Bechtel Abandons its ICSID Claim Against Bolivia

In an era in which transnational corporations have become wealthier and more powerful than many countries – GM alone is worth more than 120 – it’s easy to dismiss anti-corporate political activism as naïve, anachronistic, and doomed to failure. But that’s not always true. Case in point: the Bechtel Corporation’s recent abandonment of its claim against Bolivia in the World Bank’s secretive trade court, the International Centre for Settlement of Investment Disputes. Bechtel had sought at least $50 million in damages for profits it ostensibly lost when mass protest in Bolivia over skyrocketing water rates forced Aguas del Tunari, the Bechtel-controlled utility company that imposed the rate hikes, to close up shop. Instead of its $50 million, Bechtel agreed to damages in the amount of two bolivianos – 25 cents.

The seeds of the dispute were planted in 1997, when the World Bank informed Bolivia that it was conditioning additional aid for water development on the government privatizing the public water systems of La Paz and Cochabamba. In 1999, after a secret process with one bidder, Bolivia turned Cochabamba’s water over to Aguas del Tunari, a utility company whose majority owner was Bechtel. Within a few short weeks, Aguas del Tunari raised water rates by an average of more than 50%, far beyond what most poor families in Cochabamba could afford. The increases sparked a citywide rebellion that has become known simply as the “Cochabamba Water Revolt.” In response, the government declared martial law in the city and sent police and soldiers to quell the rebellion. Finally, after the army killed a 17-year-old boy and wounded more than a hundred others, Bechtel decided to pull Aguas del Tunari out of Cochabamba.

Eighteen months later, in November, 2002, Bechtel filed its $50 million claim with ICSID. The claim was not only for recovery of its lost investment, which amounted to less than $1 million, but also for the profit it claimed to have lost when Bolivia annulled Aguas del Tunari’s contract.

Bechtel’s suit was no more popular than the increase in water rates, largely because of ICSID’s lack of transparency and accountability. ICSID proceedings are closed to the public and press and the tribunal operates outside of national laws – the judges in each case define the applicable norms and procedures. Decisions by the tribunal are not appealable, and a country faces economic sanctions if it does not comply with its rulings. So after a petition to appear before ICSID filed by 300 organizations in 43 different countries was denied, activists took to the streets. Thousands sent e-mails to corporate executives. Protesters in San Francisco blocked the entrance of Bechtel’s corporate headquarters, and San Francisco’s Board of Supervisors passed a resolution calling on Bechtel to drop the case. Activists in DC protested at the home of the Bechtel executive in charge of its water division. Hundreds of articles and editorials were published world-wide.

Finally, Bechtel gave in and withdrew its claim. Sources say that Bechtel’s CEO, Riley Bechtel – weary of having his corporation painted as the poster-child for corporate greed – made the decision himself.

Although the case obviously represents a victory for the poor Bolivians in Cochabamba, its significance is far greater. In the past few years, the number of cases brought by transnational corporations in international commercial tribunals like ICSID has grown exponentially. Many of those cases involve challenges to laws and regulations taken by governments in developing countries to protect their citizens from the worst effects of globalization. Often, perhaps usually, those challenges are successful – witness ICSID’s ruling in May, 2005, that Argentina had to pay CMS Energy $133 million in damages for “expropriation and discriminatory treatment,” ostensibly resulting from the Argentine government’s conversion of energy tariffs from pesos to dollars during its 2002 peso devaluation.

But they are not always successful. Sometimes political activism can make a difference. And therein lies the victory over Bechtel’s true importance.