Rethinking Multinational Corporate Governance in Extractive Industries: The Caspian Development Project and the Promise of Cooperative Governance

By Nick, Matthew | Vanderbilt Journal of Transnational Law, March 2005 | Go to article overview

Rethinking Multinational Corporate Governance in Extractive Industries: The Caspian Development Project and the Promise of Cooperative Governance


Nick, Matthew, Vanderbilt Journal of Transnational Law


Abstract

The oil and natural gas reserves under the Caspian Sea have sparked the interest of international investors and oil firms. The political, economic, and social turmoil in the five countries bordering the Caspian Sea, however, pose significant challenges for effective regulation of multinational interaction with the five Caspian states. A joint-effort approach to regulation involving the World Bank, multinational enterprises, and the individual Caspian states' governments poses the most functional and efficient means of instituting international oversight. Such a tripartite structure connects the fortunes of all the parties and provides safeguards against default by any single entity. A mutually beneficial relationship may be established whereby Caspian states benefit from receiving loans at below-market interest rates and establishing sound relationships with multinational enterprises and developed economies. This tripartite structure promotes accelerating the sustained development of the Caspian states while introducing international norms of corporate behavior. This Note addresses the benefits, challenges, and potential that this joint-effort approach to regulation of multinational enterprises holds for the Caspian region.

TABLE OF CONTENTS

  I. INTRODUCTION
 II. CURRENT POLITICAL AND ECONOMIC CONDITIONS
     IN THE CASPIAN REGION
     A. Political and Economic Structures
        1. Russia
        2. Kazakhstan
        3. Azerbaijan
        4. Turkmenistan
        5. Iran
III. THE CHALLENGES OF AND SUGGESTED REFORMS
     FOR EXISTING POLITICAL AND ECONOMIC
     CONDITIONS
     A. Internal Challenges and Suggested Reforms
        1. Domestic Political Stabilization
        2. Human Rights
        3. Corruption
        4. Economic Distribution
     B. Extraterritorial Challenges and Suggested
        Reforms
 IV. THE LEGAL STATUS OF THE TERRITORIAL
     BOUNDARIES OF THE CASPIAN SEA
     A. Treatment of Oil Rights During the
        Soviet Period
     B. Current Treatment: 1991-Present
     C. Future Direction: Ongoing Conflicts and
        Anticipated Resolutions
  V. INTERNATIONAL OVERSIGHT OF MULTINATIONAL
     CORPORATE INVOLVEMENT IN THE CASPIAN
     DEVELOPMENT PROJECT
     A. Sovereignty Versus Stability:
        Mutually Exclusive Options?
     B. Multinational Enterprises
        1. Current MNE Involvement in the
           Caspian Development Project
        2. Concerns
           a. Fair Price
           b. Fair Dealing
 VI. TRADITIONAL WORLD BANK FINANCING STRUCTURE
        1. Efficacy of the World Bank's
           Traditional Financing Structure
VII. RETHINKING THE FINANCING STRUCTURE:
     MULTILATERAL EFFORTS FOR DEVELOPMENT
     OF EXTRACTIVE RESOURCES
     A. The Cooperative Approach: Wishful Thinking..
     B. The Joint-Effort Approach: Pragmatic
        Principles
        1. Challenges and Impediments
        2. A Functional Alternative
VIII. CONCLUSION

I. INTRODUCTION

Perhaps no issue in international business excites the passions of multinational enterprises, environmentalists, and human rights activists as much as oil and gas exploration and development. The five Eurasian countries bordering the Caspian Sea (Russia, Kazakhstan, Azerbaijan, Turkmenistan, and Iran) lie at the center of a global energy focus and are attracting interest from multinational oil and gas firms. (1) Long isolated from first-world economies during the Soviet era, the Caspian states, except Iran, now stand on the verge of a major energy development that promises to bring widespread economic and derivative social benefits to their economies and societies from these oil and natural gas reserves, thanks to the Caspian Development Project (CDP). (2)

There is currently no single unified effort among the five Caspian states to develop the oil and natural gas resources in the Caspian seabed. (3) Rather, each state is considering separately developing these resources, to varying degrees, with domestic entities, multinational enterprises, and foreign governments. …

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