Sat | Apr 20, 2019

Curtis Ward | Petrojam share grab a last resort

Published:Sunday | January 13, 2019 | 12:00 AM

Jamaica's Foreign Affairs and Foreign Trade Minister Kamina Johnson Smith's announcement, on January 9, that the Jamaican Government "proposes to use legislation to retake ownership of the 49 per cent shareholdings in Petrojam currently held by PDV Caribe SA ... to ensure (Jamaica's) energy security" is an unusual, and, perhaps, unprecedented unilateral action for modern liberal democracies.

This path by the Jamaican Government is a sharp divergence from the usual practices of former governments that have honoured the sanctity of international contracts. Respect for the rule of law and strict adherence to international norms are precepts that Jamaica and other small countries that nurture their nascent democracies have assertively defended in international fora. Deviation from this course could prove ultimately detrimental to Jamaica in the future.

It is perhaps no coincidence that this announcement was made just prior to supporting a vote in the Organization of American States (OAS) not to recognise Nicol·s Maduro's new term as president of Venezuela. Now, it seems, Jamaica no longer has a negotiating partner on PDV Caribe. Should the Jamaican Government proceed with the taking of Venezuela's interest in PDV Caribe through legislative action, to whom will compensation be paid?

The minister, in making the announcement, suggested that this chosen path was a means to ensuring Jamaica's energy security. Perhaps though well-intentioned, one should consider whether it is wise to act precipitously without first exhausting available international mechanisms for settlement of investment disputes.

Understandably, the Jamaican Government may have been frustrated by the lack of timely responses from the Venezuelans. However, considering the chaos in Venezuela, this should not be surprising or unexpected. Lack of timely response does not justify unilateral action by either side to settle a bilateral issue where no discernible emergency is evident. This is a situation in which the Jamaican Government has possession and control of the property and the Maduro administration cannot remove it from the country.

 

RAISES DOUBTS

 

The decision by the Jamaicans to sidestep international mediation or arbitration, when bilateral negotiation fails, cast aspersions on the Government's intentions from the outset. It raises doubts that Kingston entered negotiations with Caracas in good faith or with a take-it-or-leave-it choice for Venezuela. This approach is troubling. It seems to mimic a Trumpist and irresponsible modus operandi. Make a deal on Trump's terms, or he takes unilateral action to enforce his will against the weaker party. Trump also cites non-existent national-security concerns in attempts to achieve his ends.

We have become accustomed to seeing pressure being put on governments throughout Latin America and the Caribbean region to sever ties with the Maduro regime. The US secretary of state and other Trump administration interlocutors use the occasions of visiting foreign ministers and other senior government representatives from countries in the region to Washington to ramp up pressure on the Venezuelans.

We also are aware of pressure being put on top diplomatic representatives of countries in the region to support the Trump administration in isolating Venezuela in the OAS and other fora. It is unlikely that isolating Maduro was not an issue discussed during the November visit of Jamaica's prime minister to Washington.

At the least, this unilateral decision by the Jamaican Government reflects the disdain held for the Maduro regime and disrespect for the sovereignty of Venezuela. Whether or not one agrees with the domestic actions of the Maduro government should not be a factor in severing a business relationship that has been to Jamaica's advantage for several years. This decision is an effort to sever a business relationship that no longer benefits Jamaica and which the Government feels it can discard unilaterally at very low risk.

 

RISKY PRECEDENT

 

However, the use of domestic legislation to expropriate Venezuela's shares in Petrojam sets a very risky precedent for the treatment of foreign direct investments in Jamaica. No words spoken by the minister can sufficiently assuage the concerns of current and future foreign investors when the Government resorts to unilateral action to abrogate an existing agreement. Such action is an absolute last resort after international mediation or arbitration has been exhausted.

The International Center for the Settlement of International Disputes (ICSID), an agency of the World Bank, facilitates the settlement of international investment disputes akin to the one between Jamaica and Venezuela. The Jamaican Government should first avail itself of the process offered by the ICSID before deciding on a unilateral path that could prove costly to the country. International mediation or arbitration is the path pursued by modern democracies. Unilateral action is the path of autocratic regimes and geopolitical bullies in the global arena.

One of the ways to divert attention from one issue to the next, a practice we've seen used quite effectively by US President Donald Trump, is to make an announcement to take the public on another track. The recent spate of bad news coming out of the governance of Petrojam, and the seemingly egregious levels of corruption recently exposed, may have triggered this precipitous decision by the Jamaican Government.

It raises a number of questions, not the least of which is how well the possible repercussions have been given full consideration. Unless, perhaps, this has been a plan all along during the negotiation process. This would make the timing of the vote in the OAS a mere coincidence.

Under similar circumstances, governments of investor home countries around the world warn their private sector to be cautious about the potential risks of new investments in countries that unilaterally violate sacrosanct international contractual agreements. Perhaps with the Trump administration's determination to pressure and isolate the Nicol·s Maduro regime in Venezuela, Washington may have greenlighted this action by the Jamaican Government. The Government may have been assured that the Trump administration would provide cover and have given the assurance that the Overseas Private Investment Corporation, which insures US foreign investments abroad, would not downgrade Jamaica's insurability.

 

MANY WILL BE WATCHING

 

Unfortunately, Jamaica pursuing this course could reverberate in other capitals around the world, giving foreign investors pause when considering future investments in Jamaica. Many will be watching keenly how the Jamaican Government arrives at appropriate compensation for the PDV Caribe property now under threat of expropriation. In any scenario, the future of foreign investments in Jamaica could be threatened.

We excoriate Maduro for seizures of foreign-owned assets and investments in Venezuela for what he spuriously claims as protecting the interests of the Venezuelan people. His actions are condemned as violations of norms of international commercial practices and violations of due process.

While the actions of autocratic regimes hardly surprise us, we are flummoxed by similar actions when carried out by democracies. Using parliamentary procedure does not distinguish one's action from using the barrel of a gun to attain the same result. A government with a parliamentary majority can be just as draconian as an autocratic government, where there are no checks and balances and rule of law is marginalised. We must be mindful of this.

- Ambassador Curtis A. Ward is a former ambassador and deputy permanent representative of Jamaica to the United Nations with special responsibility for Security Council affairs (1999-2002), serving on the UN Security Council for two years. He also served for three years as expert adviser to the UN Security Council Counter-Terrorism Committee. Email feedback to columns@gleanerjm.com.