South American alternative to ICSID in the works as governments create an energy treaty

By Fernando Cabrera Diaz
6 August 2008

A  July 16-17 meeting of the Bolivarian Alternative for the Americas (comprised of Bolivia, Cuba, Dominica, Nicaragua, and Venezuela)* ended without public mention of the International Centre for Settlement of Investment Disputes (ICSID), the World Bank agency that administers investor-state arbitrations. Nonetheless, the bloc’s push for a regional alternative to the Centre initiated at last year’s forum is gaining some momentum.

The Energy Council for South America ― represented by energy ministers from all 11 South American sovereign nations ― met for the first time in May to discuss a regional Energy Security Treaty. At the conclusion of that meeting, the Venezuelan energy minister, Rafael Ramírez, announced that the Council had approved working groups whose task is to design a legal mechanism to settle investor-state disputes related to the energy sector.

These rules would eventually replace those of ICSID as the preferred means to settle disputes between foreign energy companies and governments of Latin America, said Mr. Ramírez. The Energy Council has given itself six months to finalize the Energy Security Treaty.

During last year’s 5th annual ALBA Congress, President Evo Morales famously announced that ALBA members had agreed as a group to withdraw from the ICSID Convention.

While Bolivia followed through on its promise, informing ICSID of its withdrawal from the Convention by letter dated May 1, 2007, other ALBA members have not followed suit. Nicaragua and Venezuela remain ICSID members, while Cuba and Dominica were never signatories to the Treaty.

Nicaragua, which has only faced one case at ICSID, has given mixed signals as to whether it intends to withdraw from the Centre. On April 14, the Managua-based newspaper La Prensa reported Attorney General Hernán Estrada as saying that Nicaragua was looking closely at Bolivia’s experience, before determining its next step.

Nicaragua has for a year now stopped referring to ICSID in its investment treaties, opting instead for the Paris-based International Court of Arbitration, added Mr. Estrada.

However, in a rare move, Nicaragua lodged an ICSID case in June against the Spanish hotel group Barceló. Nicaragua is seeking US$ 30 million, which it claims to be owed from a disputed 1993 resort property sale to Barceló. Only two other cases have been registered by a government against a foreign investor at ICSID, according to ICSID records:  a 1975 dispute over the construction of a maternity ward filed by Gabon against Société Serete S.A., and a pending dispute over a coal mining contract between the Government of the Indonesian Province of East Kalimantan and PT Kaltim Prima Coal.

Venezuela is also sending mixed signals. On February 13, the country’s National Assembly passed a resolution approving Venezuela’s withdrawal from ICSID, but the very next week Venezuela asked ExxonMobil to drop judicial proceedings at London and Paris arbitration courts, and instead return to ICSID to resolve their ongoing dispute over the nationalization of oil fields in the Orinoco.

*Honduras president Manuel Zelaya announced on July 30 that his country will shortly be joining ALBA.