A new Council of Ministers (“CoM”) Regulation No. 590/2026 to Provide for Compensation Commitments to Investors (the “Regulation”) introduces a framework under which the Minister of Finance may issue binding compensation commitments on behalf of the Federal Government to support strategic investments. Its significance lies not merely in the availability of a government undertaking, but in the possibility of allocating selected political and public-sector counterparty risks in a manner that supports investment financing. Whether the mechanism proves bankable will depend on eligibility decisions, the drafting of individual commitment agreements and the way important procedural uncertainties are resolved. In this issue of our legal update, we consider the key provisions of the Regulation and the implications for strategic infrastructure investments in Ethiopia.
Introduction
Long-term private investments in infrastructure and productive sectors frequently depend on policy decisions, public infrastructure and purchases by state-owned enterprises or other public-sector offtakers. The creditworthiness of the offtaker and the allocation of sovereign-related risks can be decisive in securing financing. Central to this is the “bankability” of the project. Bankability generally refers to the acceptability of the project’s structure, revenue stream, contractual terms and risk allocation to lenders.
Ethiopian law currently protects investors against expropriation under Investment Proclamation No. 1180/2020 (the “Investment Proclamation”). Separately, the Public-Private Partnership Proclamation No. 1076/2018 (as amended) (the “PPP Proclamation”) establishes a structured route for procuring PPP projects and authorizing government support. The PPP Proclamation authorizes the Ministry of Finance (“MoF”), subject to value for money justification and the prior approval of the PPP Board, to provide a range of economic support and guarantees. These include direct payments to the private party, such as availability payments, cash subsidies, capital grants, minimum traffic or revenue guarantees, and minimum off-take and guarantees for the performance of the public entity obligations under the project agreement. However, not every strategic investment that involves a commercial relationship with a public entity will be procured as a PPP. Equally, the existence of an offtake agreement with a public entity does not mean that the PPP framework does not apply.
Rationale
The Regulation addresses the financing gap for infrastructure projects that sit at the intersection of these two regimes: projects designated as strategic investments that are not procured as PPPs, but whose bankability still depends on government support. The Regulation is issued under Article 17 of the Investment Proclamation, which governs investment incentives, and Article 50(1) of the Financial Administration Proclamation No. 648/2009, which authorizes the Minister of Finance to guarantee the performance of obligations on behalf of the Federal Government. In this way, it links investment promotion to the Government’s authority to assume and manage contingent fiscal obligations. The Regulation is best understood as a complementary, gap-filling framework targeted at “strategic investments” and not a wholesale replacement for statutory investor protections, PPP approvals or ordinary contractual risk allocation.
Key Concepts and Considerations
Eligibility and authority: The Regulation applies to commitment documents signed by the Minister of Finance on behalf of the Federal Government in respect of strategic investments. A strategic investment is one that CoM or the Ethiopian Investment Board (“EIB”) considers essential for national development priorities, economic competitiveness, infrastructure development and connectivity, or technology transfer. Both domestic and foreign investors may potentially benefit. The Minister of Finance signs the commitment on behalf of the Government, following the prescribed review and written confirmation by the Ministry of Justice. A strategic designation and an acceptable commitment document are therefore both required; designation should not be mistaken for an automatic entitlement to support.
Commitment Document: a commitment document may be “any agreement the Minister will sign with, amongst others, the Investor or other parties, that provides the details of the commitment the Ministry agrees to provide”. In practice, this may take the form of a concession agreement, a government support agreement or an implementation agreement setting out the events that will trigger the Government’s obligation to pay compensation.
Covered risks: The Regulation addresses eligible losses of the investor that may qualify for compensation. These are (i) expropriation, nationalisation, compulsory transfer and comparable government measures that deprive the investor of its investment, assets or rights; and (ii) qualifying non-performance by a public body, state-owned enterprise or designated offtaker under an offtake arrangement. Offtaker protection is subject to exclusions, including investor default, force majeure and circumstances in which non-performance is permitted by contract or law.
