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.
Acknowledgements List of abbreviations PART I Political risks in the energy sector 1 Introduction and framework of the research Introduction Expropriation or nationalisation? Why are stabilisation clauses a controversial issue? Host government agreements Objectives and scope of the research The gap in conventional literature Research questions Methodology Overview of Azerbaijan and Turkey Baku–Tbilisi–Ceyhan crude oil pipeline project: timeline, importance and issues Structure of the book 2 Indirect expropriation Introduction 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 Conclusions PART II Mitigating political risks through stability provisions 3 Stabilisation clauses Introduction 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 Conclusion 4 Lenders, risk insurers and rating agencies Introduction 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) Conclusions 5 Political systems and laws on foreign investment in Azerbaijan and Turkey Introduction Azerbaijan Turkey A comparison of guarantees available under FDI laws and political regimes in Azerbaijan and Turkey Conclusions PART III Conclusion and recommendations 6 Conclusions and recommendations The research findings and conclusions Recommendations Index
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.
