The Protection of Energy Investments under Umbrella Clauses in Bilateral Investment Treaties: A Myth or a Reality?

Abstract

This paper examines the effectiveness or otherwise of the protection of energy investments granted by the umbrella clause provisions of bilateral investment treaties. It seeks to justify the reality that energy investments made by foreign investors are not always assured of protection in the host state and to dispel the myth that once the “umbrella clause” exists in the Bilateral Investment Treaty (BIT) of the host state and the foreign investor’s country, that the investment is automatically protected under the host state’s protective umbrella. This line of argument is reinforced by the fact that many States, mostly developing countries, enjoy significant flexibility to exit the BIT system when they come to realisations that the BITs they signed where they made the binding commitments to investors were undesirable. The paper thus further examines the purports and challenges of the protection supposedly granted to energy investments through the umbrella clause by dispelling the myth and reinforcing the reality of the lack of protection of energy investments despite the provision of the umbrella clauses. It concludes by making a set of recommendations that could help in securing the protection of energy investments made by foreign companies in host countries.

Keywords: Energy, Investments, BITs, Umbrella clauses, host states, protection.