Quantum and limits: Compensation may be calculated by reference to the fair market value of the affected investment or rights and agreed contractual amounts. Offtaker-related compensation may include agreed termination payments, liquidated damages and directly attributable reasonable expenses. The commitment document must set out the valuation method, both for operating investments and for projects under construction, and a maximum limit on the Government’s liability, expressed as a fixed sum or a percentage of project debt. Investors and financiers should test whether the cap, valuation date, exclusions and payment currency actually cover the project’s downside exposure, including equity and outstanding debt.
Fiscal and procedural safeguards: MoF must carry out a risk assessment before entering into a commitment document and establish a contingency fund or make explicit budget provision to cover expected losses. It must also report annually to CoM on commitments issued, potential and actual liabilities and payments made. These controls support fiscal discipline but should not be confused with an unconditional payment mechanism or an assurance of immediately available funds. The commitment document should specify governing law, dispute resolution and enforceable payment procedures.
Grey Areas
First, the Regulation does not set out the process or objective criteria for designating strategic investments, or how applications will be assessed. A published implementing directive and consistent institutional practice would make the process more predictable for investors and lenders. At the same time, the decision to vest the designation power in CoM and EIB, both of which sit at the highest level of government and are chaired by the Prime Minister, suggests that the Government intends to use compensation commitments selectively and only for investments that have the highest level of political support. Designation is therefore unlikely to be straightforward but, once granted, it would signal strong Government commitment to the project.
Second, the Regulation provides that MoF may pay compensation only after the investor has exhausted all alternative legal and contractual remedies through which compensation for the damage could be sought. This requirement may materially delay recovery. The text does not clearly establish whether proceedings against an offtaker must be taken through final judgment or award, or how insurance, statutory claims and other guarantees interact. The Regulation provides that commitment is meant to enhance project bankability and may be issued only where it is necessary to secure financing. Lenders, however, will expect compensation to be available within a timeframe that allows debt service to continue, which a lengthy exhaustion requirement may not allow. Investors and lenders should therefore seek to define in the commitment document which remedies must be pursued, and how far, before a claim can be made.
Third, the Regulation allows MoF to suspend or cancel a commitment where the investor commits fraud or gross negligence, where project financing is not secured within the required timelines, or where a breach of the project agreements occurs. These grounds require precise contractual treatment. Without clear attribution, materiality thresholds and cure periods, cancellation could undermine the very protection intended to address offtaker non-performance.
Fourth, the Regulation does not expressly resolve assignment or direct enforcement by secured lenders, payment deadlines, currency and transfer arrangements, or the treatment of overlapping recoveries. These matters are central to lender reliance and should be addressed in the commitment and financing documents to the extent legally permissible.
Fifth, the boundary with the PPP regime requires transaction-specific analysis, not least because the two frameworks overlap in their policy aims. The PPP Proclamation recognises private sector participation as an essential strategy to realize the country’s development objectives, including the infrastructure system and seeks to promote and facilitate the implementation of privately financed infrastructure projects. The Regulation pursues the same goal, aiming to “attract globally competitive private sector strategic investment, enhance project viability, and unlock critical infrastructure development.” Both regimes also recognise the role of private financiers and the importance of bankability, while preserving transparency and accountability.
The Regulation does not expressly exempt strategic investments from the PPP framework, nor does it expressly require compliance with that framework before a commitment is issued for a PPP-eligible project. This creates uncertainty about which approvals are required and whether the PPP rules could be bypassed. In our view, given the broad scope of application and complementary nature of the Regulation, strategic designation and a compensation commitment do not, on its own, exempt a project from the PPP Proclamation where the Proclamation applies.
Our View
The Regulation is a promising development in Ethiopia’s investment risk-allocation framework, especially for strategic projects relying on public-sector purchasers. Its practical impact will be measured less by the breadth of its policy objectives than by the availability of transparent eligibility procedures and commitments that investors and lenders can reliably enforce without excessive delay.
Priority implementation issues include guidance on strategic designation, model commitment provisions, coordination with PPP institutions, the exhaustion-of-remedies condition, cancellation safeguards and lender step-in or security rights. For an individual transaction, parties should map the covered events against the project contracts, establish the government liability cap and payment waterfall, and confirm all public-law approvals before treating the undertaking as bankable credit support.
