Contractual stabilization in international petroleum Agreements: What is its validity and function? (original) (raw)
In international petroleum industry, the investments are long term and capital intensive. This situation shows the vulnerability of investors when the host government unilaterally alters, changes or modifies some provisions during the life of the contract. These types of future policy lapses may put the terms of investment agreements at risk. Therefore, investors often seek contractual guarantee as a way of stability and mitigating risk in the long term contractual agreement. The requirement of addressing these types of fears thus led to the introduction of stability provisions in the international petroleum agreements. These provisions help in maintaining the agreements’ stability upon which the parties agreed initially. They particularly help the financial part of these agreements because they are the main hub of these provisions. The government provides a contractual assurance through these provisions that it would not get engaged in acts which will compromise the initially agreed upon terms. This paper will examine the validity and functions through these provisions. It would find out whether the goals that are set will be accomplished in an effective manner or not. As there are several dynamic factors that are faced by the petroleum sector, the stabilization clauses may not essentially be a solution to the investors’ fears.
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