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Chad and China’s CNPC Reach Settlement on Alleged Environmental Damages

The Republic of Chad and the China National Petroleum Corporation (CNPC) reportedly reached a settlement in a dispute involving environmental damages allegedly caused by the dumping of excess crude oil by CNPC in Chad. Under the agreement, CNPC agreed to pay Chad US$400 million to settle the dispute, according to an announcement by Chad’s Oil Ministry. The deal also reportedly gives Chad a 10-percent stake in certain fields held by CNPC that are producing oil and opens the door to CNPC to start exporting oil through the Chad-Cameroon pipeline.

The dispute arose in July 2013 when Chad discovered large amounts of crude oil that had been dumped into pits located in a region in which CNPC held licenses to operate. In March 2014, Chad fined CNPC US$1.2 billion for environmental damages allegedly caused by the dumping and subsequently canceled CNPC’s licenses to operate five drilling sites in August.

That same month, Chad announced that it was commencing an International Chamber of Commerce (ICC) arbitration against CNPC under the arbitration clause in the applicable contract. While the US$400 million reached in the settlement is less than the amount that Chad fined CNPC, the initiation of the arbitration appears to have pushed the dispute to a relatively swift resolution.

While states often find themselves as the respondent, rather than claimant, in international arbitrations, Chad’s decision to initiate arbitral proceedings against CNPC is not the only recent example of an African state using arbitration in a more proactive way. In July 2014, Djibouti reportedly commenced a London Court of International Arbitration (LCIA) case against Dubai-based DP World, the operator of the container terminal in Djibouti, alleging that the company secured the concession to operate the terminal through bribery, an allegation that the company denies. The LCIA arbitration appears to be ongoing.

Whether these two cases are merely aberrations or represent a new trend among African states (or states more generally) to use arbitration to resolve disputes with investors more proactively remains to be seen. Regardless of how these and other such cases unfold, the back-to-back reports of Chad and Djibouti taking the initiative with international arbitration in this manner highlight the important role that international arbitration can play in resolving international investment disputes.

©2022 Greenberg Traurig, LLP. All rights reserved. National Law Review, Volume IV, Number 320
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