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Thursday, 10 November 2016

Coffee with Moustafa El Bahabety, Deputy Justice Minister for Arbitration and International Disputes and the Commissioner of the High Council for International Arbitration

Judge Moustafa El Bahabety is our kind of guy: He’s saving taxpayers significant outlays and working to restore investor confidence at the same time. In his role as commissioner of the High Council for International Arbitration — headed by Prime Minister Sherif Ismail — El Bahabety is the point man for resolving international disputes to which Egyptian institutions are party. He’s also chairman of the Ministerial Committee for Settlement of Investment Disputes. That committee, also headed by Ismail, focuses on significant investment disputes, whether they’ve escalated to the issue of arbitration or not.

We sat down for a cup of coffee yesterday.

THE TAKEAWAYS:

  1. Egypt is looking to reach win-win settlements
  2. Egypt has finalized a settlement with steel giant ArcelorMittal, which has dropped its USD 600 mn claim
  3. Settlements are in sight in open cases, including Union Fenosa Gas
  4. Egypt is regaining investor confidence, FiT amendments are a positive compromise, and economic reforms are a step in the right direction

Talking about the art of reaching settlement agreements, El Bahabety stressed that “no party comes out as a loser.” It is a fair process: “we [aim to] give counterparties their rights, and we [try to end it] without paying compensation.” A deft touch comes in handy when working out the rate at which interest will be calculated and other aspects of compensation. Best, though, is to head-off the issue before it reaches arbitration: “Mechanisms of dispute resolution like the ministerial committee […] are there to make sure the cases are resolved before they reach the final stage of arbitration,” El Bahabety said.

“In a settlement, the state sacrifices and the investor sacrifices. What sacrifice will you make if you can take your money, plus interest, plus compensation? Why would I settle with you? I could go to a court. So to avoid court for you and for myself, and to avoid losses and costs for me — and time and implementation constraints? This all comes at a cost.” Agreements are possible, he suggests, because “the investor is not [fundamentally] stubborn; the aim here isn’t to make undue profits. That’s why we eventually reach settlements.”

Among the most recent — and most significant — cases El Bahabety has led is Egypt’s settlement agreement with Luxembourg-based steel giant ArcelorMittal. The company, El Bahabety tells us, is the number-one producer of steel worldwide, so “a settlement with [ArcelorMittal] lends credibility to the state.” ArcelorMittal had filed for international against Egypt, asking for compensation of USD 600 mn, claiming disruption of electricity, natural gas, and water supplies as well as a land seizure.

The settlement resulted in the government paying a fraction of the original damages claimed, and ArcelorMittal will drop the case in return, El Bahabety said, noting that he will be traveling soon with Investment Minister Dalia Khorshid to sign the final agreement soon. The company also said it would consider coming back to Egypt at some point in the future, according to El Bahabety.

It’s not just ArcelorMittal. A settlement agreement will be completed soon with Steam Boilers Company, which was re-nationalized some 18 years after it was privatized by an order of the Administrative Court. “We are in the final steps for settlement,” El Bahabety said. He takes pride in cases in which he managed to save the Egyptian government from having to pay large settlements — and those in which he and his team are able to reach agreements to bring in revenues to the state. In total, 18 of the more than 30 cases in El Bahabety’s files — including both arbitration and investment disputes — have been settled since January 2015, saving EGP 110 bn that the state was going to pay and bringing in about EGP 24.5 bn in settlements paid to Egypt.

One ongoing case were are keeping an eye on is the dispute with Union Fenosa Gas, which runs a liquefaction plant in Egypt that has been mostly idle as most natural gas output was directed towards domestic consumption. This is “a very important case,” El Bahabety says, but he sees a resolution in sight for it as well, especially as Egypt’s output of natural gas increases with production from the Zohr gas field.

Separately, El Bahabety told us he is still unaware of any formal legal action taken by Qatari Diar against Egypt.

This all made us wonder: Why is there such a large number of international arbitration cases filed against Egypt in the first place? El Bahabety says it’s all because of the period of political transformation we went through. There was “no economic stability, no political stability. There was, to an extent, disparity in investment laws, some problems in decision-making and in the treatment of all investors in a common manner.”

But we’re on the right path now. “The general atmosphere is improving in everything, but it takes time,” El Bahabety said. He is optimistic about last week’s economic reform package, saying the measures are “painful, but right” and that they will “bear their fruits in a year’s time.” He praised the float of the EGP and tempered concerns of a spike in legal claims against Egypt. “There might be administrative problems and problems related to currency conversion, but it will not reach the level of arbitration [or investment dispute].”

Also: El Bahabety said giving scope for international arbitration for feed-in tariff investors outside of Egypt is a decent compromise.

El Bahabety’s recipe for improving the investment climate doesn’t call for new legislation, but rather more organizational rules in work and legislative stability. Investors will come — and stay — in Egypt once they see “political stability … economic stability … legislative stability” in a way that investors will know the law will not change. Some clarity on the FX rate, he added, would be an incentive, too.

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