After several years of sabre-rattling, a group of Italian mining companies took the plunge and filed an international arbitration against South Africa. The companies are taking direct aim at mining laws introduced in the post-apartheid era, which they say violate the terms of investment protection treaties concluded by South Africa with foreign governments.
The arbitration, which is taking place at the World Bank’s International Centre for Settlement of Investment Disputes (ICSID), will have the delicate task of reconciling South Africa’s legal obligation to protect foreign investments with the country’s drive to empower its long-oppressed black majority.
The trio of Italian mining companies – privately held family firms operating in the stone industry – have long objected to some of the means by which South Africa tries to achieve its ambitious social and economic goals. In particular, they complain that the new mining rules serve to “nationalise” common-law mineral rights. They also complain that a new royalties regime to be introduced in 2009, and a requirement to sell a stake to black equity partners, will have a heavy financial impact on their South African operations. And they say that they will have difficulty meeting new social and labour obligations designed to advance historically disadvantaged persons.
By opting for international arbitration, the companies are hoping that they can convince a panel of arbitrators that South Africa’s new mining laws breach legal commitments made to foreign investors in a series of investment treaties between the country and other governments.
Sources close to the Italian firms say that other foreign companies are watching closely and could be motivated to mount similar claims. For its part, the South African government is girding itself for a serious fight and has hired a leading international law firm to help defend the claim.
While South Africa finds itself in the cross hairs of a lawsuit brought by foreign investors, it also remains the dominant capital exporter in many parts of Africa. Thus, at the same time as government officials fret over the country’s vulnerability to international lawsuits from unhappy foreign investors, the government is under pressure to protect the interests of South African firms investing elsewhere on the continent.
Currently, the government is negotiating investment protection treaties with a number of regional partners. However, South Africa has yet to conclude agreements with Zimbabwe and the Democratic Republic of Congo, despite both countries playing host to massive South African investments.
Recently, South African-based Exxaro Resources announced that it would sue the Democratic Republic of Congo (DRC) for breach of contract. The case will be heard at the Paris-based International Chamber of Commerce arbitration. Exxaro, South Africa’s largest black-controlled mining company, accuses the DRC of reneging on a deal that would have allowed Exxaro to exploit zinc-copper deposits in the south-eastern Katanga province of the DRC. For its part, officials at the DRC’s state mining company have denied that a binding agreement is in place with Exxaro.
Following democratic elections in the DRC in 2006, government officials are looking askance at a number of contracts that were concluded under earlier Congolese administrations. Critics, including non-governmental organisations and the World Bank, have noted that many resource contracts were negotiated with minimal transparency and oversight. However, it remains unclear to what extent the DRC will push to renegotiate or terminate such pacts.
The Argentine government will try to annul a $200m-plus arbitration award handed down in favour of German multinational Siemens – a process that could take 12-18 months. Siemens was contracted by Argentina in the 1990s to design and run a national immigration control and identity card system for Argentina. However, following a change in government and controversy over the cost of national ID cards, the parties landed in arbitration at the Washington-based ICSID.
Argentina convinced a tribunal that Siemens was not entitled to future lost profits related to the terminated contract. However, Argentina was ordered to compensate Siemens for the significant costs it had sunk into the project.
The arbitration award, which was rendered in February, came down at an awkward time for Siemens. The company has been hit by allegations of widespread corruption in several of its overseas operations. In the arbitration with Argentina, the tribunal did not discuss the issue of corruption. However, when the Siemens contract was cancelled in 2001, the Financial Times newspaper reported that then Argentine president Fernando De La Rua had hinted “at suspicions of bribery” in relation to the project. The company has denied allegations of wrongdoing in relation to the contract in question.
Luke Peterson is a journalist and research consultant based in Ottawa, Ontario. He produces an investigative news bulletin on international investment treaties for a Canadian think tank. (www.iisd.org)