VENEZUELA TAKES STEPS AGAINST NATURAL RESOURCE COMPANIES

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VENEZUELA TAKES FURTHER STEPS AGAINST INTERNATIONAL MINING AND OTHER NATURAL RESOURCE COMPANIES

Moves seen as part of a broader trend
of "resource nationalism" in many countries
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Investment treaties may afford companies
arbitration rights against the government
WASHINGTON, D.C., May 20, 2008. Venezuela announced last week that it would put an end to new gold projects in the country and threatened further steps against existing mining and logging interests held by international companies.
Environment Minister Yuviri Ortega said Venezuela will not give permits for any open-pit mines and will not allow companies to look for gold in its vast Imataca Forest Reserve. Ortega also said that the government was revising all of its mining and timber concessions.
The moves follow steps taken by Venezuela in late April to stop the mining operations of several international companies at other sites in the country, including the massive gold deposit at the Las Cristinas site. The shares of affected companies fell dramatically on the news. Separately, workers last week halted operations at Venezuela's Isodora gold mine, demanding that it be nationalized.
Last year, President Hugo Chavez launched a nationalization drive, starting with Venezuela's oil industry. The Venezuelan government has since targeted other key sectors of the economy, including electricity, telecom, cement and steel companies. Chavez now appears to be turning his attention to international mining and other natural resource interests.
Resource nationalism on the rise in many countries
Venezuela may be one of the most enthusiastic governments in its pursuit of "resource nationalism," but it is hardly unique in adopting such policies. As stated by Toni Johnson of the Council on Foreign Relations, "Venezuela is among a small but growing number of resource-rich countries to put the squeeze on international corporations."
Russia announced last year that it would press international gas companies to turn over majority stakes in Russian gas operations to state-owned Gazprom. Zimbabwe announced that it would nationalize uranium, coal, and methane projects.
The trend has been especially pronounced in Latin America.
Last year, President Evo Morales of Bolivia announced plans to nationalize the mining industry.
In March 2008, Argentina instituted a new export tax on mineral exports, notwithstanding a 30-year guarantee of tax stability given to mining companies by the Mining Ministry.
In April 2008, Ecuador froze all mining exploration and revoked numerous concessions, while also announcing its desire for increased royalties in the sector. The stocks of international mining companies working in Ecuador were pummeled on the news.
International arbitration under investment treaties
A number of international investment treaties enable investors to bring claims in arbitration against governments that have taken adverse actions against foreign investment. The arbitrations typically take place at the International Centre for Investment Disputes (ICSID), which is under the auspices of the World Bank in Washington, D.C., or at another neutral location or institution.
The investment treaties typically allow the investor to assert claims not only for expropriation or nationalization, but also for a variety of other adverse actions, including, for example, unfair changes to the regulatory or tax regime.
A number of companies have obtained multi-million dollar awards in investment treaty arbitration. However, not every investor is located or incorporated in a country that has an investment treaty with the government hosting the investment. For example, Canada has a bilateral investment treaty with Venezuela, but the United States does not.
For these reasons, a growing number of investors are considering investment treaties, as well as other concerns, in structuring their investments abroad.