In a bid to improve the tourism prospects of Romania, the regional development and tourism minister, Elena Udrea, is taking a hardline approach by telling hotel owners to invest more in the upkeep of the properties — or she will expropriate their hotels. The mayor of Sangeorz-Bai, a Romanian spa resort, had complained to the minister that the resort lacks appeal for foreign tourists because local hotel owners had failed to maintain and refurbish their properties to a reasonable standard. Dispensing with the carrot in favour of the stick, she berated the nonplussed hotel owners, adding that a law allowing sanctions of fines or expropriation was now in existence. She said: “This is something that I have always said and the government is currently discussing it too: only a coercive solution, expropriation, will do. We passed a law a few weeks ago (in November) that allows expropriation and the state has the right to take over buildings in tourist resorts that are not maintained to a good state.” Many of the targeted hotels had been privatised two decades ago. The owners picked them up for a song but have done little to spruce them up in the meantime. For them, it’s rather chicken and egg. They would have invested in their hotels if more tourists came to their resorts. And that’s her job: to bring hard-currency foreigners and rich Romanians in. But Ms Edrea is not one to be put off easily. “Those who have acquired hotels are (the rightful) owners and it is very hard to change that. However, the property rights of some citizens should not affect the rights of others to have access to quality tourism and beautiful cities. Each time we want to take measures, we come up against absolute private property rights,” she complained. This isn’t the first time that she has threatened expropriation. In March 2010, she gave notice that she wanted changes made to the law to give her the power to knock down buildings erected along the Romanian coast in order to return the beaches to their original state. LEAVE A COMMENT from → News and Comment Compensation awards hit Latin Americans NOVEMBER 26, 2010 tags: Bolivia, Latin America Is the era of Latin American nationalisation running its course? Venezuela’s Hugo Chavez remains an ardent confiscator of corporate assets, but his Bolivarian comrades in arms may become less convinced about the value of expropriating assets since the mid-2000s wave of resource nationalism heralded a significant shift in the region’s investment climate. Governments may be getting the message that corporate expropriation can be a messy and expensive business. Earlier in November, Bolivia handed over $100m to Telecom Italia in compensation for the expropriation of the group’s 50% stake in the local telecom provider Entel Bolivia back in April 2007. President Evo Morales expropriated the asset, valued at more than €200m, on the grounds that Telecom Italia had failed to meet agreed investment obligations — a claim flatly rejected by the telecom group. Telecom Italia took the case to arbitration, filing a case at the World Bank’s International Center for Settlement of Investment Disputes (ICSID). The 5 November ICSID agreement found in favour of Telecom Italia, which will stand to gain €30m from the deal. Others have been forced to hand over large reparations to investors. In July 2009, the Venezuelan government made an initial payment of $378m for a total $819m liability, to Swiss cement group Holcim and French building materials group LaFarge after nationalising them in 2008. Morales clearly hopes that the new national constitution adopted in January 2009, which forbids foreign companies from repatriating profits or seeking international arbitration to resolve disputes with the government, will prevent repeats of such expensive reparations payments. But there is a price to pay, not just in terms of compensation, for asset seizures. Investment in Bolivia’s hydrocarbons has declined since the heady days of 2007 which Morales declared “the year of recovering our mineral resources” and took control of a handful of strategic industries including Glencore’s Empresa Metalurgica Vinto tin smelting plant. The lofty rhetoric about restoring the rights of indigenous peoples will sustain, but the reality of having to hand over tens of millions in compensation LEAVE A COMMENT from → News and Comment Guinea ponders mining concessions NOVEMBER 19, 2010 tags: Expropriation, Guinea, Mining, Rio Tinto, West Africa The narrow election of veteran opposition leader Alpha Condé as president of Guinea on 16 November could reignite the sensitive issue of illicit concession deprivation in the West African state, despite the nominal end of more than 50 years of dictatorship. Under political pressure, Condé has pledged to review a series of major iron ore and bauxite contracts signed in recent years. Foreign investors fear their minerals concessions could be subject to a spate of political trench warfare between the Condé camp and his defeated opponent Cellou Dalein Diallo. Control of the massive Simandou iron ore concession has become embroiled in dispute between the two main political camps. Whereas Condé is associated with BSG Resources, the investment vehicle of Israeli investor Benny Steinmetz, Diallo was seen