STABILIZATION CLAUSE IN ETHIOPIAN BILATERAL INVESTMENT TREATIES AND ITS EFFECT ON REGULATORY DISCRETION OF THE GOVERNMENT

Abstract

Protection of different interests is one of the basic essences of having an agreement. When we come to investment agreements such interests are intense and have three stakeholders; the host state, the home country of the investor and the investor himself. The political and regulatory stability of host state is a key factor which attracts foreign investments. On the other hand when a state decides to effect changes to its economic policies and legislations, there is a potential threat to foreign investment. Thus, in addition to the existing stability, investors usually seek to see lasting stabilities, for this they claim for guaranty either under the treaty or contracts. The host state wants to take all regulatory measures to attain the developmental objectives while the investors seek for predictability. Balancing such interest rests not only on the parties but also international investment tribunals. That is why the different principles of BITs such as FET, and Umbrella clausehave been interpreted to have the effect of stabilization clause. The same principles are incorporated in almost all Ethiopian BITs. Therefore, even if there is no expressed stabilization clause in our BITs this cannot preclude the possibility of the application of stabilization Clause. In addition to that other specific contracts like the FDRE petroleum production sharing agreement clearly adopt stabilization Clause. Due to the long term durations and high sunk cost petroleum sector is economically and politically sensitive, and usually petroleum contracts are subject to unilateral alteration or termination by the host states. Stabilization clause is a good device for creating stability and predictability in petroleum contract. This thesis examines the status of Ethiopian BITs in light with the feature and effect of stabilization clause and concludes that there is no explicit stabilization clause in Ethiopian BITs but this cannot prevent the interpretative application of such clause. It also recommends that renegotiation Clause are better technique for avoiding disputes in the context of changed circumstancesthan stabilization clause.