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Bolivia Water Wars
ICSID gives green light to multinationals to protect their investments
The World Bank hosted International Centre for Settlement of Investment Disputes (ICSID) has ruled that it is perfectly acceptable for multinationals to change the country of their legal headquarters in order to protect their investments. The controversial ruling was made on 21 October in a judgement to establish whether ICSID had jurisdiction to rule on a case between Bolivia and private water utility Aguas del Tunari, owned largely by
US multinational Bechtel.
The statement by ICSID does not establish jurisprudence but it does set a significant precedent. In effect, it turned supposedly Bilateral (ie between two countries) Investment Treaties (BITS) into a worldwide investment treaty
to protect multinational profits. "It is common practice to choose a corporate headquarters in a country that offers benefits in terms of taxes and a bilateral investment treaty," the tribunal ruled.
"This ruling has created a damaging precedent," said Pablo Sol?n of the Bolivian Movement against Free Trade. "It suggests that BITS are no longer just bilateral agreements protecting a particular country's investors, but
are instead treaties that offer a green light for multinationals from any country to relocate themselves in order to protect their profits and allow them to sue sovereign governments."
Details of rulings by ICSID are rarely released, but the judgement was published in a Bolivia government paper in December 2005 summarising the state of negotiations with the privatised water utility, Aguas del Tunari.
Aguas del Tunari was expelled from Cochabamba after a popular uprising in protest at vastly increased water rates and expropriation of communal water supplies. The company, largely owned by US multinational Bechtel (55% of
shares) followed by Spanish company Abengoa (25%) immediately launched a legal suit at ICSID for more than $50 million.
Aguas del Tunari moved its headquarters from the Cayman Islands to Holland shortly before protests erupted in April 2000 to ensure that it was based in a country that had one of the 24 Bilateral Investment Treaties signed with
Bolivia. The Bolivian Government argued before ICSID that the Bilateral Investment Treaty with Holland did not apply as Aguas del Tunari did not have one cent of Dutch capital in the company.
However, ICSID ruled that it didn't have evidence that "the transfer of headquarters to Holland in November 1999 was done in anticipation of the events that led to its departure in April 2000." It also said that it hadn't uncovered proof "that there had been an intention of fraud by transferring the headquarters from the Cayman Islands to Holland" and said the Bolivian government's argument that the company wasn't Dutch had no basis.
ICSID was established in 1966 to arbitrate on conflicts between private foreign investors and Governments. It is the main tribunal chosen as the mediator in bilateral investment treaties signed between Governments. Whilst
it is a supposedly neutral body, it is hosted by the World Bank and has invariably favoured multinational complainants. This ruling makes that apparent bias even starker.
"This ruling makes clear that ICSID isn't just partial to the interests of multinationals, it unashamedly exists to fight for their interests," said Pablo Sol?n.
Whilst the ruling gave Aguas del Tunari the right to proceed with the case, behind the scenes Bechtel and Abengoa have been negotiating a settlement with the Bolivian Government. On 3 January 2006, the Coordinadora del Agua y
Vida (who led the protests against Aguas del Tunari) received a copy of the proposed agreement. According to the accord, the Bolivian Government agrees to pay a symbolic payment of $2 to Bechtel and Abengoa in order to buy back
the 80% of the company that they own together whilst Aguas del Tunari have agreed to drop their case in ICSID.
The decision to settle for a nominal sum was no doubt partly informed by a major international campaign against the legal suit by activists across the world. However the Coordinadora have expressed concern about the lack of
transparency around the agreement. "We are concerned about the possible content of various unpublished documents and the economic costs of the liabilities Aguas del Tunaria has inherited." They have demanded the public
release of all relevant documents before the agreement in signed on the 14th January.
After initial rejoicement over this decision, the Coordinadora del Agua insisted they wanted to see the full
text of the agreement (which was signed in English and has not yet been translated into Spanish). When the got part of the text they became very worried because in the agreement there is mention that the buyers will assume the "responsabilities" for the company, which amount to 7 million dollars. Let's hope that this is not the case. Detailed info (in Spanish):
Victory in Bolivian Water War
From the Democracy Center's website (http://www.democracyctr.org):
Bechtel to Drop World Bank Trade Case Over Water Revolt
It is official. On Thursday, representatives of the Bechtel Corporation and its co-investor, Abengoa of Spain, will be in Santa Cruz to sign an agreement ending their four year effort to sue Bolivia over the Cochabamba water revolt. Bechtel and Abengoa have been seeking $50 million in damages and lost profits before a secretive trade court
(International Center for the Settlement of Investment Disputes) operated by the World Bank, the same institution that coerced Bolivia to privatize its water to begin with.
Bechtel and Abengoa will sign an agreement dropping the case for a token payment of 2 bolivianos, about 30 cents. For a couple of weeks I have been communicating back and forth between Bechtel, the Bolivian government, and water activists here in Cochabamba, trying to force disclosure of the agreement details. As of last night, we have the last of those in hand.
This is a huge victory for activists worldwide who have fought this case on five continents. It is a huge precedent for the growing Web of legal cases in which the world's most powerful corporations seek to tie the hands of people and governments to shape their own economic futures. We know of no other case in the world where a major corporation like Bechtel has dropped its action in response to global citizen pressure.
BACKGROUND ON THE CASE:
In the late 1990s the World Bank forced Bolivia to privatize the public water system of its third-largest city, Cochabamba, by threatening to withhold debt relief and other development assistance. In 1999, in a process with just one bidder, Bechtel, the California-based engineering giant, was granted a 40-year lease to take over Cochabamba's water, through a subsidiary the corporation formed for just that purpose ("Aguas del Tunari").
Within weeks of taking over the water system, Bechtel imposed huge rate hikes on local water users. Families living on the local minimum wage of $60 per month were given bills equal to as much as 25 percent of their monthly income. The rate hikes sparked massive citywide protests that the Bolivian government sought to end by declaring a state of martial law and the deployment of thousands of soldiers and police.
More than a hundred people were injured and one 17-year-old boy was killed. In April 2000, as anti-Bechtel protests continued to grow, the company's managers abandoned the project.
Bechtel filed the legal action against Bolivia in 2001, demanding compensation of $25 million, a figure that represents far more than Bechtel's investment in the few months it operated in Bolivia. Bechtel's action also aims to recoup a portion of the company's expected profits from the project. The company filed the case with ICSID under a
bilateral investment treaty between the Netherlands and Bolivia. Although Bechtel is a U.S. corporation, it established a P.O. box presence in the Netherlands in order to make use of the treaty.
The rules in the Dutch-Bolivian treaty are similar to those in NAFTA, the proposed Free Trade Area of the Americas, and dozens of bilateral investment treaties.
Global Policy Network: http://www.gpn.org
Economic Policy Institute: http://www.epi.org
Washington, DC 20005