Bolivia

Legal Perspectives on the Bolivian Nationalisation Process

Since taking office in 2006, President Evo Morales and his cabinet of ministers have dictated a series of expropriating measures affecting foreign investments in the hydrocarbons, telecommunications, electricity and mining sectors of the Bolivian economy. This ‘nationalisation process’ comprises the following 12 Supreme Decrees:

• On 1 May 2006,¹ the government reverted 50 per cent plus one of the shares of oil and gas giants to the control of the state, including:
• Empresa Petrolera Chaco SA, controlled by Amoco Bolivia Oil & Gas AB;
• Andina SA, controlled by Repsol YPF;
• Transredes SA, controlled by Shell Gas Latin America BV and Ashmore Energy LLC;
• Petrobrás Bolivia Refinación SA, controlled by Petrobras; and
• Compañía Logística de Hidrocarburos Boliviana SA, controlled by Oiltanking GmbH, Graña y Montero Petrolera SA.
• This Supreme Decree was denominated ‘Heroes of the Chaco’, remembering those who fought in the Chaco War fought between Bolivia and Paraguay between 1932 and 1935 over the most important hydrocarbons region in Bolivia.
• On 31 October 2006,² the Huanuni Mining Center operated by England’s Allied Deals PLC was nationalised as a result of a series of the tragic confrontations held on 5 and 6 October 2006 among the different mining sectors who claimed the exploitation rights of the referred mining property.
• On 7 February 2007,³ the government reversed to the domain of the state the Metallurgical Complex of Vinto, which was under the control of Swiss company Glencore International AG.
• On 1 May 2008,⁴ the acquisition of a majority shareholding interest (50 per cent plus one share) in Empresa Petrolera Chaco SA and Transredes - Transporte de Hidrocarburos SA was consolidated in favour of the State of Bolivia.
• On 1 May 2008,⁵ the acquisition of the total share package of Oiltanking GmbH, Graña y Montero Petrolera SA in Compañía Logística de Hidrocarburos Boliviana SA - CLHB was established.
• On 1 May 2008,⁶ the Bolivian government seized and expropriated ETI Euro Telecom International NV’s investments in Bolivia’s largest telecommunications corporation, Entel SA.
• On 2 June 2008,⁷ 100 per cent of the shareholding package of Shell Gas Latin America BV and Ashmore Energy LLC in oil and gas transportation corporation, Transredes SA was reverted and nationalised.
• On 23 January 2009,⁸ 100 per cent of the shareholding interests of Amoco Bolivia Oil & Gas AB in Empresa Petrolera Chaco SA were reverted to state domain.
• On 1 May 2009,⁹ the government declared the reversion of the entire share package of Air BP Bolivia SA, BP’s jet fuel investments in Bolivian airports.
• On 1 May 2010,¹⁰ the government seized all the shares of GDF Suez, Carlson Dividend Facility SA, The Bolivian Generating Group LLC (BGG) and Rurelec PLC in electrical power generators Corani SA, Vallehermoso SA and Guaracachi SA.
• On 1 May 2010,¹¹ the Vinto-Antimony Plant, operated by Swedish Glencore International AG was nationalised back to state domain.
• Finally, on 1 May 2012,¹² the state nationalised all the shares of Red Eléctrica Internacional SA in electrical carrier Transportadora de Electricidad SA.

It is important to point out that all ‘nationalising’ Supreme Decrees were dictated in a recurring manner every year on 1 May when International Labor Day is celebrated, with a few exceptions, such as the nationalisation of Empresa Petrolera Chaco SA, which occurred on 23 January 2009, just two days prior to the public national referendum that eventually approved the current Bolivian Consitution.

From a juridical perspective, the Bolivian nationalisation process not only created a negative and unfavourable scenario for foreign investments in our country, but in turn triggered a series of international arbitration processes commenced by foreign investors who saw themselves affected by such process. Faced with this situation, the State of Bolivia adopted several defence mechanisms that included the denunciation of the Washington Convention; denunciation or renegotiation of bilateral investment treaties (BITs); the creation of the Ministry of Legal Defense of the state; crystallised subsequently in the attorney general of the state; and the adoption of an open and amicable negotiation strategy to reach out of court economic compensations and thus avoiding international investment arbitrations that could conclude with important economic sanctions against the state.

As mentioned above, in light of the expropriation or nationalisation measures assumed by the government of President Morales, the State of Bolivia saw itself entwined within a series of international investment arbitrations served under the norms of the United Nations Commission on International Trade Law (UNCITRAL), and the rules of the International Centre for Settlement of Investment Disputes (ICSID). Based on the foregoing, and considering that - under the eyes of the Bolivian government - ICSID awards permanently favoured the interests of private investors, on 2 May 2007, the State of Bolivia took the first safeguard measure by denouncing the Washington Convention, the same which was effective six months thereafter, taking legal effect on 3 November 2007.

From our perspective, Bolivia’s decision to unilaterally step aside from the Washington Convention was incongruent with the terms of the 22 BITs, whereby Bolivia recognised ICSID as a valid dispute resolution mechanism and forum. On this matter, the Bolivian government announced that it would individually denounce or, as the case may be, renegotiate the existing BITs in order to adapt them to the terms of the current Bolivian Constitution. According to the government, denunciations or treaty renegotiations would be subject to the following parameters:

• protection of all Bolivian nationals;
• equilibrium between public and private interests; and
• preference to those investors who are willing to contribute to the economic and social development of the region.

