Following our post dated 4 January 2013, the online edition of the official journal of the Plurinational State of Bolivia has published the text of Supreme Decree No. 1448 whereby the Government of Bolivia expropriated shares in four Bolivian companies owned by Spanish energy company Iberdrola through its Bolivian subsidiary Iberbolivia de Inversiones.
After a careful reading of Supreme Decree No. 1448 we maintain the remarks we published two weeks ago. This time we are going to add an explanation thereof in light of the requirements set out at Article 5 of Spain-Bolivia BIT for the expropriation and nationalization of foreign investments that, although no longer in force as Bolivia denounced the BIT in January 2012, is still applicable to investments made in Bolivia prior to said denunciation.
According to Article 5 of Spain-Bolivia BIT, investments of Spanish investors in Bolivia (and Bolivian investors in Spain) must not be subjected to expropriation, nationalization or other equivalent measures unless (i) there is a public interest, (ii) the expropriation is made according to due process of law, (iiii) on a non-discriminatory basis and (iv) against payment of prompt, adequate and effective compensation.
First, the preamble of Supreme Decree No. 1448 sets out a number of reasons why the expropriation is justified by the Bolivian authorities. In particular, Paragraph 6 of the preamble underlines that Electropaz and ELFEO restricted their energy distribution operations to urban areas within the departments of La Paz and Oruro and that this situation prompted the creation of small distribution companies for rural areas that, in the end, resulted in higher tariffs. It seems that the Government was not satisfied with the performance of those companies. Nonetheless, we will not discuss these arguments further as we lack a lot of information.
Second, Supreme Decree No. 1448 was signed by the President of Bolivia, Mr. Evo Morales, and all members of his Cabinet. We understand that this is the normal arrangement for such an expropriation in that country.
Third, the object of Supreme Decree No. 1448 is, according to Article 1 thereof, the nationalization of all shares owned by Iberbolivia de Inversiones in Electropaz, ELFEO, CADEB and EDESER. However, according to news reports, about 10% of shares in Electropaz are allegedly owned by Spanish bank Banco Santander and neither this minority stake nor others in ELFEO, CADEB and EDESER owned by other investors seem to have been affected by the Decree. If these reports turn out to be true, any expropriation affecting only Iberbolivia de Inversiones would be discriminatory and, as a consequence, unlawful.
And, fourth, payment of prompt, adequate and effective compensation is due by Bolivia (Hull clause). Article 2(III) of the Decree states that the amount of money to be paid shall be set out by an independent company within 180 working days after the publication of the Decree (which took place the same day it was signed by the Government). Furthermore, according to Articles 2(V) and 5 thereof, any financial, tax, labor, commercial, regulatory, environmental or social liabilities of the expropriated companies, whether existing or contingent, shall be deducted from that amount. In this regard, we cannot forget that the standard of compensation set out in the Hull clause is widely accepted as the agreed remedy for a lawful expropriation. However, if the expropriation is qualified as unlawful, then another standard is applicable: as the PCIJ stated in Chorzów, “[t]he essential principle contained in the actual notion of an illegal act –a principle which seems to be established by international practice and in particular by the decisions of arbitral tribunals– is that reparation must, as far as possible, wipe-out all the consequences of the illegal act and re-establish the situation which would, in all probability, have existed if that act had not been committed.”
As restitution in kind is not a popular remedy for expropriations (neither lawful nor unlawful), the debate in this case will no doubt be centered on the value of the expropriated assets at the time of the expropriation, including the method of the valuation (DCF, book value) and any liabilities of the expropriated companies that might reduce the final amount of money to be paid to Iberbolivia de Inversiones.
 Available at http://www.gacetaoficialdebolivia.gob.bo/edicions/view/465NEC (in Spanish only).
 See http://www.comercio.mityc.es/es-ES/inversiones-exteriores/acuerdos-internacionales/acuerdos-promocion-proteccion-reciproca-inversiones-appris/PDF/lista-appri-vigor/BOLIVIA.pdf (Spanish official text).
 Case Concerning the Factory at Chorzów (Claim for indemnity) (Merits), Judgment of 13 September 1928, at PCIJ, Series A, No. 17, at p. 47. Available also at http://www.icj-cij.org/pcij/serie_A/A_17/54_Usine_de_Chorzow_Fond_Arret.pdf.