• An April ruling by the US Court of Appeals for the Fifth Circuit has given new life to a bid by Argentine energy firm Bridas to enforce a $500m arbitration award against the government of Turkmenistan.

    The privately held firm entered into joint ventures with a state-owned Turkmen company in the early 1990s. The joint ventures called for oil and gas exploration and production, and the two sides were in preliminary talks to co-operate on the construction of a 1500-kilometre pipeline to carry Turkmen gas across Afghanistan to markets in Pakistan.

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    However, relations between the parties soured quickly and Bridas accused the Turkmenistan state of trying to grasp a larger share of production revenues. When Bridas’s licences were revoked in the mid-1990s, and the firm faced a ban on imports and exports into and out of the central Asian country, it turned to arbitration under the two joint venture agreements.

    In early 2001, one of those arbitrations netted the firm an award of $495m, with the presiding tribunal holding the Turkmen government liable for contract breaches, even though it was not itself a signatory to the joint venture agreements. Since 2001, the parties have been embroiled in litigation in the US courts, as Turkmenistan has sought to vacate that arbitral award. However, in a ruling last week, the US Appeals Court held that Turkmenistan was “an alter ego” of the state-owned company with which Bridas had executed its original deal. A source familiar with the case says that Turkmenistan will launch a further appeal to the US Supreme Court.

 

 

  • The Czech Republic has turned to the courts in an effort to overturn an arbitral award rendered against it in March. The Czechs lost an arbitration with Saluka Investments BV, a Dutch subsidiary of Japanese financial services group Nomura. The dispute dates from the privatisation of the Czech banking sector in the 1990s, when Nomura bought into Investicni a Postovni Banka (IPB). When the debt-saddled bank was driven into forced administration and sale, Nomura protested that it did not receive the generous financial aid that the state handed out to other failing banks.

    In the award rendered in March, an international arbitration tribunal ruled that the Czech government had failed to provide “fair and equitable treatment” to IPB, as was required under the terms of an investment protection treaty between the Czech Republic and the Netherlands.

    A separate phase of the arbitration will assess financial damages, although that phase will be put on hold for up to a year while the Czech government challenges the recent arbitration award in the courts of Switzerland (where the arbitration took place).

    Meanwhile, the Czech Government is suing Nomura in a separate counter-arbitration, with the Czechs looking to recoup billions instate-aid which were spent on rehabilitating IPB’s balance sheet after it was taken over by another owner.

 

  • Occidental Petroleum may have got more than it bargained for when it decided to arbitrate against the government of Ecuador over VAT refunds. Occidental won the skirmish when a tribunal ruled in 2004 that it was entitled to about $75m in VAT refunds. Occidental has also prevailed, thus far, in the face of Ecuador’s efforts to overturn the 2004 arbitration award.

    However, on the heels of the 2004 arbitration ruling, Ecuadorian government officials began a forensic investigation into Occidental’s business activities in Ecuador. Following allegations that the US firm improperly transferred a share of its exploration contract to a Canadian firm, Ecuador’s ministry of energy was asked to investigate whether Occidental breached the terms of its contract with Petroecuador. In May, Ecuador’s energy minister answered that question in the affirmative and moved to seize Occidental’s assets in Ecuador.

    Now Occidental has a much larger legal battle on its hands. It has filed a $1bn arbitration claim at the International Centre for Settlement of Investment Disputes, where Ecuador already faces a handful of arbitrations by foreign investors. A legal source says that several other foreign energy firms with operations in Ecuador are preparing themselves for a legal battle over a windfall tax that was slapped on hydrocarbons production in April.

 

Luke Peterson is a journalist and research consultant based in Ottawa, Ontario. He publishes an investigative news service, Investment Treaty News, for a Canadian think tank.

(www.iisd.org/investment/itn)