Overview

Stabilisation clauses are contractual protections often incorporated into long term investment or concession contracts between international investors and states. Over the life of the contract, the laws and regulations applicable to it may change. Some changes may be adverse to the economics of the project. To mitigate such risk, investors (as well as project lenders) often require stabilisation clauses to be incorporated into the principal project documents. The aim of stabilisation clauses is to insulate the project from adverse changes to the legal and fiscal environment.

A basic understanding of the principal issues involved will help an investor negotiate the most appropriate stabilisation clause or, if non-negotiable, analyse the risks inherent in the clause prescribed by the host state.

Half of all stabilisation clauses world-wide appear in contracts relating to projects in extractive industries (such as oil, gas and minerals), another quarter in infrastructure project contracts, and a large portion of the rest in transport project contracts. Investors in those sectors should therefore be particularly aware of the relevant issues.

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