Political Risks_Nationalizations in Bolivia

Nationalisation requisition and sequestration by law

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nationalisation, requisition and sequestration by law, order or administrative action of the government of the Host Country." Additionally, some Political Risk wordings insist on the deprivation of the investor’s ability to control or operate the project concerned which results in a default by the investor on a payment due to its lenders. The key question is whether the steps taken by the Bolivian government satisfy the definition of expropriation in the applicable wording. Under article 7 of Decree No. 28701, the Bolivian State will acquire a controlling 51% stake in the main companies concerned—Chaco (part-owned by BP), Andina (controlled by Repsol of Spain), Transredes (controlled by Royal Dutch Shell) and Petrobras Bolivia. However, acquiring a controlling stake in a company does not amount to full nationalisation. The rationale is that the Bolivian State does not have the finance, technology or know-how to fully exploit these resources and must therefore limit its participation to a 51% stake. The new contracts currently being negotiated do provide the Bolivian State with 82% of all revenue, but there is a reasonable argument that the proposed changes do not amount to expropriation or confiscation such as to trigger coverage under a Political Risk insurance policy. The debate will focus on whether the measures taken by the Bolivian government are tantamount to expropriation. Morales’s view is that they are not. Speaking to a Committee of the European Parliament on 15 May 2006, he said: "I want people to understand that we are not expropriating or expelling anybody…. I understand that [the foreign investors] have to recover their investment and that they are entitled to profit. However, they cannot own the oil and gas reserves nor can they control them. The Bolivian State will control the wells and headquarters and [the foreign investors] will be partners but not owners of our natural resources."
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The issue of what amounts to expropriation has been reviewed in a number of arbitrations before the International Centre for the Settlement of Investment Disputes ("ICSID"). ICSID was created by the 1965 Washington Convention and operates under the auspices of the World Bank. In Tecmed v. Mexico (2003), it was alleged by Tecmed that the Mexican authorities had expropriated its investment by refusing to renew a licence to operate a hazardous waste landfill site in Mexico. The Tribunal had to construe the terms of the applicable bilateral investment treaty between Mexico and Spain. It considered the meaning of the terms "indirect expropriation" and "tantamount to expropriation." The Tribunal held that expropriation includes "a number of situations defined as de facto expropriation, where ... actions or laws transfer assets to third parties different from the expropriating state or where such laws or actions deprive
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