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25 April 2007
Re: Questionnaire: “Do Contractual Devices Work to Protect Against Risks Associated with Expropriation in International Petroleum Investments?”
Dear Sir,
As a PhD candidate at the University of Exeter in the United Kingdom, I am currently running a research project related to the management of the political risks faced by international petroleum investors during the life span of their projects, concentrating on how effective contractual clauses can be to protect against and avoid investment disputes that can lead to expropriation.
I have identified over 100 experts on this topic, who like yourself, have valuable insight into the actual operation of international petroleum investment contracts. I feel it is important that an evaluation of this kind reflects real problems, real experiences and realistic solutions, and is not just an academic exercise. The survey thus includes state agencies, international petroleum lawyers, executives of petroleum companies, scholars and international organizations to get their views and experiences regarding contractual clauses.
The questionnaire asks you to provide short answers to a number of questions relating to the key issues raised by this project. It addresses three main research objectives:
• to evaluate the success of contractual clauses in protecting investment; (providing information on the perceived strengths and weaknesses of contractual devices from the perspective of experts in different areas)
• to explore suggestions for change and improvement;
• to discuss some hypothetical contract disputes to get the respondent’s view.
As I hope my findings will be of interest to companies/organisations such as yours. I would very much appreciate it if you could spend some time in completing the attached questionnaire.The success of this project is dependent on the help and time from you. Please note that all responses will be treated as confidential. No disclosure will be made of the identity of the respondents to this project unless their consent is given. However, I would like to know whether you have an objection to being listed as having participated in this research. Please mark the appropriate box in the last page.
I am very grateful to you for your assistance and for such time as you are able to spare on the questionnaire and would be happy to forward you a summary of my findings when the project is complete if this would be of interest to you.
If you have any questions about the questionnaire or the research in general, please contact me at the Center for Energy Economics, University of Texas at Austin, 1801Allen Parkway, Houston, 77019, Texas, USA (Telephone number: +1 (713) 6545400, Fax +1 (713) 6545405 or Email: or ).
Yours sincerely,
Mustafa Erkan
Thank you for helping to shape thefuture of contractual devices for the protection of petroleum investment
Questionnaire:
Do Contractual Devices Work to Protect Against Risks Associated with Expropriation in International Petroleum Investments?
A study by Mustafa Erkan
School of Law at the University of Exeter
The United Kingdom
Survey on Expropriation
QUESTIONNAIRE
Please complete all sections that apply to you by placing a tick in a box or by writing in the space provided.
Introduction
The following questionnaire is composed of four sections.
A. Background information on yourself or your organisation.
B. General questions about expropriation.
C. Questions on contractual devices to avoid potential conflict with states.
D. A hypothetical potential petroleum investment dispute.
SECTION A
1. Depending on your type of organisation, which of the following best describes your area of work?
State Agency/State Company Company/Corporation
[ ] Director or Executive [ ] Director
[ ] Senior Officer [ ] Senior Executive
[ ] Legal Adviser [ ] Legal Adviser
[ ] Other, please specify [ ] Other, please specify
Lawyer/Attorney International Organization
[ ] Counsel or Partner [ ] ECT
[ ] Arbitrator [ ] UNCTAD
[ ] Other, please specify [ ] OECD
[ ] ICSID
[ ] Other, please specify
Academic, Research Institution or other Organization
[ ] please specify
2. Which country or countries do you operate from:
SECTION B
3. Is your organisation or your work involved in international petroleum investment contracts in other countries?
[ ] Yes, please specify name of the country (ies) or the geographical region(s)
[ ] No, please go to the question 5.
4. Nature of investment. Please tick the category that best describes the nature of the investment(s) you in which have been involved: (More than one box may be ticked)
[ ] Exploration and exploitation of petroleum
[ ] Pipeline project
[ ] Petroleum products
[ ] Fuel other than petroleum
[ ] LNG
[ ] Other, please specify
5. What in your opinion are the main political risks to international petroleum projects? For each risk, please tick the appropriate number. (1 is for most the important risk and 5 is for least the important risk.)
