Latest update February 6th, 2025 7:27 AM
Stabilisation clause should not be supreme to rule of law, citizens’ interests – NRGI
When analysing the impact of a country’s fiscal terms that are part of its Production Sharing Agreements (PSAs), there are several potential loopholes that require close monitoring. In the eyes of the Natural Resource Governance Institute (NRGI), stabilisation clauses are a key one to watch.
The transparency body explained that petroleum and mineral contracts often have such clauses which state that the law that exists on the day that the contract is signed will govern the agreement, and that subsequent legal changes will not have any effect on the contract.
NRGI stated that these clauses offer investors some assurance that they will not be subjected to legislative action taken to drastically change a fiscal regime to the extent that it is dissimilar to the one on which they based their decision to invest.
But in order to protect the interests of citizens, preserve state sovereignty, and remain flexible to changing economic and political circumstances, the Institute emphatically stated that stabilisation clauses should be narrowly drafted and limited to major revenue streams such as royalties, taxes, duties, and major fees.
NRGI stressed in no uncertain terms that stabilisation clauses should not freeze environmental, labour or other similar rules. It is, in short, that these provisions are not more supreme that the rule of law or citizens’ interests.
For months, the stabilisation clause captured in the Guyana-ExxonMobil Production Sharing Agreement (PSA) has been condemned by local anticorruption advocates as a mechanism that only serves to strangle the nation’s Parliament and future governments.
In fact, this clause serves to protect ExxonMobil and its partners from any governmental or legislative changes that may affect its generous contract terms. It even grants the oil company compensation for any added costs due to future legislative changes.
Head of the Energy Department, Dr. Mark Bynoe has since assured that in the review of the model PSA, Guyana would be amending the “rigid” stabilisation clause. However, the extent to which it will be amended remains unknown.
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