A Bolivian nationalisation too far? Rurelec gets its day in court

Financial Times | Apr 2, 2013

A Bolivian nationalisation too far? Rurelec gets its day in court

by Andres Schipani

For a country with a fondness for nationalisations and getting its way, going to full arbitration might feel a little, well, odd. Bolivia has been placing companies under state control on and off since May 2006.

So how did UK-based power company Rurelec manage to get Bolivia to go to the Permanent Court of Arbitration in The Hague over the nationalisation of the assets of its local subsidiary, Guaracachi, almost three years ago?

For investors, Bolivia has been hard to bring to account because, like its leftwing allies Ecuador and Venezuela, it pulled out of the World Bank arbitration body, the ICSID, in 2007. So, companies have to either settle or appeal to bilateral treaties.

But Peter Earl, Rurelec’s chief executive, told the FT that Bolivia is now going to a tribunal that it “actually respects”. That could well be. Bolivia seems to respect The Hague enough that it is even taking Chile to the International Court of Justice in a bid to reclaim access to the sea lost in a 19th century war.

Investors seem to like Rurelec’s chances – shares in the company listed on London’s smaller Aim market jumped nearly 30 per cent, to 13.3p on Tuesday.

Regardless of the Hague court outcome, Bolivians should brace themselves for change – the prosecutor general said last week that the government is looking to review about 34 bilateral treaties before they are ratified, renegotiated, or denounced. Some of them are believed to be investment protection ones, according to analysts.

Bolivia is no stranger to resource nationalism. Bolivia’s president Evo Morales renationalised the country’s hydrocarbons industry in 2006. Then, among others, in 2008 it nationalised a subsidiary of Telecom Italia, and in May 2010 Rurelec’s assets were seized alongside those of France’s GDF Suez.

In June 2012, the government revoked a tin and zinc mining licence of a subsidiary of London-listed Glencore. Last year, it also nationalised a power transmission unit of power grid operator Spain’s Red Eléctrica, which then announced in January its intention to take Bolivia to court. There was also the nationalisation of two electricity distribution companies owned by another Spanish company, Iberdrola.

Most recently, in February 2013, it took over an airport operator owned by Spain’s company Abertis.

Some, like Enrique Gómez, a former head of the national electric company, believes the “nationalisations were not capricious, the government is determined to look for better and broader services for the people.”

Or cheaper. To satisfy the demands of the diverse social and indigenous groups that form his broad power base, Morales reduced electricity rates in the capital by 60 per cent in March.

Despite concerns that nationalisations are keeping foreign investment away, Bolivia is not the struggling impoverished country it was before the so-called “peasant president” took office. According to Morales, Bolivia plans to achieve developed-nation status by 2025. Partly thanks to high commodity prices as well as macroeconomic policies, the Andean country’s GDP has nearly tripled to $26bn in the past seven years.

And for all the complaints about the performance of nationalised mining companies, nationalisations appear to have been good for Bolivia’s coffers – according to the government. It claims that before the oil and gas industry was nationalised, Bolivia used to receive only $670m in revenues, while last year it cashed in $4.2bn.

source: Financial Times