The Fiction of ‘State Contract’ in the Energy Industry

International Arbitration Law Library
Contracts designed expressly to accommodate foreign energy investment and protect companies’ rights underlie most investor-State arbitrations when disputes over energy exploration, facilities, or distribution arise. But do the parties really use such state contracts as a protection tool? This book analyses whether signing of a state contract can be deemed the safest and most predictable way for a private party to protect its interests vis-à-vis a host state in the energy field. The author shows that because the actual level of protection is ultimately measured by how the contract is interpreted and by the outcome of a dispute, the ‘state contract’ concept has become obsolete.
Drawing on recent historical and contemporary sources – primarily an empirical analysis of 501 energy contracts concluded between 1990 and 2020 between States and private parties – the book approaches the topic in the following sequence:

- the notion of ‘state contract’ and its theoretical background;

- the frequency of use of the concept in energy contracts and the circumstances under which these contracts tend to be concluded; and

- the interpretation of the concept by arbitrators trained in different legal traditions and applying different laws.

The contracts are examined via their regional, economic, and political characteristics – revealing notably distinctive interpretations among the Middle East and North Africa (MENA) region, the Latin American States, and the countries of the former Soviet Union – as well as according to each private party’s characteristics and the legal tradition relied upon in the arbitrations that ensue.
Despite today’s much-desired ‘energy transition’, there is little doubt that the continuing use of conventional energy sources in the mid-term future means that energy companies will keep looking for new oil and gas deposits. For this reason, this systematic and informative study will serve as a practical guide for energy contract drafters, in-house counsel, arbitrators, government officials, and other professionals concerned with energy-related disputes arising between states and private parties.