Protecting Against the Stroke of a Pen in African PPP: Stabilization Clauses, International Arbitration, and Regulatory Sandboxes
KEY TAKEAWAYS
- Regulatory and legal risk in African infrastructure is a structuring challenge, not an inherent feature of the continent. Stroke of the pen risk exists in every long-term infrastructure market in the world. What distinguishes many African contexts is the relative youth of PPP legal frameworks and the limited track record of investor protection enforcement through domestic courts.
- Stabilisation Clauses must be targeted at specific economic provisions, not designed to freeze entire legal frameworks.
- The arbitration seat is as important as the arbitration clause itself. An arbitration clause that refers disputes to an unsuitable seat or an unfamiliar set of procedural rules provides significantly less practical protection than the clause’s text implies.
- Regulatory Sandboxes are underutilised as an investment protection tool in African infrastructure. Most infrastructure investors and sponsors are aware of sandboxes in the fintech context but have not fully internalised their relevance to physical infrastructure projects, particularly in energy access, last-mile logistics, and connectivity. Kenya and Rwanda have developed sandbox-friendly frameworks that materially reduce regulatory risk for innovative infrastructure models.
- Legal de-risking must begin at pre-feasibility, not at the lender due diligence stage. By the time a project is seeking financing, the opportunity to negotiate the most important legal protections has often already passed.
DEFINITION
What Is Stroke of the Pen Risk in Infrastructure Finance?
Stroke of the pen risk refers to the possibility that a government or regulatory authority takes a unilateral action, through legislation, regulation, executive order, or administrative decision, that materially alters the economic conditions under which an infrastructure project was conceived, financed, and built. The term captures the essential asymmetry of the relationship between a long-term infrastructure investor and a sovereign government: the investor commits capital for 20 to 30 years on the basis of an agreed legal and regulatory framework, while the government retains, as a fundamental attribute of sovereignty, the power to change that framework at any point.
In infrastructure finance, the specific manifestations of stroke of the pen risk include changes to the tax regime that erode project returns, revocation or modification of licences and concessions, imposition of price controls that override agreed tariff structures, nationalisation or compulsory acquisition of project assets, changes to foreign investment regulations that restrict capital repatriation, and the introduction of new environmental or technical standards that require costly retrofitting of existing infrastructure.
The risk is not unique to Africa. Regulatory and political intervention in infrastructure has occurred in Europe, Latin America, and Asia. What distinguishes the African context is the combination of factors that makes the risk harder to price and allocate without specialist structuring: the relative youth of many PPP legal frameworks, the limited precedent for enforcement of investor protections in domestic courts, the frequency of government transitions that change regulatory priorities, and the pace of economic and technological change that creates pressure on regulatory frameworks designed for a different era.
Stroke of the pen risk is manageable. The instruments in this briefing exist precisely because the project finance industry has spent several decades developing methods for containing it. But management requires deliberate, specific action at the structuring stage. A PPP agreement that does not address stroke of the pen risk explicitly leaves the investor dependent on the goodwill of successive governments across a multi-decade project life. That is not a risk allocation. It is an absence of one.
Protecting Against the Stroke of a Pen in African PPP: Stabilization Clauses, International Arbitration, and Regulatory Sandboxes
This article is in BOH Infrastructure’s 2026 Sovereign Risk Outlook series. The full Outlook establishes that risk in Africa is overwhelmingly a perception problem rather than a structural one. This briefing focuses on the legal and regulatory structuring tools that transform that argument into durable contractual protection..
Executive Summary
Of all the risks that infrastructure investors cite when evaluating African projects, regulatory and legal risk is the one that provokes the deepest anxiety. Currency risk can be hedged. Construction risk can be insured. Political risk can be partially transferred to a multilateral institution. But the risk that a government simply changes the rules, rewrites the contract, or reverses a licence overnight feels qualitatively different. It feels arbitrary. It feels unquantifiable. And because it feels unquantifiable, it often functions as the final reason an investment committee declines an otherwise compelling African infrastructure opportunity.
This briefing argues that regulatory and legal risk in African infrastructure is neither unquantifiable nor unmanageable. It is a structuring challenge with well-established solutions that have been tested across decades of project finance transactions on the continent. Those solutions fall into three broad categories. Stabilisation Clauses embedded in PPP agreements protect the economic bargain struck at financial close against subsequent changes in law or regulation. International Arbitration provisions ensure that disputes between investors and host governments are resolved by neutral, internationally recognised tribunals rather than domestic courts that may be subject to political influence. Regulatory Sandboxes, an increasingly important and underutilised tool, provide protected legal environments within which innovative infrastructure models can operate without exposure to regulatory frameworks that were not designed for them.
