The Indus Water Treaty Dispute

In 1960, India's then Prime Minister Shri Jawaharlal Nehru and Pakistan's then President Field Marshal Mohammad Ayub Khan, under the aegis of the World Bank, inked a treaty known as the Indus Water Treaty 1960 (IWT) in order to agree upon the mechanics of utilization of the Indus Basin (mainly comprising of  six rivers- Indus, Ravi, Beas, Chenab, Jhelum and Sutlej) the to each country's mutual benefit. IWT has been lauded as one of the best examples of settlement of inter-country water disputes (p 183, International water law: selected writings of Professor Charles B. Bourne). In fact, some argue that the IWT  has significantly contributed to the development of international water law (including the Helsinki Rules on the Uses of the Waters of International Rivers).

Indo-Pak Dispute over the Indus River Basin:

Even pre-independence, there were differences between the Punjab (located upstream) and the Sind  (located downstream, a part of the Bombay province) in relation to water sharing and building of dams in  the Indus basin, especially in regard to the Sutlej river. In 1935, a commission known as the Anderson Commission/ the Indus Commission was appointed to resolve disputes relating to water allocation. Post independence, India and Pakistan had severe differences over harnessing the Indus river. On 1st April 1948, the Indian Punjab government stopped flow of the river to the Pakistani Punjab region, thus escalating tensions between India and Pakistan. In 1950, both countries considered several agreeable models of water sharing, including the joint development management and management of the Indus basin (Joint management model is not something new to International Law. In the petroleum sector, countries have, despite serious border disputes, agreed upon joint licensing of petroleum exploration blocks to private players. See, Ana E. Bastida et al, Cross-Border Unitization and Joint Development Agreements: An International Law Perspective 29 Hous. J. Int'l L. 355 (2007) and David M. Ong, Joint Development Of Common Offshore Oil And Gas Deposits: “Mere” State Practice Or Customary International Law? 93 Am. J. Int'l L. 771 (1999) for a survey of such arrangements in the petroleum sector ).

In the 1950s, both parties tried to negotiate a settlement but failed. The building of the Bhakra dam had an adverse effect on the negotiations, especially from Pakistan's point of view as Pakistan viewed the building of the dam as denying them water supplies. While Pakistan was of the view that the discordance should to be resolved by a neutral tribunal, India considered it undignified as it showed two countries' inability to resolve disputes among them.

Money: The Catalyst:

Since India and Pakistan could not resolve the issue by mutual discussions, the World Bank offered its good offices to act as mediator in resolving the dispute. Money acted as a catalyst in  making  India and Pakistan keep their border disputes in abeyance and enter into the IWT. When the Bhakra-Nangal projects were conceived in India, World Bank was reluctant to finance the Nangal project because the Nangal project's viability depended on the Bhakra project and Bhakra project involved the the disputed waters, which was the cause of the reluctance of the World Bank. India was asked to resolve the Indus water dispute so that World Bank could consider financing of the Bhakra as well as the Nangal projects. USA, through David Lilienthal, was considering means of resolution of the dispute (as a part of its strategy to ensure that the world, and India, does not fall into the hands of communism) and came to a conclusion that intervention by a  neutral third party like World Bank would be ideal for resolving the dispute. Consequently, and after prolonged negotiations, India and Pakistan signed the IWT in 1960.

Kishanganga Dispute:

For more than thirty years, India has been planning to build a dam in the Kishanganga River (a tributary of the Jhelum river, which forms a part of the Indus basin) for producing hydroelectricity. Media reports suggest that the said project involves diversion of water from one tributary of the Jhelum river to another tributary of the same river. Pakistan alleges that India is not permitted under the IWT to do so. The  main provisions in this regard are Article III , Annexure D and E of the IWT. Pakistan also has some concerns about the design of the dam. Hence, Pakistan has invoked arbitration under the provisions of the IWT. Chiefly, Article IX and Annexure G of the IWT deal with arbitration. According to Annexure G, the arbitral tribunal would consist of seven arbitrators, two arbitrators to be appointed by each party and three umpires to be appointed by special procedures detailed in Annexure G to the IWT.

Pakistan has reportedly nominated  Jan Paulsson and Justice Bruno Simma as their arbitrators. Readers who follow developments in arbitration need no introduction to Jan Paulsson. He is the President of the London Court of International arbitration and an authoritative figure in international arbitration. Justice Simma is a judge of the International Court of Justice.

