¶ … Commercial Contract Law to Increase Oil Investment in Kuwait
When it comes to the industries of natural resources and energy, the law of investment protection is particularly of great concern. According to the statistics of July 2013, it was revealed that 25% of the cases that have been registered with ICSID have addressed the issues concerning gas, oil and mining sectors. Moreover, another 12% of the cases are relevant to other energy sectors that include electric power.
Investments in the energy sector, including oil, are usually very capital-intensive as well as long-term in nature. Moreover these investments are regulated at the greatest levels, and are of concern for the public, since valuable resources are involved along with the essential services. These are the main reasons why such investments are extremely vulnerable to national and governmental interface. The aforementioned attributes of investment in the energy sector increase the possibility of conflicts arising out of changing laws and regulatory policies over the duration of a project.
Considering the nature of such investments, many activities in the sector of energy will normally succeed for protection as a part of applicable investment contracts. Disputes can surface in association with grey areas that include hedging arrangements and pure services and sales contracts. In the aforementioned circumstances, changes will be made with respect to the specific nature of activities as well as the specific definition of an eligible "investment" pertaining to the applicable investment agreement.
Oil has always been the most precious natural resource of the State of Kuwait. According to the Constitution of the country, the State is the owner of all the oil resources, and controls these resources as well. However, the State alone does not have the power to exploit, safeguard and utilize these oil resources, as it has been stated in the Kuwaiti Constitution, Article 21; Law No. 1 of 1962. Considering that, the right to monopolies, or concessions for the exploitation of the natural resources of Kuwait, which includes oil, can only be created by the presence of a law, and that too for a restricted period of time, as it has been stated in the Kuwaiti Constitution; Article 152 and 153.
In the year 2012, Kuwait intended to amend its foreign direct investment law, since the producer of Persian Gulf oil embarked up to a $111 billion plan so as to modernize the Kuwaiti economy, as it was reported by a government official. The head of the Kuwait Foreign Investment Bureau, Sheikh Meshaal Jaber Al-Ahmad Al-Sabah, stated that the foreign investors that come to Kuwait to look for the achievement of important licenses a very hard and prolonged procedure, as well as to get the required land for their projects. He further went on to say that the suggested amendment should cover up for the pitfalls in the law.
The State of Kuwait expects the private investors in oil to make a contribution almost half of the four-year development program, which started in the fiscal year 2010-2011, in order to make the oil-reliant company economy of Kuwait even more diversified. Kuwait passed the foreign direct investment law in the year 2001, so as to make the foreign ownership limits lenient, and the State is looking out for investments in projects that include an oil refinery worth of $14 billion. In the year 2007, the parliament of Kuwait also passed a law pertaining to the reduction of tax burden on the international companies, for the first time in a time period of more than 50 years. In the same year, a law was also passed to reduce the corporate tax or foreign companies to 15%. The tax rate previously was 55%. In the year 2010, Kuwait was considered to be the lowest receiver of foreign direct investment among the six Gulf Cooperation Council states, even though it was the fourth-biggest producer of oil in the Organization of Petroleum Exporting Countries. The direct foreign investment of Kuwait was noted to be $6.5 billion, as stated in the data on the United Nations Conference on Trade and Development website. The biggest economy in Arab was Saudi Arabia, with a direct foreign investment of $170.5 billion, United Arab Emirates named second with $76.2 billion.
When the Constitution was drafted to include the clauses, which includes the private sector as well as the foreign oil companies were in control of the interests. Moreover, the private sector also has rights in Kuwait oil resources that were subjected to pursuant to many different...
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