Protecting Russian Investments Abroad

1. Protecting Russian Investments Abroad

2. Contents • Introduction • Protections under BITs • BITs and Russia

3. Investment Protection Goals What if: • Your public concession is revoked prematurely? • Your electricity tariff is the lowest in the country? • A foreign court has committed a travesty of justice? • The state oil company wants to renegotiate your Production Sharing Agreement? • Key licences have been revoked?

4. How do you get to arbitrate against a State? • Investment agreement / concession contract • Bilateral Investment Treaty • Multilateral Investment Treaty • Law on Foreign Investment

5. BITs Introduction • A treaty between two States with binding legal obligations • Direct Recourse of Investor to International Arbitration • Apply regardless of whether there is a contractual relationship • Obviates the need for diplomatic protection

6. BITs • Practically every country has concluded at least one BIT • Currently more than 2000 BITs in force • Russia has signed about 70 BITs of which about 50 are in force • In 2012, 58 new cases were initiated & total number of known treaty based cases reached 514 (www.unctad.org/diae) • In 2012 the highest award in history was granted USD1.77 billion in Occidental v Ecuador

7. BITs and Russia • Russian investors have brought 10 known actions against other states: • Kaliningrad Region v. Lithuania (ICC Award 2009, Application to set aside 2010) • OAO Gazprom v. The Republic of Lithuania (SCC Award 2012) • OAO Gazprom v The Republic of Lithuania (UNCITRAL Pending) • YuriiBogdanov, Agurdino-Invest Ltd. and Agurdino-Chimia JSC v. Republic of Moldova (2004) • YuryBogdanov v. Republic of Moldova, SCC Arbitration No. V (2009) • Sergei Paushok, CJSC Golden East Company and CJSC Vostokneftegaz Company v. The Government of Mongolia (Award 2011) • Mobile TeleSystems OJSC v. Turkmenistan (filed in 2011, discontinued in 2012) • Mobile TeleSystems OJSC v. Republic of Uzbekistan (pending) (filed in 2012) • OJSC Tatneft OAO v Ukraine (UNCITRAL, pending) (filed in 2007) • Bycell (Maxim Naumchenko, Andrey Polouektov and Tenoch Holdings Ltd) v. India (pending)

8. Russia’s BITs Worldwide

9. BITs Signed per year

10. Investor National of one contracting party that carries our investment in territory of another contracting party – “host state” e.g. Russia / Angola BIT Article 1: “The term “investor” as regards each of the Contracting Parties shall mean: a) an individual, being a citizen of this Contracting Party in accordance with its law and investing in the territory of the other Contracting Party; b) a legal entity, established or incorporated in the territory of this Contracting Party in accordance with its law and investing in the territory of the other Contracting Party.”

11. Investment • Most BITs contain a non-exhaustive list • No definition in the ICSID convention • SaliniCostruttoriSpA v Morocco (2001) (guideline only): • A contribution or commitment by the investor. • Performance of the project for a certain duration. • Existence of a risk for the investor. • A significant contribution to the economic development of the host state. • N.B. Pre-investment activity is rarely covered

12. Main Protected Rights The language used in BITs can vary, but core features remain: • Protection against illegal expropriation • Investor-State dispute settlement mechanisms (N.B. 12% of Russia’s treaties only provide the right to arbitrate the amount or method of compensation)

13. Expropriation Expropriation is legal provided: • Accompanied by prompt, adequate and effective compensation (Hull Formula) • Carried out in the public interest • In a legally established manner • Non-discriminatory

14. Expropriation cont’d • Direct: taking over of a factory by militia • Indirect: Plama Consortium v Republic of Bulgaria (ICSID Case No ARB/03/24) (Award) (27 August 2008): • substantially complete deprivation of the economic use and enjoyment of the rights to the investment, or of identifiable, distinct parts thereof (i.e., approaching total impairment); • the irreversibility and permanence of the contested measures (i.e., not ephemeral or temporary); and • the extent of the loss of economic value experienced by the investor. • Creeping: Generation Ukraine v Ukraine (ICSID Case No. ARB/00/99) (Award rendered 6 September 2003) • “A form of indirect expropriation with a temporal quality and a series of acts which are attributable to the state over a period of time and culminate in the expropriatory taking of property”

15. Other Common Protections • Fair and equitable treatment • National Treatment • Umbrella clauses • Non discriminatory measures • Subrogation Rights for Insurers • Repatriation of Profits • Most Favoured Nation Treatment

16. Most Favoured Nation Clauses • Procedural as well as substantive? • 11 cases (including RosInvestCo UK Ltd v Russia) extend MFN rights to procedural, as well as substantive, rights • 11 cases refused to extend MFN rights (including Renta 4 SVSA v Russian Federation)

17. Other Treaties and Laws Providing Investment Protection Similar rights are provided in: • Multilateral Treaties e.g. Energy Charter Treaty (1998 into force), Russia withdrawn but continues to apply provisionally for 20 years from cancellation, possible treaty between Eurasian Economic Community (Russia, Belarus, Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan) • Foreign Investment Laws e.g. Kazakh Investment Law 2003 • Array of rights and forums!

18. ICSID – International Centre for Settlement of Investment Disputes • Set up under auspices of World Bank by Washington Convention 1965 • Parties must be members of Washington Convention / Russia not ratified and unlikely to do so • Consent must be given to arbitration (Article 25) • Award rendered under ICSID is automatically enforceable as though it were a final judgment of a court in an ICSID State (Article 54) • Fact of arbitration as well as awards are published on ICSID website (www.worldbank.org/icsid) • N.B. ICSID Additional Facility

19. Enforcement • ICSID (Article 54) • New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (Russia ratified in 1960) • Article 1, Protocol 1 of European Convention for the Protection of Human Rights • Political Risk Insurance

20. Structuring Investments • Is there a BIT between the country where the investment is made and the country of the “investor”? • Is the investor a national (actual or deemed for the purposes of the relevant BIT) of the investor country? • Does the investment in question fall within the definition of investment? • Check also: has the target country promulgated an investment law • If there is a BIT, can be helpful in negotiations with a government prior to investment (if a contract is with the government)

21. Risk Management • Consider obtaining political risk insurance e.g. MIGA. • Establish JV with local company. • Seek investment from e.g. World Bank. • Subject investment contract to international law principles or a neutral law. • Include stabilisation clause in investment contract. • Other practical measures.

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