34364 International Public Disclosure Authorized political risk Public Disclosure Authorized management LOOKING TO THE FUTURE Public Disclosure Authorized Theodore H. Moran and Gerald T. West, Editors THE WORLD BANK GROUP Multilateral Investment Guarantee Agency Public Disclosure Authorized International Political Risk Management Looking to the Future International Political Risk Management Looking to the Future Theodore H. Moran and Gerald T. West Editors The World Bank Washington, D.C. © 2005 The International Bank for Reconstruction and Development / The World Bank 1818 H Street, NW Washington, DC 20433 Telephone 202-473-1000 Internet www.worldbank.org E-mail [email protected] All rights reserved. 1 2 3 4 08 07 06 05 The findings, interpretations, and conclusions expressed herein are those of the author(s) and do not necessarily reflect the views of the Board of Executive Directors of the World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of the World Bank con- cerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this work is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. The World Bank encourages dissemination of its work and will normally grant permis- sion promptly. For permission to photocopy or reprint any part of this work, please send a request with complete information to the Copyright Clearance Center, Inc., 222 Rose- wood Drive, Danvers, MA 01923, USA, telephone 978-750-8400, fax 978-750-4470, www.copyright.com. All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, World Bank, 1818 H Street NW, Washing- ton, DC 20433, USA, fax 202-522-2422, e-mail [email protected]. eISBN 0-8213-6155-6 ISBN 0-8213-6154-6 EAN 978-0-8213-6154-2 DOI 10.1596/978-0-8213-6154-2 Library of Congress Cataloging-in-Publication Data has been applied for. Contents Preface ix List of Acronyms xi Introduction 1 Yukiko Omura, Multilateral Investment Guarantee Agency Part One Learning from Recent Losses, Claims, and Arbitrations Overview 5 Theodore H. Moran and Gerald T. West, Editors Tales from the Dark Side: Lessons Learned from Troubled Investments 12 Kenneth W. Hansen, Chadbourne & Parke LLP Learning from OPIC’s Experience with Claims and Arbitration 30 Robert C. O’Sullivan, Overseas Private Investment Corporation Discussion of Learning from Recent Losses, Claims, and Arbitrations 75 Symposium Panelists and Participants Part Two The Emergence of New International Property Rights and the Role of Political Risk Insurance in Project Finance Overview 81 Theodore H. Moran and Gerald T. West, Editors v vi CONTENTS The New International Property Rights: Can the Foreign Investor Rely on Them? 87 Louis T. Wells, Jr., Harvard Business School The Future of Political Risk Insurance in International Project Finance: Clarifying the Role of Expropriation Coverage 103 Frederick E. Jenney, Morrison & Foerster LLP Discussion of the Emergence of New International Property Rights and the Role of Political Risk Insurance in Project Finance 116 Symposium Panelists and Participants Part Three The Evolution of Private-Public Relationships in the Political Risk Insurance Industry Overview 121 Theodore H. Moran and Gerald T. West, Editors The Future of the International Political Risk Insurance Industry 128 Clive Tobin, XL Insurance Perspectives on Private-Public Relationships in Political Risk Insurance 139 Toby Heppel, FirstCity Partnership Ltd. Discussion of the Evolution of Private-Public Relationships in Political Risk Insurance 158 Symposium Panelists and Participants Part Four New Products and New Perspectives in Political Risk Insurance Overview 167 Theodore H. Moran and Gerald T. West, Editors The Use of Political Risk Insurance to Support Emerging Market-Based Issuers 173 Christina Westholm-Schröder, Sovereign Risk Insurance Ltd. Currency Transfer and Convertibility Coverage: An Old Reliable Product or Just an Old Product? 182 Daniel W. Riordan and Edward A. Coppola, Zurich Emerging Markets Solutions CONTENTS vii Discussion of New Products and New Perspectives in Political Risk Insurance 193 Symposium Panelists and Participants Appendixes I Biographies of Authors 199 II Whither the Political Risk Insurance Industry? 