Stabilisation Clauses and the Zambian Windfall Tax

Over the past decade, Zambia has seen an increase in the flow of foreign direct investment; a large quantity of which went into the copper mining industry. The price of copper increased radically, which prompted the Zambian government to reconsider the preferential tax regime that foreign mining companies enjoyed to ensure that Zambia benefited from this change in circumstances. The tax regime was originally implemented to encourage the inflow of foreign capital, and to revive an industry that had been crippled by previously low copper prices. The concession agreements between the Government of Zambia and the mining companies contained Stabilisation clauses which constitute a promise on the part of the host government not to amend its laws in a way that adversely affects the economic rights contained within that particular concession agreement. The article examines Stabilisation clauses in concession agreements and their legal effect on a host state’s power to amend its laws unilaterally. This issue is discussed in light of the Kuwait v Aminoil case which seems to suggest that “Stabilisation clauses ” do not outrightly prohibit states from modifying their laws when economic circumstances change. Finally the article looks at a legal framework that ensures that neither the rights of the investor on one hand or the state on the other take precedence over the other. 1