Nigeria’s Foreign Oil Companies: Are They Really Nigerian or Foreign?

May 13, 2022

I have at different times discussed the susceptibility of foreign investment in host countries. Foreign oil companies have traditionally been more affected in this regard because of how oil exploration is arranged. The capital as well as technical and managerial know-how that is required in the extractive sector is typically available to companies from the developed countries. Extractive resources are at the centre of competing claims between the sovereign state that owns the resources in international law and who relies on it as an important revenue source, and producing communities who have expectations, on the one hand, and at the same time in the middle of international politics between developing and developed countries caused by old colonial wounds. This creates some tension around exploration activities thereby increasing both direct and indirect expropriatory risks for these companies.

I have also made the point elsewhere about the skepticism with which these companies have come to view the legal systems of developing countries, at least when it comes to disputes relating to these risks. Ultimately, their preference is to secure protection for themselves outside these legal systems, on the international scene.  A natural or legal person cannot bring claims before the International Court of Justice (ICJ) against a country that has breached its rights; worse, it cannot bring a claim against its own country in international law (except in the more recent international human rights regime set up after World War II). Countries had to bring such actions on behalf of persons based on the principle of diplomatic protection. The nationality of these persons is however important in determining which country can bring such an action. While the nationality of natural persons and the country that may bring a claim on their behalf is not controversial, that of legal persons is not straight forward.  Corporate nationality of foreign oil companies in Nigeria

Most countries these days impose a requirement for foreign investors to be locally incorporated under their laws as a pre-condition for engaging in business in that jurisdiction. In Nigeria, while the repealed Companies Act did not have such a requirement, the current company law, the Companies and Allied Matters Act (CAMA), the Nigerian Investment Promotion Commission (NIPC) Act and sector specific laws make such a requirement a condition. In respect of the oil sector, the Petroleum Acts. 2(2) requires companies that seek oil exploration activities in Nigeria to be incorporated under the CAMA.

Nigerian laws however do not make clear whether foreign oil companies that are incorporated in Nigeria are “Nigerian companies” with Nigerian nationality, or “foreign companies” with nationalities that is not Nigerian. For instance, s. 18 the Deep Offshore Act, states that a license/lease “Holder” is “any Nigerian company who holds an oil prospecting license or an oil mining lease…..”

One would like to assume that because of the stipulation for local incorporation in Nigeria generally and particularly in the oil sector, reference in this law to a company that holds an oil lease/license presupposes that the company is incorporated in Nigeria and therefore a Nigeria company. It is therefore not clear what the framers intended by the addition “Nigerian.” Considering that in statutory interpretation, draftsmen are to be taken to have intended a purpose (and not supplusage) for words in texts, is it possible that this provision speaks to companies owned by Nigerians in which case a company that does not come within this characterization (such as a foreign oil company) is not a Nigerian company and does not have Nigerian nationality?

Nigerian laws that might have assisted in reconciling this issue are silent. The NIPC Act does not define a foreign company to enable one form an opinion as to whether foreign oil companies that have been incorporated in Nigeria are still “foreign” inspite of such incorporation, or “Nigerian.” Similarly, Chapter III of the Nigerian Constitution8 that defines a Nigerian citizen and that might have helped in determining whether these oil companies have Nigerian nationality does not cover legal persons.  Indeed, in most countries, legal persons are not covered in the meaning of citizens; they are said not to be capable of personal loyalty to the country. The Interpretation Act also does not provide any insight.

Regulation 23(2) of the First Schedule of the Petroleum Act defines a “Nigerian Company” as including both companies incorporated in Nigeria (such as foreign oil companies), and companies controlled directly or indirectly by Nigerian citizens. Such a definition is however contrary to that provided in the Fifth Schedule Part I of the Constitution which suggests that foreign companies incorporated in Nigeria are foreign companies. Item 19 of that schedule states “foreign companies” or “foreign enterprises” mean companies or enterprises in which the controlling shares are owned by persons other than the Government, its agencies or citizens of Nigeria or whose policies are determined by persons organizations outside Nigeria.” Thus, to the extent that the control and equity of foreign oil companies lies in their non-Nigerian parents/shareholders, by the above definition these companies are deemed as foreign companies.

On the face of it, adopting the Petroleum Act that defines “Nigerian Company” for the purposes of a certain paragraph under that Act may mean locally incorporated foreign companies are Nigerian in the context of the oil sector. In the absence of this definition outside petroleum laws, other foreign companies may be construed as foreign, following the definition in the Constitution that defines “foreign company” for the purposes of Code of Conduct.  It is therefore possible that two locally incorporated foreign companies may at once be Nigerian and foreign. It is not clear whether the courts would wish for such a situation to prevail.

The consequences of these companies failure to be locally incorporated have repeatedly been examined by Nigerian legal practitioners on behalf of anxious clients and there is in fact a number of published articles in this respect. It is common ground that such transactions may be illegal and therefore unenforceable by virtue of s. 54 of the CAMA. However, the implications of the corporate nationality that these companies derive when they go through local incorporation, in light of the above provisions and how this may affect their protection on the international plane, is yet to come up for examination.

