Recommendation on Exclusion from the
Government Petroleum Fund’s Investment Universe of the Company
In a letter from the Ministry of
Finance dated 12 December 2004, the Petroleum Fund’s Council on
Ethics was asked to assess whether the investments by the Fund in
the company Kerr-McGee could constitute a violation of the Ethical
Guidelines for the Government Petroleum Fund. The background for
this request was that the Minister of Finance had received letters
from the Western Sahara Support Committee and the Government of the
SADR (Saharawi Arab Democratic Republic), asking him to disinvest
from the Fund’s investments in the company Kerr-McGee Corporation.
Subsequently, the Ministry of Finance also received a letter from
1Letter dated 4 January, 2005.
arguing that their company should not be subject to disinvestment
from the Fund. In its meeting on 21 December 2004, the Petroleum
Fund’s Council on Ethics decided to evaluate the merits of the
According to the Annual Report of
2The Norwegian Central Bank.
for 2004, which was published on 1 March 2005, the Fund had
equity holdings of NOK 221 978 000 and fixed income securities of
NOK 115 344 000 in Kerr-McGee Corporation.
The Council on Ethics has decided
to make the following recommendation to the Ministry of Finance,
which, according to point 4.5 of the Ethical Guidelines, shall be
submitted to the company for comments.
Background for the case
The company Kerr-McGee Corporation
3Through its subsidiary Kerr-McGee du Maroc Ltd. entered
in 2001 into a contract with the governmental Moroccan oil company
ONAREP regarding geological and geophysical studies off shore
Western Sahara. This contract has since been renewed. Moroccan
authorities have informed the Office of the Legal Adviser of the UN
that the contract contains “standard options for the relinquishment
of the rights under the contract or its continuation, including an
option for future oil contracts in the respective areas or parts
4Letter from the Office of the Legal Adviser to the President of the Security Council (S/2002/161) dated 12 February 2002, para 2.
Moroccan authorities describe
Western Sahara as “Moroccan Saharan Provinces”, and claim
sovereignty over the area. According to the UN, however, Western
Sahara is still a
Non-Self-Governing Territory, and, as such, not subject to
Moroccan sovereignty. Western Sahara, a Spanish protectorate since
1884, was, according to the provisions of the UN Charter,
established as a Non-Self-Governing Territory in 1963. Spain was
appointed Administrative Power for the area.
The liberation movement POLISARIO
5(Frente) Popular para la Liberacion de Saguia el-Hamra y del Rio de Oro.
was established in 1973. Its aim was to achieve independence for
Western Sahara. POLISARIO started an armed uprising against the
Spanish Administrative Power. In October 1975, the International
Court of Justice (ICJ) rejected claims from Morocco and Mauritania
regarding their alleged sovereignty over the territory.
6ICJ, Advisory Opinion of 16 October 1975. Subsequently
Morocco invaded parts of Western Sahara, which led to strong
reactions from the Security Council.
7S/RES 380 (1975), dated 6 November 1975. Later that
year, Spain entered into an agreement with Morocco and Mauritania
concerning the transfer of power over Western Sahara.
8The “Madrid-Agreement”, dated 14 November 1975. In the
Agreement, Spain confirmed her intentions of contributing to the
decolonisation of Western Sahara, and to transfer the duties as
Administrative Power to Morocco and Mauritania. The agreement thus
did not transfer sovereignty over the territory, as Spain had no
such sovereignty in the first place. The agreement did not alter
the status of Western Sahara as Non-Self-Governing Territory under
the UN. In the agreement, Spain recommended that a referendum
should be held concerning the future status of Western Sahara. In
1976, however, Morocco and Mauritania agreed to divide Western
Sahara between them.
9Agreement dated 14 April 1976. In 1979, Mauritania
withdrew from Western Sahara. Morocco has since occupied the whole
Since 1979, Morocco has exercised
de facto sovereignty over this territory without taking on the
formal role as Administrative Power pursuant to the provisions of
the UN Charter. Morocco would, as Administrative Power, have had an
“ensure, with due respect for the culture of the peoples
concerned, their political, economic, social and educational
advancement…” and to
“develop self-government, to take due account of the political
aspirations of the peoples,..”
10Article 73 of the UN Charter.
Even though Morocco has control
over Western Sahara, Moroccan sovereignty over the territory has
never been recognised by the UN. According to the UN, Western
Sahara is still a Non-Self-Governing Territory. The UN General
Assembly has adopted a number of resolutions confirming this.