Together, these three instruments form the legal and regulatory foundation of a bankable African infrastructure transaction. Without them, investors are exposed to what practitioners call the stroke of the pen risk: the possibility that a single government decision, made unilaterally and without commercial justification, can destroy years of development work and billions of dollars of invested capital. With them, that risk is contained, allocated, and in most cases effectively neutralised.
BOH Infrastructure’s legal de-risking advisory integrates all three instrument categories into transaction structuring from the earliest stages of project development, recognising that legal protection built into the original contract is exponentially more valuable than legal protection sought after a dispute has already arisen.
In 2015, the Government of Tanzania retroactively revised the fiscal terms of several large mining and natural resource contracts, imposing new royalty structures and local content requirements that had not existed when the projects were originally agreed. In 2021, the Government of Zambia terminated a longstanding power supply agreement with a private producer before its contractual expiry date, citing national energy policy changes. In Ghana, retrospective tax assessments against foreign-invested infrastructure projects have been a recurring source of investor-government tension across multiple administrations.
None of these situations are presented here as evidence that Africa is a uniquely hostile environment for infrastructure investment. Similar disputes have arisen in Spain, where the government retroactively reduced solar feed-in tariffs, triggering hundreds of arbitration claims from European investors. They have arisen in Argentina, in India, in Romania. Regulatory instability is a feature of long-term infrastructure investment everywhere, not a specifically African phenomenon.
What these situations illustrate is a universal truth of infrastructure finance: any project that commits capital for 25 years on the basis of a regulatory framework is exposed to the risk that the framework changes. The question is not whether to accept this exposure. The question is how to structure it so that the investor is protected when it occurs, and so that the deterrent effect of that protection reduces the probability that it occurs at all.
The three instruments covered in this briefing are the practitioner’s answer to that question.
The Legal Foundation of a Bankable PPP
Why Legal Structure Matters as Much as Financial Structure
Infrastructure project finance practitioners spend considerable time and energy on financial modelling, capital stack design, and credit enhancement structuring. The legal architecture of the PPP agreement and the concession framework tends to receive less attention from sponsors and investors, partly because it is less immediately quantifiable and partly because it is perceived as the domain of specialist lawyers rather than investment professionals.
This perception is mistaken, and it is expensive. The financial structure of an infrastructure project determines how returns are generated and distributed in a normal operating scenario. The legal structure determines what happens when something goes wrong: when a government changes its mind, when a dispute arises over contract interpretation, when a new administration inherits a concession agreement it did not negotiate and does not feel bound by. In the long and complex lifecycle of an African infrastructure project, the legal structure is tested repeatedly and in ways that no financial model can fully anticipate.
A project with excellent financial structure and weak legal structure is a project that will perform well until it doesn’t, and will have limited recourse when it doesn’t. A project with solid legal protections embedded from the beginning has a fundamentally different risk profile across its full lifecycle, not merely because those protections will be invoked, but because their presence changes the behaviour of the government counterparty throughout the life of the contract.
The Three Layers of Legal De-risking
Effective legal de-risking in African PPPs operates at three distinct levels. The first is contractual: the PPP agreement itself must contain provisions that protect the economic bargain from subsequent regulatory change. This is the domain of Stabilisation Clauses. The second is jurisdictional: disputes arising under the contract must be resolvable by a neutral, internationally recognised body rather than a domestic court subject to political influence. This is the domain of International Arbitration. The third is regulatory: the project must operate within a legal framework that is fit for its business model, particularly when that model is innovative. This is the domain of Regulatory Sandboxes.
Each layer addresses a different dimension of regulatory and legal risk. A project protected at all three levels has a legal architecture that institutional investors, international lenders, and development finance institutions can rely upon across the full project lifecycle.
Instrument 1: Stabilisation Clauses
What a Stabilisation Clause Is
A Stabilisation Clause is a contractual provision embedded in a PPP agreement or concession contract that limits or allocates the risk that changes in the host country’s legal or regulatory framework will adversely affect the project’s economics after financial close. Its fundamental purpose is to preserve the economic bargain that was struck at the time the project was agreed: the investor commits capital on the basis of a defined set of rules, and the stabilisation clause provides contractual recourse if those rules change in ways that damage the investment.
Stabilisation clauses have existed in international investment contracts for several decades, with roots in the natural resources and extractives industries where long-term contracts are exposed to precisely this kind of regulatory evolution risk. In the infrastructure context, they have become standard features of bankable PPP agreements across most African markets, required as a condition of financing by multilateral development banks and a growing number of commercial lenders.
Types of Stabilisation Clauses
Not all stabilisation clauses provide the same level of protection, and understanding the distinctions between the main types is essential for structuring appropriate legal protection in any given transaction.
