Crystallex International

By Luke Eric Peterson

The Venezuelan Government has given the Netherlands formal notice of its plan to terminate an oft-used bilateral investment treaty between the two countries.

In a formal communication dated April 30, 2008, Venezuela signaled its intention to terminate the treaty as of November 1, 2008 – the fifteen year anniversary of the pact’s coming into force.

The Venezuela-Netherlands pact entered into force in 1993 for an initial period of fifteen years, and may be tacitly extended for further ten year periods.

Under the terms of the agreement, if either party wishes to terminate the treaty after the 15 year period, it must give a minimum of six months advance notice.

By sending a formal communication to the Dutch Government, Venezuela has set in motion the termination process.

Although recent press reports had suggested that Venezuela would renegotiate the treaty, the move to terminate comes as a surprise for the Dutch Government. Venezuela’s written communication offered little explanation for the decision to terminate, other than to reference the incompatibility of the agreement with Venezuela’s “national policy” governing investments.

However, the treaty has been a thorn in the side of Venezuelan President Hugo Chavez, particularly in the context of recent policy changes in the energy sector. A number of multinational energy investors have used Dutch corporate vehicles for purposes of structuring investments in Venezuela.

Various energy companies have threatened arbitration under the Dutch-Venezuela BIT in the face of changes to contractual and regulatory frameworks. To date, several have filed formal arbitration claims, including US companies Exxon-Mobil, Conocco-Philips, and the Italian firm ENI, all of whom have invoked the Dutch BIT in order to bring claims for alleged expropriation of energy assets.

(Recently, ENI reached a settlement in its arbitration with Venezuela, leading to a formal discontinuance of the claim in April of this year.)*

IAReporter understands that the Dutch Government is currently talking with the Venezuelan Government in an effort to gauge the prospects for renegotiating the terms of the treaty rather than seeing it terminated.

The move by Venezuela marks the first instance in which a Government has notified the Netherlands of its plans to terminate a Dutch BIT.

* (Apart from treaty-based energy sector arbitration claims filed against Venezuela, another foreign investor, Brandes Investment Partners LP, has mounted a claim against Venezuela pursuant to the country’s national foreign investment law, related to the alleged expropriation of a stake in the telecommunications firm CANTV. Meanwhile, the Canadian mining firm Vannessa Ventures remained locked in arbitration pursuant to the Canada-Venezuela BIT in a dispute over the Las Cristinas gold concession).