11The most recent General Assembly resolution was adopted on 25 January 2005 (A/RES/59/131). Western Sahara has been subject to a number of GA resolutions over the past years, e.g. A/RES/50/33, 6 December 1995, A/RES/52/72, 10 December 1997, A/RES/53/61, 3 December 1998, A/RES/54/84, 6 December 1999, A/RES/55/138, 8 December 2000, A/RES/56/66, 10 December 2001.
The Western Sahara exile Government, while not being recognised as
a State by the UN, has been recognised by more than 70 states, and
is a Member of the African Union.
12Information contained in the above mentioned letter to the Ministry of Finance from SADRs Minister for Foreign Affairs, Mohamed Salem Ould Salek.
Between 1975 and 1991 there was an
armed conflict going on in Western Sahara, between POLISARIO and
Morocco. In 1991, the UN managed to negotiate a cease-fire between
the parties, which is still in force. In this connection, the UN
peace-keeping force MINURSO
13United Nations Mission for a Referendum in Western Sahara.
was established to oversee the cease-fire and to prepare for a
referendum on the future status of Western Sahara. During the
period from 1991 to 2004, the UN Envoy for Western Sahara, James
Baker, put forward two proposals for peaceful settlement of the
conflict. Both peace proposals were rejected. One of the difficult
points has been the UN plan to determine the future status of
Western Sahara through a referendum. Moroccan authorities have
allegedly moved many thousand Moroccans to the territory in
question, thus seeking to outnumber the original Saharawi
14The population in Western Sahara (the Sahrawi people) counts approximately 260.000 persons. Some 165.000 of these are in refugee camps in Algeria.
The latest peace proposal would give the SADR limited self
government for the first five years, and then put the question of
future status of Western Sahara up for a referendum. This proposal,
even though it provided for voting rights at the referendum for
everybody within the territory, irrespective of ethnic origin, was
rejected by Morocco.
The UN envoy James Baker withdrew
from his position when the second peace proposal was rejected.
15In June 2004. The UN
Secretary-General subsequently appointed Alwaro de Soto, a senior
UN official, as his successor. There seems to be no present
developments indicating a breakthrough anytime soon. Mandated by
the Security Council, the MINURSO is still monitoring the
16The Security Council prolonged MINURSOs mandate until 30 April 2005 in Resolution S/RES/1570 (2004).
The Norwegian official position
with regard to the situation in Western Sahara is that no
governmental agency should act in a manner that might prejudice the
outcome of the ongoing peace efforts by the UN. The Ministry for
Foreign Affairs has also, on several occasions, expressed the view
that Norwegian companies should avoid participating in economic
enterprises in this area because such involvement might be seen to
make Moroccan claims on Western Sahara more legitimate.
Some of the legal issues
The Moroccan occupation of Western
Sahara seems inconsistent with norms of international law, as well
as with UN decisions and resolutions. There are, however, still
rules for what may be considered lawful or not lawful
within such an overall situation.
According to the UN Convention on
the Law of the Sea,
17United Nations Convention on the Law of the Sea, 1982 (UNCLOS).
the point of departure is that all costal states have sovereign
rights to the natural resources on the continental shelf outside
18Articles 76 and 77.
According to the UN, Morocco does not have sovereignty over Western
Sahara, and therefore, as a point of departure, no rights to the
resources in this area. Article 73 of the UN Charter as well as
several General Assembly resolutions
19E.g. GA RES 3458 (XXV) dated 10 December 1975 which specifies “the right of the people of the Spanish Sahara to self-determination, in accordance with General Assembly Resolution 1514 (XV)”.
imply that economic activities in Non-Self-Governing Territories
shall not adversely affect the interests of the peoples of such
territories, and may only take place subject to the consent of the
local people. The same principles are laid down in the legal
framework concerning the law of the sea. Resolution III, which is
annexed to the UN Convention on the Law of the Sea, says that:
”In the case of a territory whose people have not attained full
independence or other self-governing status recognized by the
United Nations, or a territory under colonial domination,
provisions concerning rights and interests under the Convention
shall be implemented for the benefit of the people of the territory
with a view to promoting their well-being and development.”
20Resolution III, Third United Nations Conference on the Law of the Sea.
Western Sahara, as a
Non-Self-Governing Territory, clearly falls within the scope of
this provision. Article 77 (1) of the UN Convention on the Law of
the Sea specifies that:
”The costal State exercises over the continental shelf
sovereign rights for the purpose of exploring it and exploiting its
According to the aforementioned
provision in Resolution III, Article 77(1) thus indicates that the
rights related to the continental shelf, which in this case seems
to belong to the people of Western Sahara, encompasses both
In the above mentioned legal
opinion from the UN Office of the Legal Adviser,
21S/2002/161, see footnote 4.
however, it seems that the assumption is that because there is yet
no exploitation, only exploration, the activity of Morocco on the
continental shelf is lawful:
”..while the specific contracts which are the subject of the
Security Council’s request are not in themselves illegal, if
further exploration and exploitation activities were to proceed in
disregard of the interests and wishes of the people of Western
Sahara, they would be in violation of the principles of
international law applicable to mineral resource activities in
Non-Self-Governing Territories.”22 S/2002/161, para 25.
