By Mark Kantor, Michael D. Nolan & Karl P. Sauvant
The conversation in the new and old media over the last several weeks has been dominated by reports about uprisings in Tunisia, Libya and Egypt and violent clashes in Bahrain, Yemen, the Ivory Coast, Iraq and elsewhere. In Libya, fighting currently is reported to take place close to strategic oil installations. Because of the scarcity of claims arising out of similar events in investor-state arbitration, political risk insurance claims determinations by the U.S. Overseas Private Investment Corporation (OPIC) can play an important role to develop this area of law and fill these gaps in future investor-state arbitral arbitrations.
OPIC has a long history of dealing with claims under political risk insurance policies arising from political violence. Its first political violence claims arose as a consequence of the rebuilding efforts by the Organization of American States following political strife in Dominican Republic in 1967. Early claims included a 1968 claim arising out of war damage to an extension of Jerusalem airport. Since then, OPIC has addressed political violence claims relating to projects in inter alia Pakistan, Bangladesh, Chile, Indonesia, Nicaragua, Haiti, the Philippines, Rwanda, Democratic Republic of Congo, Sierra Leone, Gaza, Colombia and Afghanistan. These claims concerned damages suffered as a consequence of declared war, violent secessions, military coups, civil war, or revolution. The variety of the different situations encountered in OPIC claims determinations provides valuable insight into how political violence can and does affect foreign investments.
One key element that OPIC determinations have spent significant time addressing is attribution to establish who is responsible the underlying act of violence and for what purpose it was committed. Was violence committed by a group that was trying to overthrow the government, was it committed by a group that was under the control of a government? Or was the violence non-political in nature and as such not covered by the OPIC policy?
The OPIC claims determination with respect to the Freeport mining project in Indonesia is perhaps particularly on point for current events. Freeport Indonesia was engaged in mining activities in the area then known as Irian Jaya (now West Papua), a province of Indonesia on the island of New Guinea The area in which Freeport Indonesia operated became part of Indonesia only after negotiations between the Netherlands and Indonesia. A year after Irian Jaya was joined to Indonesia, various dissident groups, known as the Organisasi Papua Merdeka (“OPM”) formed for the purpose of asserting independence.
In 1969, a first uprising took place, which did not damage Freeport Indonesia facilities. In 1976, though, Freeport Indonesia received letters from OPM demanding assistance in a renewed insurrection expected in spring of 1977. That uprising would reputedly be joined by a major invasion of nationalist forces from neighboring Papua New Guinea. An uprising did occur in 1977, including in the area of Freeport Indonesia’s facilities. Government of Indonesia armed forces were sent to quell the insurrection. The military apparently used Freeport Indonesia facilities as a base of operations. During the period from July 23, 1977 to September 7, 1977, Freeport Indonesia’s facilities suffered damage during acts of sabotage and attacks. Because the partisans shared a common purpose to assert independence, OPIC determined that the loosely affiliated OPM did constitute a revolutionary force despite its lack of a clear command structure. OPIC further applied a “preponderance” test, weighing the evidence available to OPIC to establish whether it was more likely than not that the harm done to Freeport’s facilities was the result of