A Freezing Clause, the most absolute form of stabilisation provision, purports to freeze the legal framework applicable to the project at the date of the agreement. Any new law or regulation that would adversely affect the project simply does not apply to it. The project operates under the regulatory regime that existed when it was conceived, regardless of how the broader national framework evolves. Freezing clauses provide the strongest theoretical protection but are increasingly difficult to negotiate with sophisticated African governments, which reasonably resist binding themselves to a static legal framework for 25 years. They are also of questionable validity in some African legal systems where legislative sovereignty principles limit the government’s power to bind future parliaments.
An Equilibrium or Economic Stabilisation Clause, also referred to as an intangibility clause, takes a more nuanced approach. Rather than freezing the legal framework, it requires that if a change in law or regulation adversely affects the project’s economics, the parties must renegotiate to restore the original economic equilibrium. The government retains its sovereign right to change its laws, but it accepts an obligation to compensate the investor for any resulting economic impact on the project. This approach is more legally sustainable in African jurisdictions and more acceptable to government counterparties, because it separates the regulatory right from the economic consequence.
A Hybrid Clause combines elements of both approaches, freezing the framework for specific, defined provisions, typically tax rates, royalty structures, and tariff adjustment mechanisms, while leaving other regulatory areas subject to the equilibrium obligation. This is increasingly the preferred approach in well-structured African PPP transactions, because it provides maximum protection in the areas of greatest financial sensitivity while preserving government flexibility on matters of genuine regulatory evolution.
Negotiating Stabilisation Clauses in African PPP Contexts
The negotiation of stabilisation clauses requires careful calibration of what is being protected and how. Over-reaching stabilisation clauses that attempt to freeze the entire legal framework, including environmental standards, labour laws, and public health regulations, will be resisted by governments and by the multilateral development banks whose involvement is often a condition of financing. Development finance institutions, including the IFC and the African Development Bank, apply their own environmental and social standards to projects they finance and will not accept stabilisation clauses that effectively exclude the application of improved standards over the project life.
The BOH approach to stabilisation clause negotiation focuses protection on the specific provisions that directly determine project economics: the tariff structure and adjustment mechanism, the tax and royalty regime applicable to the project, the foreign exchange and repatriation rights of the project company, and any government payment obligations under the PPP agreement. For these provisions, maximum stabilisation protection is appropriate and achievable in most African markets. For broader regulatory matters, the equilibrium mechanism provides adequate protection without creating a clause that governments will resist, courts will be reluctant to enforce, or development finance institutions will require to be watered down as a condition of their participation.
Stabilisation Clauses and Sovereign Immunity
A stabilisation clause is only as valuable as the investor’s ability to enforce it. In domestic court proceedings in many African jurisdictions, a government can invoke sovereign immunity as a defence against commercial claims, potentially rendering a stabilisation clause unenforceable even if its terms are clear. This is one of the primary reasons that stabilisation clause protection must be combined with the second instrument in this briefing: international arbitration.
A stabilisation clause that refers disputes to international arbitration under internationally recognised rules, seated in a neutral jurisdiction, eliminates the sovereign immunity problem by removing the dispute from the domestic court system entirely. The combination of a robust stabilisation clause and a well-drafted arbitration provision is the foundation of durable regulatory risk protection in African PPP transactions.
Instrument 2: International Arbitration
Why Domestic Courts Are Insufficient for African Infrastructure Disputes
The proposition that disputes arising from an African infrastructure PPP should be resolved by the courts of the host country is, from a commercial lender’s perspective, nearly always unacceptable. This is not a statement about the integrity or capability of African judiciaries in general. It is a statement about the structural conflict of interest that exists when a domestic court is asked to rule on a dispute between a foreign investor and the host government.
African courts are part of the state apparatus. Their judges are appointed by, and in some jurisdictions removable by, the executive branch of the government that is a party to the dispute. Court proceedings in many African jurisdictions can take years or decades to resolve. Enforcement of court judgments against the state through domestic courts is frequently difficult or impossible. And even where a domestic court makes a commercially sound ruling in favour of a foreign investor, the ruling applies only within the host jurisdiction and may not be enforceable against project assets or government assets held elsewhere.
International arbitration resolves these problems by transferring dispute resolution to a neutral, internationally recognised forum operating under procedural rules agreed by both parties, seated in a jurisdiction chosen for its neutrality and legal sophistication, and producing awards enforceable in 172 countries that are signatories to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.
The Major International Arbitration Forums
Infrastructure PPP disputes in Africa are most commonly referred to one of three principal arbitration forums, each with its own procedural rules and institutional characteristics.
