{"id":283,"date":"2009-07-13T09:26:00","date_gmt":"2009-07-13T14:26:00","guid":{"rendered":"http:\/\/itn.mattrock.ca\/2009\/07\/13\/venezuela-consents-to-arbitration-in-new-bit-with-russia\/"},"modified":"2013-02-04T02:12:43","modified_gmt":"2013-02-04T08:12:43","slug":"venezuela-consents-to-arbitration-in-new-bit-with-russia","status":"publish","type":"post","link":"https:\/\/www.iisd.org\/itn\/2009\/07\/13\/venezuela-consents-to-arbitration-in-new-bit-with-russia\/","title":{"rendered":"Venezuela consents to arbitration in new BIT with Russia"},"content":{"rendered":"

By Fernando Cabrera Diaz
\n15 July 2009
\n<\/strong>
\nA new bilateral investment treaty between Venezuela and Russia provides consent to international arbitration for settling disputes pursuant to the treaty, despite President Chavez\u2019s criticism of international investor-to-state arbitration.<\/p>\n

Article 9 of the Russia-Venezuela BIT<\/span>, published in Venezuela\u2019s Official Gazette on 2 June 2009, allows investors to elect arbitration at a tribunal in the host country, an ad hoc<\/em> tribunal under UNCITRAL<\/span> Rules or at the Arbitration Institute at the Stockholm Chamber of Commerce.<\/p>\n

Venezuela is under pressure to accept these types of arbitration clauses to attract much needed foreign investment, as massive social spending and failure to invest in sufficient drilling are leading to a gradual decline in Venezuela’s oil production, said energy analyst James L. Williams in an interview with ITN<\/span>.<\/p>\n

Foreign Direct Investment in Venezuela has plummeted in the last few years, going from a high of US$ 2.58 billion in 2005 to 646 million in 2007 according to the latest available figures from the United Nations Conference on Trade and Development (UNCTAD<\/span>).<\/p>\n

Venezuela has actively courted Russian investment, with some recent success. The June 2nd Official Gazette announced a joint venture between state-owned oil company PDVSA and the Russian National Petroleum Consortium Ltd. to exploit two blocks in the Orinoco Oil Belt.<\/p>\n

Also in June, Venezuelan newspapers reported that the Las Cristinas gold project, originally awarded to Canadian mining firm Crystallex International, will now be developed by a joint venture between Venezuela and a Russian mining firm.\u00a0 Crystallex International said in May that it was preparing an ICSID<\/span> claim against Venezuela over the project.<\/p>\n

The Russia-Venezuela BIT does not include ICSID as a potential forum for setting disputes: the World Bank arbitration facility that President Chavez has accused of promoting modern-day imperialism.<\/p>\n

Venezuela currently faces 7 cases before ICSID tribunals, most as a result of the forced nationalizations in industries such as petroleum and mining.<\/p>\n

Although Venezuela has often\u00a0sought to compensate foreign investors, its offers have usually been rejected as too low.<\/p>\n

In this context, Article 5 of the Venezuela-Russia BIT, which calls for compensation at market value in cases of expropriation, is noteworthy.\u00a0\u00a0 This is a\u00a0departure from many of Venezuela\u2019s previous BITS, such as those with the UK, Canada and Sweden, which refer to \u2018adequate and effective compensation\u2019 based on \u201cgenuine value.\u201d<\/p>\n

Venezuela has often offered to compensate companies for nationalizations using the usually lower book value instead of market value, notes Andres Mezgravis, a Caracas-based lawyer.\u00a0 This may hurt Venezuela\u2019s nationalization efforts because investors from countries protected by BITs with national treatment clauses could demand compensation at market value by referencing the Russia-Venezuela BIT, said Mr. Mezgravis.<\/p>\n

UNCTAD data available at: http:\/\/www.UNCTAD<\/span>.org\/sections\/dite_dir\/docs\/wir08_fs_ve_en.pdf<\/a><\/p>\n