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Thanks for sharing DEM.
The links are really informative. Not conclusion I can draw is that there is no set formula and that it’s going to be up to the arbitration panel to decide or in all likelihood, for Rockhopper’s solicitor’s to make a case. It’s interesting that there is no mention of inflation and you would have expected the fact that over 4 years the money has become worth considerably less would also be taken into account.
It’s going to be fascinating when the award is finally made public.
Can’t believe it wont be made by the end of the month.
Much
Thanks MAM for your comments – appreciated and helpful. Agree that the interest element may be key but the ICSID website bars access to the section on interest calculations.
https://icsid.worldbank.org/search?f%5B0%5D=languages%3Aen&search=interest+
There are a couple of recent articles by Aceris Law which I found helpful – it would seem that the interest rate methodology is far from simple! I would be very happy with your suggested 7%.
https://www.acerislaw.com/interest-in-international-investment-arbitration/
https://www.acerislaw.com/calculating-interest-in-international-arbitration-how-is-interest-determined/
“There is no uniform practice on awarding interest in international investment law.[8] Thus, the tribunals may use a number of methods in order to determine the applicable interest rate:
- a borrowing rate approach, which relies on the interest the investor had to pay on borrowed funds.
- a host State rate approach, which uses the statutory rate in the host State as a ‘helpful benchmark’, since it is the legal minimum recognized by the State itself.
- a ‘coerced loan’ approach – under this method, the investor is turned into an ‘unwilling lender’ to the State, and therefore is entitled to interest equal to ‘the State’s short-term borrowing rate’.
- an ‘investment alternatives’ approach, which reflects the additional sum that the investor’s money would have earned, had it been reinvested each year at generally prevailing rates of interest. When applying this approach, tribunals often award interest at a rate equal to the short-term United States Treasury Bills or US six-month certificates of deposit or at the LIBOR rate”.
DEM
Thanks for sharing DEM. Very insightful.
However the knowns are the amount of recoverable oil so it is effectively the number of barrels of oil multiplied by the profit per barrel which will depend upon what oil price they use. Then interest for 3 - 4 years will be charged which needs to represent not only inflation but the loss of use of that money and any returns that can be obtained from it. For this reason the figure of 7% is not unusual.
So if the payout is in the region of £250m then you can probably add an additional £70m of interest to that in the same way that PPI claims ended up with such huge payouts for the Banks.
The arbitrators will have some very clear formulas acceptable on an industry and legal level so it's not going to be a case of tweaking them to find favour and soften the blow. They'll apply them and if they come out at £350m then so be it.
That's the kind of figure I would be looking for and with oil at over $80 currently it could be more.
Italy haven't fought this for fun. They are genuinely worried and ought to be.
Let it be a lesson for those who enter and then breach contracts. ........
Over the past year there have been a number of suggested figures mentioned in News Articles. At the Retail Investors Day in Salisbury (30-09-2021) Sam gave out some ballpark figures – for a Maximum, Reduced and Base Award, assuming an Ombrina Mare win. So, take your pick!
Maximum Award
OM rig costs/removal $50m, lost profits $225m = $275m + interest. No idea how the interest element might be calculated.
In Feb 2021, Giacomo Aiello, Italian State Attorney commented: 'The (Rockhopper) judgement is expected soon. The company has demanded USD 275 million plus probably interest. They pretend they have spent until now USD 29 million $23m for predeveloping and $6m for the decommissioning. The rest is loss of earnings, that the Treaty allows to ask for'.
In Aug 2021 Al Jazeera published an article berating the use of The Energy Charter by oil companies to obtain compensation from Governments trying to defend the Environment. The article commences with: 'Any day now, Italy expects to be ordered to hand millions of dollars over to an oil exploration corporation, following the Italian government’s decision to ban such exploration off its coast'. And later comments 'The “compensation” being claimed totals about $350 million – seven times what the corporation invested in the exploration project'.
The figure of $450m mentioned on the Charles River Associates (CRA) website in the quotation found by Falky on Sunday – seems very high and may be there to demonstrate what a good job CRA has done in reducing it to ‘only’ $XYZ.
Reduced Award
The Arbiters may decide to reduce the Award if they feel there are mitigating circumstances (eg the suggested 50% reduction in the Kluwer Arbitration Blog 2018). If the Arbiters decide to ‘tweak’ the various assumptions underpinning the risk factors (eg average price of oil, time period relating to future lost profits etc), award might be reduced to say $100m.
Base Award
No lost profits element, rig costs only, around $50m.
Best guess
Somehow I doubt that we will get a Max Award and suspect that some of the very optimistic figures quotes quoted in the press are designed to ramp up the righteous indignation of their readers.
A base award seems a bit mean and I really do think that Italy may have alienated the Arbiters. As mentioned in a previous post even their own Lawyer and nominated Arbiter seemed to think that it was a lost cause. A case of the Politicians insisting on the second Jurisdiction objection even though it may have resulted in a bigger payout to RKH.
So, a 'Reduced Award' of say $150m would be very acceptable - even after the Harbour 'No Win - No Fee' deduction.
DEM