Wednesday, July 19, 2006

Petrobras Arbitration II

The Bolivian government has been trying to force Petrobras —Brazil’s state-owned oil company— to renegotiate the prices in their gas purchase agreement. Not only has Bolivia been disregarding Petrobras contractual rights in said gas purchase agreement, it ignored Petrobras and other foreign investors privately held investments (when it “nationalized” foreign investment in Bolivia’s oil and gas fields last May 1, 2006).

This situation highlights the importance of investing in a country where investment treaty arbitration is available for the foreign investor.

Fortunately (for Petrobras), although Brazil has not acceded to the 1965 Washington Convention —which has established the ICSID - International Center for the Settlement of Investment Disputes— Bolivia and the Netherlands are signatories of the Convention. And, importantly, the foreign investment in Bolivia was made through a Dutch subsidiary company of Petrobras.

Petrobras will have fair and adequate means to obtain compensation for any losses that it may have incurred in Bolivia. This, if Petrobras decides to initiate ICSID proceedings against the Bolivian government (there are political aspects that may interfere, as Petrobras is state-controlled). If this was the case, though, it would certainly be the first investment treaty arbitration brought by a Brazilian company against a foreign state.

Click here for Bolivian's decree law that "nationalized" the Bolivian oil and gas fields

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