Jody Jordahl, head of the Macau-based property investment company Sanum
Investments would like to be in his Laos office but is instead in Cambodia
because he believes he’s at serious risk of arrest if he tries to enter the
country.
Sanum is suing the Lao government
for $500 million over what it claims are illegal seizures of its assets,
including a slot-machine club in Vientiane, a hotel and entertainment complex
in Savannakhet and land for a similar project in Paksong.
After signing a master agreement
with Lao partner ST Group, in which Sanum acquired 60 per cent of ST Group’s
current and future gaming projects in May, 2007, Sanum had proceeded to make
significant investments in the country’s gaming industry, according to Jordahl.
Sanum was originally due to take
over management of Vientiane’s Thanaleng Slot Machine Club in October last
year, according to Jordahl, but conflicts with ST Group began as the date drew
nearer.
“Quite frankly, I think they saw
how much it was making and they didn’t want to abide by the terms of our
agreement,” Jordahl said.
He said the turnover date was
amended to April, 2012.
When that date arrived, ST Group
sent out a letter saying it would unilaterally cancel all agreements with Sanum
and locked it out of the property, Jordahl said.
What followed was what Sanum
alleges to be misconduct by the Lao government in terms of placing control of
the Thanaleng Slot Machine Club in the hands of the ST Group, imposing a $5
million fine and conducting illegal audits, resulting in a retrospective $23
million tax bill.
According to Jordahl, none of
these processes were conducted in a free and fair manner or complied with
international regulations.
Now, with a notice of arbitration
filed at the World Bank’s International Centre for Settlement of Investment
Disputes (ICSID), Jordahl said Sanum would rather forgo the long process for
dialogue with the Lao government.
He said Sanum would persist,
however, with the proceedings in order to highlight potential issues faced by
foreign investors entering into agreements with developing nations,
particularly given Laos’ entry to the World Trade Organisation (WTO) and Southeast
Asia increasingly becoming a destination for foreign direct investment (FDI).
“It’s a very exciting time for
Southeast Asia and there’s a lot of potential here, but if the country cannot
be trusted, it will have very significant long-term consequences, not only for
Laos but the rest of the region as well.”
Attempts to contact the ST Group
and the Lao Ministry for Planning and Investment for a comment were
unsuccessful.
According to Profesor Luke
Nottage from the University of Sydney’s faculty of law, an expert in
Asia-Pacific economics, regulations and arbitration, there are some common
violations in investor-state arbitrations.
“In recent years, the most common
alleged or actual breaches have probably been indirect expropriations. For
example, changes to tax regimes disproportionately targeted at or affecting
foreign investors... or violation of
‘fair and equitable treatment’,” Nottage said.
He also said examples of direct
expropriation had been on the increase, pointing to a case involving the British
mining company Churchill and Indonesia.
In Nottage’s view, companies
considering investment in developing Asia-Pacific nations should ensure their
home countries have a thorough investment agreement with the target nation.
“Ensure your home state has
included a comprehensive, carefully drafted investment treaty – including an
investment chapter in a free-trade agreement – that includes provisions for
investor-state arbitration before an international tribunal like ICSID.”
The UN Conference on Trade and
Development’s World Investment Report says developing economies in East and
Southeast Asia received $335.5 billion in FDI, 22 per cent of global FDI
spending.
Erika Mudie
Business & Investment Opportunities
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