Introduction

In the early days of Ghana's upstream petroleum industry, stabilisation clauses were considered essential. As a developing country seeking to attract foreign investment, Ghana needed to provide International Oil Companies (IOCs) with assurance that the fiscal terms of their agreements would remain stable and enforceable throughout the investment period. Stabilisation clauses especially freezing clauses were often incorporated in these petroleum agreements. However, nearly two decades later, the legal ripple effects of those clauses are being felt in real time.

Today, Ghana is working to modernise its tax system, expand public revenue and assert more control over its extractive sector. Yet, it finds itself limited not by lack of will, but by the weight of past contracts.

What are freezing clauses?

Freezing clauses are a type of stabilisation clause that prevents any new legal or fiscal measures from applying to a petroleum agreement unless both parties consent. They effectively maintain the legal, fiscal or regulatory framework that existed at the time the agreement was signed, insulating investors from subsequent legislative or policy change. In contrast, Economic Equilibrium clauses allow for legal changes but permit renegotiation or compensation if those changes negatively affect the investor.

Interestingly, some of the early petroleum agreements such as the 1997 Hunt Oil contract and the 2004 West Cape Three Points Agreement included both freezing and economic equilibrium clauses. While the freezing clause preserved the original terms, the equilibrium clause allowed for renegotiation in case of significant legal or economic change. However, in practice, the combination of freezing and economic equilibrium clauses often tipped the balance in favour of investors. Not only could they invoke the freezing clause to avoid the application of burdensome new laws, but they could also take advantage of favourable legislative changes by relying on the economic equilibrium clause to request a renegotiation or adjustment of terms.

Although originally intended to attract high-risk investment, freezing clauses have since generated tension between a state's sovereign right to enact or waive laws and the principle of pacta sunt servanda, that agreements must be honoured. This tension continues to shape investor–state relations in Ghana’s petroleum sector.

Impact on recent disputes

In the arbitration between Tullow Ghana Limited and the Republic of Ghana, The dispute revolved around the Ghana Revenue Authority’s (GRA) assessment of Branch Profit Tax (BPT) for the 2012, 2013, and 2014 tax years assessments that Tullow Ghana Limited (TGL) contended were inaccurately determined and violated the tax stabilisation provisions contained in its Petroleum Agreements.

The ICC Arbitral Tribunal ruled that the imposition of Branch Profit Tax (BPT) on Tullow breached the stabilisation provisions in the Deepwater Tano and West Cape Three Points Petroleum Agreements. Under Article 12.1 of the agreements, Tullow’s tax obligations were limited strictly to those expressly listed in the petroleum agreements meaning any new taxes, including BPT, were excluded. Additionally, Article 26.2 in the agreements functioned as a stabilisation clause, providing that the fiscal framework in place at the time of execution would remain unchanged for the duration of the contract, unless both parties agreed otherwise. These provisions were reinforced by Section 39(3) of the Petroleum Income Tax Law, 1987 (PNDCL 188), which prevented the imposition of taxes outside the specified regime.

Similarly, in Maersk Drilling IV Singapore Pte Ltd v. The Commissioner-General, Ghana Revenue Authority, the Supreme Court of Ghana held that Maersk’s petroleum-related income was subject only to the 5% withholding tax specified in its petroleum agreement. Maersk had argued that, under Article 12(1) and(3) of its Petroleum Agreement and Sections 27 and 39(3) of the Petroleum Income Tax Act, 1987(PNDCL 188), it was liable solely for this fixed rate. The stabilisation clause, in Maersk’s view, was designed to preserve the fiscal and contractual terms in place at the time of signing effectively insulating it from later legislative changes.

The GRA, however, maintained that general tax laws enacted by Parliament should apply and sought to impose additional taxes, including PAYE, Corporate Income Tax, Withholding Tax, and Branch Profits Tax. The High Court and the Court of Appeal agreed with the GRA, affirming a total tax liability of US$28,357,065.17. However, the Supreme Court reversed those decisions, finding that the stabilisation clause created a contract-specific fiscal regime that could not be overridden by subsequent legislation. As such, the GRA’s imposition of additional taxes was declared unlawful.

The Supreme Court’s interpretation offers valuable legal clarity on the enforceability of stabilisation clauses, reaffirming judicial commitment to contract sanctity. This guidance is critical not only for investors evaluating their tax risk but also for the state as it navigates new fiscal frameworks under existing agreements.

Shifting towards equilibrium

Ghana’s upstream industry has evolved significantly following Jubilee’s discovery in 2007. In the years that followed, particularly from 2013, new petroleum agreements have excluded freezing clauses and adopted economic equilibrium clauses only.

These changes give Ghana more room to implement new laws while still protecting investors from unfair treatment. Unlike freezing clauses, equilibrium clauses accommodate reform while allowing for renegotiation if the economic balance is disturbed.

To make this transition fair and functional, investors can be protected in two key ways:

  • Clear Trigger Mechanisms: Economic equilibrium clauses should clearly define what constitutes a significant legal change and when compensation is warranted. This ensures transparency and predictability.
  • Stabilisation Funds or Insurance: Investors could be encouraged to adopt political risk insurance or agree on stabilisation funds that offset losses from legal reforms, reducing the pressure on governments to freeze legal frameworks entirely.

Final thought

Freezing clauses helped Ghana attract investment when it was most needed. But they now restrict the state’s ability to update its laws in line with changing priorities.

As Ghana pivots to equilibrium clauses, it must continue balancing its sovereign right to legislate with investor protection. By adopting transparent standards and shared risk mechanisms, both sides can operate with greater trust without reverting to outdated guarantees.

References

  • C. Dowuona-Hammond; T. Kojo Stephens; "From Total Immunization to an Economic Balancing Act: The Trajectory of Stabilization Clauses in Ghana's Petroleum Agreements", OGEL 2 (2019), www.ogel.org/article.asp?key=3811
  • Maersk Drillship IV Singapore PTE Ltd. v. The Commissioner-General, Ghana Revenue Authority, Writ no. J4/59/2024, delivered on 2nd April 2025.
  • Tullow Ghana Limited v The Republic of Ghana, ICC Arbitration 26579/AB/CPB