Statutory instability

An investor commits substantial capital for a project on the basis of compliance with an agreed plan to deal with the environmental impact or in compliance with established statutory provisions. The Government may later wish to alter its requirements for reasons such as (a) it may have decided over a period of time that stricter standards should apply; (b) new data may have been produced showing the existence of danger or deleterious consequences not previously known; or (c) some unforeseen physical events or dimensions may have become apparent in the project itself. For investors, the prospect of a Government changing the rules of the game after their investment is in place is alarming, and may deter investment in some instances, particularly foreign investment in developing countries with deficient, untested or developing statutory codes. If there is a drastic change in the rules after the investment has been made, the economic assumptions on which the decision to develop was taken may be undermined.