The International Centre for Settlement of Investment Disputes, administered by the World Bank Group, is specifically designed for disputes between foreign investors and host states. It operates under its own convention, the ICSID Convention, to which most African states are signatories, and produces awards that are enforceable in all member states without requiring domestic court confirmation. ICSID is the preferred forum for disputes involving state entities as direct parties and for transactions in which the multilateral context of the World Bank Group’s involvement is relevant to the proceeding. Its principal limitation is that it is available only for investment disputes between nationals of one member state and another member state, which means it is not available for disputes between a project company incorporated in the host country and the host government.
The International Chamber of Commerce International Court of Arbitration, known as the ICC, is the most widely used commercial arbitration institution globally and the most common forum for African infrastructure project disputes. Its procedural rules are well-developed, its pool of available arbitrators is deep, and its awards are enforceable under the New York Convention. The ICC allows parties to choose their arbitration seat independently of where the arbitration is administered, providing maximum flexibility in selecting a neutral and legally sophisticated jurisdiction.
The London Court of International Arbitration, the LCIA, is particularly favoured in transactions with significant UK-based lender or investor participation, partly because English law is widely chosen as the governing law of infrastructure finance documents and partly because the LCIA’s arbitrator appointments process and procedural rules are familiar and trusted by UK financial institutions. London-seated arbitrations under the LCIA rules produce awards enforceable under the New York Convention and benefit from the well-developed English law body of precedent on arbitration-related matters.
Choosing the Arbitration Seat
The arbitration seat is distinct from the physical location where hearings take place. The seat determines the procedural law applicable to the arbitration, the courts that supervise the arbitral process, and the ease with which awards can be enforced internationally. For African infrastructure transactions, the three most commonly chosen seats are London, Paris, and Mauritius.
London is the most common choice for transactions with significant European and North American investor and lender participation. English law is sophisticated, arbitration-friendly, and well-understood by the international project finance community. London-seated awards are globally enforceable and London courts have a well-established tradition of supporting rather than interfering with arbitral processes.
Paris, seat of the ICC’s headquarters, is preferred in Francophone African markets where French law has influenced the domestic legal framework. French arbitration law is among the most arbitration-friendly in the world, and Paris-seated awards benefit from a well-developed body of case law supporting international commercial arbitration.
Mauritius has emerged as an increasingly important seat for intra-African disputes and for transactions where an African seat is preferred for reasons of optics, cost, or government counterparty acceptance. The Mauritius International Arbitration Centre operates under modern arbitration rules, Mauritius is a signatory to the New York Convention, and its legal system offers a sophisticated blend of common law and civil law that makes it accessible to parties from diverse legal traditions. For transactions involving Chinese or Indian investors, or where the government counterparty is resistant to a European seat, Mauritius is frequently the optimal compromise.
Investor-State Dispute Settlement and Bilateral Investment Treaties
Beyond contractual arbitration provisions, African infrastructure investors have access to an additional layer of protection through Bilateral Investment Treaties, known as BITs. A BIT is an agreement between two states that provides investors from one state with certain minimum standards of treatment, including protection against expropriation without compensation, in the territory of the other state. Most BITs include investor-state dispute settlement provisions that allow a foreign investor to initiate arbitration directly against the host state, without requiring a contractual arbitration clause in the project agreement.
Africa hosts a substantial network of BITs between African states and investor-origin countries. The United Kingdom, France, Germany, the Netherlands, the United States, and China all have active BIT programmes with African states. Mauritius has an extensive BIT network with African countries and is frequently used as a holding structure jurisdiction precisely because its BITs provide an additional layer of investor-state protection for investments made through Mauritius-incorporated entities.
BOH Infrastructure conducts a BIT analysis for every African infrastructure transaction as part of its legal de-risking review, identifying available treaty protections and advising on the optimal corporate structure to maximise access to those protections. In many cases, the availability of BIT protection materially affects the choice of holding company jurisdiction and the structuring of the equity investment.
Instrument 3: Regulatory Sandboxes
What a Regulatory Sandbox Is
A Regulatory Sandbox is a formal framework established by a government or regulator that allows businesses to test innovative products, services, or business models in a live market environment under relaxed regulatory requirements, with the regulator’s explicit knowledge and oversight. The concept originated in financial services regulation but has been adopted across a growing range of sectors including energy, transport, healthcare, and telecommunications.
In the infrastructure context, a Regulatory Sandbox provides a protected legal environment within which new infrastructure models can operate, generate revenue, and demonstrate viability without being exposed to regulatory frameworks that were designed for an earlier generation of technology or business structure. For an investor or sponsor developing an innovative infrastructure project in Africa, a sandbox can be the difference between a project that can proceed within a defined legal framework and one that faces indefinite regulatory uncertainty.
