Pan American Energy takes Bolivia to ICSID over nationalization of Chaco Petroleum

By Fernando Cabrera Diaz

May 11, 2010

Anglo-Argentinean energy firm Pan American Energy (PAE) has initiated arbitration against Bolivia over the nationalization of its subsidiary Chaco Petroleum by the Morales government in 2009.  The arbitration was registered by ICSID on April 12 2010, despite Bolivia having withdrawn from the ICSID Convention in 2007.

A PAE spokesperson contacted by ITN indicated that the company is seeking “just and adequate compensation for the expropriation of its investment in Chaco Petroleum Company.” The company is also demanding compensation for losses suffered in 2003 and 2005 due to “certain measures adopted by Bolivia that violated the legitimate expectations of PAE with respect to the regulation and treatment of its investment in the hydrocarbons sector.”

The Bolivian government has responded by sending a formal letter to ICSID dated April 27, 2010 in which its protests that body’s registration of PAE’s request for arbitration, the government announced in its state newspaper Cambio.  Danny López, Director General of Jurisdictional and Arbitral Defense, told the paper that Bolivia does not recognize any arbitration before ICSID as it has not been part of that body since 2007.

In a press conference held on 29 April 2010, Bolivian Vice President Alvaro García said that Bolivia was still negotiating with PAE, adding that “we have to pay for their shares [in Chaco Petroleum], we have an appraisal, we are deducting debts, liabilities and we are gong to make a proposal, but we will also defend ourselves in any tribunal,” reports the Associated Press.

Chaco Petroleum was taken over in January of 2009 as part of a policy launched by President Evo Morales to nationalize Bolivia’s hydrocarbons sector. That same month a referendum was held in which Bolivian’s adopted a new constitution that gives the government more control over the country’s vast natural resources, cementing Bolivia’s policy of nationalizing ‘strategic resources.’

The new Bolivian constitution also denies the jurisdiction of international tribunals to hear disputes over investments in the hydrocarbons sector. In this respect it follows Bolivia’s May 2007 announcement that it was withdrawing from the ICSID Convention after accusing that body of being biased towards multi-national corporations.

While the ICSID rules provide that Bolivia’s withdrawal from ICSID took effect six months later, there has been much debate in the arbitration community over the exact impacts of the withdrawal.  As ITN has previously reported, there are arguments that as long as Bolivia is a signatory to bilateral investment treaties that offer investors ICSID arbitration, those investors can continue to resort to ICSID.

In that vein the PAE spokesperson contacted by ITN explained that the Bolivia-United States bilateral investment treaty gives the company the right to arbitrate its disputes with Bolivia at ICSID and that the treaty is still in force and applicable.

Ecuador became the second country to denounce the ICSID Convention in July of 2009 and although there are cases pending that might shed light on the effects of withdrawal from ICISD, no tribunal ruling on the matter has yet been published.

Notably, PAE is also part of a consortium – along with British Gas and Repsol – drilling for gas in the Caipipendi block located in southern Bolivia. A PAE spokesperson speaking to said that the arbitration would not affect the company’s other investments in the country.  But Vice President García has accused PAE of sabotage for delaying its investments in the gas fields.

PAE is owned by British Petroleum of the U.K. and Bridas Corporation of Argentina.

“Bolivia protesta ante el CIADI por solicitud arbitral de PAE,” Cambio, 28 April 2010:

“Bolivia: vicepresidente acusa de sabotaje a petrolera,” AP Spanish Worldstream,
29 April 2010.

“ICSID registers arbitration claim in face of Bolivian objections,“By Damon Vis-Dunbar, Fernando Cabrera Diaz and Luke Eric Peterson, Investment Treaty News, 15 November 2007: