ON Oct 5, Daily Sabah, an Istanbul-based online portal, reported that Sudan's government had confiscated Petroliam Nasional Bhd's (Petronas) assets on the grounds that they were acquired "through illegal means" during Omar al-Bashir's regime.
The assets were under Nada Properties Co Ltd (NPCL), a Petronas subsidiary company incorporated under Sudan's law.
The confiscation was carried out by the Empowerment Removal, Anti-Corruption and Money Retrieving Committee, whose powers include "retrieving assets that were allegedly acquired through illegal means" under al-Bashir's regime.
The committee had also confiscated assets belonging to companies from Pakistan, Qatar and Turkey. Ironically, our national oil company had been operating for more than two decades and played a significant role in assisting Sudan to become "an oil-exporting nation". There is an invaluable lesson in gratitude there.
The assets had been transferred to Sudan's Finance Ministry. Petronas maintained that these had been acquired legally, and had since filed for arbitration at the International Centre for Settlement of Dispute, a unit under the World Bank Group.
According to Nasem Ahmad (https://www.middleeastmonitor.com), Sudan is turning on its allies "under the pretext of fighting corruption".
He said that following the collapse of the Al-Bashir regime in 2019, the committee installed by the Transitional Government had maintained that the assets registered under NPCL were purchased "through unlawful means and bribery".
Nasem said Petronas had sent a letter in April, giving Khartoum "a 90-day reconciliation period" to enable both parties to reach an amicable solution.
The letter offered a dispute resolution mechanism, as provided for in the "Promotion and Protection of Investments Agreement" signed between both governments. A second letter was sent in July, giving Khartoum a further 30 days.
The fight between Khartoum and Petronas appeared to be less about corruption and more about the new geopolitical realities, said Nasem.
In October last year, Sudan's Transitional Government had agreed to normalise ties with Israel in exchange for its removal from the United States list of "State Sponsors of Terrorism". It paved the way for Khartoum to attract Western investors.
Thus, while new investors from the West had been warmly embraced by the new Transitional Government, corporations that had earlier invested billions during Al-Bashir's time had been sidelined or "snared by the anti-corruption drive".
For Sudan, making "new friends" with Western powers had earned it a double benefit — being removed from "the terrorist list", and relief from more than US$50 billion in debt.
For Petronas, the question is "what next?" Will it pull out its massive investments from Sudan? If that's the case, will investors from Pakistan, Qatar and Turkey follow suit?
If that happens, will Sudan suffer a bigger loss due to the reputational damage and failure to safeguard foreign investments?
In his article "What constitutes a taking of property under international law?", Professor G.C. Christie of the University of Minnesota's School of Law said it was a recognised rule of international law that such "taking" must be followed by the payment of adequate compensation.
In the landmark case of German interests in Polish Upper Silesia (1926), assets belonging to a German company were seized by the Polish government. The Permanent Court of International Justice (PCIJ) ruled that compensation must be paid to the deprived company.
Investment protection treaties and customary international law require host states to protect foreign investments, and any expropriation must be done according to certain rules.
Specifically, when a host state confiscates (expropriates) assets belonging to a foreign investor, it must meet "at least three criteria of legality", namely (1) it must be done in the public interest, (2) it must not be discriminatory and (3) it must be accompanied by adequate compensation for the adversely affected investors.
In the Chorzów Factory Case (1938), PCIJ ruled that in the case of a wrongful expropriation, "reparation must, as far as possible, wipe out all the consequences of the illegal act"; in the case of a lawful expropriation, compensation is limited "to the value of the company at the time of dispossession, plus interest to the date of payment".
We wait and see how Sudan lives up to its international obligations.
The writer was a federal counsel at the Attorney-General's Chambers and visiting professor at Universiti Teknologi Malaysia. He is now a full-time consultant, trainer and author