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Expropriation/Improper Government Interference

Host government interference can have a devastating effect on your foreign investment. OPIC can protect your investment from expropriatory acts and other forms of improper intervention by the host government that deprive you of your  fundamental rights in a project.

Government interference in a project can take many forms, among them:

  • Abrogation, repudiation, and/or impairment  of contract, including forced renegotiation of contract terms;
  • Imposing of confiscatory taxes;
  • Confiscation of funds and/or tangible assets;
  • Outright nationalization of a project.

OPIC’s Expropriation / Improper Government Interference coverage also protects against “creeping” expropriation that results from a series of government acts that, in sum, deny your rights to a project.

OPIC can provide arbitral award default (AAD) and denial of justice coverage for US debt and equity investors. AAD protects the insured from non-payment of an arbitral award by a host country government (Please see Specialty Coverages Disputes Coverage for more information [link]. OPIC is also willing to consider coverage for losses that result from host country government corruption.

Project Profile: Argentina gas pipeline

In 1993, OPIC insured a U.S. company’s investment in a gas pipeline company located in southern Argentina. The gas pipeline company was created when the Government of Argentina (“GOA”) split up and privatized the country’s state-owned gas company. GOA granted the gas pipeline company a gas transport license, allowing it to collect transport revenues through tariffs set by the government. The license specified that the tariffs would be calculated in U.S. dollars and expressed in Argentine pesos, adjustable every six months in accordance with variations in the US Producer Price Index. These provisions were meant to protect the investor against devaluation of the peso.

In January 2002, GOA enacted the Public Emergency and Exchange Regime Reform Law. As a result of the new law, GOA repudiated the gas pipeline company’s contract rights and required acceptance of “pesification” tariffs without indexation, thereby equating one peso to one dollar. This regulatory action by GOA resulted in a substantial decrease in revenues --  a decline so severe that it justified a total write-down by the U.S. investor of its investment in the gas pipeline company .

Upon receiving the claim from the investor, OPIC determined that the expropriation claim was valid, and that compensation should be paid in the full amount of the coverage. OPIC made full payment to the U.S. investor for more than $50 million.