International Arbitration and Project Finance in Developing Countries: Blurring the Public/Private Distinction

Abstract

Project Finance has become an increasingly attractive technique for financing infrastructure projects in developing countries over the last twenty years. Furthermore, the use of project financing raises difficult legal issues with respect to the ability of developing countries' governments to control the provision of public services that are intimately connected to these infrastructure projects. Sponsors of project finance transactions have been relatively successful in dealing with these legal issues by negotiating for international arbitration as the primary forum for resolving potential disputes with the host government. However, as the Himpurna and Patuha power projects in Indonesia reveal, a disciplinary bias exists in the minds of international arbiters with respect to project finance disputes between foreign investors and state entities. This bias has important implications for the future of economic relations between rich and poor nations and the prospects for economic growth in developing countries.