Transboundary pipeline development and risk mitigation

An important, albeit controversial, aspect of the BakuTbilisiCeyhan prevailing

legal regime was its economic equilibrium (or stability) guarantee. After the
governments had executed and ratified the BakuTbilisiCeyhan intergovernmental
and host government agreements in 2000, civil society organisations took exception
to the apparently wide-ranging application of the prevailing legal regimes guarantee
of stability which included stabilising laws and regulations governing health, safety
and the environment, as well taxes and other fiscal legislation. Civil society
organisations alleged that the stability guarantee abridged the human rights of local
communities that might be impacted by BakuTbilisiCeyhan, as the stability
guarantee would have a chilling effect on the project states willingness to regulate
the projects compliance with health, safety and environmental standards.24 Faced
with either reopening a ratified set of arrangements, or risking the derailment of the
financing of BakuTbilisiCeyhan, the BTC lawyers devised the BTC Human Rights
Undertaking (effectively a deed poll). This estopped the project from asserting its
rights under the intergovernmental and host government agreements in
circumstances where human rights would be violated.25 The project also entered into
a number of unprecedented additional instruments, which specifically addressed
impacts on people, communities and the environment. The net impact of these
various additions to the prevailing legal regime was to limit the application of the
stability guarantee to the fiscal components of the project. In this way,
BakuTbilisiCeyhan has led the way towards setting current international best
practice in the industry.26
4.3

Governmental and political risk

Closely related to the more generic topic of investment protection is that of
governmental or political risk. The mitigation scheme for this category of risk is
largely the same as above, but with the distinction that political risk focuses
exclusively on what a host country can do (or cannot do) to upset the base bargain
originally entered into to support the investment. For BakuTbilisiCeyhan, the
primary political-risk mitigation tool is the intergovernmental and host government
agreement structure (ie, the documents that gave the prevailing legal regime its force
in international and domestic law). As discussed above, a robust prevailing legal
regime undertaking similar to BakuTbilisiCeyhan seems an unlikely trend going
forward; however, with the exception of the most sophisticated jurisdictions, there
will probably be a need for some form of direct investment agreement forming a
contractual basis for recovery against an offending government. In many
jurisdictions, there are bilateral investment protection treaties and direct investment

24
25

See www.amnesty.org.uk/article_print.asp?ArticleID=2408.
The BTC Human Rights Undertaking in fact goes much further and ensures that the project states inter
alia have the ability to enforce more stringent health, safety and environmental standards and that
locally impacted communities have appropriate access to justice within the local courts to bring
grievances against BTC Co. It is worth noting that the BTC Human Rights Undertaking is the first
instance in which a multinational company has undertaken directly to a government a legally binding
obligation to adhere to international human rights standards.
See Stabilization Clauses and Human Rights, a research project conducted for the International
Finance Corporation and the United Nations Special Representative to the Secretary General on Business
and Human Rights, March 11 2008.

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