Jonathan C. Hamilton, Latin American Energy Disputes, Latin America Energy Advisor, Inter-American Dialogue (2006)

More than a quarter of the 105 foreign investment disputes pending at the World Bank’s International Centre for Settlement of Investment Disputes (ICSID) involve energy sector-related cases against Latin American states.  Why do disputes involving Latin America’s energy sector have such a prominent share of the ICSID’s case load? Do you think investment treaties and the ICSID provide effective means of resolving disputes and promoting legal certainty for foreign investors? Commentary by Latin American energy Advisor Board Member Jonathan C. Hamilton.

The wave of investment arbitration against Latin American states is based on a treaty framework built out as part of pro-market reforms in the region during the 1990s.  Latin American states joined ICSID.  Sovereigns historically have complied voluntarily with ICSID awards rendered against them.  The Slovak Republic, for instance, has now paid an $889 million award, the largest in ICSID history. 

Latin American states also entered into numerous bilateral investment treaties (BITs)  providing for ICSID arbitration of investment disputes under international law.  Latin American states are now parties to almost 300 BITs as well as free trade agreements with investment protection provisions.  To illustrate, Argentina is a party to 53 BITs; Chile, 36; Peru, 26; Venezuela, 21; Ecuador, 21. 

This treaty framework was in place as foreign investment poured into the region, particularly in connection with the privatization of public utilities.  As an outgrowth, over a quarter of the total ICSID cases now pending relate to the Latin American energy sector, including electricity, oil and gas, and mining.  Given this context, the ICSID system faces new challenges.  Argentina is defending numerous treaty cases with cumulative claims approaching an unprecedented $20 billion.  Almost half of those cases relate to the energy sector.  Brazil, which has never ratified any BITs, appears content that it does not need them to entice investment. In

Venezuela, the minister of energy and petroleum has stated that “arbitration is over, and we are finished submitting our oil activities to extraterritorial law.” There have been similar statements elsewhere in the region. While these circumstances raise questions regarding ICSID and the extent to which treaties entice foreign investment or positively influence government policies, the existence of a framework for resolution of investment disputes in itself provides a degree of certainty that did not exist when disputes over energy and natural resources arose in decades past.

The existence of a framework for resolution of investment disputes in itself provides a degree of certainty that did not exist when disputes over energy and natural resources arose in decades past.

Jonathan C. Hamilton