Stabilization Clauses Research Articles

К вопросу применения термина «стабилизационная оговорка»: ретроспективный анализ

The article is devoted to the study of the stabilization clause as a phenomenal legal phenomenon. The dynamic development of legislation indicates the relevance of studying such a term as a "stabilization clause". This relevance is understandable, since the stabilization clause contributes to the mitigation of current legislation and the development of effective integration processes. The role and significance of this phenomenon are considered, the author's interpretation of the concept is given, a new term "temporary legal exemptions" is proposed.

Exploring Modalities Best Suited for Public Private Partnership Concession Agreements in the Education Sector of Zambia

The Zambian public sector has been known to face several challenges in the provision of infrastructure among others education infrastructure. Thus, the introduction of Public Private Partnerships (PPPs). In as much as the education sector of Zambia can benefit tremendously from the PPP initiative, poorly designed PPP concession agreements risk worsening existing educational sector challenges. The objectives of the paper were to establish the extent of application of PPPs in the Zambian education sector, identify the challenges surrounding concession agreements in PPPs in Zambia, and suggest the right modalities that could be applied to PPP concession agreements in the Zambian education sector. Both secondary and primary data was collected to establish that no private sector entity has had or is currently engaged in an ongoing concession with the Government in the procurement of infrastructure for schools. Challenges surrounding concession agreements in PPPs included contract misspecifications, lack of contractual flexibility, opportunistic behaviour by either party, and shielded concession agreement creation and process. In view of the foregoing, right modalities that could be applied to PPP concession agreements in the Zambian education sector include proper risk allocation, adequate concession period, clear allocation of roles and responsibilities, and inclusion of stabilization clauses.

Article: Resolving Conflicts Between Production Sharing Contracts and Tax Treaties in Indonesia

This article discusses the uncertain dispute settlement for a conflict resulting from applying a reduced rate stipulated in a tax treaty or a domestic withholding tax rate agreed to in a production sharing contract (PSC) on branch profit tax (BPT) in Indonesia. The contractor, the permanent establishment of a non-resident entity in Indonesia, interpreted that a reduced rate shall apply whereas the Indonesian tax authority adhered to applying the prevailing domestic withholding tax rate at the time that the PSC was signed. The ambiguousness between the tax treaty and the PSC led the disputed entity to choose litigation as the primary alternative of dispute settlement even though the tax treaty facilitates resolving the problem through a mutual agreement procedure (MAP) or another possible dispute resolution. Further, Indonesian civil law does not implement the jurisprudence. The dispute will continue if renegotiation is not reached. To reduce the chance of a potential dispute in the future, a stabilization clause to accommodate the change of the regulation during the period of the contract has been included, however, it only applies to the latest version of the PSC. Tax treaty, production sharing contract, branch profit tax

Prescriptive Pricing and Stabilisation Clauses in Investment Agreements

‘Prescriptive’ pricing methods, which employ reference prices and fixed margins for tax purposes, have gained prominence as a pragmatic approach to combatting commodity trade mispricing and tax evasion, especially for countries with limited tax administration capabilities. While these methods hold promise for facilitating enforcement, reducing administrative burdens, and curtailing abusive tax avoidance practices, concerns have arisen about their potential deviation from established international rules and principles. The perceived risk of legal liabilities and investor claims, including ‘unfair treatment’ under investment treaties, acts as a significant uncertainty factor in the adoption of such methods. Thus, the present chapter addresses the legal aspects of ‘prescriptive’ pricing methods within the parameters of international investment law, offering a multifaceted perspective on challenges involving the scope of defence arguments that states can mobilise under international investment law to justify such methods and exploring the right and duty of states to regulate corporate conduct and economic activities under human rights law, as well as the practical limitations to this approach in present lawmaking practices.

Возможности адаптации России к новым условиям глобального развития в период поликризиса мировой экономики

The subject of the study is the state of the global economy, determined by a set of negative trends caused by the coronavirus pandemic; the conduct of a special military operation in Ukraine and the related energy crisis; the military conflict in the Middle East in the Gaza Strip; rising inflation; an increase in the debt burden; the effects of climate change. The purpose of the work is to determine the possibilities of Russia to adapt to the new conditions of global development of the world economy. It is shown that the coming decade will be unique in terms of uncertainty and turbulence, or a "decade of polycrisis" due to the simultaneous intersection of different risk categories. It is proved that the stability of the Russian economy should be ensured by regionalization and reorientation to other world markets in spite of sanctions pressure; Russia's participation in the formation of a broad Eurasian partnership based on the principles of equal and mutually beneficial cooperation; the development of the Northern Sea Route, which will make it possible to ensure communication with logistics hubs in the south of Eurasia. The global risks of the world economy on the horizon of two and ten years have been identified according to their degree of importance. The food price index compiled by the Food and Agriculture Organization of the United Nations is considered. The method of reducing the investment imbalance in Russia through the wider application of the stabilization clause is substantiated. Conclusions are drawn about the need to build Russia's state policy in the field of international cooperation without value-political pressure on partner countries.

