Dow Jones Wires 8.10.2012
Ecuador preparing to contest Icsid’s award to Occidental
By Mercedes Alvaro
QUITO—Ecuador’s Attorney General said Monday his office is preparing the legal basis to contest an international court ruling that ordered the country to pay $1.77 billion plus interest to Occidental Petroleum Corp. (OXY).
The ruling was issued last week by the Washington D.C.-based International Center for Settlement of Investment Disputes, known as Icsid.
"We have 120 days to file for the annulment," Attorney General Diego Garcia said, adding that "there are serious reasons for the ruling to be annulled."
Ecuador canceled Occidental’s operating contract in May 2006, during the administration of President Alfredo Palacio, alleging that the company broke the terms of its contract by transferring a 40% stake to Encana Corp. (ECA, ECA.T) without obtaining approval from the country’s energy ministry. Occidental filed for arbitration with Icsid under the U.S.-Ecuador bilateral investment treaty.
The arbitration tribunal said that Ecuador breached the treaty by "failing to accord fair and equitable treatment to the claimants’ investment and to accord the claimants treatment no less than that required by international law."
The tribunal also said that the Ecuador’s decision to terminate Oxy’s contract for block 15 was "tantamount to expropriation."
The tribunal did say that Occidental failed to get approval for its farm-out agreement, so the $1.77 billion award is a 25% reduction from what the tribunal otherwise would have awarded.
The tribunal also ordered Ecuador to pay interest on the award at the rate of 4.188% a year, compounded annually from May 16, 2006, and to pay post-award interest from the notification at the six-month U.S. Libor rate, compounded monthly.
Mr. Garcia said that Occidental broke Ecuadorian law and the contract. He said that Ecuador’s efforts to seek the cancellation of the ruling could take between one and two years to achieve results.
Before it left Ecuador, Los Angeles-based Occidental produced about 100,000 barrels a day from its Block 15, now operated by state oil company Petroamazonas SA.
Currently, Ecuador faces at least 12 arbitration claims at Icsid. Among the companies that have suits against Ecuador are the Anglo-French Perenco Corp., Chevron Corp (CVX) and Burlington Resources Inc., a subsidiary of ConocoPhillips (COP).