Political Risks Categorizations
War [1] [2] [3] [4] [5]
Nationalisation [1] [2] [3] [4] [5]
Direct Expropriation [1] [2] [3] [4] [5]
Indirect Expropriation (Regulatory and Creeping)[1] [2] [3] [4] [5]
Unilateral change of contractual terms [1] [2] [3] [4] [5]
Currency valuation transfer [1] [2] [3] [4] [5]
Sabotage [1] [2] [3] [4] [5]
Kidnapping [1] [2] [3] [4] [5]
Other, please specify [1] [2] [3] [4] [5]
6. How many times have petroleum investments you were involved in been taken over by (a) host state(s)?
[ ] 0, please go to the question 8 [ ] 1 [ ] 2-5 [ ] More than 5 times
7. What was/were the reason(s) behind taking over(s)? (Please mark all that apply indicating frequency, 1 for the most frequent reason, 2 for the second, and so on)
[ ] Contractual disputes
[ ] Disputes between the host state and the home state
[ ] Resource nationalism
[ ] Other, please specify
8. How would you compare expropriation risk today to expropriation risk in the past?
[ ] About the same
[ ] It is more likely than in the past
[ ] It is less likely than in the past
[ ] Not a risk any more
[ ] Do not know
9. What type of expropriation risks most concern you today?
[ ] Direct expropriation
[ ] Indirect expropriation (Regulatory and Creeping)
[ ] About the same
[ ] None
10. Do you believe that indirect expropriation will be more common than direct expropriation in the 21st century in the petroleum sector?
[ ] Yes [ ] No [ ] Do not know
11. Would you describe what type of device is, in your experience, used by host states for indirect expropriation? (Please mark all that apply indicating frequency, 1 for the most frequent reason, 2 for the second, and so on)
[ ] Discriminatory new legislation
[ ] Increases in tax or new tax
[ ] Restriction of some rights
[ ] Environmental issues
[ ] Human rights issues
[ ] Other please specify
12. Could you please evaluate the following tools international investors can use to manage expropriation risk? For each tool, please tick appropriate number. (1 is for the most important tool and 5 is for the least important tool.)
Tools for Political Risk Management Categorisations
[ ] Multilateral Treaties [1] [2] [3] [4] [5]
[ ] Bilateral Treaties [1] [2] [3] [4] [5]
[ ] Insurance [1] [2] [3] [4] [5]
[ ] Contractual Devices [1] [2] [3] [4] [5]
[ ] Alternative Dispute Resolutions [1] [2] [3] [4] [5]
[ ] Sharing the Risk of Investment [1] [2] [3] [4] [5]
[ ] Other, please specify [1] [2] [3] [4] [5]
13. Do you believe that inserting appropriate contractual clauses would reduce the risk of expropriation?
[ ] Definitely [ ] Probably [ ] Not at all [ ] Do not know
14. How useful are contract clauses in protecting international petroleum investments against expropriation?
Stabilisation clauses [ ] Useful [ ] Somewhat useful [ ] Not useful [ ] No opinion
Renegotiation clauses [ ] Useful [ ] Somewhat useful [ ] Not useful [ ] No opinion
Choice of law clauses [ ] Useful [ ] Somewhat useful [ ] Not useful [ ] No opinion
ADR clauses [ ] Useful [ ] Somewhat useful [ ] Not useful [ ] No opinion
Other [ ] Useful [ ] Somewhat useful [ ] Not useful [ ] No opinion
Please specify
15. Have you ever used following contractual clauses for expropriation risk management in an international petroleum contract?
Stabilisation clauses [ ] Yes [ ] No [ ] No available information
Renegotiation clauses [ ] Yes [ ] No [ ] No available information
Choice of law clauses [ ] Yes [ ] No [ ] No available information
ADR clauses [ ] Yes [ ] No [ ] No available information
16. If your organisation has inserted any of the following clauses, please express whether you achieved your expectations by inserting these clauses.
