Bechtel vs. India
Standard Chartered Bank, Erste Bank, Credit Suisse, Credit Lyonnais, BNP Paribas, ANZEF, ABN Amro vs. India
Offshore Power vs. India
by FOEI, TNI, IGJ, Focus
The Dabhol project, formed in 1992, was conceived as the world’s largest gas-fired electricity plant. It was established in Maharashtra near Mumbai and would cost a total of US$2.9 billion. The project was part of the Indian government’s efforts to liberalize and privatize the energy sector with foreign capital. Three US companies were behind the investment: Enron Corporation (which owned 80% of the shares), Bechtel and General Electric (which owned 10% of the shares each).
Despite widespread public opposition to the project due to its social and environmental impact as well as human rights violations and accusations of corruption, the government of India pushed through the deal with foreign companies in a speedy and untransparent way. Also problematic was the fact that the local government agreed to buy 90% of the power generated by the Dabhol plant regardless of market demand for electricity and at a cost that was more than double the price of power purchased from other suppliers in the state. This outlay amounted to half of Maharashtra’s budget expenditure. “The deal was considered highly unfavourable by Indian commentators from the perspectives of national energy policy, consumers, taxpayers, and other local interests that would bear costs of the project.”
When the opposition alliance won the 1995 Maharashtra election, the new government initiated a review of the Dabhol project, which recommended to scrap it. Based on the report’s recommendations, the Government of Maharashtra first re-negotiated the terms of the deal, and by 2000 cancelled its payments for the overpriced energy.
As a result, nine international arbitration lawsuits were launched against India’s government by different companies that had invested in the project: Bechtel and GE fled a claim through their Mauritius-based affiliates using the India-Mauritius bilateral investment treaty despite the fact that the companies themselves are US-based. They claimed 1.2 billion USD. Enron also filed a claim through a Dutch subsidiary using the India-Netherlands BIT. It claimed four billion USD in compensation. Seven European banks (Credit Suisse, Erste Bank, Standard Chartered Bank, ANZEF, Credit Lyonnais (now Calyon), BNP Paribas and ABN Amro) engaged in arbitration against the Indian Government, claiming that their investments in the Dabhol project had not been protected. They used BITs signed by India with the Netherlands, UK, France, Switzerland and Austria. The total value of the claims is US$291 million.
All of these claims were subsequently settled, so no tribunal got to deliver a final ruling. The details of the cases and the terms of the settlements are unknown in most cases. The only disclosed information is in the case of Bechtel and GE, which in 2005 agreed to abandon arbitration in exchange for US$160 million for Bechtel and 145 million USD for General Electric. Both companies had bought all the shares of Enron after its collapse in 2000.
The Dabhol Power Plant debacle and the international arbitration cases that followed illustrate some of the flaws of the ISDS system:
The socialisation of losses of foreign investors
These cases are a clear example of how ultimately people will have to absorb the losses of both bad government decision in privatising energy and compensation for reckless investors behaviour paid out of public covers. Back in 1993, the World Bank had refused to finance the project arguing it was “not economically viable”. As a result of this project, people in the State of Maharashtra saw their land confiscated, lost part of their livelihood, and had to pay premium prices for electricity. Yet, part of the public money that should have been invested in health or education or affordable public services was paid to foreign investors.
Treaty shopping and shell companies
Investment treaties with broad definitions of what constitutes an investor and investment, which allow companies to route investments through third countries to acquire the protection of investment treaties that investors would not, otherwise, have in their home state jurisdiction, have been highly criticised. Enron, Bechtel and GE are US companies that were not entitled to investment protection under a bilateral investment treaty (BIT) because the US does not have a BIT with India. Yet, they set up subsidiaries in treaty havens like Mauritius and the Netherlands to make use of their vast web of ill-defined BITs.
The secrecy of investment arbitration
Very little is known about these nine investment arbitration claims, which relate to a high profile public interest case and could have cost the government USD5.5 billion, illustrating the dangerous secrecy of the ISDS system
Last update: May 2021