After more than three years of legal wrangling, Telecom Italia (TI), an Italian telecommunications company, announced in November that it had reached a settlement with Bolivia over the nationalisation of TI’s stake in Bolivian telecoms firm Entel.

The settlement marked the end of a bitterly fought lawsuit. TI secured only $100m of the $250m it was claiming in arbitration, as well as certain (modestly sized) service-provision deals with Bolivia.

With the lawsuit now over, questions linger about the company’s tactics. Telecom Italia insisted on suing the Bolivian government at the Washington, DC-based International Centre for Settlement of Investment Disputes (ICSID) in 2007, despite the fact that Bolivia had very publicly renounced that facility earlier the same year. Citing political disagreements with the World Bank-affiliated arbitration venue, Bolivian officials made it clear that they would rather see disputes with foreign investors handled under ad-hoc arbitration processes.

The Bolivian authorities dug in their heels against Telecom Italia’s case, and protested that ICSID arbitrators lacked jurisdiction over the case.

After nearly two years of needless wrangling, the two sides struck an apparent deal in 2009 to shift the case out of ICSID and into an ad-hoc proceeding, which Bolivia saw as less politically contentious.

However, Bolivia’s government swiftly renounced the deal brokered by one of its ministers. The Bolivian authorities alleged that the minister had exceeded her authority by brokering the move from ICSID (and by agreeing to a waiver of Bolivia’s jurisdictional objections to the expropriation lawsuit).

It is not clear why Bolivia was now objecting to a move away from the politically unpalatable ICSID venue. However, the government went so far as to go to a US federal court this autumn to seek an injunction against the pending ad-hoc arbitration proceedings. Tiring of its slow-track litigation, TI ultimately agreed to settle the dispute – and to walk away with only a fraction of the compensation it was seeking.

However, other foreign investors are scratching their heads and wondering what to make of the Telecom Italia imbroglio.

Perhaps the Bolivian government – despite its initial objections to ICSID-based arbitration – sensed a potential victory on jurisdictional grounds if TI’s claims were permitted to play themselves out there (lawyers continue to debate the legal significance of Bolivia’s very public withdrawal from ICSID in 2007). A more cynical view of Bolivia’s handling of the Telecom Italia case would be that the government was simply looking to drag out arbitrations with foreign investors in any way possible.

This much is clear, however: a growing queue of disputes continues to arise thanks to the Bolivian government’s ongoing nationalisation of foreign investments. Earlier in 2010, several electricity-generating companies were nationalised by the government, and investors in those enterprises are now contemplating arbitration.

Many of the nationalised investments are protected by bilateral investment treaties, which provide access to binding arbitration – including, in some instances, specifying the use of the ICSID facility in Washington.

However, in light of Telecom Italia’s tortuous pursuit of compensation, it is certain that foreign investors will avoid the ICSID option and take Bolivia to a procedure with which it has fewer political quarrels.

Luke Peterson is editor of InvestmentArbitrationReporter.com, an electronic reporting service tracking foreign investment lawsuits between investors and their host governments.