In this blog, we generally do not follow non-commercial arbitration as non-commercial arbitration is a huge area encompassing several fields such as disputes under investment treaties, public law disputes, sports disputes etc, making it difficult to follow. However, we will make an exception to this case and endeavour to bring updates on the case.

Note: 

1. Most of the information on the history of the IWT has been taken from a Ph.D. thesis submitted by Undala Z. Alam to the Durham University. The said thesis is a comprehensive work on the subject and can be downloaded from here.

2. For a critique of the Indus Water Treaty, see Manav Bhatnagar, Reconsidering the Indus Water Treaty, 22 Tul. Envtl. L.J. 271 (2009).

RNRL v. RIL: Whose Gas is it Anyway? A Brief History of PSCs (Part I)

Early this month, following the RNRL v. RIL judgement, we had touched upon a few important legal aspects that formed the primary basis for the RNRL v. RIL Judgement. This post goes a step further in briefly analysing the history of petroleum exploration and its implications on the petroleum regulatory regime. If one reads the RNRL v. RIL Judgements (I use the plural because there are two judgements- the majority (MAJ) by Sathasivam, J. & Balakrishnan CJI and the minority (MIJ) by Sudershan Reddy, J.), one would notice the sizeable research that went into in writing both the judgements. Kudos to the judges, their legal research assistants, counsels and experts, and to the government for assisting the judges.

The petroleum industry were eagerly awaiting the judgement for several reasons. A few of them are:
The judgement would, in a very very BIG way affect government policies regarding energy, in general, and natural gas, in particular.

1. Natural gas is the next big thing in the energy industry (It already has become so, I guess). We hear many gas based power plants coming up and existing power plants turning to natural gas for feedstock.
2. The judgement would have tremendous impact on Production Sharing Contracts entered into between the Government and companies for exploration and production of petroleum (the term includes natural gas too)

However, the judgement will have profound impact not only on the petroleum industry in India (and consequently those industries that rely on natural gas as fuel such as power, fertilizer) but also on other industries such as mining etc. Hence, it is of utmost significance to read it closely.

To (unjustifiably) generalise, the decision has given a carte blanche to the government on laying down the law and regulating the petroleum industry. The MIJ also seems to be in the same page as the MAJ on the vast powers of the Union in regulating the natural gas industry but has, very very interestingly, laid down significant restraints on the exercise of such power by the Union. The MIJ has wonderfully analysed the petroleum industry, the history of production sharing contracts and the structure of petroleum regulation in India. The MIJ reads like a law review article. It is divided into give parts and a conclusion, arranged into a neat scheme, with several footnotes and a glossary. It is structured this way:

Part I: Prologue
Part II: The Factual Matrix
Part III: Summary of the Submissions of the Parties
Part IV: Whose Gas is it Anyway? Whether a Contractor becomes the Owner of the Gas?
Part V: Whose Company is it Anyway?
Conclusion
Glossary

The Prologue begins with a couple of quotes, one from the Digest ordained to be complied by the Roman emperor Justinian I and the other by Dr. BR Ambedkar. The quotes seem to criticise the way in which the two stinkingly rich brothers entered into a private deal over a resource that essentially belongs to the nation and which ought to be used to "ameliorate the social and economic conditions in which our people live and suffer" and "to further the Constitutional goals".

In Parts II & III, the judge discusses the facts and the submission of the parties. We skip these for the time being. We go directly to Part IV as the contents of Part IV is the subject of discussion.

Regulation of Natural Gas Industry: What is striking about the MIJ is the analysis of the history, politics and economics of the petroleum industry, specifically, and of neoliberalism and privatization in general (Para 73). He has tried to place the Gas Dispute in the context of the problems that historically arose in the industry and the ways in which sovereign states reacted to them.The MIJ has identified nine kinds of mischiefs that have historically occurred:

