Rumeli Telekom A.S. and Telsim Mobil Telekomunikasyon Hizmetleri A.S. v. Republic of Kazakhstan
ICSID · Investment (ICSID and treaty) · Kazakhstan · 29 Jul 2008
Why it matters
This case is a landmark ICSID award that extensively analyzed the fair and equitable treatment standard and expropriation in the context of state interference with a foreign investment. It clarified that a host state's actions, including judicial decisions, can amount to expropriation even without a formal taking. The award also addressed the valuation of an expropriated enterprise using the DCF method despite the enterprise not being a going concern, setting a precedent for valuing assets with uncertain future income.
Summary
Rumeli Telekom and Telsim, Turkish companies, invested in a Kazakh mobile operator, KaR-Tel, through a joint venture with a local partner, Telecom Invest. After a dispute, the Kazakh government terminated the investment contract, and local courts and authorities took actions that effectively deprived Claimants of their 60% stake. Claimants initiated ICSID arbitration under the Turkey-Kazakhstan BIT. The tribunal found that Kazakhstan breached the BIT's fair and equitable treatment, full protection and security, and expropriation provisions. It held that the state's coordinated actions, including court decisions and police involvement, amounted to an indirect expropriation. The tribunal rejected Kazakhstan's arguments that the investment was illegal or that Claimants lacked standing. On quantum, the tribunal awarded USD 125 million, using a DCF valuation as a starting point but adjusting for uncertainties, noting that KaR-Tel was not a going concern at the valuation date. The award included compound interest. The tribunal also ordered each party to bear 50% of the arbitration costs and Respondent to pay 50% of Claimants' legal fees.
The detail
Parties: Rumeli Telekom A.S. and Telsim Mobil Telekomunikasyon Hizmetleri A.S. v. Republic of Kazakhstan
Case number: ICSID Case No. ARB/05/16
Outcome: Claimants prevailed; Respondent ordered to pay USD 125 million plus compound interest at 6-month average Libor plus 2% per year, compounded semi-annually, from October 30, 2003 until payment.
Quantum: USD 125 million
Applicable law: Turkey-Kazakhstan Bilateral Investment Treaty (BIT), ICSID Convention, Kazakhstan Foreign Investment Law, World Bank Guidelines on the Treatment of Foreign Direct Investment
Issues in play: The tribunal applied the BIT's fair and equitable treatment, full protection and security, and expropriation provisions. It also considered the legality of the investment under Kazakh law and the principle of good faith.
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