Stabilization Clause, Unilateral Variation of Terms and the Petroleum International Agreement

The objective of this study is to highlight the multiplicity of scenarios regarding issues of stability and underscore certain stability stipulations in the contemporaneous application, and certain developments, which gives a great cause for concern to parties to Petroleum International Agreements (PIAs) Amongst which are the recurrent problem of the impossibility of performance occasioned by supervening circumstances and disequilibria in relationships occasioned by events, which render the possibility of performance onerous. The study found that pacta sunt servanda cannot apply in absolute terms when ranged against the consideration of sovereignty of the state party over the natural resources in situ within its territorial sovereignty. It concluded that it is inconceivable to have immutable PIAs whose terms are frozen in time and or incorporate stabilization clauses that are contrived to freeze the HC’s laws; or remove the PIA from the purview of the municipal law of the HC.

Оценка реального ущерба, понесенного участниками соглашения о защите и поощрении капиталовложений

The subject of the study is the financial responsibility of a public legal entity to an organization implementing an investment project, which are parties to an agreement on the protection and promotion of investments, in case of violation of the stabilization clause. The purpose of the work is to develop methodological approaches to determining the real damage (including justification and calculation formulas) arising from various deteriorating conditions of the organization implementing the project. Conclusions are drawn that the real damage to the organization implementing the project, in case of violation of the stabilization clause, is to recover the costs of restoring the violated right. Such expenses are the difference between the actual and estimated purchase price of goods (works, services); the difference in the cost of payment for procedures, as well as the payment of sanctions to third parties for violating the terms of concluded contracts (in case of an increase in the time and number of procedures, the establishment of additional requirements and prohibitions to the conditions of implementation of the investment project); an increase in the amount of payments (as a result of an increase in the rate of export customs duties, the sale price and the amount of rent for land plots owned by the state and municipal property); fees for negative environmental impact and use of water bodies; additional costs (incurred in connection with the change of the basis for obtaining the rights of the organization implementing the project to land plots that are in state or municipal ownership, as well as reducing / limiting the scope of rights of land owners /land users /landowners /tenants of land plots and changing the timing and scope of state support measures).

The influence of institutional factors on the flows of foreign direct investment (on the example of the stabilization clause)

The influence of institutional factors on the flows of foreign direct investment (on the example of the stabilization clause)

How China lends: a rare look into 100 debt contracts with foreign governments

Abstract China is the world’s largest official creditor, but we lack basic facts about the terms and conditions of its lending. Very few contracts between Chinese lenders and their government borrowers have ever been published or studied. This paper is the first systematic analysis of the legal terms of China’s foreign lending. We collect and analyse 100 contracts between Chinese state-owned entities and government borrowers in 24 developing countries in Africa, Asia, Eastern Europe, Latin America and Oceania, and compare them with those of other bilateral, multilateral and commercial creditors. Three main insights emerge. First, the Chinese contracts contain unusual confidentiality clauses that bar borrowers from revealing the terms or even the existence of the debt. Second, Chinese lenders seek advantage over other creditors, using collateral arrangements such as lender-controlled revenue accounts and promises to keep the debt out of collective restructuring (‘no Paris Club’ clauses). Third, cancellation, acceleration and stabilization clauses in Chinese contracts potentially allow the lenders to influence debtors’ domestic and foreign policies. Even if these terms were unenforceable in court, the mix of confidentiality, seniority and policy influence could limit the sovereign debtor’s crisis management options and complicate debt renegotiation. Overall, the contracts use creative design to manage credit risks and overcome enforcement hurdles, presenting China as a muscular and commercially savvy lender to the developing world.

Implementation of investment projects under investment protection and promotion agreements: Financial issues

Subject. The article addresses financial relations arising from the implementation of Federal Law On Protection and Promotion of Investments in the Russian Federation (FZ-69), as amended. Objectives. The purpose is to identify subjects and objects of financial relations, as well as financial instruments affecting the feasibility of proposed measures of State support to investors during implementation of Investment Protection and Promotion Agreement (IPPA). Methods. We employed general scientific methods of cognition (analysis, generalization, description) and the systems approach to unveil financial and economic relationships between all participants in the process, i.e. Project Implementation Unit (PIU), its counterparties, Public Law Entity (PLE), regulated organizations, and other entities. Results. We determined subjects and objects of financial relationships arising from the IPPA implementation, systematized financial instruments and considered the specifics of their application during the IPPA implementation, identified financial effects from using a stabilization clause and legislation on taxes and fees, examined the impact of amendments to the said law. Conclusions. The findings can be used by subjects of financial relations (in particular, the PIU, creditors, regulated organizations, the PLE) to justify the IPPA feasibility. The proposed recommendations (on discounting the reimbursable costs for creation of related infrastructure facilities, on real damage caused to PIU and losses of PLE, etc.) can be taken into account when making subsequent changes to the current legislation on investment protection and promotion.

