Rafael Correa, who became Ecuador’s president (2007-17) during a spike in oil prices, tried to impose a windfall tax by increasing the state’s share of oil revenue over a given threshold from 50% to 99%. Parliament forced him to reduce this to 80%, which was still much more than Perenco, the multinational that exploits the country’s reserves, was willing to accept. Perenco called it ‘indirect expropriation’ and brought a case before the International Centre for Settlement of Investment Disputes (ICSID), a tribunal which is part of the World Bank and a key body in international arbitration.

Perenco’s parent company is registered in the Bahamas but the group asserted that, as its headquarters were nonetheless in Paris, a 1994 bilateral investment treaty (BIT) between Ecuador and France applied. It demanded $1.42bn in compensation, equivalent to 2.27% of Ecuador’s GDP in 2008. Correa denounced the process and withdrew his country from ICSID’s jurisdiction. Article 422 of Ecuador’s constitution, which he introduced in 2008 (an electoral promise), stipulates that it is prohibited for the Ecuadorean state to cede its sovereign jurisdiction to international arbitration bodies.

He also initiated a long process of reviewing BITs, which led to a series of withdrawals, including from the agreement signed between Paris and Quito, which took place in 2017. But a ‘survival clause’ embedded in BITs states that the dispute settlement mechanism between investors and states (ISDS, investor-state dispute settlements) remains in force for ten to 20 years after a party withdraws, 15 years in the case of the France-Ecuador BIT. So in 2021 Perenco prevailed. Under conservative president Guillermo Lasso (2021-23) Ecuador rejoined ICSID, which imposed a $400m fine, and Lasso paid up.

Perenco’s legal action against Ecuador is just one example among hundreds in which states see private interests ride rough-shod over their sovereignty. The Swedish electricity supplier (…)

Full article: 1 945 words.