Stabilization Clauses and their Effects on Energy Sustainability

Abstract

Countries endowed with petroleum resources often do not have the enormous financial resources and the technology to exploit them. Consequently, they resorted to partnering with oil company investors with the requisite capacity. The practice by oil companies to protect their investments through stabilization clauses made sovereign countries unable to meet their international treaty obligations towards global energy sustainability efforts. Existing studies focused on the advantages of stabilization clauses without due consideration of how to balance their positive and negative impacts. This paper examined the positive and negative impacts of stabilization clauses with a view to striking a balance between them. The study adopted qualitative research methodology using doctrinal research design and relied on primary and secondary sources of information. Primary sources included bilateral and multilateral investment treaties, petroleum industry contracts and case law pronouncements. Secondary sources consisted of textbooks, scholarly peer reviewed journal articles, commentaries and reports. The study revealed that stabilization clauses are potent instruments for investment protection while at the same time constituting impediments to the implementation of global efforts towards energy sustainability. The paper concluded that there is need to strike a balance between the negative and positive impacts of stabilizations clauses. It recommended that parties to petroleum contracts need to work together to ensure balance between the positive and negative impacts of stabilization clauses. Parties should not allow their desire to maximize profits overshadow their responsibilities towards global energy sustainability efforts.