6. Renegotiation

Where the administration of a final agreement results in conflict, renegotiation or dispute resolution mechanisms may be necessary, where stipulated in the contract or governing law.

In new resource developing countries, the state may opt for negotiating a contract rather than developing sector specific regulation, as the latter may take much longer. The ‘contract first’ approach may not capture broader national development goals. A patchwork of different contracts may be difficult to monitor, and where a stabilisation clause is included, it may be difficult to apply new and progressive environmental and social laws and policies to investors currently in situ.

Despite the high risk of changing circumstances in a long-standing relationship between the investor and host government, it is relatively rare for a petroleum or mining contract to envisage a renegotiation of the basic terms. Renegotiation clauses if any, when triggered by the host government may lead to reputational damage in terms of investment attraction and may result in dispute resolution (on whether the trigger event in fact happened). Instead, both government and investor tend to mediate amicably in circumstances which may otherwise lead to renegotiation.