206 Gerald T. West and Kristofer Hamel, MIGA III Previous Volumes in the Series 231 IV More About MIGA 237 Index 241 Preface International Political Risk Management: Looking to the Future is an out- growth of a symposium held November 12, 2004, under the joint auspices of the Multilateral Investment Guarantee Agency (MIGA) of the World Bank Group and the Karl F. Landegger Program in International Business Diplomacy at the School of Foreign Service at Georgetown University. It is the fourth in a series of volumes based on this biennial symposium. Like its predecessors, this latest sym- posium brought together senior practitioners from the investor, financial, insurance, broker, and analytical communities to discuss and assess the key issues confronting the international political risk insurance industry. The large and diverse audience (more than 160 people from 35 countries) actively participated in the discussions of the eight com- missioned papers and presentations at the symposium. In response, the authors revised and expanded their papers for this publication. In addition to writing four sectional overviews, the editors have sought to capture the rich quality of the discussion that followed each presentation through four discussion segments, presented in a question and answer format. MIGA’s objective is to facilitate the flow of foreign direct invest- ment to developing countries by alleviating investors’ concerns about noncommercial risks. MIGA has always pursued this objective in a variety of ways. In addition to providing political risk insurance to investors and offering technical assistance in attracting investment to host member countries, MIGA has selectively sponsored research on the challenges of assessing and managing political risk. The sympo- sium and this publication represent part of these larger risk mitiga- tion endeavors. The Karl F. Landegger Program in International Business Diplo- macy at the School of Foreign Service at Georgetown University con- ducts teaching and research on the intersection of international ix xPREFACE corporate strategy, public policy, and business-government relations. The program has active teaching and research programs devoted to political risk management techniques that may be useful to interna- tional investors and host governments alike. Our two institutions share many objectives, including the desire to promote productive foreign direct investment that can enhance the growth and welfare of developing countries. Our common hope is that readers will find that this volume contributes to that objective. We are grateful for the support this symposium and volume received from Lola Brown and Kathleen Klingenberg at Georgetown and from Kristofer Hamel at MIGA. Theodore H. Moran Gerald T. West School of Foreign Service Multilateral Investment Georgetown University Guarantee Agency World Bank Group List of Acronyms AAA American Arbitration Association ADB Asian Development Bank ADR American Depository Rights CI currency inconvertibility CUP Cooperative Underwriting Program ECGD Export Credits Guarantee Department EDC Export Development Corporation of Canada FDI foreign direct investment GATT General Agreement on Tariffs and Trade ICSID International Centre for Settlement of International Disputes IFC International Finance Corporation IMF International Monetary Fund MIGA Multilateral Investment Guarantee Agency NAFTA North American Free Trade Agreement OECD Organisation for Economic Co-operation and Development OPIC Overseas Private Investment Corporation PRI political risk insurance S&P Standard and Poor’s T&C transfer and convertibility UNCITRAL United Nations Commission on International Trade Law UNCTAD United Nations Conference on Trade and Development USAID United States Agency for International Development WTO World Trade Organization Introduction Yukiko Omura Executive Vice President Multilateral Investment Guarantee Agency I am delighted to introduce this volume in the International Political Risk Management series. The papers and commentary in this volume are based on the discussion among the 160 participants at the most recent Symposium on International Political Risk Management hosted by MIGA and Georgetown University, held November 12, 2004. It is the aim of this volume to present to the reader a concise account of the dialogue and discussion that occurred during the symposium. For MIGA this series serves as a forum for discussing and pro- moting best practices and latest developments in the investment insurance industry. Our founders specifically included in the MIGA Convention a mandate to “carry out research, undertake activities to promote investment flows, and disseminate information on invest- ment opportunities in developing member countries with a view to improving the environment for foreign investment flows to such countries.” MIGA has traditionally worked with many of the partic- ipants of the symposium: with investors, through the provision