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32 J. Int'l Arb. 143 (2015)
The Use of Arbitration in Loan Agreements in International Project Finance: Opening Pandora's Box or an Unexpected Panacea?

handle is hein.kluwer/jia0032 and id is 149 raw text is: The Use of Arbitration in Loan Agreements in International Project Finance: Opening Pandora's Box or an Unexpected Panacea? Maria DAVIES* Litigation has been the preferred dispute resolution method in loan agreements in international projectfinance. However, it has proven inflexible, failing to account for the particularities of each project and the allocation of risks between lenders and borrowers. This article considers the use of arbitration as an alternative. Being a creature of consent and .contract, it provides invaluable support where litigation would otherwise fail: first, where a currency risk exists, and second, in multiparty proceedings where the borrower's default is the direct result of the off-taker's failure to meet its obligations under the off-take agreement. Outside those situations, the use of unilateral dispute resolution provisions is recommended, allowing lenders to assess which dispute resolution method would be better-suited once a dispute has arisen. In this context, the article puts forward drafting recommendations, enabling the unilateral clause to withstand any potential challenges to its validity by borrowers. The article further addresses the objections raised against the suitability of international arbitration as a means to solve disputes under international loan agreements, such as its dependency on the cooperation of local courts. It also provides lenders with a useful toolkit to ease the enforcement of arbitral awards, such as the availability of political risk insurance and seeking compensation for the expropriation of arbitral awards. 1 INTRODUCTION Financing a project is key to its development and subsequent operation.' In order to be able to do this, sponsors resort to both equity and debt financing. While project finance equity providers are willing to accept more risks than debt providers and focus on the return, returns for the latter are fixed and relatively low. Maria Davies, LL.M degree in International Business and Economic Law and a Certificate in international Arbitration and Dispute Resolution from Georgetown University Law Center, for which she was awarded a Distinction and Dean's List Honors. She also received the Thomas Bradbury Chetwood, SJ. Prize for graduating with the highest academic average in the class. Ms Davies has previously completed an LL.B degree at King's College London. Author's email address is maria.davies2l3@yahoo.co.uk. The sponsors' ability to obtain financing commitments may be critical in a bid for a project that is being put out for competitive tender by a procuring authority. Financing costs, such as debt interest and fees payable to lenders, also directly affect the profitability of the project. See John Dewar & Oliver Irwin, Project Risks, in International Project Finance 81, 92 (John Dewar ed., Oxford University Press 2011). Davies, Maria. 'The Use ofArbitration in Loan Agreements in International Project Finance: Opening Pandora's Box or an Unexpected Panacea?'. Journal of International Arbitration 32, no. 2 (2015): 143-172. C 2015 Kluwer Law International BV, The Netherlands

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