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Oil Gas Research Paper
Oil Gas Research Paper
JOSEPH OBLA
1001810
INTRODUCTION
great substantial value and for a long period of time but that the
presence of the state party in the contract poses a risk of unilateral
alteration of the states legislation as a result of these sovereign
powers which may affect the investors adversely.
The fact that the protection offered by contract law is usually less
than that offered by the stabilization clauses together with the
intentions of the foreign investor not being to place itself in a less
position than that enjoyed by nationals of the host state is an
additional reason the inclusion if these clauses have become
important during the negotiation of oil contracts. 11 Stabilisation
clauses play different roles in protecting foreign investments, which
are listed as follows;
Creates a stable international legal framework to facilitate and
protect foreign investments by guaranteeing substantive
standards of treatment to be accorded to investors.
Protection from unlawful expropriation and provision for
compensation to investors where the criteria sufficient for
expropriation has been met.
Promotion of economic relations between host states and
investors.
Protection from potential threat of exercise of the host state of
its sovereign powers .
Protection from nationalization .
Umbrella Clauses;
Such a clause has the effect of creating an international obligation
from a contractual obligation between a state and an investor. C.
Schreuer states these clauses are included in BITs to provide
protection which is beyond the traditional international standards
as it is broad and could provide for several obligations host states
will be required will be required to fulfill in accordance with
international law. An example of an umbrella clause could be found
in the Energy Charter Treaty,27 which provides Each contracting
party shall observe any obligations it has entered into with an
investor of any other contracting party. These clauses change the
position of a states contractual obligation into one under
international law making a breach of contractual provisions a breach
of international law but will not apply where the courts do not have
jurisdiction which will be clear from the claims arising from the
contract and treaty provisions .28The UNCTAD 2004, describes this
clause as one so broad it covers not only contractual obligations but
also may cover explicit, implied and non contractual obligations but,
T. Walde adds that umbrella clauses make it possible to freeze the
powers of the host state to make any unilateral alterations to the
regulatory and legislative framework of the state and that these
clauses will only protect investors against breaches which are
subject to government powers and the government has exercised its
powers to either escape or interfere with commitments between the
host state and the investor.29 The case of SGS v Pakistan,30 the
26 Case No. ARB(AF)/00/2.
27 Art. 10 (1)
28 Jean-Marc Loncle, D. Philibert- Pollez, Stabilization Clauses in
Investment Contracts (International Business Law Journal 2009) 267.
29 ibid
30 Case No. ARB/01/13.
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CONCLUSION
It has been seen in this paper through illustrations from provisions
of investment treaties and outcomes of disputes that have arisen as
a result stabilisation clauses in host state agreements and the roles
these clauses play in ensuring investment stability in upstream
petroleum exploitation. These provisions and cases have shown
that stabilisation clauses offer investors a higher level of protection
than that offered by host states and imposes further international
obligations preventing them from unlawful nationalization and
expropriation which are some of the risks foreign investors are
exposed to and may discourage investments. As the host states try
to encourage foreign investments these clauses are included in
contracts in order to guarantee security of investments, which
represents a valuable bargaining chip for the investors. The
stabilisation clause to a large extent offers effective investment
stability but it cannot completely stabilise state agreements as not
all future events can be envisaged at the time contracts are
39 Tade Oyewunmi, Stabilization And Renegotiation Clauses In
Production Sharing Contracts: Examining Thee Problems And Key
Issues. (International Energy Law Review, 2011) 276.
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BIBLOGRAPHY
1. Bertrand Montembault, The stabilization of state contracts
using the example of oil contracts. A return of the Gods of
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2. Bede Nwete, To What Extent Can Negotiation Clause Achieve
Stability and Flexibility In Petroleum Development Contracts?
(International Energy Law & Taxation Review, 2006).
3. ICSID Convention, Regulations and Rules.
4. Jean-Marc Loncle, D. Philibert- Pollez, Stabilization Clauses in
Investment Contracts (International Business Law Journal
2009).
5. Jessica G, Nicola L, Energy and investment Security:
Protection under International Law ( International Energy Law
Review 2013).
6. NAFTA Free Trade Commission, 2001..
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8. Tade Oyewunmi, Stabilization And Renegotiation Clauses In
Production Sharing Contracts: Examining Thee Problems And
Key Issues. (International Energy Law Review, 2011).
9.
The
Upstream
Petroleum
Sector.
http:www.pc.gov.au/data/assets/
pdf_file/0007/87982/05/chapter2 >
10.
UNCTAD, State Contracts, UN 2004.
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