Mitigating political risks for transnational energy projects through contractual mechanisms

• Main Author: Erkan, Mustafa
• Published: University of Exeter 2009
• Subjects: 340
• Online Access: http://ethos.bl.uk/OrderDetails.do?uin=uk.bl.ethos.496772

This thesis focuses on political risks, particularly the risk of expropriation, and examines specific contract clauses to evaluate the extent to which they play a role in mitigating the political risks in transnational energy projects. International energy investors face a number of political risks during the life span of energy projects. The management of these risks through contract clauses, analysed primarily from a legal and an empirical perspective, is the focus of this thesis. The research was based on a review of the existing literature and a questionnaire-based survey circulated to the main players in the petroleum sector: International Oil Companies, National Oil Companies, Lawyers, Arbitrators, Academics and Research Institutions. Chapter II deals with political risks in international energy investments. First, political risk is defined and categorised and then the susceptibility of transnational energy projects to political risks is examined. Chapter III begins by examining the concept of expropriation, followed by the legal requirements for lawful expropriation. Then it explains why indirect expropriation is a long-term and difficult issue for the energy industry. The chapter also addresses the question of how to distinguish between legitimate non-compensable regulation and indirect expropriation. The chapter concludes by looking briefly at contractual clauses used by international energy investors to manage political risk. Part Two takes a closer look at specific contractual clauses in light of political risk management and analyses the results of the empirical survey. Chapter IV examines the validity and effectiveness of traditional stabilisation clauses. Chapter V considers renegotiation clauses and their effectiveness to mitigate political risk as an alternative to stabilisation clauses. Chapter VI deals with equilibrium clauses as a modern practice. Chapter VII examines choice of law and alternative dispute resolution clauses in connection with the management of political risks.