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22 J. Int'l Arb. 261 (2005)
Renegotiation of International Petroleum Agreements

handle is hein.kluwer/jia0022 and id is 273 raw text is: Journal of International Arbitration 22(4): 261-300, 2005. © 2005 Kluwer Law International. Printed in The Netherlands. Renegotiation of International Petroleum Agreements Zeyad A. At QulASHI* I. INTRODUCTION International petroleum projects involve the commitment of significant capital for a very long duration.These projects are exposed to acute risks (geological, commercial and political). The potential foreign investor makes a risk/reward assessment of the project's fiscal and regulatory regime and then makes an informed decision on whether to commit his capital in the potential host country or go elsewhere. If he decides to go ahead, he then expects the fiscal and legal conditions to remain relatively stable. When the explora- tion risk has been successfully overcome, the production begins and the investment acquires a hostage status. Any government-imposed regulation that is likely to upset the financial returns in a significant way-and governments have an infinite variety of ways to do this-will have an impact on the economics of the project. Hence, stability of the fiscal and regulatory regime in the host state is probably the key issue for stabilization concerns. Despite the weakening of the dogma of intangibility of contracts, most foreign investors, for the protection of their interests, rely on contractual clauses aimed at maintaining the integrity of their contracts and precluding any modification thereto except with their mutual consent. Foreign investors use stabilization clauses to achieve this purpose. Other clauses, such as renegotiation and adaptation clauses, recognize the mutability of the contract and allow changes in the contract. Contrary to stabilization clauses which record the host state's undertaking to freeze the legal situation in the host country at the time of concluding the contract, renegotiation clauses aim to protect the foreign private party by making the contract flexible and dynamic throughout its duration in order to adapt to changes in circumstances and more particularly to re-establish the contractual equilibrium of the transaction. The latter clauses are put under the generic category of contractual protection clauses.This is mainly because when the parties agree on the man- ner their contract should evolve in order to adapt to changes in circumstances and more particularly to re-establish the financial equilibrium of the contract, they diminish the risk of disputes and as a consequence they reduce the danger of unilateral state intervention.1 The renegotiation or adjustment of the contract to changed circumstances can be initiated either where the contract contains a renegotiation or adjustment clause, or * LL.B., LL.M., Ph.D., Assistant Professor of Law at King Abdulaziz University, Saudi Arabia; and Research Fellow at the Centre for Energy, Petroleum and Mineral Law and Policy, University of Dundee, Scotland.This article originates in the Ph. D. thesis work done by the author in the CEPMLP under the supervision of Prof. Thomas W. Wilde and Dr. Melaku G. Desta. It is a pleasure to express my sincere thanks to Pwf.Wilde for the stimulating dis- cussion, generous hospitality and encouragement.The author would also like to express his thanks to Dr. Melaku G. Desta for reading the original manuscripts. A. El Chiati, Protection of Investment in the Context of Petroleun Agreements, 204 RECUEI DES CoIrms 1, 99 (1987). Copyright ' 2007 by Kluwer Law International. All rights reserved. No claims asserted to original government works.

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