LAWS6916 Big Oil Co Ltd’s Investment In Egypt - Assignment Solution

Question 1

Big Oil Co. Ltd. (BCO) is a geographically dispersed oil and gas exploration and marketing company with sizable presence in Asia and Europe. Through its strong supply chain channels and sizable market presence it now seeks to expand its operations in Africa beyond Papua New Guinea. It seeks to fulfil this objective through FDI in Egypt that takes a form of a Joint Venture Company (JVC) in Egypt. The other venture is the state agency that will undertake the local operations of JVC in Egypt alongside BOC.

The nature and size of BOC’s involvement in Egypt includes the following:

1. Advancing a loan of USD 100 million to the JVC in which it is a venture, thereby allowing a transfer of financial resources from BOC to the JVC;
2. Providing license to its intellectual property to allow undertaking oil and gas exploration and marketing activities in Cairo, thereby allowing a transfer of technology between the two countries;
3. Investing in government debt securities in Egypt amounting to USD 80 million i.e., foreign portfolio investment in financial assets (which will later be reinvested in JVC).

In return the JVC has committed to enter into a 40-year contract with the government of Egypt (GOE) which is currently valued at USD 350 million. JVC will also develop the oil and gas field and later construct a 500 km long pipeline form oil and gas field to Cairo. 

In deciding which of its subsidiary companies should be used as a vehicle for investment in JVC in Egypt, BOC will consider inter alia which countries have a bilateral investment treaty (BIT) which favours BOC the most in conducting the above-mentioned activities in Egypt and benefit the most from the results of its operations. A BIT is signed between the contracting states to promote and protect the FDI between those states and to provide procedural measures in case of disputes. Subsidiaries in New Zealand and Papua New Guinea cannot be used as a vehicle for investment in Egypt JVC because these countries have not yet signed a BIT with Egypt. Accordingly, investment made through these subsidiaries would firstly not be secure in terms of capital maintenance and preservation, and secondly it would not guarantee the protection of its rights and interests in the FDI it plans to undertake. Therefore, the remaining 4 subsidiaries could be considered for investment in JVC as all of these have effective BITs with Egypt.