The government of Bolivia has announced that individual renegotiations of BITs will commence during the last quarter of 2012.

The attorney general of the state is another defence mechanism created by the government of President Morales. Established for the purpose of promoting, defending and overseeing the interests of the State of Bolivia in any litigious or contentious matter where these may be compromised or affected, the attorney general of the state replaced the existing Bolivian Ministry of Legal Defense. The attorney general is legally empowered:

• to judicially and extrajudicially defend the interests of the state, assuming its juridical representation and intervening in all judicial, extrajudicial or administrative actions, and specifically in all matters of involving foreign investments, human rights and the environment; and
• to coordinate actions jointly with the Ministry of Foreign Affairs, for the legal defence of the state before international organisms and within processes resulting from foreign relations.

Since its creation, the attorney general has been promoting amicable settlements with investors affected by the Bolivian nationalisation process. As of the current date, several cases have been successfully settled pursuant to government’s negotiation strategy:

• On 16 September and 1 October 2008,¹³ the Bolivian government agreed economic compensations with Shell Gas Latin America and Ashmore Energy LLC for their expropriated investments in Transredes SA.
• On 9 September 2010,¹⁴ the now-extinct Ministry of Legal Defense executed an economic settlement with the shareholders of CLHB Compañía Logística de Hidrocarburos Boliviana SA.
• On 3 November 2010,¹⁵ the Ministry of Legal Defense and the Ministry of Public Works and Services were granted authorisation to execute a transactional agreement with ETI Euro Telecom International NV, in order to settle the arbitration process initiated by the latter due to the nationalisation of its share package in Entel SA.
• On 28 September 2011,¹⁶ the minister of hydrocarbons and the president of the Bolivian National Electricity Corporation (ENDE) were duly authorised to execute a transactional settlement with Inversiones Ecoenergy SA and Carlson Divided Facility SA for their expropriated investments in nationalised electrical generator CORANI SA.
• On 29 February 2012,¹⁷ the minister of hydrocarbons and the president of the Bolivian Hydrocarbons Corporation (YPFB) were jointly authorised to settle an economic compensation with the former shareholders of Air BP Bolivia SA.

Regarding Bolivia’s nationalisation process outlined above, we are of the opinion that the legal consequences of Bolivia’s denunciation of the Washington Convention are yet to surface. Only time will confirm whether this action triggered a jurisdictional shield for the state or, if on the contrary, its provisions served as legal guarantee for all those investments that were executed before denunciation was made effective.

Independently of the above, the government will have a very difficult task in successfully implementing its strategy to denounce or renegotiate BITs or both. We believe contracting countries may be reluctant to renegotiate agreement terms until the government of Bolivia provides legal certainty that foreign investments will be respected. Renegotiating bilateral investment instruments would not serve any purpose if one of the parties were to continuously confiscate and expropriate foreign investments in its territory.

The creation of the attorney general of the state, although positive from a legislative point of view, may turn ineffective due to its restricted faculties and attributions. Notwithstanding that he is vested with legal authority to assume juridical representation in all judicial, extrajudicial or administrative actions brought up against the State of Bolivia, the attorney general does not have enough power to settle or execute any type of binding transactional agreement with third parties. The fact that all economic settlements (involving international arbitrations) have been authorised by specific Supreme Decrees signed by the president and his cabinet of ministers clearly demonstrates that the attorney general, thus far, is a figure that lacks decision-making authority.

However, it is fair to mention that the attorney general has played an important role in implementing the government’s open and amicable negotiation strategy to procure out court economic compensations with affected foreign investors. Under this context, although Bolivia’s strategy has been fairly successful thus far, the government still faces several material arbitration claims, some of which will most likely be settled by any arbitration tribunal due to their nature and amounts involved.

Finally, it is absolutely clear that foreign investments paid the highest toll of the Bolivian nationalisation process. Unfortunately, despite its extraordinary potential, Bolivia has not been able to take advantage of the current economic bonanza of high-priced commodities such as minerals, coffee, natural gas, forestry and so on. The government has announced new foreign investments for the last quarter of 2012, however, until investors are granted legal certainty and expropriating measures are discontinued, new foreign capital is unlikely and investments will continue to decrease in detriment to the Bolivian economy and development.

Notes

1. Supreme Decree No. 28701.
2. Supreme Decree No. 28901.
3. Supreme Decree No. 29026.
4. Supreme Decree No. 29541.
5. Supreme Decree No. 29542.
6. Supreme Decree No. 29544.
7. Supreme Decree No 29586.
8. Supreme Decree No. 29888.
9. Supreme Decree No. 111.
10. Supreme Decree No. 493.
11. Supreme Decree No. 499.
12. Supreme Decree No. 1214.
13. Supreme Decrees No. 29706 and 29726.
14. Supreme Decree No. 621.
15. Supreme Decree No. 692.
16. Supreme Decree No. 995.
17. Supreme Decree No. 1149.