This thus seems to indicate a
possible point of discrepancy between the legal framework
concerning the law of the sea, and the legal opinion of the UN
Legal Adviser. The Council on Ethnics does not intend to make an
attempt on deciding what the legally correct answer would be in
this case. It should be pointed out, however, that in a situation
of contradictory interpretations of international law, treaty law
would prevail over a legal opinion. One might therefore suggest
that there are sound legal arguments for arguing that not only
exploitation of natural resources, but also exploration, could be
deemed unlawful in the present case.
The arguments put forward
As mentioned in the introduction,
both the exile government of the SADR, the Western Sahara Support
Committee as well as Kerr-McGee, has approached the Ministry of
Finance and the Council on Ethics concerning this case. The SADR
considers the “activities of Kerr-McGee to be unauthorised, illegal
and an insult to the Saharawi people.” In its letter, the SADR
foreign minister moreover claims that they repeatedly have
contacted Kerr-McGee in order to persuade them stop their
exploration activities, but that their requests so far have been
ignored by the company.
The Support Committee for Western
Sahara claims in its letter that Kerr-McGee contributes to maintain
a conflict situation that has lasted for 29 years and that the
company is contributing to making Morocco’s occupation seem more
legitimate. The Support Committee points to the fact that other
companies, which have been active in the area, have withdrawn. The
Support Committee is of the opinion that the Petroleum Fund should
end its ownership in Kerr-McGee on account of what they describe as
Kerr-McGee’s “political controversial, strictly unethical, legally
doubtful and, security wise, risky enterprise in Western Sahara for
the Moroccan occupation authorities.”
Kerr-McGee states in its letter to
the Minister of Finance that it is not correct that their contract
with Morocco is illegal. In this connection, they point to the
aforementioned legal opinion from the UN Legal Adviser, which says
that the contract in itself is not illegal. Kerr-McGee says in its
letter that they support the ongoing efforts of the UN to find a
permanent and amicable solution to the Western Sahara issue.
Application of the Ethical Guidelines in this case
According to point 4.4 of the
Ethical Guidelines, the Council on Ethics can issue recommendations
on the exclusion of a company from the investment universe when
there is an unacceptable risk of contributing to acts or omissions
- Serious or systematic violations of human rights…
- Grave breeches of individual rights in war or conflict
- Severe environmental degradation
- Serious corruption
- Other particularly serious violations of fundamental ethical
The risk of contributing
It seems that in this case there is a basis for
identification between Kerr-McGee Corporation and its subsidiary
Kerr-McGee du Maroc Ltd., which also seems to be confirmed in the
letter from Kerr-McGee. The Council of Ethics must determine
whether investments in Kerr-McGee can constitute an unacceptable
risk for contributing to possible violations of the Guidelines. The
point of departure for the Ethical Guidelines is that even modest
investments can constitute such contribution. It is not necessarily
only the size of the investment, but also the character of the
alleged violation of the guidelines that must be taken into
account. The share of the Petroleum Fund’s ownership in Kerr-McGee
is in any case considerable, and it seems unproblematic, in this
case, to determine that such ownership can constitute a
contribution within the meaning of the guidelines.
Legal basis for the evaluation
The company Kerr-McGee as such cannot be held
serious or systematichuman rights violations(Bullet point 1 of the Ethical Guidelines). Only states
have direct obligations according to human rights treaties.
Companies, however, can through acts or omissions, contribute to,
or profit from, human rights violations conducted by states.
One might argue that one possible
legal basis for determining a human rights violation by Morocco
could be Morocco’s alleged violation of the Sharawi peoples’ right
of self determination. In the view of the Council, however, it is
not necessary, in this case, to pursue a discussion concerning the
possible contribution by Kerr-McGee to Morocco’s alleged human
The situation in Western Sahara
could be characterised as a latent armed conflict. The cease-fire
is still under UN monitoring. The situation today between the
parties appears to constitute more of a stalemate that it has for
years. 165.000 persons, most of them women and children, have lived
in refugee camps in Algeria since the early 1990’s. It is doubtful,
however, to what extent one can blame Kerr-McGee for contributing
grave breeches of individual rights in this conflict
(Bullet point 2 of the Ethical Guidelines). The
company appears to have been involved in exploration activities
since 2001. This was 25 years after the occupation took place and
10 years after the cease-fire entered into force.