‘The Stabilization Clause of The Baku-Tbilisi-Ceyhan Pipeline Agreements: A Legal Review

International investment contracts usually involve stabilization clauses that are prevalently used in infrastructure, telecommunication, and energy sectors, especially in the oil and gas extraction industries. In the petroleum industry, foreign investors providing advanced technology and substantial financial capital for oil development often face political risks in developing countries such as expropriation of pipeline investments, increased taxes, and other fees for projects throughout the contractual performance. These stabilization provisions disincentive host states from enacting new laws or enhancing their laws and regulations on environmental, public health, labor, and human rights standards. The stabilization clause of the Baku-Tbilisi-Ceyhan (BTC) Pipeline Agreement was criticized as a great obstacle to Turkey’s regulatory ability to enhance environmental, health, labor, and human rights standards. Indeed, the BTC’s stabilization clause neutralizes Turkey’s laws and regulations for forty years. This paper proposes some important legal tools to alleviate these concerns over stabilization clauses in pipeline investment contracts.

Стабилизационная оговорка как правовое средство и прием юридической техники

The article examines the stabilization clause – its essence and significance for the stability of legislation, reform and extension to legislative branches and institutions. It is concluded that the stabilization clause is both a legal means and a method of legal technique, with the help of which a person is provided with guarantees of non-application of unfavorable changes in national legislation to him. It is indicated that the stabilization clauses in Russia today apply to a fairly wide range of regulations, but it is believed that it is possible to expand their range to norms providing for legal liability. The stabilization clause is not directly related to the stability of legislation, but it can influence it in various forms, as well as compensate for the instability of legislation.

What is the Problem with Stabilization Clauses in Petroleum Agreements?

International Oil Companies (IOCs) continue to invest in countries which do not have stabilization clauses. Why is this so? What is the essence of these clauses? One of the curiosities of stabilization clauses in petroleum agreements, is that most developed countries will not offer them to investors. So, why do developing countries with stable political, fiscal and regulatory climate offer them? Additionally, history shows that these stabilization clauses have not deterred host governments from expropriating petroleum investments. While governments may be able to make commitments of their own, as a matter of national sovereignty they may not be able to bind the legislative competence of the State into the future. These concerns are the main driver behind this article, which is influenced by the various questions asked by policymakers in the Global South on the importance of stabilization clauses for the sustainable development and management of natural resources.
 Keywords: Stabilization; sustainable development; natural resources; oil and gas

The Legislative Stabilization Clause

The Legislative Stabilization Clause

Arrested ambition? Foreign investor protections, stabilization clauses and fossil‐fuelled power generation in developing countries

AbstractStates introducing measures to transition away from fossil‐fuelled power generation might be obliged, under international investment treaty provisions, to compensate affected foreign investors in that sector. Treaty‐based investor protections may be augmented by broad entitlements in ‘stabilization clauses’ in project contracts between host States and foreign investors in the sector. This article explores the extent and scope of such clauses with regard to host developing countries, as well as the capacity of the clauses to hold back the transition by these countries. Much literature has focused on the exposure of fossil fuel‐rich developing countries to investor claims for compensation. This article concentrates on the arresting effect of investor protections on the ambition of fossil fuel import‐dependent developing countries to make a robust transition. Information is required urgently about the exposure of these countries to compensation claims, particularly under stabilization clauses, by foreign investors in the fossil‐fuelled power generation sector.

Permanent Sovereignty over Natural Resources and Contract Stability in Transnational Petroleum Investment Contracts

This paper makes a critical analysis of the principle of permanent sovereignty over natural resources and contract stability as applicable to transnational petroleum investment contracts. It considers the extent to which these concepts affect foreign direct investment in the petroleum industry. This work further demystifies the theory of contract stability as a panacea to the tense environment contrived by the principle of permanent sovereignty over natural resources. The doctrine of pacta sunt servanda as applicable to stabilization clauses is considered towards explicating how it procures stability in oil investment contracts. In this wise, other like devices like renegotiation, clausula rebus sic stantibus, etc are not left out, particularly as they introduce some element of flexibility and attenuate the hardships that might arise due to strict insistence on the application of principle of pacta sunt servanda to the dynamics of the petroleum industry. This work adopts the synthesis and analysis as well as the comparative methodology in reviewing the relevant materials consulted in the course of this work. It argues that parties to transnational petroleum contracts should pursue stability in such agreements through the employment of such devices that ensure flexibility within the context of a dynamic petroleum industry. Keywords: Permanent Sovereignty, Contract Stability, Petroleum Investment Contract, Stabilization Clauses DOI: 10.7176/JLPG/111-09 Publication date: July 31 st 2021

