The energy industry is a key source of growth stimulation for developing states. Understandably, developing states are eager to enter into petroleum investment contracts with international investors, with the expectation that this will benefit their countries. The domestic law of some developing states provides a welcoming investment environment in the form of guarantees and stability, while other states provide these opportunities by agreeing to investment contracts or treaties drafted by international organisations established to facilitate such agreements.
This book identifies the political risks, particularly of indirect expropriation, that arise from the unilateral actions of host governments during the lifespan of energy investment projects. Focusing on stabilisation clauses as a political risk management tool, this research-based study draws on comparative empirical evidence from Turkey and Azerbaijan to determine what influences host states to consent to the insertion of stabilisation clauses in long-term host government agreements. Proposing a framework for the role to be played by both internal forces and external forces, it examines political regimes and state guarantees to foreign investors in Azerbaijan and Turkey from a comparative perspective, assessing how effective internal factors in Azerbaijan and Turkey are in facilitating contractual stability in their energy investment projects.
Providing a comprehensive analysis of stabilisation clauses and the internal and external factors that compel host states to commit to them, this book will appeal to practitioners, students and scholars in international investment law and energy law.
Table of Contents
List of abbreviations
Political risks in the energy sector
1 Introduction and framework of the research
Expropriation or nationalisation?
Why are stabilisation clauses a controversial issue?
Host government agreements
Objectives and scope of the research
The gap in conventional literature
Overview of Azerbaijan and Turkey
Baku–Tbilisi–Ceyhan crude oil pipeline project: timeline, importance and issues
Structure of the book
2 Indirect expropriation
Distinguishing between direct and indirect expropriation
The types of host state measures that may constitute indirect expropriation
Criteria for the distinction between legitimate regulation (noncompensable regulation) and indirect expropriation
Sole effect versus police power
Bilateral investment treaties of Azerbaijan and Turkey and their treaty provisions concerning indirect expropriation
Tools for mitigating indirect expropriation risk
Mitigating political risks through stability provisions
3 Stabilisation clauses
General implications of stabilisation clauses
Typologies of stabilisation clauses
Legal importance and functional value of stabilisation clauses
Do stabilisation provisions constitute a threat to environmental protection and human rights?
The BTC pipeline project (I): reactions to the project
4 Lenders, risk insurers and rating agencies
The main financial institutions in project financing
The role of lenders in inclusion of stabilisation clauses
Political risk insurance providers
The role of political risk insurance providers in the inclusion of stabilisation clauses
Credit rating agencies
The role of credit rating providers in the inclusion of stabilisation clauses
Baku–Tbilisi–Ceyhan pipeline project (II)
5 Political systems and laws on foreign investment in Azerbaijan and Turkey
A comparison of guarantees available under FDI laws and political regimes in Azerbaijan and Turkey
Conclusion and recommendations
6 Conclusions and recommendations
The research findings and conclusions
Hakan Sahin is an Assistant Professor in Private International Law at Maltepe University, Istanbul. He regularly advises state entities as well as private clients on a range of issues, including international energy law, international arbitration and international investment law.