Why Regulatory Sandboxes Are Particularly Relevant to African Infrastructure
Africa is home to some of the world’s most innovative infrastructure development. Off-grid solar and battery storage systems are providing electricity to communities that the traditional grid has never reached. Drone delivery networks are in active deployment across several African markets, providing last-mile logistics in areas inaccessible to conventional road transport. Mobile money platforms have transformed financial infrastructure in ways that no traditional banking regulation anticipated. Mini-grids and distributed energy systems are creating new electricity market structures that do not fit comfortably within regulatory frameworks designed for centralised, utility-operated generation and distribution.
Each of these innovations creates a regulatory challenge. The existing framework may not recognise the new business model, may impose requirements designed for a different scale or technology type, or may simply be silent on how the innovation should be treated. In a hostile or uncertain regulatory environment, this ambiguity can freeze investment by creating the risk that a project that is legally grey today could be found illegal or non-compliant tomorrow.
A Regulatory Sandbox addresses this by providing explicit, time-limited permission for the innovation to operate under specified conditions while the regulator develops a permanent framework. The investor knows that its project is operating lawfully. The regulator gains access to real-world data about the innovation’s performance, risks, and consumer impact without having to commit to permanent regulatory treatment before it has sufficient information to design appropriate rules. The sandbox converts regulatory uncertainty, which is a barrier to investment, into regulatory engagement, which is a pathway to a permanent and favourable framework.
Kenya and Rwanda as Leading Sandbox Jurisdictions
Two African markets have established particularly advanced Regulatory Sandbox frameworks relevant to infrastructure investment.
Kenya has implemented regulatory sandbox provisions across multiple sectors. The Central Bank of Kenya’s Regulatory Sandbox has been widely cited as a model for fintech innovation, but its underlying framework has influenced regulatory thinking across other infrastructure-adjacent sectors. The Kenya Energy Regulatory Authority has developed framework provisions for mini-grid operators and off-grid energy service companies that incorporate sandbox-style piloting periods, allowing new distribution models to demonstrate viability before being subjected to the full licencing requirements designed for utility-scale operators. The Communications Authority of Kenya has similarly enabled piloting of innovative connectivity infrastructure models under controlled conditions.
Rwanda has developed one of the most explicitly innovation-friendly regulatory environments on the continent. The Rwanda Utilities Regulatory Authority operates a streamlined licencing process with built-in sandbox provisions for novel infrastructure models. Rwanda’s approach to drone regulation, facilitated through its partnership with Zipline for drone delivery of medical supplies, provided a model for how a Regulatory Sandbox can enable genuinely transformative infrastructure innovation to scale within a clear legal framework. The government’s broader digital economy agenda creates a political environment in which regulatory innovation is actively encouraged rather than merely tolerated.
For infrastructure sponsors developing projects in these markets, the existence of sandbox frameworks materially reduces the regulatory component of project risk. For sponsors developing projects in markets where sandbox frameworks do not yet exist, BOH’s advisory work includes engaging with the relevant regulators to explore whether a bespoke pilot or waiver framework can be established for the specific project.
Negotiating a Bespoke Regulatory Framework
Not every African market has a formal Regulatory Sandbox programme, and not every innovative infrastructure project can wait for one to be established. In these situations, the practical alternative is to negotiate a bespoke regulatory framework for the specific project, typically through the PPP agreement or a dedicated project legislation, that provides the functional equivalent of sandbox protection: explicit permission to operate under defined conditions, a clear pathway to permanent licencing, and protection against retroactive regulatory challenge during the development and construction phases.
This approach requires sophisticated engagement with the relevant regulatory authority and, frequently, the legislature. It is more complex and time-consuming than accessing a pre-established sandbox programme. But the result, a project that operates under an explicitly authorised legal framework rather than in a regulatory grey zone, is substantially more bankable and substantially more resilient to the stroke of the pen risk than a project whose legal status depends on the continued goodwill of a regulator.
BOH Infrastructure has developed a regulatory engagement framework for African markets that identifies the appropriate regulatory interlocutors, maps the existing framework’s gaps and ambiguities relevant to the project, and supports sponsors in negotiating the regulatory approvals, waivers, or bespoke framework provisions needed to achieve bankable legal status.
The Intersection of All Three Instruments
The most sophisticated African infrastructure transactions do not treat Stabilisation Clauses, International Arbitration, and Regulatory Sandboxes as alternative options. They deploy all three in an integrated legal architecture where each instrument reinforces the others.