as supporting Rio Tinto, which had taken ownership of the concession some 10 years ago. Last month, the UK and Australian governments warned Guinea not to strip resources giant Rio Tinto of more of its rights to iron ore deposits, after the Guinea government’s claim that the Anglo-Australian group has breached mining laws. In the last days of President Lansana Conté in December 2008, the government announced it had revoked 50% of the rights to Rio Tinto’s huge iron ore concession at Simandou and transferred them to Steinmetz. As one consultant tells Expropriation News: “In Guinea there’s a transitional regime been there for a while and you have and a new mining minister who has been doing deals with different people during that transitional government. New players have come in and secured concessions whiled established players have seen some of their concessions taken away. “ Under Guinea mining law all major mining contrast have to be signed by the national assembly. This means any deals struck during the interim government, when Mahmoud Thiam was mining minster, are deemed illegitimate. Since he won election, Condé says some contract were corrupt but not said which ones. But will be extra donor pressure on the new Guinea government not to sanction what amounts to creeping expropriation. Expropriation is nothing new in Guinea: Russian miner Rusal saw its refining facility near Kindia expropriated last year, when the government took over Rusal’s Friguia alumina refinery after president Moussa Camara said the aluminum producer had significantly underpaid for the development. LEAVE A COMMENT from → News and Comment Expropriation risk in the BRICs NOVEMBER 15, 2010 tags: Brazil, BRICs, China, Emerging markets, Expropriation, India, Russia US law firm Robert Wray has published an analysis of expropriation risk in the BRIC economies in its November 2010 political risk insurance newsletter. Written by Philip Skinner, a consultant at Exclusive Analysis Ltd, it finds a different risk metric in each of the four BRIC economies, with Russia – unsurprisingly – viewed as the country where investors still have most to lose. Brazil Although President Lula – and his successor Dilma Rousseff — will continue facing strong pressure from radical left-wing constituencies to nationalise companies operating in sectors deemed strategic, these calls are unlikely to be heeded. The main expropriation risk affects farms alleged to condone the use of slave labour. A bill was originally proposed in 2001 to allow for the seizure, without compensation, of these farms but lawmakers sympathetic to farmers managed to stall the process. They say the bill’s definition of slave work opens the door to arbitrary decisions, and that the supposed slaves are just part of the estimated 59% of Brazilian workers who are unregistered. Russia Expropriation risks across all sectors will decline in Russia over the next three years, , says the report with the exception of the extractive industries, for two reasons: First, a division between the Prosecutor General’s Office, controlled by the so-called liberal faction, and the Investigative Committee, controlled by the siloviki, ensures that no single political faction is able to press bogus charges against business entities with the same ease as before. Second, the Law on Foreign Access to Strategic Sectors that came into effect in May 2008 clarifies the rules of operation in strategic sectors and limits the state’s ability to discriminate against investors. However, because of the highly lucrative nature of extractive projects, indirect pressure on foreign investors holding a majority stake in these will be significant despite legislative changes. In order to achieve its goal of state dominance in strategic extractive sectors, the Russian government now prefers to exert influence indirectly: by imposing back-taxes, threatening environmental fines or exploiting its powerful presence in the energy sector. India The government’s policy of attracting foreign investment means that the risks of government expropriation are minimal. However, foreign investors in India do face issues concerning regulatory uncertainty. The legal system puts a number of restrictions and imposes a stamp tax on the transfer of land. Land titles lack clarity, making it difficult to buy and sell land. Moreover, in India, state governments possess broad regulatory powers and important issues such as zoning, land-use and environment can vary from one state to another. China Since 1978, when the country officially launched its so-called ‘open door’ policy, there have been no incidences of expropriation of foreign assets in China. Chinese law now allows foreign businesses to hold long-term land-use rights. Nevertheless, China still lacks a comprehensive system of real estate registration, and the government only published its first complete registry of ownership in 2004. In addition, as land ownership rests exclusively with the state, it has the legal right to confiscate land on the grounds of national security and public interest. However, the government is again unlikely to confiscate foreign assets unless the asset in question specifically compromises China’s national security. LEAVE A COMMENT from → News and Comment The