The morass of litigation surrounding India’s largest-ever foreign investment project just became a little bit deeper when the US Government submitted a request for arbitration to the Government of India earlier this month, invoking the consent to arbitration found in a 1997 Investment Incentive Agreement.

The US Government, along with the Overseas Private Investment Corporation (OPIC), is seeking to recoup some $110 million USD which was paid out to US investors in the ill-fated Dabhol power plant under the terms of OPIC political risk insurance policies.

As was reported in INVEST-SD last year, an American Arbitration Association tribunal ruled in September 2003 that the Government of India was liable for the expropriation of investments made by General Electric and Bechtel in the failed Dabhol project. Following this ruling, OPIC settled two insurance claims lodged by GE and Bechtel, as well as separate claims lodged by Enron (the majority investor in the project) and Bank of America (which financed part of the investment).

After paying out these claims, OPIC turned its sights to recovering the sums from the Government of India. After nearly a year of attempted negotiations over the matter, OPIC and the US Government filed a formal request for arbitration on November 4 of this year. The arbitration is only the latest in a long string of international and domestic litigation spawned by the ill-fated project. Several international contract arbitrations have been launched by players in the Dabhol project.

More recently, a pair of hefty investment treaty claims was brought by GE and Bechtel pursuant to a bilateral investment treaty between Mauritius and India, and is being arbitrated before a single tribunal. And, earlier this year, seven financial institutions involved in the financing of the Dabhol project signaled their own intent to arbitrate against India under five different bilateral investment treaties (those of the UK, Austria, Netherlands, France and Switzerland). As of this writing, formal requests for arbitration were not known to have been made in these latter cases.

According to the US Government’s request for arbitration, the claimants allege that India’s actions and omissions in relation to the Dabhol project “violated established principles of public international law” and therefore render India liable for reparation. In addition to their claims for payments disbursed under the political risk insurance policies, OPIC and the US Government have reserved the right to claim compensation for $160 million USD in loans which OPIC made to the Dabhol project. Unless the government of India should agree to resolve the former claims by December 1 2004, the claimants warn that they may also seek reparations for losses related to OPIC’s own partial-financing of the investment.

The Dabhol investment has been a particularly contentious one, with allegations of corruption and malfeasance lobbed at both the investment consortium and Indian authorities at one time or another. At its core, the dispute relates to the non-performance of a Power Purchase Agreement which had been agreed between the investor-led Dabhol Power Corporation with the local Maharashtra State Electricity Board. The bilateral investment treaty-based claim brought by Bechtel and GE ¬the two minority shareholders in the project ¬is understood to be proceeding under UNCITRAL rules of arbitration. As was reported last month in
INVEST-SD, India had had some difficulties in finding a foreign law firm to defend in the arbitration (See “India pleads difficulty in finding law firm to defend GE-Bechtel treaty claim”, available on-line at:
http://www.iisd.org/pdf/2004/investment_investsd_oct1_2004.pdf)

However, Indian press reports indicate that a firm has now been appointed to represent India in that case. INVEST-SD will continue to monitor developments in that arbitration as well as in the recent arbitration claim by the US Government.

Sources:
Request for Arbitration, US v. India, available at:
http://www.opic.gov/foia/awards/GOI110804.pdf
“Ruling in GE/Bechtel vs. OPIC arbitration now publicly available”, By Luke Eric Peterson, INVEST-SD News Bulletin, October 31, 2003, available on-line at:
http://www.iisd.org/pdf/2003/investment_investsd_oct31_2003.pdf

Luke Eric Peterson is the Editor, INVEST-SD News Bulletin, an
Investment Law and Policy Newsletter