By Frank Mulder
UTRECHT, Netherlands, Jan 4 2016 (IPS)

Venezuela doesn’t want investment treaties anymore if they give investors the right to drag the country before a commercial court. “The system has been set up to break down the nation-state.”

All is not going well for Venezuela. While the country is torn apart by poor governance, poverty and polarisation, it is attacked from the outside by oil firms claiming tens of billions of dollars.

The method these firms use is called ISDS, or Investor-State Dispute Settlement. This is a mechanism by which investors can sue a state by means of arbitration, which is a kind of privatized court. Many lawyers stress the advantage that plaintiffs don’t have to go before a local judge whom they feel they cannot trust. You can choose a judge for yourself, the opponent does the same, and the two of those choose a chairman. They are called arbitrators. The case is heard at a renowned institute, like the World Bank. How could it be more fair?

Biased

But Bernard Mommer, former vice-minister for oil in the time of Hugo Chavez, now the main witness in different claims against Venezuela, has to laugh a bit. “I won’t say that Caracas is a neutral venue. But don’t be so foolish to say that Washington is neutral. The whole arbitration system is biased in favour of investors.”

After Argentina, no country has been sued as much as Venezuela: until 2014 at least 37 cases have been filed against this Latin American state. However, the fine they can expect now exceeds all of the others. ConocoPhillips, a Texas-based oil company, claims 31 billion dollars and seems to be on the winning side. According to critics, that case represents everything that’s wrong with the ISDS system.

Oil dispute

The dispute about oil began in 2006. Under the activist leadership of Chavez, Venezuela decided to nationalise the oil sector. Also, higher taxes were announced. Mommer was responsible for the negotiations with international oil firms about compensation. Most of the 41 companies in the country agreed with the buyout. Two didn’t. Those were the Texas-based companies ConocoPhillips and Mobil (now ExxonMobil).

“When we started with the expropriation, they went for arbitration,” says Mommer. “I didn’t even know that this was possible. For arbitration two parties need to consent, don’t they? How could they sue a state?” But Mommer discovered that Venezuela signed Bilateral Investment Treaties (BITs) in 1991, among others with the Netherlands. Those treaties give all investors from the given country an offer to arbitration if they feel treated unfairly by the host state.

Dutch sandwich

ConocoPhillips and Mobil quickly moved their Venezuelan holdings to the Netherlands in 2006. That gave them the opportunity to claim, as Dutch investors, that the unexpected policy change violated their BIT rights. Together, they demanded 42 billion dollars.

“This is called the Dutch sandwich”, says George Kahale III, a top lawyer from New York, who defends Venezuela in different cases. “You put a Dutch holding in the middle of your company chain and you can call yourself Dutch.”

Companies are not allowed to do this if the dispute already started. ExxonMobil and Conoco said that their move was made independently of the dispute. However, a remarkable message has been found among the Wikileaks cables. In these a representative of Conoco told someone from the American embassy that they “already” moved to the Netherlands to “safeguard their arbitration rights.”

Unlawful

The cases are still dragging on. ExxonMobil has had no luck. The three arbitrators have judged that the expropriation was lawful. ExxonMobil gets compensation, but not much more than what they were offered earlier, around one billion dollars.

But the Conoco case evolved differently. Two of the three arbitrators found the expropriation unlawful. This means that Venezuela has to compensate the firm, not on the basis of the low oil price in 2006, but on the basis of the much higher price at the time of the claim. This will amount to tens of billions of dollars.

This is insane, says Kahale. “The fact is that four out of six arbitrators found that the expropriation was perfectly lawful. And yet Venezuela can expect a mega award.”

Unfair

Talking about fairness: among the Wikileaks cables another juicy anecdote has been found. In a cable from 2008, the Conoco representative tells the American ambassador that the negotiations are going well and that Venezuela is being reasonable. This is in contradiction to what Conoco was claiming in public. Yet the arbitrators – at least, two of the three – now say that they can’t change their conclusion anymore and now have to proceed to the next phase, about the damages.

“In other words”, says Mommer, “the investor can lie. We can’t sue them anyway. They alone can sue us. This shows why Western countries have invented this system. It has been set up to break down the nation-state.”

Disaster

ISDS is structurally flawed, says Kahale. “Who are the judges? They are investment lawyers. Their commercial background shines through in their decisions. Every judge of course always brings his own views to his job. But in arbitration these people are deciding no longer private commercial disputes, but megacases of international significance, with sometimes vital importance for individual states, involving billions of dollars, with very little training in international law.”

Too many, conflicts of interest arise. “You will never see a supreme court judge acting as a counsel in another case. But many arbitrators also act as a counsel. It’s very hard to preside over the legality of something one day, and advocate the same issue the other day. It is natural that I’m holding back in one or the other, depending on which case is more important to me. There are very few checks and balances. Too many mistakes are made.”

Venezuela is fed up with ISDS claims. Soon after the claims were filed, they pulled the plug, not only from the ICSID convention (which acknowledges the World Bank as arbitration court) but also from a number of BITs. The Dutch BIT was the first to be terminated a few years ago. Unfortunately for Venezuela, this treaty contains a clause giving investors the right to arbitration until 2023.

Don’t challenge us

Arbitration can be an elegant method for solving a dispute. But is has developed into an instrument for multinational companies to pressure states.