Consequences of corporate nationality

The significance of corporate nationality increased sharply following the 1970 land mark judgment in Barcelona Traction Case in which the ICJ held that a company assumes the nationality of the country in which it is incorporated and registered. In that case Belgium sued Spain for the loss its nationals suffered as a result of alleged acts of Spain in a company which carried on business in Spain, was incorporated in Canada, but owned by Belgian nationals. The ICJ ruled that only Canada could bring a claim on behalf of the company in the circumstances. In effect, in international law, it is the country of incorporation that can diplomatically protect a legal person generally.

The question of corporate nationality is therefore an important one, an area that is, as we have seen, misunderstood under Nigerian laws.  It is important however to state that while corporate nationality continues to play a very significant role in the protection of the legal person on the international plane, developments now exist that affords the legal person options. This is because, apart from contractual devices which these foreign companies employ to protect their investment, they now more easily bring direct claims against their own countries, while it is not only the country of nationality that is competent to maintain an action on their behalf on the international plane because of an exception to the diplomatic protection principle.

Direct claims by foreign companies against their host states

  1. The International Convention for the Settlement of Investment Disputes (ICSID) of 1965 has proved extremely successful in allowing claims of foreign investors against states. Although under this regime, it is only the nationals of other countries that can bring a claim against a host country consistent with the international law principles pointed out above, this convention, mindful of the hardship this works against locally incorporated foreign companies allows such companies to bring claims against their countries, provided the host country agrees. Such agreements are typically provided for under Bilateral Investment Treaties these days and it is very common place for a foreign company that is locally incorporated to bring a claim against its country of incorporation within the ICSID framework.
  2. The international human rights framework has also proved helpful in some cases. Under the international human rights jurisprudence, the notion of human rights has now been expanded to include economic rights; a legal person, as against natural person can now bring a human rights claim; and importantly, nationals can bring claims against their own countries, contrary to classical international law principles. This manifests under the European Human Rights regime, the most advanced so far, a model that is followed by the new African Charter on Human & Peoples Rights which Nigeria is not only a signatory to, but ratified through the African Charter of Human and Peoples Rights Act.

Exception to diplomatic protection

Article 11(b) of the recent 2006 International Law Commission Articles on Diplomatic Protection  states: “A state of the nationality of shareholders in a corporation shall not be entitled to exercise diplomatic protection in respect of such shareholders in the case of an injury to the corporation, unless ….(b) the corporation had, at the date of injury, the nationality of the state alleged to be responsible for causing the injury, and the incorporation in that state was required by it as a precondition for doing business their.”  Consequently, these Articles have now made it possible for the country of the parent/shareholders to bring an international claim on behalf of the locally incorporated company if it had to be incorporated locally by the laws of the host country as a pre condition to doing business in that country, a situation that exists in Nigeria by s. 54 of CAMA.

This principle came up for examination in the Dallio case which came up before the ICJ this year. In that case Dallio, a Guinean who had been living in Congo (then Zaire) since 1964 set up two companies in the1970s, Africom-Zaire and Africontainers-Zaire.  He was arrested, detained and then expelled from Congo in the 1990s for demanding debts outstanding in favour of his companies from two Congolese oil companies in which government was a shareholder. Guinea sought an action of diplomatic protection against Congo before the ICJ for (1) individual personal injuries Dallio suffered (2) direct rights that he suffered as a shareholder of the two companies and (3) the rights of the two companies. Congo filed a preliminary objection contending, amongst others that Guinea lacked standing to bring a claim on behalf of these two companies, being companies incorporated under Congolese laws and therefore Congolese corporate nationals. The ICJ agreed with Guinea that it had standing to bring a claim under (1) and (2) above, but rejected the third. The court held that being companies incorporated in Congo, they were of Congolese nationality and only Congo could generally bring a claim on their behalf. The court disagreed with Guinea that Article 11(b) of the ILC Draft Articles applied, explaining that having entered Congo in the 1960s, Dallio’s businesses were not established under Congolese laws as a precondition to doing business there.

From the above, apart from human rights regime which is far less traveled for the protection of investments is it clear that companies with foreign parents/shareholders are better protected in international law as this allows such companies to bring claims against their own states under the ICSID system and at the same time have their parents’ countries protect them. The result is that it almost borders on professional malpractice for international lawyers not to advise clients where they are 100% nationals, to set up companies outside the country, and then use them to control their local investments, a practice known as round tripping, but which has been upheld by at least one international tribunal.


I have tried to show in this column the significance of corporate nationality in the protection of foreign companies. We have seen that the meaning of “foreign” or “Nigerian” company is confused in our laws, and this is especially important in our oil sector that is dominated by foreign oil companies that are made to be locally incorporated.  Although there are now developments that provide protection options for the locally incorporated foreign company, it is time that we reconciled this part of our laws to the international meaning of corporate national.

Dr. Bayo Adaralegbe