Stabilisation clauses [ ] Definitely [ ] Satisfactorily [ ] Poorly [ ] Not at all
Renegotiation clauses [ ] Definitely [ ] Satisfactorily [ ] Poorly [ ] Not at all
Choice of law clauses [ ] Definitely [ ] Satisfactorily [ ] Poorly [ ] Not at all
ADR clauses [ ] Definitely [ ] Satisfactorily [ ] Poorly [ ] Not at all
17. If your organisation has not inserted the following contractual clauses in an international petroleum contract, please express the reason(s) by marking the appropriate box below.
Reasons / Name of ClausesStabilisation / Renegotiation / Choice of Law / ADR
Insufficient experience
No consent by the other party
Doubts about the suitability
No available information
Other, please specify
Any further comments or explanations you would like to add:
SECTION C
STABILISATION CLAUSES
18. Do you believe that a stabilisation clause has a legal and functional value in international petroleum contracts?
[ ] Yes [ ] No [ ] Do not know
19. Do you believe that a stabilisation clause is effective in restricting the state’s sovereign rights?
[ ] Yes [ ] No [ ] Do not know
20. Do you believe that a sovereign state can (legally) bind itself by stabilisation clause?
[ ] Yes [ ] No [ ] Do not know
21. Do you believe that international law recognizes the binding effect of stabilisation clauses as a limitation on a state’s sovereign powers?
[ ] Yes [ ] No [ ] Do not know
22. Do you agree that stabilisation clauses are mainly given by governments in a weak bargaining position in petroleum contracts?
[ ] Yes [ ] No [ ] Do not know
23. Do you use any model or standard stabilisation clause in your contracts?
If yes, please specify:
RENEGOTIATION CLAUSES
24. Do you believe that the contract should be renegotiated when the investment conditions change substantially?
[ ] Yes [ ] No [ ] Do not know
25. If the host state requested a modification of the contract provisions due to a shift in investment conditions would your organisation be willing to renegotiate the contract?
[ ] Yes [ ] Not always [ ] Never
26. If your answer is “yes” or “not always”, which of the following factors would be relevant to your decision? (More than one box may be ticked. If more than one box is ticked, please indicate the relative frequency of each experience by inserting a number in each box selected, with 1 indicating the most frequent experience, 2 the second frequent experience and so on.)
[ ] [ ] Expropriation risks
[ ] [ ] Risk of unilateral change of contract terms
[ ] [ ] The reasonableness of the request
[ ] [ ] Other, please specify
27. If your organisation always insists on compliance with the contract, would you be able to supply the reasons for this policy?
Reason(s):
28. How many times have you requested to renegotiate a modification of contract terms?
[ ] 0 [ ] 1 [ ] 2-5 [ ] More then 5 times
29. How many times have you been requested to renegotiate a modification of contract terms?
[ ] 0 [ ] 1 [ ] 2-5 [ ] More then 5 times
30. How would you describe the outcome of the request(s)? (More than one box may be ticked. If more than one box is ticked, please indicate the relative frequency of each experience by inserting a number in each box selected, with 1 indicating the most frequent experience, 2 the second frequent experience and so on.)
[ ] [ ] amicable working out of the problem by modification of performance of the contract in question
[ ] [ ] amicable working out of the problem by adjustments in future contracts
[ ] [ ] request refused and we performed
[ ] [ ] dispute resolved by arbitration
[ ] [ ] suit was filed and settled before judgment
[ ] [ ] suit was filed and litigated to judgment
[ ] [ ] request refused and investment was expropriated
[ ] [ ] other, please specify
Comment:
Question was derived from Weintraub, R.J. “A Survey of Contract Practice and Policy” (1992) 1 Wis. L. R 1.
31. In general, do you believe that renegotiation may result in a ‘win-win’ situation for all parties?