Still no settlement between Telecom Italia and Bolivia.
Still no settlement between Telecom Italia and Bolivia
The return of previously privatised businesses to state control was one of the election pledges of Bolivian president Evo Morales. In May 2006, five months after being elected president, Morales renationalised Bolivia’s oil and gas industry. Oil, gas, water, power, railways, pension plans, and the national airline, as well as telecoms incumbent Entel, had all been privatised in the mid-1990s by former president Gonzalo Sanchez de Lozada, based on the belief that a privatised market would improve the country’s economy. But 12 years later, people felt that privatisation had done nothing to alleviate poverty in Bolivia.
At first, Entel was not included in the renationalisation process. The government announced, in May 2006, that instead of renationalising the company, it would introduce a new telecoms regulatory framework aimed at imposing further universalisation targets.
Following the renationalisation of Venezuela’s incumbent CANTV in January 2007, the issue of returning Entel to state control resurfaced. But while it took only four months for CANTV’s owner Millicom International and the Venezuelan government to reach a settlement, in the case of Telecom Italia and Bolivia the process would take far longer and be far more embittered.
President Morales said ownership of Entel would revert to the state if any evidence of corruption was found, or if the company had failed to comply with investment goals. Reportedly, TI asked the Bolivian government to pay US$170 million for the 50% stake. In February 2007, Bolivia’s tax agency denounced Entel for tax evasion to the tune of B$200 million (US$24 million). President Morales travelled to Rome in March, to discuss the Entel issue with the Italian government; he stated that he would respect foreign investment and the process of law, but was concerned about investment levels and corruption.
The question of Entel’s renationalisation remained uncertain until, in April 2007, Morales issued a presidential decree (approved by Bolivia’s lower house in May 2007) setting a 30-day deadline to negotiate Entel’s return into state hands. A commission was set up, with three ministers and two deputy ministers, to conduct negotiations for the renationalisation of Entel. The government said that once it gained control of Entel, it would shift the operator’s focus from technological innovation to providing basic coverage in rural areas. Entel would be renamed Empresa de Telecomunicaciones de Bolivia (EntelBo).
Initially, TI agreed to talk with the Bolivian government, but negotiations collapsed before the end of April when TI pulled its direct staff out of Bolivia. Purportedly, TI feared that the government would repeat its move of the previous year, when it jailed foreign oil company executives in order to force their hand in nationalisation talks. TI requested that the negotiations be moved to another country, but the Bolivian government refused. That same month, through its Netherlands-based international investment arm Euro Telecom International (ETI), TI filed for arbitration with the World Bank’s International Centre for Settlement of Investment Disputes (ICSID), which facilitates conciliation and arbitration in disputes between governments and private foreign investors.
Bolivia accused TI of overreacting by going directly to legal threats rather than allowing time for conciliation to take place. In May 2007, Bolivia, Nicaragua, Ecuador, and Venezuela withdrew form the ICSID, which they claimed had never ended a case with a ruling in favour of a country.
Disagreements between TI and the Bolivian government continued to deepen. The country’s telecoms regulator Sittel claimed that Entel owed the government B$65.5 million (US$8.26 million) for not complying with service and investment requirements. The amount included a fine of US$3.6 million for failing to meet quality of service commitments in 2000 and 2001. Meanwhile, Bolivia’s tax authorities charged Entel B$434 million (US$54.3 million) for allegedly failing to report a remittance of profits to Italy in its October 2005 filing.
TI characterized the claims as underhand manoeuvring by the government to facilitate expropriation of TI’s shareholder rights in Entel. The operator asked that the Bolivian government hire international independent auditors to verify Entel’s investments.
In October 2007, the ICSID announced that the ETI arbitration request against Bolivia had been filed. The submission included damage compensation claims by TI and accusations that the Bolivian government had violated a Bilateral Investment Treaty between the Netherlands and Bolivia for the protection of foreign investments.
The matter came to a head in May 2008, when the Bolivian government issued a Supreme Decree nationalising the shares in Entel owned by the TI Group. According to the Decree, the worth of the nationalised shares was to be determined within 60 days, and would be based on book value rather than market price. Bolivia expected to offer up to US$100 million for the shares, having rejected TI’s asking price of US$170 million.
TI responded by freezing Entel’s assets deposited with US and UK banks, and announced that the value of Entel would be determined by the ICSID.
But in July 2008, British law courts ruled in favour of the Bolivian government, unfreezing US$49 million of Entel’s assets held in UK bank accounts; in August 2008, a court in New York likewise granted the nationalised Entel access to funds totalling US$36 million that had been frozen in US bank accounts. The rulings stated that TI had no right to seize any of the company’s assets.
In October 2008, Bolivia’s government appointed Philippe Joseph Sands, a professor of international law at the University of London, as its legal defence in the ICSID arbitration court. Since TI’s suit was filed in October 2007, several months after Bolivia had withdrawn from the ICSID, the Bolivian government has been seeking to prove that ICSID has no jurisdiction in the case.
After a preliminary hearing in The Hague in December 2008, the ICSID postponed the arbitration process to 2010 while it assesses whether it has jurisdiction in the matter.
It is interesting to note that although TI is an Italian telco, it is conducting its case against Bolivia through ETI, a subsidiary that is registered in the Netherlands although it has no substantial commercial presence or staff in that country. This is reportedly part of a clever business dodge that allows corporations to avoid paying taxes – the Netherlands is a recognised tax haven – and enables them to take advantage of the corporate-friendly Bilateral Investment Treaties which the Netherlands has with other nations.
It will indeed be interesting to see how this matter is resolved, and whether multinational corporate interests will be considered more important than the needs of a country where more than half of the population lives below the poverty line. Bolivia has the lowest fixed-line and mobile telephony penetration in South America.
See also: Bolivia – Telecoms Market Overview & Statistics
Tagged in: Latin America (Includes the Caribbean)
