Belarus may face an ICSID claim for the first time

Minsk

Over the entire period of its independence Belarus has never been a respondent in an investor-state dispute.

This remains so despite the fact that the country adheres to an active policy of investment promotion. According to public data in the first quarter of 2017 the leading investment partners of Belarus originate from the Russian Federation, Ukraine, Cyprus and the United Kingdom.

To date, the most known examples of disagreements between Belarus and foreign investors include the cases of Baltika vs Krynica (compensation of USD 10.7 million), Alfa-Bank vs Brestenergo (compensation of USD 18.5 million), UBIG (Lithuania) vs Minsk City Executive Committee (compensation of USD 30 million). In addition there was an ICSID claim filed in 2013 against Belarus by foreign investor Henadzi Mikhailenko (Ukraine) (a USD 175 million claim). None of these disagreements, however, resulted in proper investor-state proceedings.

A new ICSID claim against Belarus?

This time a Russian investor likely intends to file an ICSID claim against Belarus. The history of the disagreement is as follows. In 2003 as a result of a tender the Belarusian government concluded an investment agreement with Russian company Manolium Processing.

According to this agreement the investor obtained a land plot to build a business centre and a five-star hotel. The total cost of construction is estimated at USD 500 million. In its turn the investor obliged to invest USD 15 million in a trolleybus depot and USD 1 million in the National Library construction.

Manolium Processing fulfilled its obligations on the investment in state construction. Nonetheless he never received the land plot. The investor tried to restore its rights within the Belarusian courts. The outcome of the several-year court proceedings is far from satisfactory: Manolium Processing has received neither the land plot nor its investments back. And apart from that, the courts obliged it to pay damages to Belarus.

As a result, in early May 2017 Manolium Processing submitted a pre-arbitration request to the Belarusian authorities which gave Belarus six months to find a means of reaching an amicable settlement of the dispute. The sum at stake amounts to USD 200 million which includes USD 171 million of lost profits and USD 37 million of expropriated property. In case of failure to settle the dispute by negotiation, Manolium Processing intends to recourse to ICSID.

Why no investor-state disputes against Belarus?

A question arises as to why there have never been any proper arbitral proceedings against Belarus before. The Belarusian Law on Investments contains a provision on the protection of foreign investors’ rights and rules for investment dispute resolution.

Article 13 of this law governs the dispute resolution procedure: before filing a claim there is an obligation to hold negotiations between a foreign investor and Belarus. In this way the pre-arbitration negotiations and the fact that no arbitration claim was filed against Belarus can serve as evidence that the provision on obligatory amicable dispute resolution affected the investor-state dispute settlement.

Taking into account past Belarusian investor–state dispute settlement practice, the parties are more likely to settle the Manolium Processing claim via the pre-arbitration negotiations than by ICSID arbitration.

Maryia Zhurava,

Dr. Aliaksandr Danilevich

Danilevich & Volozhinets law office