A project operating under a Regulatory Sandbox framework needs Stabilisation Clauses to protect against the risk that the sandbox conditions are changed or revoked before the project reaches commercial scale. It needs International Arbitration provisions to ensure that if the sandbox framework is retroactively altered, the investor has a credible enforcement mechanism that does not depend on the domestic court system. Conversely, a project protected by strong Stabilisation Clauses and robust arbitration provisions benefits from operating under a clear Regulatory Sandbox framework because the sandbox eliminates the ambiguity that would otherwise give a government a pretext for regulatory intervention.
Consider a mini-grid electricity project in East Africa. The project operates outside the licensed distribution territory of the national utility, serving rural communities under a framework that was not originally contemplated by the country’s electricity regulation. Without a Regulatory Sandbox or bespoke authorisation, the project’s legal status is ambiguous. Without Stabilisation Clauses, the economics of the project are exposed to tariff intervention or new licencing requirements. Without International Arbitration, the investor’s ability to enforce its rights against a government counterparty that changes the rules depends on the same courts that the government controls.
With all three instruments in place, the picture is fundamentally different. The Regulatory Sandbox or bespoke authorisation gives the project explicit legal status and a pathway to permanent licencing. The Stabilisation Clauses protect the tariff structure and the operating conditions agreed at financial close. The International Arbitration provision ensures that if either the sandbox framework or the stabilised conditions are altered in breach of the PPP agreement, the investor has a credible, internationally enforceable remedy. The stroke of the pen risk is not eliminated, but it is contained, priced, and allocated in a way that commercial lenders, development finance institutions, and institutional investors can accept.
The Role of Governing Law
Choosing the Law That Governs the PPP Agreement
The choice of governing law for the PPP agreement and the project finance documents is closely related to the choice of arbitration seat and is equally important for the durability of the legal protections described in this briefing.
International project finance lenders almost universally prefer that finance documents, including facility agreements, security documents, and intercreditor agreements, be governed by English law or New York law. Both legal systems have deep bodies of commercial law precedent, sophisticated court systems for resolving ancillary questions, and are widely understood by global financial institutions. English law is the more common choice in African infrastructure transactions, partly because of the historical ties between many African legal systems and English common law and partly because English law courts have a well-developed body of project finance precedent.
For the PPP agreement itself, the choice of governing law is more nuanced. Many African governments insist that the PPP agreement be governed by the domestic law of the host country, as an expression of sovereignty and to ensure that the agreement is interpreted within the local legal context. This is generally acceptable in practice provided that the International Arbitration clause ensures that disputes are resolved externally rather than in domestic courts, and that the Stabilisation Clauses address the most likely vectors of domestic law change. A PPP agreement governed by Nigerian law but with an ICC arbitration clause seated in London and a robust stabilisation framework is substantially more protective than one governed by English law but with domestic court jurisdiction.
BOH advises on governing law selection based on the specific host country framework, the composition of the lender group, the nature of the government counterparty, and the specific risk categories identified in the legal de-risking review. The combination of governing law, arbitration seat, and Stabilisation Clause drafting is a single integrated legal design decision, not three separate choices.
Have you read?
- Beyond the Devaluation Fear: How Indexed Tariffs, Currency Sweeps, and Offshore Escrow Protect Your African Infrastructure Returns
- From B-Rated to Bankable: A Technical Guide to PRGs, MIGA Guarantees, and Blended Finance in African Infrastructure
- Ghost Projects and How to Avoid Them: AI Monitoring, Satellite Oversight, and the BOH Quality Assurance Process
Practical Challenges and How BOH Addresses Them
Government Resistance to Stabilisation and Arbitration Provisions
The most common practical challenge in negotiating the legal protections described in this briefing is government resistance. Some African governments resist stabilisation clauses on the grounds that they limit sovereignty, resist international arbitration on the grounds that it is a neo-colonial mechanism that undermines domestic legal institutions, and resist regulatory sandbox frameworks on the grounds that they create two-tier regulatory systems that favour foreign investors.
These objections are not always made in bad faith. The tension between investor protection and regulatory sovereignty is genuine, and the history of international investment law includes cases where investor protection provisions have been invoked in ways that arguably went beyond their legitimate purpose.
BOH’s approach to this challenge is to reframe the negotiation from the beginning. Stabilisation clauses are not presented as limitations on government authority. They are presented as predictability mechanisms that make projects bankable by giving lenders the certainty they require to commit long-term debt. Without stabilisation, the project cannot be financed on acceptable terms. Without acceptable financing, the infrastructure is not built. The government’s choice is not between stability and sovereignty. It is between infrastructure delivered under an investor-protective legal framework and infrastructure that is not delivered at all.