(1) of oil companies not producing even after discovery and not relinquishing the area of exploration;
(2) of oil companies forming into pools and trusts to reduce production levels and keep the market prices at a high level;
(3) of oil companies financing armed revolutions and interfering in political aspects;
(4)of oil companies claiming ownership rights over the areas in which oil could be produced from;
(5) of oil companies claiming permanent rights to extract petroleum resources in-situ and taking the physical quantities away for marketing elsewhere;
(6) of under development of facilities for refining the petroleum and the Nation not having access to channels to market and distribute the resources;
(7) of deception by oil companies via low posted prices, and thereby reducing the royalty payments to the sovereign owners and reaping higher rewards in downstream activities that were also controlled by the oil companies;
(8) sovereign owners not having any rights to determine what levels of production can take place and without rights in management of petroleum operations; and
(9) joint off take agreements between oil companies and downstream divisions amongst them that controlled production, at an international level, keeping posted prices low so that even if sovereigns tried to take over the industry, they could be beaten down with production from elsewhere;

A survey into the history of petroleum exploitation would reveal that private parties, especially in the middle east, obtained huge areas of land for petroleum exploitation over which they claimed exclusive ownership. I recommend to readers this book which is an excellent survey of the history of the petroleum industry. Readers might also want to read this paper published by Oxford Energy on PSCs. According to the said paper, in 1901, the Shah of Persia (present day Iran) gave a Concession of 6,00,000 square km of land to William D'Arcy for a period of sixty years! The way in which this Concession was obtained is a fascinating story. The notable point in the story was that Britain seemingly gave its full support and backing to the Concession in view of its race with Russia for imperialistic dominance over Persia. In the traditional Concession Agreements, Vast geographical areas were given to the private entities (Foreign Oil Companies) and the ownership of the petroleum produced was vested with them. Due to several events post II World War, including events leading to the independence of several African, South American and Asian countries, the oil producing nations began to assert sovereignty over their natural resources including over petroleum.They started either nationalising the petroleum industry or renegotiating the Concession Agreements. Indonesia, in the sixties, popularised the concept of production sharing, where the ownership of petroleum was with the sovereign and the private entity was allowed to take a share (called as 'take') of the petroleum produced. Since then PSCs have become a popular instrument adopted by countries for allowing petroleum exploration and exploitation.

For these reasons, the MIJ points out that sovereign nations have arranged their petroleum legal regime to address these mischiefs. The MIJ emphatically states that the PSC that formed the subject of the Gas Dispute has to be seen in the context of these historical developments.

More on this, and on the constitutional and regulatory regime of petroleum exploration and exploitation in the future posts.

SSRN Articles

Mark C. Weidemaier, Toward a Theory of Precedent in Arbitration

Abstract:
The claim that arbitrators do not create precedent recurs throughout the arbitration literature. As an empirical matter, however, it is increasingly clear that, in some arbitration systems, arbitrators often cite to other arbitrators, claim to rely on past awards, and promote adjudicatory consistency as an important system norm. Much like courts, then, arbitrators can (but do not always) create precedent that guides future behavior and provides a language in which disputants, lawyers, and adjudicators can express and resolve grievances. This Article provides a theoretical foundation for understanding the conditions under which such precedent will (or will not) arise. It identifies three considerations that may account for the development of precedent across a range of arbitration systems: (1) whether the arbitration system is structurally conducive to the creation of precedent; (2) whether arbitral precedent functions to fill gaps in (or displace) state-supplied law; and (3) whether arbitrators are likely to be viewed as legitimate producers of law in the relevant context. After explaining the relevance of these considerations, the Article explores how they might apply in different arbitration contexts and sets forth a research agenda capable of shedding light on arbitration not only as a mechanism for resolving disputes, but also as a mechanism for generating robust systems of privately made law.

Aura Esther Vilalta, The Culture of Dialogue and Relational Justice as a 'Third Path'

Abstract:
The "third path" of justice would constitute a theoretical approach and a proposal. Having ascertained the exhaustion of exclusive systems - in the social, economic, political, thought and justice areas - the formal structuring of a model of justice is proposed, which, without foregoing the positive aspects of the current justice administration system, is built on the foundations of free will, trust, knowledge and technological development. This brief treatise deals with programme lines and courses of action of ADR/ODR - alternative methods or processes for dispute resolution for the catalytic controversies of a phenomenon which has spontaneously emerged -with the aim of yielding elements capable of formulating this new system, a synthesis of two which, paradoxically, were operative until fairly recently.

