jurisdiction, at paras 330(d) and 332).
Foreign investors interested in cooperating with Western Sahara to develop its own natural resources may carry out their investments from countries that have IIAs with Morocco and Spain. This way the future potential investment claims under such IIAs against Morocco (for interfering with a given investment) and Spain (for failing to protect a given investment) will serve as an insurance against such political risks covering the damages and loss of profits of foreign investments in Western Sahara. To a great extant, indeed, IIAs often serve the same purpose as political risk insurers, such the Overseas Private Investment Corporation (OPIC, now renamed US International Development Finance Corporation, DFC).
Insurance/Future Legal Claim against Morocco
Any Morocco’s interference with a foreign investment carried out with the consent of Saharawi authorities in Western Sahara may give rise to an arbitral claim against Morocco under the applicable IIA between the foreign investor and Morocco itself. Thanks to the arbitral jurisprudence hinting at the extra-territorial application of IIAs, the applicable IIA between the investor’s home-State and Morocco may secure the underlying foreign investment in Western Sahara against Morocco’s transboundary and internationally unlawful acts in Western Sahara.
Indeed, international tribunals in the investment arbitrations following Crimea annexation at the hand of Russia have already established that the geographical scope of application IIAs can be expanded if the respondent State has unduly exercised de facto transboundary sovereign powers. This view has been further endorsed by Swiss and Dutch national courts enforcing the ensuing arbitral awards. Hence, these cases have paved the way to foreign investors’ arbitral claims a) against the interference of an occupying State over investments situated officially in the territory of another State, and b) arising out a IIA entered into between the investor’s home-State and the occupying State (and not between the investor’s home-State and the official host-State, where the investment is actually located). Consequently, a foreign investor – whose investment has been hampered by the State occupying partially or totally the host-State – may have recourse to investment arbitration against the occupying State.
For example, an oil&gas company incorporated in the United Kingdom and authorized by Saharawi authorities to prospect for natural resources in the Atlantic Ocean off the coast of Western Sahara will be protected under international law against Morocco’s interference. Should Moroccan Navy hinder the UK investor’s seismic vessel from conducting its explorations, the UK investor may launch an investment arbitration against Morocco under the IIA between the UK and Morocco for breaching its Article 2(2) on the fair and equitable treatment (FET standard) and Article 6 on unlawful expropriation. Therefore, the UK investor would be able to claim damages from Morocco, a part of which could be also taxed by Western Sahara depending on the terms of the applicable production sharing contract. Accordingly, Morocco will end up paying indirectly damages to Western Sahara every time it interferes with the activities of the foreign companies authorized by the Saharawi authorities.
This circumstance may eventually deter Morocco from interfering with the activities of the foreign companies that enter into an agreement with the Saharawi authorities to develop the natural resources of Western Sahara under the extra-territorial protection of IIAs.
Insurance/Future Legal Claim against Spain
Spain’s failure to protect a foreign investment in Western Sahara – that has been authorized by Saharawi authorities – against Moroccan interference may give rise to an arbitral claim also against Spain under the applicable IIA between the foreign investor and Spain itself. As Spain is still de jure the administering Power of Western Sahara, Spain’s IIAs may also apply to Western Sahara as long as Spain’s ratification of a given IIA did not expressly exclude Western Sahara. For example, in Petrobart Ltd V. the Kyrgyz Republic, the arbitral tribunal applied the relevant IIA (in that case the Energy Charter Treaty, ECT) to an investment dispute between a UK claimant – more precisely, a company registered in Gibraltar – and the Kyrgyz Republic, despite the fact that the UK’s ratification of the ECT did not expressly cover Gibraltar. Along with Western Sahara, Gibraltar is actually one of the seventeen remaining NSGTs. In other words, Gibraltar is to the UK as Western Sahara is to Spain. Therefore, a foreign investor in Western Sahara who has been affected by Morocco’s unlawful interference and has not been duly protected by Spain may initiate an investment arbitration against Spain for having failed to take any measure aimed at ensuring its legal and physical protection.
For instance, going back to the previous hypothetical example where a UK oil&gas company in Western Sahara was prevented by Moroccan Navy from exploring the Atlantic Ocean off the coast of Western Sahara, that same UK investor may file a parallel investment arbitration against Spain under the ECT (besides, the one against Morocco under the IIA between the UK and Morocco). That UK oil&gas company may indeed put forward a “full protection and security” claim against Spain pursuant to Article 10(1) of the ECT, if Spain failed to accord the most constant protection and security to the UK company’s investment in Western Sahara carried on with the consent of the Saharawi authorities.
This circumstance may understandably prompt Spain to comply with its so-far neglected international obligations as the de jure administering Power of Western Sahara and assist the Saharawi authorities to develop their natural resources.
In light of the existing international legal framework on resource management rights of NSGTs and the obligations of the respective administering Powers, a careful nationality-planning on behalf of potential foreign investors in the natural resources of Western Sahara may allow to gain further international rights, which in turn translate into a higher level of protection for foreign investments. Such higher level of protection – consisting of a dual investment claim available against Morocco and Spain based on the extra-territorial application of IIAs – may make up for the volatile business environment of the region, in that it would act as a sort of insurance coverage. Therefore, such higher level of international legal protection may be conducive to attracting foreign investments in Western Sahara. Further, this forward-planning foreign investments protection may assist not only financially, but also legally, the Sahrawi people in its self-determination process by indirectly compelling Morocco and Spain to abide by their corresponding international obligations under the threat of having to pay hefty and recurring pecuniary compensations (directly to the foreign investors and indirectly to the Sahrawis).