Baltic States – CIS, Investments, Legislation, Markets and Companies, Metals Market
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Friday, 19.04.2024, 07:48
International investment dispute resolved in favor of Uzbekistan
In the world practice, as a rule, the foreign investors are divided into
two types. The first are the entrepreneurs who respect their business partners
and the government, in which they invest, and have long-term plans for their
projects and are interested in their further development. Yet, the second type includes
businessmen who stand ready for maximum profits to engage in rough violations of legislation.
The practice shows that the action of such unfair foreign investors cannot remain for a long time without being adequately addressed by a recipient state. The case under arbitration at the International Centre for Settlement of Investment Disputes (ICSID) on the claim of Metal-Tech Ltd (Israel) against the Republic of Uzbekistan can stand as one of the clearest examples of such state of affairs.
The Israeli company has operated in the Uzbek market since 2000 creating an
Uzmetal Technology Joint Venture jointly with the Almalyk Mining and
Metallurgical Combine and Uzbek Refractory and Resistant Metals Integrated
Plant (UzKTJM). The authorized fund of the company which has specialized in processing and manufacturing the molybdenum products was formed by the parties on a parity basis.
Taking into account the investment commitments made by the Metal-Tech Ltd in the technical feasibility
study, the state gave the
appropriate privileges to
the joint venture.
However, using various corruption schemes the company has not complied with
a number of basic tasks assigned to it by the constituent documents of the Uzmetal
Technology. Thus, despite the initial agreement the joint venture led by
representatives of the Israeli company didn’t implement any technology at the UzKTJM, and didn’t provide plant with necessary
amount of molybdenum raw and didn’t realize the set plans in terms of
production targets.
Such manifestations of negligence by the Uzmetal Technology led to blatant violations of currency, customs and tax legislation of the Republic of
Uzbekistan. The company didn’t implement the mandatory sale of foreign currency
earnings, has unreasonably overstated the customs value of imported goods, as
well as has understated the price of their products as compared to the prices
for the same products in the world markets. It should be noted that the
understatement of the export prices alone has led to uncollected taxes to the
state budget of more than 3 billion soums and other obligatory payments. For
the same reason, the period of its activity the joint venture received about 4
billion 680 million soums less.
As a result, the founder from the Uzbek side has filed a claim with commercial
court to request to recover the due share of dividends which it had
received less due to illegal actions of foreign partners. After these claims
have been met the Metal-Tech Ltd had brought
an unjustified suit against Uzbekistan at the ICSID. The claim has read that
the state had violated a number of its obligations to protect foreign
investment in line with the Agreement between the Government of the State of
Israel and the Government of the Republic of Uzbekistan for the Promotion and
Reciprocal Protection of Investments signed on July 4, 1994 in Tashkent.
However, the investments of the Israeli company were made in violation of the legislation of Uzbekistan and the business of the Metal-Tech Ltd has initially been corrupt. In this regard, the ICSID arbitration tribunal came to a fair conclusion and has ruled that the dispute in the framework of the aforementioned Agreement didn’t come within its jurisdiction and rejected the claims of the Israeli businessmen. This has once again confirmed the rightness of the decisions made by the state authorities of Uzbekistan.
One can surely say that all necessary institutional and legislative conditions have been created in Uzbekistan to attract and further develop the activities of foreign investors. Along with, the state guarantees benefits and protection only to those investors who respect and observe its laws.