Cameron - Stability Based on Contract

full all chapter5 chapter6 chapter7 chapter8 chapter9

chapter4 chapter5 chapter6 chapter7 chapter8 chapter9

Transparency and Accountability

Policy, Legal and Contractual Framework

Sector Organization and Institutions

Fiscal Design and Administration

Revenue Management and Distribution

Sustainable Development

Cameron, P. D., Stability Based on Contract (chapter 2), in International Energy Investment Law: The Pursuit of Stability, (Oxford, UK: Oxford University Press, 2010)

Cameron notes that investment in energy is characterized by political risk as the host government has the right - in the light of international law - to take a unilateral action that may affect an investment. The principal means by which this political risk is mitigated is through stabilization and construed as all mechanisms, contractual or otherwise, which aim to preserve over the life of the contract the benefit of specific economic and legal conditions which the parties considered appropriate at the time they entered into the contract.

The author identifies four types of stabilization clauses: (1) freezing clause,  intended to prohibit the host state from changing its law or to prevent the host state from applying changes in the host state’s law made after the effective date of the contract to the specific investment contract; (2) prohibition on unilateral changes, which freezes the contract rather than the law, in so far as it prohibits unilateral changes to the investment agreement and requires the consent of both parties before any changes may be made; (3)  rebalancing of benefits clause, intended to restore the economic equilibrium provided by the original bargaining should the host state adopt an adverse measure subsequent to the conclusion of the contract; (4) allocation of burden,  shifts the burden of change in the fiscal regime to the national oil company in the event of any changes in the legal framework that are applicable to the investment contract.

The author concludes that none of the main forms of stabilization mechanisms in international energy agreements will prevent a determined government from taking a unilateral action. Thus, what should be sought in designing the stabilization mechanism is ensuring appropriate compensation should the host state take a unilateral action.

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