ABSTRACT

Multinational energy contracts are often associated with not just pure economic risks but political
and social risks such as, civil unrest, changes in legislation, and administrative setup amongst
others. Apprehensive of these risks, several types of contractual protective clauses are
incorporated in oil and gas investment agreement ranging from stabilization clauses to
renegotiation clauses. Stabilization clause is a specific commitment by a host country not to alter
the terms of the contract by legislative, administrative or any other means without the mutual
consent of the parties. It restricts the power or management of the government authority to
change the exiting tax laws or introduce new laws or policies which affects the rights or
obligation of the investor. In reality, stabilization clauses cannot stand the pressure of the
dynamic market conditions, the ever-changing fiscal policies of countries, the principles of
permanent sovereignty of States over their natural resources and political instability of countries.
In response to these apparent weaknesses of stabilization clauses, recourse was had to
renegotiation clause which is a provision in a contract that upon the happening of certain event(s)
parties should return to the bargaining table and renegotiate the terms of their agreement. It tries
to protect the interest of both parties by striking a balance between the investor and the host
government-leaving the States sovereignty intact and at the same time protecting the investor
against change in law governing the contract. Experience has shown that renegotiation clause has
a number of drawbacks .Firstly, such clauses if not properly worded may reduce contract
stability. Secondly, it may raise the overall cost of the transaction. Thirdly, a breach entitles the
investor to damages only. Fourthly, if the event which triggered the renegotiation is within the
control of the host state, it could be used unfairly to alter the agreement .In the light of the
jurisprudential enigma highlighted above, the legal poser is: whether to unbundle or merge
stabilization clauses with renegotiation clause to achieve stability in multinational energy
contracts? This long essay argues that there should be a merger of the two clauses to produce an
enhanced renegotiation process that will guarantee stability of the contract and at the same time
ensure renegotiation of the terms of the contract in deserving circumstances. It equally argues
that the appropriate remedy for a breach of renegotiation clause is not only compensation by way
of damages but includes specific performance of the terms of the clause. It recommends that
renegotiation clauses should be properly and carefully worded to capture the purpose and
essence of its inclusion-stability and the need to adapt to changes. The methodology adopted by
this writer in achieving the objectives of this essay is analytical and expository. The essay
analyses the efficacy, effectiveness and enforceability of stabilization clauses and renegotiation
clauses in energy contracts; and consequently exposes the strengths and weaknesses of each
clause with the view of making achievable and practical recommendations to ensure the stability
of oil and gas contracts.
TABLE OF CONTENTS

Title Pagei

Acknowledgements.ii

Dedication.iii

Table of Contentsiv

Table of Cases.v

Table of Statutes.vi

Abbreviations.vii

Abstractviii

CHAPTER ONE: GENERAL INTRODUCTION

1.1 Background to the Study

1.2 Statement of the Problem

1.3 Research Methodology

1.4 Objective of the Study

1.5 Research Questions

1.6 Literature Review

1.7 Scope of the Study

CHAPTER TWO: STABILIZATION CLAUSES IN ENERGY CONTRACTS.

2.1 Introduction
2.2 Meaning and Nature of Stabilization Clauses

2.3 The Historical Evolution of Stabilization Clauses

2.4 The Rationale for the Inclusion of Stabilization Clauses

2.5 Types of Stabilization Clauses

2.6 The Pitfalls of Stabilization Clauses

2.7 Conclusion

CHAPTER THREE: STABILIZATION CLAUSES AND THE PRINCIPLES OF SOVEREIGNTY OF

STATES OVER THEIR NATURAL RESOURCES.

3.1 Introduction

3.2 Meaning and Nature of Sovereignty of States

3.3 The Origin of State Sovereignty over its Natural Resources

3.4 The Effects of the Principle of Permanent Sovereignty of State over Its Natural Resources on

Stabilization Clauses

3.5 Stabilisation Clauses from the Domestic Law Perspective

3.6 Stabilisation Clauses from the International Law Perspective.

3.7 Conclusion.
CHAPTER FOUR: THE MERGER OF STABILIZATION CLAUSE WITH RENEGOTIATION

CLAUSE AS AN ANTIDOTE TO CONTRACTUAL INSTABILITY.

4.1 Introduction

4.2 Meaning and Nature of Renegotiation Clauses

4.3 Types of Renegotiation Clauses

4.4The Procedure for Renegotiation

4.5 Benefits of Renegotiation Clause

4.6 Drawbacks of Renegotiation clauses

4.7 The Merger of Stabilisation Clause with Renegotiation Clause

4.8 The Inadequacy of Compensation as the Only Remedy for breach of Renegotiation Clauses

4.9 Specific Performance as the Adequate Remedy for Breach of Renegotiation Clauses.

4.10 Conclusion.

CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.1 Summary of Findings

5.2 General Conclusion

5.3 Recommendations

BIBLIOGRAGHY