Koch Minerals Sàrl and Koch Nitrogen International Sàrl v. Bolivarian Republic of Venezuela
ICSID · Investment (ICSID and treaty) · Venezuela · 30 Oct 2017
Why it matters
This award is significant for its detailed analysis of expropriation of contractual rights as an investment, the application of the fair market value standard, and the rejection of Venezuela's jurisdictional objections. It also addresses the valuation of a joint venture interest and the treatment of tax-related claims. The case is one of several ICSID awards against Venezuela arising from nationalizations in the petrochemical sector.
Summary
Koch Minerals Sàrl (KOMSA) and Koch Nitrogen International Sàrl (KNI), Swiss companies, invested in a Venezuelan joint venture, FertiNitro, which produced nitrogen fertilizers. KOMSA held a 25% equity stake, and KNI had rights under an Offtake Agreement to purchase urea. In 2010, Venezuela expropriated FertiNitro by decree, taking control of the plant and the Offtake Agreement. The claimants brought an ICSID arbitration under the Switzerland-Venezuela BIT. Venezuela objected to jurisdiction, arguing that KNI's Offtake Agreement was not an investment and that the claims were time-barred. The tribunal upheld jurisdiction, finding that the Offtake Agreement constituted an investment under the BIT and that the claims were timely. On the merits, the tribunal found that Venezuela's expropriation was unlawful because it was not for a public purpose, was discriminatory, and violated due process. The tribunal applied the fair market value standard, using a discounted cash flow analysis, and awarded KOMSA US$140.25 million for its equity interest and KNI US$184.8 million for the loss of the Offtake Agreement. The tribunal also awarded pre-award compound interest at Libor + 2% and costs. One arbitrator dissented on the expropriation of the Offtake Agreement, arguing that KNI's rights were not expropriated because the agreement was not a property right. The award is notable for its thorough treatment of expropriation of contractual rights and valuation.
The detail
Parties: Koch Minerals Sàrl and Koch Nitrogen International Sàrl v. Bolivarian Republic of Venezuela
Case number: ICSID Case No. ARB/11/19
Outcome: Venezuela violated the Switzerland-Venezuela BIT by expropriating KOMSA's interest in FertiNitro and KNI's interest in the Offtake Agreement. Awarded compensation of US$140.25 million to KOMSA and US$184.8 million to KNI, plus pre-award compound interest and costs.
Quantum: US$ 325.05 million (principal) plus interest and costs
Applicable law: Switzerland-Venezuela BIT (1993); ICSID Convention; Venezuelan law
Issues in play: The case involved the definition of expropriation under Article 6 of the BIT, including whether contractual rights (Offtake Agreement) constitute protected investments, and the standard of compensation (fair market value).
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