The fact that NIS, Serbian oil company in majority ownership of Russian Gazprom, has been enjoying a preferential “mining fee” regime thanks to the Serbia-Russia inter-governmental agreement (IGA) concluded in 2008, has been much discussed in the press. The IGA in question was the legal basis for the acquisition by Gazprom of 51% of issued shares of NIS for the purpose of implementation of the project for modernization and reconstruction of NIS’ technological facilities. The IGA provides for a guarantee that in the event of change in Serbian law adversely affecting “taxation conditions”, NIS will continue to be taxed based on the laws applicable on the date of the IGA signing, “for the period of …reconstruction and modernization of [its] technological facilities until adequate rate of return is achieved”. Taxation is defined so to encompasses “taxes, customs duties and other similar duties” while adverse change in taxation conditions means introduction of new or increase of the existing taxes, customs duties and other similar duties. The notion of adequate rate of return is left undefined.

As a result of this stabilization clause, NIS has continued to pay a mining fee equal to 3% of its oil extraction revenues even after 2011, when this fee was increased to 7% by virtue of a new legislation on mining and geological explorations.

Without an ambition to evaluate the stabilization clause from the particular 2008 Serbia-Russia IGA, this article takes a closer look at the interplay between stabilisation clauses and State Aid.

Stabilisation clauses- general overview

Stabilisation clauses are provisions in international investment agreements that accommodate the investor’s risk of regulatory changes in the host country, by protecting the investor from adverse changes in laws of the host state. These clauses can be found in private contracts between investors and host state, as well as in bilateral treaties.

The doctrine identifies three main types of stabilization clauses. Traditional freezing clauses, largely abandoned nowadays, exempt an investment from the application of new laws. Economic equilibrium clauses are a modern version of freezing clauses. Under this type of stabilization clause, the host state undertakes to cover investor’s financial loss stemming from a change in law. The clause regularly includes renegotiation provisions, sometimes coupled with a recourse to a third party to determine contract adaptation when the negotiations fail. The third type of stabilization clause is a hybrid clause whereby the parties negotiate whether the guaranteed economic equilibrium is to be achieved through an exemption of the investor from the regulatory change or in another suitable way, such as contract adaptation or compensation.

Stabilisation clause, as a risk management tool, is typical of long-term capital-intensive projects in extractive industry, infrastructure or public services (mining, oil, electricity, water etc.). These projects are usually structured as concession agreements, production-sharing agreements or build-operate and transfer (BOT) agreements. Since they require large initial capital investment and a long return period, these projects depend on guarantees that changing investments condition will not harm the cost-benefit equilibrium of the investment. This is particularly important in non-resource finance where the lender is only entitled to repayment of the loan from the profits of the project and not from other assets of the borrower.

Stabilisation clause as state aid

Stabilisation clause may be contrary to the national state aid law (in accession countries) and/or to the EU state aid rules, in particular Article 107 of the Treaty on the Functioning of the European Union (“TFEU“). A four-step test is applied to determine whether a measure granted to an investor by way of a stabilization clause constitutes state aid: i) whether an undertaking is provided with an advantage, ii) whether the advantage is provided from state resources, iii) whether the advantage is selective, and iv) whether the advantage affects competition and trade between Member States (in the EU) or, as the case may be, on the national market (for accession countries). A measure which satisfies all four of these condition is considered state aid and should be notified and approved prior to being granted (unless it enjoys the benefit of a block exemption).

Stabilisation clause by its very nature confer certain advantage on an investor, either by guaranteeing stability of economic conditions applicable to the investment or an adequate compensation in case of adverse change to those conditions. The advantage can crystallize once the adverse change in law against which the investor is protected occurs. However, stabilization clause can of itself amount to state aid if it places the beneficiary in a more favourable position vis-à-vis its competitors and creates a sufficiently concrete risk of imposing an additional burden on the State in the future (France Telecom).

It is usually indisputable that the advantage comes from the state resources and that there is an at least potential effect on competition. The criterion most difficult to assess is selectivity of the measure in question. Whether a measure is selective is assessed against other undertakings in a comparable legal and factual situation. According to the ECJ in Commission v MOL, when a measure is based in a law of general application which was available to all undertakings who were able to satisfy the objective criteria under the law, subsequent adverse change in law, which results in the advantage being conferred on the undertaking that continues to benefit from the measure based in the previous law of general application, does not of itself constitute state aid. It would constitute state aid only if the state intended, at the time of the signing the contract with the undertaking concerned, to subsequently change the law in a manner that would place other market operators into a disadvantaged position.

If, however, a stabilisation clause is not based in a general scheme but is crafted for an individual investor or a specific group of investors (e.g. investors from a particular country with which the host state has concluded a BIT), it is presumptively selective.


Stabilisation clause amounting to state aid should be notified to the competent state aid control authority for approval. If the authority so requests, the stabilization clause may have to be renegotiated and aligned with the relevant state aid rules.

In the process of negotiation of an accession treaty, aspiring states have been allowed to compile a list of existing aid which is then shielded from the European Commission’s review for a transitional period of three years. Generally, the requirement was that the aid had been approved by the competent authority in the accession country (other than the aid in the sector of agriculture, which has not been subject to state aid control rules in any of the accession countries so far). If a state aid measure is not included in the list of existing aid upon accession, the European Commission is entitled to investigate such aid and, if it finds it unlawful, order the Member State to recover the aid from the beneficiary. The state is not allowed to compensate the investor for damages incurred due to the recovery of state aid or cessation of the stabilization clause, as any such compensation would constitute new unlawful aid.

If the stabilization clause is contained in a bilateral treaty, the ability of the state to compensate the investor depends on whether the EU law prevails over the bilateral treaty. In 2003, Romania and Sweden concluded a bilateral investment treaty (BIT) granting investors certain protections. Specifically, Swedish investors were guaranteed certain exemptions from the Romanian customs duties. Romania repealed those exemptions in 2004 in order to comply with the EU State aid rules. An ICSID tribunal awarded the investor a compensation in the amount of USD 250 million against Romania in December 2013. The European Commission intervened in the procedure before the tribunal but the ICSID tribunal did not accept its comments. The EU Commission ordered Romania to recover unlawful state aid resulting from the payment of the compensation awarded by the ICSID tribunal. The investors challenged the Commission’s decision before the General Court of the European Union, while both the Commission and Romania asked the English High Court seized of a petition to enforce the ICSID award to stay the proceedings until the General Court weighs in on whether the Commission violated Article 351 TFEU, which provides that the rights and obligations arising from agreements concluded between the acceding Member State and a third country before the accession date are not to be affected by the provisions of the Treaty. The Commission’s view is that Article 351 TFEU does not protect treaties between two Member States (in this case, Romania-and Sweden). The case is still pending before the General Court.

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