By Hatimbula Changu Jamu Bruce
The Love of a Parent is astonishing, he/she sets to a future of uncertainty, naturing and caring for children with no assurance that the said children will turn out to be what is envisioned of them ultimately: the same is true about Investment. Multinational Companies lay out a plan to make several investments with no guaranteed return. Experts may argue that the market research endeavours, coupled with cost benefit analysis information may give a true reflection of what is to become of a business or investment but take into consideration unforseen circumstances and government interference and you can almost be assured that investments are also premised on a lagre amount of faith.
Expropriation In Investment Law
Expropriation is a term used to signify the taking away of an investment interest from the investor directly or indirectly by a host state. In many instances host nations will be very careful when taking expropriation measures.
Consistent with the notion of territorial sovereignty the classical rules of international law have accepted the host states rights to expropriate alien property in principle.
Beyond the right of the host state to expropriate international law has developed 3 branches which regulate the scope and conditions. The legality of expropriation is canvassed in public interest and the measure not being arbitrary and discriminatory.
The above cited circumstances were ably explained in the ADC Affiliate Limited and ADC & ADMC Management Limited v. Republic of Hungary (ICSID Case No. ARB/03/16). Parties aggrieved with decisions taken by host countries usually take their claims to the International Court for settlement of Investment Disputes.
At its essence, an expropriation is the taking of private property by a government acting in its sovereign capacity. Nationalisation, a form of expropriation, generally covers an entire industry or geographic region.
There are mainly 3 types of expropriation, these being direct, indirect and partial expropriation. For this particular discussion our area of interest is indirect expropriation, under which creeping expropriation is found.
Creeping Expropriation: The Interesting case of Copperbelt Energy Corporation
It would be very important to understand what copperbelt energy cooperation is and why it is important to the Zambian society before discussing anything else incidental to the company.
Copperbelt Energy Corporation Plc (CEC) is a Zambian electricity generation, transmission, distribution and supply company with operations in Zambia and Nigeria. The company is listed on the Lusaka Stock Exchange.
In Zambia CEC owns and operates an electricity transmission network in the Copperbelt area with 246 km of 220kV power lines and 678 km of 66kV lines. The company purchases electricity from ZESCO, the national power utility, and sells this across its transmission network to 8 Zambian mining customers with a combined demand of 520MW. In 2014 CEC supplied 4,208GWh of electricity to its customers which was 29% of Zambia’s total generation of 14,453GWh. CEC also operates 6 gas turbine generators at Luano, Maclaren, Kankoyo and Bancroft for emergency power supply to its mine customers with a total installed capacity of 80MW.
CEC owns the Zambian portion of the Zambia – DRC 220kV interconnector line which has a capacity of 250MW and supplies electricity to mining customers in the Katanga Province. The interconnector is expected to be upgraded to a dual circuit with a capacity of 550MW by the end of 2015.
The company is developed the 40MW Kabompo Gorge hydropower project on the Kabompo river in the North-Western Province of Zambia.
CEC is a member of the Southern African Power Pool (SAPP) and trades and wheels power within the pool.
In Nigeria CEC owns 45% of the Abuja Electricity Distribution Company (AEDC) an electric power distribution company. AEDC has a franchise for distributing electricity in four Nigerian states, the Federal Capital Territory of Abuja, Niger State, Kogi State and Nasarawa State and serves 700,000 customers.
CEC holds a 20% stake in North South Power Limited which has a 30-year concession to operate the 600MW Shiroro hydro power plant in Niger State.
In Namibia, CEC has signed a joint development agreement with the state utility, NamPower, and Kudu Power Limited for development of 800MW-1,050MW combined cycle gas-to-power generation. The company also has a 60% interest in Arandis Power, the developer of a 120MW hybrid HFO and renewable generation plant in Arandis, Namibia.
CEC has signed a power purchase agreement (PPA) with the Government of Sierra Leone for a 20-year concession to build and operate a 128MW thermal power project.
Some tribunals have accepted the possibility of expropriation of particular rights that form part of an overall business operation without really looking into the issue of control over the entire investment.
Expropriation may occur in the absence of a sibgle decisive act that implies a taking of property. It could result from a series of actions and/omissions that in sum, result in the deprivation of property rights.
In excercise of his statutory rights the minister of energy on the 29th of May, 2020 passed an SI pursuant to Section 15 of The Electricity Act No. 11 of 2019 a declaration according a common carrier of electricity, including those service lines used by Copperbelt Energy Cooperation and the section reads:-
(1) The Minister may, by statutory instrument, declare a transmission or distribution line as a common carrier for the purposes of this Act.
(2) A transmission or distribution line that is declared as a common carrier may be used for the purpose of an enterprise on terms and conditions that may be agreed between the enterprise and a person who owns or controls the transmission or distribution line concerned or, in default of that agreement, as may be determined by the Energy Regulation Board, with the approval of the Minister.
In response to the SI the Cooperation issued a statement on the 5th of June, 2020 claiming that the government through the minister had expropriated the company. It is such actions that gave rise to Creeping Expropriation as explained by the tribunal in the case of Eureko v Portland (Partial Award 19th August, 2005) where the courts emphasised that it is possible to expropriate specific rights enjoyed by the investor regardless of control.
The Jalapa Railway Road and Power Company Case demonstrated another interesting characteristic of expropriation, the tribunal regarded a legislative decree, declaring a clause in a contract between a state and investor yo be void, as an act of expropriation. The Court held:
“In the circumstances, the issue for determination is whether the breach of contract alleged to have resulted from the nullification of clause 12 of the contract was an ordinary one involving not international responsibility or whether the said breach was affected arbitrary by means of a government power, this is illegal under international law. Such actions under international law have been held to be a confiscatory breach of contract.
Having established that there seems to be a problem some where, one can only speculate what went on in the back ground or the reasons for such an SI. Can Zesco manage these lines with their current administrative and technical disputes?
The Parent who in this case in Copperbelt Energy seems not to even understand what has become of his child (The investment made), in the instance that Copperbelt Energy takes the matter to court and is successful, the court will be guided by the principle laid out in the Chozow Factory Case where the court held that payment for compensation must be prompt, adequate and effective.
In the event that this matter sees the light of day in court, the state will have to show how the SI that has crippled Copperbelt energy benefits the public. Public interest is an overriding factor in all that has been discussed. Slowly the state is creeping to compromise the investment made by Copperbelt Energy, do they have a formidable defence?