Most of the companies initiated their legal action after the new Hydrocarbons law was signed in May, stating that the new law undermined their investors’ rights outlined in different Bilateral Investment Treaties (BITs) signed between Bolivia and other countries.
Bolivia has signed 24 BITS which all recognise the right for foreign investors to appeal to international commercial tribunals, usually the International Centre for Settlement of Investment Disputes (ICSID) for redress for changes in Government policies which harm their investments.
Bilateral Investment Treaties are agreements signed between two countries and are supposedly about encouraging investment between two countries by providing a legal framework which gives security and protection to foreign investors. In reality it is a charter for exploitation by multinational companies. In the last few years as multilateral trade talks have slowed down and stalled, BITS have multiplied. There are currently over 1100 Bilateral Investment Treaties in force, 24 within Bolivia.
BITS vary but most say that each country has to offer equal protection and support to multinationals as it offers to national companies. It allows for free and uncontrolled repatriation of profits, and forbids nationalization or actions similar to expropriation “except for a public purpose or social benefit” and tied to “adequate compensation.”
All the petrol/gas companies categorise the new hydrocarbons law as “equivalent to expropriation.” According to a Government report to Congress in November 2005, they all object to the compulsory modification of their contracts stating that they are can only be done on a mutual and voluntary basis. Every company except British Gas objects to the State regaining the control of hydrocarbons at the point of the gas/petrol well, and all companies except Techint challenge the restrictions that are imposed on local sales and exports. [1]
In addition to the hydrocarbons companies, Suez the French water multinational and principal shareholder of the privatised La Paz/El Alto water utility also initiated a legal process in June 2005 that could lead to suing the State. Suez states that the Government unilaterally changed prices and tariffs as well as initiating a process to terminate the contract after protests by El Alto residents in early 2005.
Aguas del Tunari (majority shareholders, Edison of Italy, Abengoa of Spain and Bechtel of the US) has advanced the most in its litigation process after ICSID agreed to hear its claim of $25 million against Bolivia on 21 October 2005. Aguas del Tunari initiated the legal process after being thrown out of Cochabamba as a result of popular protests in 2000. Despite being a predominantly US company, they filed a claim under a Bolivia-Holland BIT as a result of relocating their legal headquarters to the Netherlands.
However significant international pressure by activists, especially on Bechtel, has made the possibility of a deal being signed before the case is heard. Bolivian Government officials have confirmed that they are negotiating an agreement that could see Bolivia paying a symbolic payment to the companies for shares.
Jim Shultz from the Democracy Centre in Bolivia which initiated the campaign against Bechtel said: “Such a settlement would be an enormous victory for the years of effort by thousands of people worldwide who have fought this case. [However] If this news from the government proves to be incorrect or if these negotiations drag out too long, an international action campaign is exactly what we will launch.” Shultz also warned of an even bigger international campaign against Suez and petrol companies if they continue with litigations against Bolivia.
The process for most BITS is that once companies have initiated a process of legal action, there is a period of 6 months of “amicable negotiations.” If an agreement is not reached within 6 months, companies are allowed to lodge a legal complaint and file for damages and loss of income at the International Centre for Settlement of Investment Disputes (ICSID).
The ICSID is described on its website as “an autonomous international organization” but is funded by the World Bank, has World Bank members sitting on its council and is often based at the World Bank. As the World Bank was one of the principal drivers of the process of privatisation in Bolivia, it is not surprising that their decisions invariably favour the multinational complainant. Meanwhile civil society is unable to analyse their judgements as the proceedings are kept private and confidential.
December 2005 marks the end of the period of “amicable negotiations” for many of the petrol companies, who now are allowed to file legal suits at ICSID. However the companies recently agreed to extend the period of negotiation for another six months. The reality is that whilst the petrol companies have been paying new levels of taxes (in their language under duress) since the law was approved; their opposition has prevented the Government from implementing the new contracts required by the law. There are currently negotiations between the Government and Congress to review supposed discrepancies in the law before enforcing the new contracts. However the companies are adamantly opposed to the new contracts and have warned the Bolivian Government that they still reserved the right to resort to legal actions if their demands for changes to the new law are not met.
If the hydrocarbons companies decide to sue it is likely to be for billions – as they can claim under BITS not just for the investments that they say they have made but also for the profits that they would have expected to have made. In the case of the BIT between Bolivia and France, investments are also defined as the “expectations of future profits” which could make claims even larger.
Against the threats posed by BITS to Bolivia, lawyers and Congressman Wilson Magne have presented a legal challenge against Law 1593 which ratified Bolivia’s adhesion to ICSID as well as 6 Bilateral Investment Treaties. According to the lawyers, Law 1593 as well as the clauses in each BIT which allow companies to seek arbitration in an international tribunal (ICSID) contravene key constitutional articles (Clauses 135 and 228) which says that foreign firms must be treated as national firms and are subject to national sovereignty and national laws .[2] This means companies that want to initiate legal against the Bolivian State can not seek international arbitration and can only seek redress nationally. Brazil which has similar constitutional articles to Bolivia never signed an accord with ICSID and has no BITs for the very reason that such treaties contravened their Constitution.
A legal challenge of “unconstitutionality” has also been presented against the granting of a contract to Aguas del Illimani (AISA) by the Basic Services Superintendent to run El Alto and La Paz’s water utility. Congressman Wilson Magne said the concession was unconstitutional because it not only granted the service of running the water systems but also the water sources which are considered “national treasures”. According to the constitution, Congress is required to authorize all contracts related to national treasures which they did not do in this case. The case has been accepted and will be judged within 3 months.
“Natural resources are part of our country’s riches and must be given special protection, ensuring that they are not wasted, badly used, which is why the executive can not be the only part of Government to make decisions on such matters,” explained Magne.
Bolivian campaigners pointed out that BITs are just one damaging element in a proposed free trade agreement between Andean countries and the US. Pablo Solón, speaking on behalf of the movement against TLC (Andean Free Trade Agreement) and ALCA (Free Trade Agreement of the Americas) said: “The proposed Andean Free Trade Treaty will see an expansion of multinational investor rights, beyond what is already present in BITs. When people talk about TLC as if it is only about market access, they forget about all the other chapters in the agreements which will undermine our sovereignty in areas of intellectual property, agriculture and public services.”
“A Free Trade Agreement with the US will see Bolivia facing even more litigation by multinationals. We hope this legal challenge will send a warning shot to Bolivia’s politicians about the dangers of a Free Trade Agreement to our sovereignty.”
Footnotes
[1]Vintage and Pan American reject controls on prices for the internal market and defend the legality of “shared risk” contracts signed under President Gonzalo Sanchez de Lozada. Pan American objects to the failure to fulfill payment of credits for sale of liquefied gas. Repsol, Total and BG don’t object to the new levels of taxes (IDH) although British Gas objects to the changes in royalties stating that previous contracts indicated that the royalties would not be changed during the duration of the contract. Repsol, Total, Vintage, Pan American y Pluspetrol state that they have problems with penal possibilities against staff who signed “shared risk” contracts.
[2] Article 135 says: “All companies established for extraction, operations or business in the country are considered national companies and are subject to the sovereignty, laws and authorities of the Republic.” Article 228 rules that: “The Political Constitution of the State is the Supreme Law in terms of national jurisdiction. All tribunals, judges and authorities will apply its principles above other laws or other resolutions.”