ПРАВОВАЯ ОЦЕНКА ФЕДЕРАЛЬНОГО ЗАКОНА "О ЗАЩИТЕ И ПООЩРЕНИИ КАПИТАЛОВЛОЖЕНИЙ В РОССИЙСКОЙ ФЕДЕРАЦИИ"

The growing issue of attracting private investment in the Russian economy from year to year gave rise to the development of new measures of support from the state in relation to organizations implementing an investment project, which also form the most favorable investment climate in the country. Such preferences, which consist in a stabilization clause, are contained in the new Federal Law No. 69-FZ of 01.04.2020 “On Protection and Promotion of Capital Investments in the Russian Federation”. However, based on the conducted research, it is concluded that there are a number of legal imperfections, which are expressed in a number of conditions, non-compliance with which entails the inadmissibility of concluding an agreement on the protection and promotion of investment between a private and public person. At the same time, those provisions are so unattainable, infringing and limiting that the question of the expediency of the analyzed investment law will be justified. That is why proposals were made to adjust the rules, which would allow widening the range of persons entitled to state support and thereby attract their capital as an investment in the Russian economy – that is, to achieve the goals originally set.

How China Lends: A Rare Look into 100 Debt Contracts with Foreign Governments

China is the world’s largest official creditor, but basic facts are lacking about the terms and conditions of its lending. Very few contracts between Chinese lenders and their government borrowers have ever been published or studied. This paper is the first systematic analysis of the legal terms of China’s foreign lending. The authors collect and analyze 100 contracts between Chinese state-owned entities and government borrowers in 24 developing countries in Africa, Asia, Eastern Europe, Latin America, and Oceania, and compare them with those of other bilateral, multilateral, and commercial creditors. Three main insights emerge. First, the Chinese contracts contain unusual confidentiality clauses that bar borrowers from revealing the terms or even the existence of the debt. Second, Chinese lenders seek advantage over other creditors, using collateral arrangements such as lender-controlled revenue accounts and promises to keep the debt out of collective restructuring (“no Paris Club” clauses). Third, cancellation, acceleration, and stabilization clauses in Chinese contracts potentially allow the lenders to influence debtors’ domestic and foreign policies. Even if these terms were unenforceable in court, the mix of confidentiality, seniority, and policy influence could limit the sovereign debtor’s crisis management options and complicate debt renegotiation. Overall, the contracts use creative design to manage credit risks and overcome enforcement hurdles, presenting China as a muscular and commercially savvy lender to the developing world.

Tax Law Mechanisms of State Support for Entrepreneurship under Modern Conditions

Encouragement of domestic investments into the real sector of the Russian economy is a pressing task of state administration at the current stage. As part of the measures of state support the author names tax preferences, including tax incentives both in their economic manifestation and in their legal implementation. Residents of special economic zones and other territories with special status, as well as participants of regional investment projects have the right to use reduced corporate income tax accompanied with a whole system of prohibitive conditions and restrictions. The assessment of the set of conditions and restrictions applied for various economic entities allows to question the real attractiveness of the status of a resident or participant of such a significant activity for the State as the investment activity. Lack of confidence in the rigidity of business conditions, including tax conditions, is a factor that affects adversely the attractiveness of investment activities. The significance of this factor is evidenced by the adoption of Federal Law № 69-FZ dated April 01, 2020, “On Investment Protection and Promotion in the Russian Federation” that provides for a stabilization clause covering tax regulation. The Federal Law has been widely discussed among business people at the stage of a draft. However, the new Law does not solve many problems: the conclusion of an agreement with a stabilization clause will be available to far from every economic entity, real and potential residents of territories with special status or participants in regional investment projects.

The Law Applicable to Petrolume Contract

As the oil industry is the largest industry in the world, and with the oil contract as the object of these activities, it is imperative to discern some of the issues surrounding it. Producing countries intend to maximize profits from the exploitation of their natural wealth, while consuming countries want to guarantee supply at the lowest possible price. It is important to understand the focus of conflicts in this sector. These are linked, on the one hand, to the need for oil, the decrease in new reserves and the increase in its exploitation. On the other hand, we have the political instability of the producing countries, the disrespect for the environment and social rights of the population on the producing States. This contract has the State and the investor as protagonists. They are often concluded under the aegis of bilateral or multilateral investment agreements between the producer country and the investor's country of origin. Since they are strategic natural resources, the producing State seeks to safeguard the interests of its population. Thus, it is common to include special clauses, maxime stabilization clauses and arbitration clauses. In its regulation, whether in the negotiation or conclusion stages of the contract or even in the dispute resolution phase, an appeal to International Commercial Law is required, covering both UNIDROIT principles and Lex mercatoria, configured here in Lex Petrolia.