Academic journal article The George Washington International Law Review

Resolving the Bolivian Gas Crisis: Lessons from Bolivia's Brush with International Arbitration

Academic journal article The George Washington International Law Review

Resolving the Bolivian Gas Crisis: Lessons from Bolivia's Brush with International Arbitration

Article excerpt

It is true that Bolivia needs partners, not owners of our natural resources. . . . We will guarantee that the corporations have every right to recover what they have invested and have the right to profit, we only want that this profit be with a principle of balance, that the State, the people will benefit from these natural resources.1

INTRODUCTION

Bolivia now "has the second-largest natural gas reserves in South America,"2 yet it remains the poorest country in South America.3 While over half of the Bolivian population lives below the poverty line, foreign petroleum companies were enjoying profit margins of over 80 percent until recently.4 In May 2007, President Evo Morales took the controversial step of reforming the legal regime governing Bolivia's hydrocarbons sector, so that now foreign investors and the Bolivian State each receive 50 percent of the value of hydrocarbons produced.5

This reform was controversial because it was seen by many as unfair to foreign investors, and contrary to the principles governing the protections provided by bilateral investment treaties (BITs). Bolivia is one of many developing countries that signed BITs in the 1990s, which successfully encouraged foreign investment.6 Bolivia's decision to impose an obligatory conversion of the existing petroleum contracts to new contracts under terms dictated by the Bolivian Government seemed to defy BIT protections. At least seven petroleum companies operating in Bolivia hail from countries with BITs with Bolivia in place,7 and some, such as Spain's Repsol YPF (Repsol), threatened to take Bolivia to international arbitration in order to resist the imposition of new contract terms.8

While the threat of demands for international arbitration loomed large, failing to make a change in the hydrocarbons regime was also not a viable option for the Bolivian Government. The majority of the Bolivian citizenry, believed that Bolivia could no longer allow foreign companies to "pillage" national resources while the Bolivian people remained in a stagnant poverty.9 The Bolivian populace expressed this sentiment through national protests over hydrocarbons that elicited violent displays of Government force,10 shut down regional transportation systems,11 halted the economy,12 forced out two presidents in as many years,13 compelled a national referendum on the hydrocarbons issue,14 and prompted the passage of the 2005 Hydrocarbons Law, which significantly increased Bolivia's state revenues from natural gas production.15 National unrest over hydrocarbons ultimately resulted in the election of Morales, whose victory was gained in large part on his promise to reform the hydrocarbons industry.16

Morales followed through on his campaign promises and issued Executive Decree 28701 in May 2007, which clearly established that foreign investors had to sign on to the contract terms more favorable to the Bolivian State, or cease operations and leave.17 Surprisingly, despite the existence of BIT protections, not one foreign petroleum investor brought a demand for arbitration-rather, all signed onto new contract terms and continue to operate in Bolivia.18

These events leave lingering questions: Did Bolivia's victory in its showdown with foreign investors set a precedent for other countries? May other countries now also unilaterally change investment contract terms with impunity? Will foreign investors now operate at the mercy of resource-rich, politically volatile countries? An analysis of a hypothetical claim against Bolivia based on its recent actions will help to reveal answers to these questions.

This Note seeks to identify the bright lines of law that an arbitral tribunal would apply when analyzing an investment treaty dispute brought by Repsol, a Spanish petroleum investor, against Bolivia. Part I of this Note will provide a background to the Bolivian gas crisis, tracing the events leading up to the passage of the new Hydrocarbons Law in May 2005 and Executive Decree 28701 in May 2007, as these events would be of crucial importance to an analysis of an investment dispute based on the implementation of those laws. …

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