Op-Ed
Commentary
Oliver
L Campbell:
Arbitration
under a Bilateral Investment Treaty
Since ExxonMobil and ConocoPhilips have decided not to accept
the conditions imposed by the government and depart from Venezuela,
the matter of compensation for the investments taken over by
PDVSA still has to be decided. The sensible course would be for
the parties to negotiate the compensation but, if they cannot
reach an agreement, the contracts covering operations in the
Orinoco Oil Belt have a clause which allows for arbitration.
Both
companies may feel this clause is sufficient protection. However,
Robert
deBy and Amy Rudd, in their article “Venezuela:
foreign investors on the road to arbitration,” point out
that a further safeguard exists. The companies could transfer
their investments in the Orinoco Oil Belt to an affiliate in
a country which has a Bilateral Investment Treaty (BIT) with
Venezuela. It should be noted the USA and Venezuela do not have
such a Treaty.
The authors suggest that other companies with investments in
Venezuela, which are not incorporated in a country with a BIT,
should consider a sale of assets to a company in such a country.
This simple measure of risk management would ensure the possibility
of arbitration should the need ever arise. This risk may be remote,
but relations can turn sour when least expected.
The countries with which Venezuela has BITs are as follows:
Developed Countries
(11)
|
Latin America/Caribbean
(9)
|
Central/Eastern Europe
(2)
|
| Italy |
Chile |
Lithuania |
| Netherlands |
Argentina |
Czech Republic |
| Switzerland |
Ecuador |
|
| Portugal |
Barbados |
|
| Denmark |
Brazil |
|
| United Kingdom |
Peru |
|
| Spain |
Paraguay |
|
| Germany |
Cuba |
|
| Canada |
Uruguay |
|
| Sweden |
|
|
| Belgium/Luxembourg |
|
|
There
are 22 countries to choose from, so it is a question of deciding
where there is confidence in the judicial system and
no difficulty in setting up a subsidiary company.
The
authors of the article mention that it seems likely Venezuela
will
withdraw from the International Center for the Settlement
of International Disputes (ICSID) which is the arbitration body
set up by the World Bank. The reason, so Mark Weisbrot states
in his article, “A New Assertiveness for Latin American
Governments,” is the lack of confidence in the impartiality
of any body which is an instrument of the World Bank as the latter
is dominated by Washington.
Since
most BITs provide for arbitration under the auspices of the
ICSID,
withdrawal could vitiate the protection afforded by
Venezuela’s BITs. However, I am not so sure this will eliminate
arbitration because a) of the large number of BITs that Venezuela
has with friendly nations, including many in South America, and
because b) PDVSA expects to make substantial investments abroad
in the latter. It is possible Venezuela could find itself in
dispute with a South American neighbour and resort to a BIT for
arbitration.
The Oil Minister believes any dispute with the oil companies
should be settled in the Venezuelan courts. He does not approve
of clauses which provide for international arbitration and they
no longer figure in new contacts. In this he is going back to
the Calvo Doctrine set forth by the Argentinean Carlos Calvo
in 1868. .
This nationalistic stance is understandable, but the problem
is an investor in any foreign country--and it could be, for example,
Venezuela in Argentina, Brazil, Ecuador or Uruguay--feels he
is at a disadvantage when litigating in the local court. It is
not a case of having less confidence in the Venezuelan courts
than in others--rather it is a general misgiving that the odds
are much against you when going to law in any foreign court.
It is precisely for this reason that BITS were established--the
investor has more confidence when an arbitrator takes the place
of the local court. Like a referee at a football match, both
parties expect an arbitrator to be impartial when giving his
judgement.
Oliver
L Campbell, MBA, DipM, FCCA, ACMA, MCIM was born in El
Callao in 1931 where his father worked in the gold mining industry.
He spent the WWII years in
England, returning to Venezuela in 1953 to work with Shell de
Venezuela (CSV), later as Finance Coordinator at Petroleos de
Venezuela (PDVSA). In 1982 he returned to the UK with his family
and retired early in 2002. Petroleumworld does not necessarily
share these views.
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Petroleumworld News 07/17/07
Copyright© 2007
Oliver L Campbell. All rights reserved.
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