25 August 2025
Key points in Shell’s arbitration case against Bolivia
by Jose Ignacio Hernandez Gonzalez, Lawyer/Consultant Latin America
On August 5, 2025, BG Overseas Limited, a subsidiary of Shell, informed Bolivia of a dispute involving its subsidiary, Shell Bolivia Corporation (SBC), as per Article 8 of the Bilateral Investment Treaty signed with the United Kingdom (BIT).
At the center of the dispute are allegations that YPFB failed to meet various investor protection standards outlined in the BIT, including the fair and equitable treatment standard. These claims center on operating contracts that SBC is involved in, specifically the La Vertiente contract (ended in 2019) and the Itaú and Caipipendi contracts (in effect). Regarding the La Vertiente contract, in 2024, an International Chamber of Arbitration tribunal ruled that YPFB had to pay around $12 million. Still, a Bolivian civil court later overturned the ruling, according to the Attorney General’s Office. SBC cites this annulled award as one of the alleged violations.
Specifically, SBC denounces six types of violations of the BIT, based on (i) abuse of authority through discriminatory regulatory measures in favor of YPBF in operating contracts; (ii) the nullity of the award issued in the La Vertiente case; (iii) failure to pay the remuneration or remuneration provided for in the contract, including delay in approving operating costs; (iv) the omission to provide the documents that release from liability in the case of La Vertiente; (v) illegal sale of oil and (vi) harassment and judicial persecution of managers. The claim was estimated at hundreds of millions of dollars.
After the nationalization of hydrocarbons, as outlined in Supreme Decree No. 28701 of 2006, the Government implemented the operating contract model, based on the Hydrocarbons Law (Law No. 3058 of 2005). The contract’s regulatory framework, detailed in various Supreme Decrees, assigns private investors the responsibility for all activities and requires them to deliver production to YPFB. In essence, the contractor’s compensation is based on recovering costs and earning a share of the contract’s profits.
The notice of dispute largely relies on complaints about the arbitrariness and irrationality of how operating contracts are regulated. For Shell, this raises concerns about Bolivia’s commitment to the rule of law and the protection of property rights, creating a "hostile business environment for the investor.”
It can be inferred from the notification that the main standards of protection alleged to have been violated are the standards of fair and equitable treatment (Article II.2) and measures with expropriatory effect (Article V.1). The first standard, defined in general and imprecise terms, constitutes one of the most common causes of arbitration claims in extractive industries.
The dispute alleges that despite Bolivia’s denunciation of the BIT in 2014, in accordance with its Article XIII, its provisions will remain in force for investments already constituted for twenty years.
From the receipt of the notification, and in accordance with Article VIII.1, Bolivia has six months to seek an agreement with the investor, that is, until the beginning of February next year. This means that the dispute will be addressed by the new Government of Bolivia that takes office on November 8, 2025.
If no solution is found, the investor may opt to use one of the dispute resolution mechanisms outlined in the article above, including arbitration administered by ICSID, arbitration under the International Chamber of Commerce’s rules, or arbitration under UNCITRAL’s rules. Bolivia withdrew from the ICSID Convention in 2007, which could make it possible to submit an arbitration under the Additional Facility Rules.
This latest dispute is subject to the constitutional restrictions, particularly those related to hydrocarbon production (Article 366). Additionally, Shell’s new claim underscores the strain between extractive industries and model bilateral investment treaties, such as the UK’s, which have vague and imprecise investment protection standards that may conflict with the right to regulate.