It appears that the topics
environmental damage and
corruption(Bullet points 2 and 3 of the Ethical Guidelines), have
not featured significantly in the public discussion pertaining to
Kerr-McGee’s activities in Western Sahara.
The Council on Ethics is therefore
of the opinion that the assessment of this case should be based on
whether Kerr-McGee’s activities off shore Western Sahara can be
considered to constitute other
particularly serious violations of fundamental ethical norms
(Bullet point 4 of the Ethical Guidelines).
The Assessment of the Council on Ethics
One of the premises for the Ethical Guidelines was that
the Government Petroleum Fund should not contribute to
future acts or omissions that would be deemed unethical.
travaux preparatoire for the Ethical Guidelines it was
stated that: “The aim is to determine whether the company will, in
the future, represent an unacceptable unethical risk for the
Government Petroleum Fund.”
23The Government White Paper from the Graver-Commission, NOU 2003: 22, page 35 (unofficial translation).
It seems clear that it is the
potential for future exploitation of natural resources
that constitutes the driving force behind the exploration of the
continental shelf outside Western Sahara. As mentioned earlier,
Kerr-McGee has informed the UN legal Adviser that the company has
”standard options for the relinquishment of the rights under
the contract or its continuation, including an option for future
oil contracts in the respective areas or parts thereof.”
24The aforementioned letter from the UN Legal Adviser, (S/2002/161), para 2.
In the view of the Council, however, it is not decisive to
this case whether Kerr-McGee has such options. The aim of Morocco
is clearly exploitation of natural resources in the area.
Kerr-McGee seems to contribute to this aim, irrespective of whether
the company itself has options on exploitation in its contracts
The framework of international law,
including the UN Charter and the Convention on the Law of the Sea,
lay down that economic activity which involves exploitation of
natural resources in occupied or Non-Self-Governed Territories must
be exercised in cooperation with the people inhabiting those
territories. The local population also has a right to the potential
profits of such activities. These rules have been developed through
treaty law and state practice, based on the understanding that
especially natural resources often constitute the very reason for
occupation and violent conflicts. The framework of international
law thus seeks to make it unlawful to benefit economically from
exploitation of natural resources, if such exploitation has been
based on occupation. As mentioned before, it is not entirely clear
whether Morocco’s exploration activities constitute a violation of
international law, but based on the rationale behind the general
rules of international law in this area, the Council on Ethics
finds that the economic activities off shore Western Sahara can be
considered unethical. In this connection, it should be mentioned
travaux preparatoire to the Ethical Guidelines especially
mentions the dilemma related to investments in Non-Self-Governing
Territories, occupied territories or otherwise legally undetermined
territories, and points to the activity on the continental shelf
outside Western Sahara as an example where one should show
restraint with regard to investments.
25The Government White Paper from the Graver-Commission, NOU 2003: 22, page 92 (unofficial translation).
Moreover, it seems clear that the
economic activities of Kerr-McGee off shore Western Sahara, on
behalf of Morocco, contribute to a possible strengthening of
Morocco’s sovereignty claims regarding the territory. In the
aforementioned Resolution III, pertaining to Non-Self-Governing
Territories under the UN Convention on the Law of the Sea, it is
specified that when there is a conflict concerning the rights to
natural resources in a Non-Self-Governing Territory, the parties
shall enter into consultations where
”the interests of the people of the territory concerned shall
be a fundamental consideration”. Furthermore, the States are
under obligation not to
”jeopardize or hamper the reaching of a final settlement of the
dispute.”26Resolution III, 1 (b) under the UN Convention on the Law of the Sea.
As mentioned above, Norwegian authorities have warned
Norwegian companies against entering into economic activities in
this area because such activities can be seen as support for the
Moroccan sovereignty claims and thus weaken the UN sponsored peace
process. The fact that Norwegian authorities have warned against
participation in economic activities in this area supports the
The Council on Ethics thus
recommends to the Ministry of Finance that the Government Petroleum
Fund should be excluded from Kerr-McGee Corporation on the basis of
point 4.4, bullet point 4 of the Ethical Guidelines for the
Government Petroleum Fund, which states that companies may be
excluded from the investment universe because of acts or omissions
which may be considered to constitute an unacceptable risk for
contributing to other
particularly serious violations of fundamental ethical
KerrMc-Gee has commented on the
draft recommendation from the Council in a letter dated 5 April.
The letter did not contain arguments or facts that alter the