Jean R. Sternlight, Lawyerless Dispute Resolution: Rethinking a Paradigm

Abstract:
Do participants in mediation and arbitration have attorneys? Do they need them? Although the phenomenon of pro se litigation has received substantial attention in recent years, few commentators or policymakers have focused on these questions. The failure to focus on the possible need for representation in mediation and arbitration is based on an often unstated premise that because ADR processes are purportedly non-adversarial or less adversarial than litigation, disputants need representation less in ADR than they do in litigation. This Article suggests that the failure to focus on the possible need for representation in mediation and arbitration is fundamentally misguided. It is wrong to assume that representation is always more important or necessary in litigation than in ADR processes. Mediation and arbitration can often be quite formal , adversarial, and complex. Moreover, lawyers are not necessarily more important in complex than in simple cases. Attorneys are also needed to balance power inequalities and provide emotional support or voice to their clients. After considering relevant social science research on these points the Article provides some practical suggestions for courts, legislators, and legal services providers.

Denel (Proprietary Limited) v. Bharat Electronics Ltd. and Anr.

Denel (Proprietary Limited) v. Bharat Electronics Ltd. and Anr.

Decided on: 10th May 2010

Decided by: HL Dattu, J.

Case Details:

A few months back, we had posted a brief comment on a decision of the Supreme Court in IOC v. Raja Transport. The decision was relating to the validity of an arbitration clause which provided for a senior executive of one of the parties to the contract as the sole arbitrator.

In that case, the Supreme Court held valid such a clause but advised PSUs to change their practice of nominating their own senior employees as arbitrators in view of the avowed objectives of independence and impartiality of the arbitral process. The court held:

• It is now well settled by a series of decisions of this Court that arbitration agreements in government contracts providing that an employee of the Department (usually a high official unconnected with the work or the contract) will be the Arbitrator, are neither void nor unenforceable
• If a party, with open eyes and full knowledge and comprehension of the said provision enters into a contract with a government/statutory corporation/public sector undertaking containing an arbitration agreement providing that one of its Secretaries/Directors shall be the arbitrator, he can not subsequently turn around and contend that he is agreeable for settlement of disputes by arbitration, but not by the named arbitrator who is an employee of the other party. No party can say he will be bound by only one part of the agreement and not the other part, unless such other part is impossible of performance or is void being contrary to the provisions of the Act, and such part is severable from the remaining part of the agreement. The arbitration clause is a package which may provide for what disputes are arbitrable, at what stage the disputes are arbitrable, who should be the arbitrator, what should be the venue, what law would govern the parties etc. A party to the contract cannot claim the benefit of arbitration under the arbitration clause, but ignore the appointment procedure relating to the named Arbitrator contained in the arbitration clause.
• There can however be a justifiable apprehension about the independence or impartiality of an Employee-Arbitrator, if such person was the controlling or dealing authority in regard to the subject contract or if he is a direct subordinate (as contrasted from an officer of an inferior rank in some other department) to the officer whose decision is the subject matter of the dispute. Where however the named arbitrator though a senior officer of the government/statutory body/government company, had nothing to do with execution of the subject contract, there can be no justification for anyone doubting his independence or impartiality, in the absence of any specific evidence. Therefore, senior officer/s (usually heads of department or equivalent) of a government/statutory corporation/ public sector undertaking, not associated with the contract, are considered to be independent and impartial and are not barred from functioning as Arbitrators merely because their employer is a party to the contract
• The position may be different where the person named as the Arbitrator is an employee of a company or body or individual other than the state and its instrumentalities.

In Denel (Proprietary Limited) v. Bharat Electronics Ltd. and Anr., the arbitration clause in the contract provided for reference of disputes to Managing Director of BEL or his nominee. Despite recognition of validity of such clauses, the Supreme Court has, in Denel (Proprietary Limited) v. Bharat Electronics Ltd. and Anr., appointed Retired Justice Arijit Pasayat in view of the peculiar circumstances in the case. The peculiar cirumstance was this: Though BEL accepted liability in regard to the dispute, it could not pay Denel because the Ministry of Defence, Government of India had specifically directed BEL not to pay the money under the invoices which formed the subject matter of the dispute. If the Managing Director was appointed as arbitrator, he would be bound by the direction of his superior authorities, that is, the Ministry of Defence. Hence the court held that there was a justifiable doubt as to his independence to decide the matter fairly and appointed an arbitrator on its own