IPIC, the first SWF to file an ICSID claim

International Petroleum Investment Company (IPIC), a state controlled entity (SCE) from the United Arab Emirates (UAE) and its Dutch subsidiary Hanocal Holding B.V filed a request of arbitration at the ICSID against the Republic of Korea seeking compensation of 183.8 billion won on taxes paid in 2010.

The dispute started when IPIC and Hanocal sold their 70% stake in Hyundai Oilbank to Hyundai Heavy Industries for around 1.8 trillion won. The Korean National Tax Service withhold 10% as a sale tax on the basis that Hanocal cannot benefit of the double tax agreement between the Netherland and the Republic of Korea. The Korean tax authorities perceive Hanocal as a shell company and do not grant the tax treaty benefits. Since then Hanocal has unsuccessfully tried the case in front of the domestic courts.

Sheikh Zayed Bin Sultan Al-Nahyan, the founding father of the UAE, established IPIC in 1984 in Abu Dhabi with the participation of the Abu Dhabi Investment Authority (ADIA) and the Abu Dhabi National Oil Company. The goal of the entity is to use the wealth deriving from natural petroleum to build a modern, diversified economy for the benefit of future generations. Since 1986 the entity is wholly owned by the Government of Abu Dhabi and nowadays operates assets globally for an estimated value of $ 68.4 billions managing investments in companies that operate across the hydrocarbon value chain, including exploration and production, shipping and pipelines, downstream retail and marketing, petrochemicals, power and utilities as well as industrial services. Furthermore it has interests in renewable energy, infrastructure, environmental projects, real estate, aviation, automotive and financial services. As a matter of fact IPIC is one of the seven sovereign wealth funds of United Arab Emirates. However differently form ADIA, it is not a member of the International Forum of Sovereign Wealth Funds (IFSWF) and has not agreed to comply with the Santiago Principles. Nevertheless IPIC does very well in complying with transparency standards. It ranks high in the Linaburg-Maduell Transparency Index (a method of rating transparency in respect to sovereign wealth funds) scoring 9/10. It does very well also on economic performance. Moody’s, Fitch and Standard & Poor’s graded IPIC economic performance in 2013 very well according respectively A3, AA, AA.

By starting this investor state arbitration IPIC becomes the first sovereign wealth fund to rely on the ICSID tribunal to solve a dispute with the host country. In 2010 Temasek, after losing an antitrust case in domestic courts in Indonesia, threatened to take the case to international arbitration but there hasn’t been any news of a case being filed. Previously few SCEs have successfully tried their cases in front of the ICSID tribunals. In those occasions the respondent countries have raised issues on the jurisdiction related to the public ownership of the SCEs. The arbitrators have focused on the commercial purposes of the investment made by the SCE and have granted standing in front of the tribunal to the SCEs. It will be interesting to see if the respondent will raise the jurisdiction issue in this case and what will be the tribunal decision.