Africa has the world’s lowest use per capita of modern energy. As its population and incomes grow, demand for modern energy continues to expand. Africa is a continent with huge reserves of oil and gas, with a large capacity for green energy, but more than 600 million people do not have access to electricity. The need for infrastructure buildings and projects are higher than in any other region in the world, and therefore the energy and infrastructure sectors are of paramount importance given their key role for economic and social growth. Another key factor for the continent is the global energy transition. According to the African Development Bank, the continent needs to allocate USD 130-170 bn annually to bridge its infrastructure deficit too.

This need to attract investments for setting up adequate infrastructure has led many African countries to sign Bilateral Investment Treaties or Multilateral Investment treaties. In return, the surge of energy and infrastructure projects, combined with the challenges deriving from the energy transition have led to a wide range of potential disputes both under contractual instruments (such as concession agreements) and investment treaties. 

The following statistics confirm this reality:

• The ICC International Court of Arbitration’s 2022 statistics show that construction and energy disputes accounted for 45% of registered cases for this period. 
• The 2023 International Centre for Settlement of Investment Disputes’(ICSID) Caseload Statistics, published in February 2024, reveals an increase in disputes between foreign investors and sovereign states in the mining, energy/electricity, and construction (infrastructure) sectors. 12% of the cases registered involved Sub-Saharan Africa. Oil, gas, electricity (and other energy), and mining disputes accounted for 35% of all newly registered disputes, with construction and transportation disputes accounting for 18% each.
• In a survey published by Queen Mary University of London in January 2023, 27% of respondents selected Africa amongst the regions with the greatest increase in energy-related disputes. 

Several factors may explain this trend:

• Most of the energy and infrastructure projects involving a state or its entity and an investor will have on average a 30-year life cycle.
• Potential instability can arise given many new circumstances can occur over a long period of time, including force majeure, and similar other factors, which can affect the rights and obligations of each of the parties.
• The stabilization clauses crafted in most energy and infrastructure investment contracts will often reduce the margin of sovereign states to amend their legislation. This can affect an investment contract or treaty, even though such amendments are sometimes imposed by public policies or interests.

Arbitration’s role in resolving these disputes

Infrastructure and energy disputes need to be dealt with swiftly, especially as access to energy and adequate infrastructures are necessary for Africa to sustain its growth. For the quick and efficient resolution of disputes in such strategic and vital sectors, it is important to always look for the most appropriate mechanism. 

Many African countries have taken this into account, with investment treaties they have signed referring to investment arbitration as the mechanism of dispute resolution. The same trend is observed in contracts where states or their entities are not involved.

Aside from the investment treaties they have signed, most of these states have also provided under their domestic laws (Investment codes, Petroleum, Electricity Acts, etc.) explicit provisions dealing with dispute resolution in relation to energy and infrastructure projects. The Senegalese Petroleum Act for instance provides for two dispute resolutions mechanisms: arbitration and the domestic courts. The Ivory Coast Investment Code refers also to Arbitration as the primary dispute resolution mechanism. In some states, like South Africa, investment arbitration was not elected as the primary mechanism for dispute resolution related to investment. These states referred to negotiation, and in a last resort to domestic courts.

It is however worth mentioning that many African countries are parties to Regional Economic Communities (SADC, ECOWAS, COMESA – just a handful of examples). These RECS are increasingly moving away from the classic investment arbitration system by giving more preeminence to state courts or regional economic courts for any dispute involving a state or its entity to an investor. This includes energy and infrastructure disputes. For example, the Southern African Development Community (SADC) through its Finance and Investment Protocol has limited the use of the Investor-state dispute settlement mechanism (ISDS), requiring that disputes be resolved in local courts and tribunals. The Common Market for Eastern and Southern Africa’s (COMESA) Common Investment Agreement provides for arbitration under ISDS to be brought to the COMESA Court of Justice. As to the Economic Community of West African States (ECOWAS) Common Investment Code, it mirrors the Pan African Investment Code by encouraging investors and states to utilize African regional and national alternative dispute settlement mechanisms.

The potential growth of mediation

It is also relevant to mention that although mediation is deeply rooted in the resolution of Africa’s traditional disputes, this mechanism is yet to be fully utilised in energy disputes arising in the continent. Very few African states have to date signed the UNCITRAL’s Singapore Convention on mediation.

However, the dissatisfaction of many African states with the ISDS, the recent adoption of a new OHADA Act on mediation, and the global trend acknowledging mediation as a new strong alternative dispute resolution mechanism may help this system grow in the continent. 

Effective dispute resolution for energy and infrastructure projects

As energy and infrastructure projects grow to fulfil Africa’s energy need, demand has increased for effective dispute resolution options, to ensure these projects stay on track.

The African continent is one of the fastest growing economies in the world, with huge international business potential too. Arbitration offers quick resolution, transparency, confidentiality, impartiality, which can support strong long-term relationships and ongoing peace and prosperity throughout these decades-long projects. All in all, this dispute resolution mechanism could play a key role in facilitating greater access to the energy and adequate infrastructures necessary for Africa.

*The original article can be found on the Africa Business website here.