“These oil firms were offered a brilliant compensation,” says Juan Carlos Boue, a Venezuelan researcher at the Oxford Institute of Energy. “But when the oil price rose, they decided to leave the country with as much money as possible.” For ExxonMobil, a giant with a revenue of 400 billion dollars, twice as big as the GDP of Venezuela, there is more at stake. “They have unlimited resources. They want to let the world know what happens if you challenge them.”

And the arbitrators? “Some of them are on the boards of multinational companies. They just don’t want the countries to get away with it. They have an extreme dislike towards countries like Venezuela.”

ExxonMobil and ConocoPhillips refrained from any comment.

(End)

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Edinburgh Castle, symbol of the Scottish capital, whose university has just decided not to disinvest in fossil fuels. Photo credit: Kim Traynor/CC BY-SA 3.0 via Wikimedia Commons

By Kirsty Haigh, Eric Lai, and Ellen Young
EDINBURGH, May 17 2015 (IPS)

The University of Edinburgh has taken the decision to not divest from fossil fuels, bowing to the short-term economic interests of departments funded by the fossil fuel industry, with little to no acknowledgement of the long-term repercussions of these investments.

The decision, which was announced on May 12, exemplifies the influence that vested interests have gained over academic institutions in the United Kingdom.“Our university has decided to take a reactionary approach to climate change, failing to make any statement of commitment to the staff and students who have been demanding divestment from fossil fuel companies for the past three years”

Collectively, U.K. universities invest over eight billion dollars in fossil fuels, more than 3,000 dollars for every student. The University of Edinburgh has the country’s third largest university endowment, after Oxford and Cambridge, totalling 457 million dollars, of which approximately 14 million is invested in fossil fuel companies, including Total, Shell and BHP Billiton.

Our university has decided to take a reactionary approach to climate change, failing to make any statement of commitment to the staff and students who have been demanding divestment from fossil fuel companies for the past three years.

Announcing it decision, the university said: ”The university will withdraw from investment in these [fossil fuel consuming and extracting] companies if: realistic alternative sources of energy are available and the companies involved are not investing in technologies that help address the effects of carbon emissions and climate change.”

However, given the fossil fuel industry’s continued destruction of the planet, the university’s approach leaves far too much to the imagination and indeed allows for the potential to not divest from harmful industries at all.

We are going to find our existence completely altered – and in a way that we do not want – if   we do not stop extracting and burning fossil fuels, and we know the big fossil fuel companies have no intention of stopping.

Climate change not only poses a massive economic threat but also presents the world’s biggest global health hazard – and its effects are hitting the poorest parts of the world hardest. The University of Edinburgh is fundamentally failing to acknowledge the part it is playing in funding climate chaos.

Our university claims to be a “world leader in addressing global challenges including … climate change” but if the university had any desire to take the moral lead, it would have divested. Divestment would have seen Edinburgh join a global movement of universities and numerous other forward-thinking organisations in divorcing itself from the tightening grip of the fossil fuel industry.

The University of Edinburgh came down firmly on the side of departments funded by the industry which have been scaremongering throughout the process

Freedom of Information (FOI) requests have revealed, for example, that the university’s Geosciences Department has received funding from a range of fossil fuel companies over the past 10 years, including BP, Shell and ConocoPhillips, as well as grants and gifts of money from Total and Cairn Energy.

Sixty-five students in the university’s School of Engineering have already signed an open letter to the Head of the School, Prof Hugh McCann, angered by his public opposition to fossil fuel divestment.

Their letter states: “The School of Engineering has and will continue to have a pivotal role in the university’s future. It is after all engineers who will be on the frontlines of the transition to a low carbon society.

“By basing its argument against divestment on engineering students’ chances of employment in one dead-end industry, the school appears to be failing to prepare its students for careers in the rapidly changing energy markets of the 21st century, whilst neglecting the faculty’s broader responsibility to the student body as a whole. As a consequence, they gamble employment against our common future.”

Divesting is a way of taking on and dismantling the big fossil fuel companies and the power they hold over our society and governments. We rightly condemn companies that do not pay their taxes or who exploit their workers, and so we must do this to the companies who are threatening our very existence.

Divestment is also about creating more democratic institutions where those who are part of universities can have a say in how their money is spent and invested. The university’s announcement has shown that we still have a long way to go in creating transparent, democratic and ethical institutions. It brings into question the validity of the university’s decision-making process.

For the past three years, students, staff and alumni have supported full divestment – yet the University of Edinburgh has ignored their calls. The consultation run by the university found staff, students and the public in favour of ethical investment. A year later we still have zero commitment to change.

A process which began with promise has been allowed to descend into a complete breakdown in communication between students and the university. Serious questions need to be asked about why the decision was taken in favour of the views from the university’s Department of Geosciences, which freely admits its vested interested in maintaining the status quo for financial reasons.

The University of Edinburgh needs to invest in alternatives to dirty and unhealthy energy sources. These alternatives will create new jobs, so that when the fossil fuel industry ceases to exist there is something to replace it and our students are trained to work in it.

Edited by Phil Harris    

The views expressed in this article are those of the author and do not necessarily represent the views of, and should not be attributed to, IPS – Inter Press Service. 

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