Transnational Energy Projects

Executing an IGA is critical to demonstrate that the government stands behind the project in question and thereby to ensure that local authorities fall in line with the central government.

Turkish schoolchildren are taught from a very early age that Turkey sits at a strategically important location in the world. This has been true for various reasons throughout history; in modern times, when access to energy resources has become the most important geopolitical consideration, Turkey’s location again is critically important as it occupies a key position for the distribution of vast Russian and Caspian natural gas resources to the rest of the world. In order to be able to capitalize on its prime location, Turkey has had to offer both the source countries and their customers a stable legal regime through which to deliver the lifeblood of their respective economies. 

While Turkey has been relatively stable politically in recent decades, its track history is less than promising for countries wishing to make a multi-generational bet on the reliability of their energy routes. It is therefore critical for Turkey to be able to offer stability through other means. One such means generally employed in multi-national energy projects is to make a binding commitment to leave unchanged the legal regime that will govern the project at hand. Such regimes have been created by way of signing intergovernmental agreements (“IGA”s) with partner governments; IGAs generally tend to build project-specific legal structures, and contain commitments not to change the applicable legal regime in the future. Such commitments of course do not prevent legislators from changing the applicable legal regime in the future -for otherwise this would amount to an abdication of national sovereignty- but are guaranteed by reputational capital and damages clauses enforceable in arbitration. Article 90 of the Turkish Constitution also puts properly ratified international agreements beyond constitutional challenge, which adds credibility to the promise of a stable legal regime.

One of the main purposes of signing IGAs is to help to facilitate the implementation of multinational projects without being hindered by the operation of laws that were designed for a smaller scale. Such projects by nature include at the very least the acquisition of vast amounts of land; obtaining changes to the zoning plans in all areas where the project’s footprint will be felt; applying for construction permits; acquiring immigration permits for expatriate workers; and securing clearance from environmental impact analyses. These clearances are ordinarily reviewed at the local level, and without a single framework within which to assess each individual piece, some localities may find that the project’s costs do not outweigh its benefits in that particular location. Assembling such a large-scale effort bit by independent bit would thus clearly be an insurmountable organizational challenge, and would subject the project to the threat of failure where each critical element is at risk of independent review.