International arbitration is similarly reframed not as a rejection of African legal institutions but as a practical necessity imposed by the requirements of international capital markets. If the project is to access financing from European commercial banks, US development finance institutions, and global institutional investors, those parties require a dispute resolution mechanism that their own regulators, investors, and legal counsel can assess and accept. Domestic court jurisdiction is not acceptable to international capital markets regardless of the quality of the specific court system in question. This is a market reality, not a value judgment about African justice systems.
The Timeline Problem
Obtaining the legal protections described in this briefing takes time, and time is frequently the resource most under pressure in infrastructure project development. Stabilisation clause negotiations with finance ministries and legal drafting with PPP units can take months. BIT analysis and holding structure design add further complexity. Regulatory sandbox engagement with sector regulators requires relationship-building that cannot be compressed.
BOH addresses this by conducting legal de-risking work in parallel with rather than sequentially after financial and technical feasibility work. The legal risk mapping, the identification of required stabilisation provisions, the BIT analysis, and the regulatory engagement strategy are all initiated at pre-feasibility alongside the financial modelling and the technical assessments. By the time a project reaches the stage of seeking financing, the legal architecture should already be substantially agreed. The lender’s legal due diligence process is then a confirmation of existing protections rather than a negotiation of them.
Conclusion
The stroke of the pen is real. Governments do change the rules. Regulatory frameworks do evolve in ways that affect project economics. Administrative decisions that seemed stable at financial close can be reversed by a subsequent administration. These are features of long-term infrastructure investment everywhere in the world, and Africa is not unique in presenting them.
What Africa does present, in many markets, is a legal and regulatory environment that is younger, less tested, and more subject to rapid evolution than the frameworks of developed market infrastructure investment. This makes the quality of legal structuring more important, not less, than it would be in a more stable regulatory context. The investor who relies on goodwill and precedent to protect a 25-year African infrastructure investment is taking a risk that contractual protection could eliminate.
Stabilisation Clauses, International Arbitration provisions, and Regulatory Sandboxes are not exotic protections for exceptional circumstances. They are the standard legal architecture of any African infrastructure transaction that aspires to be genuinely bankable. Their absence does not merely expose the investor to regulatory risk. It signals to lenders and to markets that the transaction has not been structured with the rigour that long-term infrastructure investment requires.
BOH Infrastructure’s legal de-risking practice is built on the conviction that the best legal protection is the protection that is never invoked, because its presence changed the behaviour of the counterparty from the first day of the contract. That deterrent effect, multiplied across a portfolio of well-structured African infrastructure transactions, is one of the most powerful tools available for making the continent’s infrastructure ambitions a commercial reality.
This article is part of BOH Infrastructure’s 2026 Sovereign Risk Outlook. The anchor report establishes why African infrastructure risk is a perception problem and introduces the full BOH de-risking framework across all four risk dimensions. Read the full 2026 Sovereign Risk Outlook.
Currency de-risking is Cluster 1 in this series. For a practical guide to Currency Sweeps, Indexed Tariffs, and Offshore Escrow for African infrastructure transactions, read: Beyond the Devaluation Fear.
Currency structuring is one pillar of bankability. The second is credit enhancement. Read our full briefing on how MIGA guarantees, AfDB instruments, and blended finance make a B-rated project look like an A-rated investment. → From B-Rated to Bankable: A Technical Guide to PRGs and Blended Finance
FAQ: Protecting Against the Stroke of a Pen in African PPP
What is a Stabilisation Clause and is it enforceable against an African government?
A Stabilisation Clause is a contractual provision in a PPP or concession agreement that protects the investor against adverse changes in the host country’s legal or regulatory framework after financial close. Its enforceability depends on several factors, including the governing law of the agreement, the specificity of the provisions being stabilised, and critically, the dispute resolution mechanism. A stabilisation clause submitted to domestic court jurisdiction in the host country may be difficult to enforce, both because domestic courts may be reluctant to rule against the government and because sovereign immunity doctrines can limit the remedies available. A stabilisation clause combined with international arbitration under ICSID, ICC, or LCIA rules and seated in a neutral jurisdiction is substantially more enforceable, because the arbitral award is enforceable in 172 countries under the New York Convention and does not depend on the domestic court system for its validity or execution.
Why is international arbitration preferred over domestic courts for African PPP disputes?
International arbitration is preferred because it eliminates three specific vulnerabilities that domestic court proceedings create for foreign infrastructure investors in African markets. First, it removes the structural conflict of interest that arises when a domestic court, part of the state apparatus, is asked to adjudicate a dispute between a foreign investor and the host government. Second, it avoids the delays and procedural uncertainties associated with court systems in many African jurisdictions, where infrastructure disputes can take a decade or longer to reach final resolution. Third, it produces awards that are internationally enforceable under the New York Convention, allowing the investor to seek execution against government assets held outside the host country if necessary. This is a practical enforcement tool that domestic court judgments, even when favourable, typically cannot provide.
