Tag Archives: ICSID

Countering Corruption in the Energy Sector: After Initial Missteps, Tanzania Shows the Way

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The effects of corruption can be felt long after the incidents take place. There’s no better illustration of this than the history of Tanzania’s energy sector. In 1992, the Government of Tanzania was facing an energy crisis, and was in discussions with a Canadian company to develop its natural gas fields with funding from the World Bank. But then, the Tanzanian government received an unsolicited proposal from a Malaysian company, which offered to partner with a local Tanzanian firm to build and operate an emergency diesel-fueled power plant. The government abandoned its discussions with the Canadian company and, in 1995, signed a 20-year power purchase agreement (PPA) with Independent Power Tanzania Limited (IPTL), a joint venture entity formed by these Malaysian and Tanzanian private interests. By 1995, however, the energy crisis had already passed, and it was not at all clear that this PPA was in the government’s interest. In fact, Tanzania’s principal energy regulation agency, the Ministry of Energy and Minerals (MEM), consistently opposed the deal. Yet parties with significant ownership interests in IPTL managed to get the PPA through, in part by bribing senior officials and politicians.

The deal was a disaster, one that had a substantial negative impact on Tanzania’s energy sector for close to two decades. (The initial corrupt deal, together with multiple other improprieties, significantly undermined the financial stability of Tanzania’s energy sector, resulting in lower investment, substantial delays in the construction of more efficient power plants, higher energy costs for consumers, and inadequate expansion of electrification into rural communities.) But, without minimizing the seriousness of the mistakes that were made or the costs that resulted from this corrupt deal, ultimately Tanzania’s efforts over the last decade to hold the corrupt actors accountable and to overhaul its regulatory system provide a roadmap for how countries that have suffered from this sort of corruption, in the energy sector and elsewhere, can respond. Continue reading →

Sua Sponte Corruption Inquiries by Arbitral Tribunals: Causing More Harm than Good?

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As several prior posts on this blog have discussed (see here, here, and here), corruption has emerged as a significant and controversial issue in international investor-state arbitration proceedings, with a number high-profile cases in which the tribunal refuses to provide relief on the grounds that the underlying contract was procured through corruption. In these cases, corruption allegations usually surface at the initiative of one of the parties. For example, this summer, Djibouti filed an arbitration against Dubai-owned port operator DP World, seeking annulment of a port concession because DP World allegedly formed its contract with Djibouti for the operation of Africa’s largest container terminal through corrupt means. However, in rare instances, corruption can enter the picture without either party raising the issue during the proceedings. In these cases, the arbitral tribunal considers the issue of corruption sua sponte, even when neither party alleges corruption by the other.

Perhaps the most prominent example of this is the tribunal’s decision in Metal-Tech v. Uzbekistan. In Metal-Tech, the ICSID tribunal, in its words, “required explanations” from the parties for suspicious facts that “emerged in the course of the arbitration”–in particular the fact that Metal-Tech had paid exorbitant, seemingly unjustifiable sums for consulting services to an Uzbeki government official and individuals with close ties to Uzbeki leadership. The ICSID tribunal then essentially placed the burden of disproving corruption in light of this circumstantial evidence on Metal-Tech, which could not come up with enough evidence to overcome the tribunal’s presumption. The ICSID tribunal held it did not have jurisdiction and dismissed Metal-Tech’s claim.

On the surface, sua sponte efforts by tribunals to address corruption may seem like a positive step in the anticorruption fight. Indeed, it might seem irresponsible for the tribunal to stick its head in the sand given such facially suspicious facts. As Michael Hwang and Kevin Lim assert in a recent paper endorsing this sua sponte practice, “Tribunals must remain vigilant and alert to the possibility of corrupt dealings being hidden by one or both parties, otherwise they may become unwitting accessories to heinous acts.” But in fact, the approach adopted by the tribunal in Metal-Tech, might do more harm than good. Indeed, by engaging in sua sponte considerations of corruption, arbitral tribunals might unwittingly perpetuate corruption under several different scenarios: Continue reading →