Journal of Law, Policy and Globalization www.iiste.org ISSN 2224-3240 (Paper) ISSN 2224-3259 (Online) Vol.61, 2017 161 The Protection of Energy Investments under Umbrella Clauses in Bilateral Investment Treaties: A Myth or a Reality? Dr. Omolade Adeyemi Oniyinde 1 Tosin Ezekiel Ayo 2 1. Department of Public Law, Faculty of Law, Ekiti State University, Ado-Ekiti, P.M.B 5363, Nigeria 2. Department of Jurisprudence and International Law, Faculty of Law, Ekiti State University, Ado-Ekiti, P.M.B 5363, Nigeria 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. 1.0 Background of Energy Investments The capital-intensive and long term nature of energy infrastructural investments has necessitated foreign investors to demand some sort of protection, legal guarantee and a binding promise that a host nation will abide by the contractual obligations it entered into before it decided to transfer its hard-earned private capital, expertise and expensive technology into the host state’s country as investment 1 . One of the means of protecting these investments is termed the ‘Umbrella clause’. This clause is a provision in an investment protection treaty that guarantees the observance of obligations assumed by the host state for investors by bringing the contractual and other transactional commitments under the treaty’s protective shadow 2 . Most often times than not, these protections and safeguards eventually do not provide the expected protection for the investors in respect of their investments which form the basis of a regrettable reality discussed in this paper. 1.1 Introduction First, what constitutes an investment has been variously defined by statutes, multilateral treaties providing for the International Convention on the Settlement of Investment Disputes, (ICSID)’s jurisdiction 3 , case law, bilateral treaties, and the Energy Charter Treaty 4 . The term ‘Investment’ especially energy investment broadly means: “every kind of asset, owned or controlled directly or indirectly by an investor and it includes tangible and intangible, and movable and immovable property and any property rights such as leases, mortgages, liens, and pledges; a company or business enterprise, or shares, stock, or other forms of equity participation in a company or business enterprise, and bonds and other debt of a company or business enterprise; claims to money and claims to performance pursuant to contract having an economic value and associated with an Investment; intellectual property; returns; any right conferred by law or contract by virtue of any licences and permits granted pursuant to law to undertake any economic activity in the energy sector.” 5 Four criteria have also been identified as essentials for the definition of investment 6 . They are ‘substantial commitment, certain duration, assumption of risk, and significance for the host state’s development’ 7 One of the ways by which investors endeavour to protect their investments in a host state is by entering into bilateral investment treaties, (BITs) between two countries that govern the treatment and protection of the 1 M.A.F.M Maniruzzaman ‘Damages for Breach of Stabilisation Clauses in International Investment Law: Where do we stand today? [2007] IELTR 11. 2 Rudolph Dolzer, Christoph Schreuer, Principles of International Investment Law (Oxford Publishing 2012). 3 Art 1139, North America Free Trade Agreement 1994. 4 Dolzer (n2). 5 Art 1(6) Energy Charter Treaty 2006. 6 International Centre for the Settlement of Investments Disputes. 7 Salini V Morocco, Decision on Jurisdiction, 23 July 2001, 56.