What is the difference between ICSID arbitration and ICC arbitration for African infrastructure disputes?
ICSID is a World Bank Group institution specifically designed for investment disputes between foreign investors and host states. Its jurisdiction requires that both the investor’s home state and the host state be signatories to the ICSID Convention, and it is available only for investment disputes, not purely commercial disagreements. ICSID awards are enforceable in member states without requiring domestic court confirmation. ICC arbitration is a general commercial arbitration mechanism available for any contractual dispute regardless of the parties’ nationalities. It requires a contractual arbitration clause agreeing to ICC rules and a specified seat. ICC awards are enforceable under the New York Convention. For disputes involving a direct claim against a host state for investment treaty breaches, ICSID is typically preferred. For disputes arising from the PPP agreement itself, where the government is acting as a contracting party rather than a sovereign, ICC or LCIA arbitration is more commonly used in African infrastructure transactions.
Can Bilateral Investment Treaties provide protection even without a specific arbitration clause in the PPP agreement?
Yes, in many cases. A Bilateral Investment Treaty between the investor’s home state and the host country provides minimum standards of investment protection, including protection against expropriation without compensation and in some treaties the right to fair and equitable treatment, that apply independently of any contractual agreement. Most BITs include investor-state dispute settlement provisions that allow a foreign investor to initiate international arbitration directly against the host state to enforce these treaty rights, without needing an arbitration clause in the PPP agreement. This means that even a project whose PPP agreement has inadequate dispute resolution provisions may have access to international arbitration through the applicable BIT, provided the corporate structure of the investment entity is domiciled in a state with an applicable treaty with the host country. BIT analysis is therefore an essential component of legal de-risking and should inform holding structure decisions at the earliest stage of project development.
How should an infrastructure sponsor approach regulatory engagement in an African market where no sandbox framework exists?
Where no formal sandbox framework exists, the sponsor has two primary options. The first is to negotiate a bespoke regulatory authorisation for the specific project through the PPP agreement or project-specific legislation, creating the functional equivalent of sandbox protection within a dedicated legal instrument. This requires detailed engagement with the relevant sector regulator and, frequently, with the legislature or cabinet depending on the approval pathway required. The second is to work with the regulator and other market participants to advocate for the development of a formal sandbox framework for the sector, positioning the sponsor’s project as a pilot that can contribute operational data to the framework development process. BOH Infrastructure supports both approaches and has developed a regulatory engagement methodology for African markets that begins with a detailed mapping of the existing framework’s gaps and ambiguities, proceeds through structured dialogue with the regulator, and concludes with a defined legal instrument that gives the project bankable regulatory status.
How does legal de-risking interact with credit enhancement instruments like PRGs and MIGA?
Legal de-risking and credit enhancement are deeply interdependent and should be designed as an integrated package rather than separate workstreams. A MIGA political risk insurance policy that covers breach of contract by the host government is substantially more valuable when the contract being protected contains robust Stabilisation Clauses, because the stabilisation provisions define precisely what constitutes a breach and remove any ambiguity about whether a particular government action falls within the insured risk category. A World Bank PRG covering a government payment obligation under a PPP agreement is more effective when the PPP agreement contains an international arbitration clause, because the arbitration clause provides the legal enforcement mechanism that the PRG is designed to backstop rather than replace. Similarly, MIGA’s underwriting process includes a review of the legal framework governing the investment, and projects with strong stabilisation and arbitration provisions are assessed as lower risk, which can translate into lower insurance premiums and faster underwriting. BOH structures legal de-risking and credit enhancement as a single integrated advisory workstream precisely because their effectiveness multiplies when they are designed together.
How does a Regulatory Sandbox actually protect an infrastructure investor?
A Regulatory Sandbox protects an infrastructure investor by converting regulatory ambiguity into explicit, documented authorisation. Without a sandbox, an innovative infrastructure project may be operating in a legal grey zone where the existing regulatory framework does not clearly apply to the new business model. This ambiguity creates the risk that a regulator or government could, at any point, determine that the project is non-compliant and require it to cease operations or fundamentally change its model. A sandbox framework grants the project explicit permission to operate under defined conditions during the sandbox period, with a clear pathway to permanent licencing if it demonstrates compliance with agreed performance standards. This transforms the regulatory risk from an open-ended uncertainty into a defined and manageable obligation. The sandbox period also gives the investor the opportunity to influence the design of the permanent regulatory framework, ensuring that when permanent rules are established, they reflect the operational realities of the business model rather than being designed around older technologies.
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