unease of Doing Business rankings NOVEMBER 8, 2010 tags: Expropriation, Investment, Investor rights, Ukraine, Venezuela The latest World Bank Doing Business rankings were released on 4 November, showing – perhaps predictably – the Singapores and Hong Kongs on top and some of the more fettered, red-tape ridden laggards at the foot of the table. Doing Business 2011: Making a Difference for Entrepreneurs, is the eighth in a series of annual reports published by IFC and the World Bank which ranks 83 economies on key aspects of business regulation for domestic firms. It finds that in the past year, governments in 117 economies carried out 216 regulatory reforms aimed at making it easier to start and operate a business, strengthening transparency and property rights, and improving the efficiency of commercial dispute resolution and bankruptcy procedures. The rankings do not, however, take into account expropriation actions as part of their criteria. The World Bank acknowledges that it doesn’t measure all aspects of the business environment that matter to firms and investors. Its aim is simply to provide open data for research on how business regulations and institutions affect such economic outcomes as productivity, investment, informality, corruption, unemployment and poverty. The rankings do provide a useful snapshot of regulations and it’s no surprise that the worst performers are sometimes those with a wretched track record on corporate expropriation: Venezeula, where the government has backed an aggressive asset seizure programme in recent years, dropped two points to 172nd position. Ukraine, subject of controversy surrounding the fate of ArcelorMittal’s investment in a steel plant, is positioned at a lowly 145th. The World Bank’s aim with the Doing Business programme is not to name and shame worst offenders but to encourage best practice — a laudable aim no doubt, but alas all too many surveys fail to adequately flag up the risks that investors face in having their assets illegally hovered up by some unscrupulous authorities. Perhaps there’s room for a new survey that focuses explicitly on expropriation risk… LEAVE A COMMENT from → News and Comment Fears for property rights in Ukraine NOVEMBER 3, 2010 tags: Investment, Property, steel, Ukraine Ukraine’s president Viktor Yanukovych lost little time in adopting some of the less attractive traits associated with his Russian allies since taking office in January of this year, with foreign investors sensing a burgeoning assault on corporate property rights in the former Soviet republic. The authorities in Kyiv have this year applied pressure on Indian-owned steelmaker ArcelorMittal over its investment in a Ukrainian steel plant, with the company expressing fears that the moves by the state prosecutor-general could eventually result in it losing the plant, which it bought for $4.8bn in a reprivatisation back in 2005. ArcelorMittal’s concerns focus on losing its ownership of the plant via a rigged prosecution, in an economic sector that has been the focus of numerous ownership changes in recent years. Mittal Steel took a 93% stake in Kryviy Rih in 2005, signing a contract that included stipulations to invest in the upgrade of steel making machinery. However, at the height of the global downturn in May 2009, the company gained agreed a contract revision with Ukraine’s State Property Fund under which it would delay the investment obligations until economic conditions were better. That contract amendment was then challenged this July – just six months after Yanukovych won the election — by the prosecutor general who argued that it violated the national interest and had not been approved by the government. Though the Ukrainian cabinet has not so far backed the prosecutor’s case in court, the case still won a legal hearing. Wary that the public seizure of the Indian group’s assets might send the wrong signals to overseas investors, on 21 October, Yanukovych held talks with with ArcelorMittal CEO Lakshmi Mittal in a bid to work out a compromise over the ownership of Ukraine’s largest steel mill. It may have won itself a stay of execution. ArcelorMittal now claims it has received assurances that the state prosecutor had dropped the lawsuit. However, there are concerns that the Ukrainian authorities could yet seize the plant and force through a sale. More troublingly for foreign investors ins the perception that well-placed business interests in Ukraine are able to undermine the sanctity of overseas investors’ property rights, reviving the spirit of rigged auctions that marked business life in Ukraine in the early parts of the decade. Before the election of the previous president, Viktor Yushchenko, in 2004, investors associated with Viktor Pinchuk — a son-in-law of the then president, Leonid Kuchma — won a bid to buy the Kriyiv Rih plant despite submitted a substantially lower offer than rivals. Amid growing Russian investment in Ukraine’s steel sector, investors from other parts of the world will be looking for assurances that their property rights are rock solid in Ukraine. The mood music emerging from Kyiv lately suggests they are at present anything but that.
Posted on: Wed, 04 Dec 2013 03:39:03 +0000
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