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Thursday, 11 February 2021

How Egypt is earning investor confidence, one arbitration case at a time

The state of Egypt’s arbitration environment + case pipeline, as told by Assistant Justice Minister Moustafa El Bahabety. Egypt has made a concerted effort to settle as many international arbitration cases and investment disputes as possible in the past four years, drawing a line under more than 40 cases. These include major disputes such as the spat with Union Fenosa Gas over the cutting of gas supplies to the Damietta LNG facility back in 2012, which was finally resolved last year.

To go deeper into how the government is approaching its international disputes and look at the steps that have been taken to level up the local arbitral environment, we spoke to Moustafa El Bahabety, assistant justice minister for arbitration and international disputes and the commissioner of the high council for international arbitration.

The key takeaways:

  • Settling your disputes pays (USD 20 bn+ to be precise)
  • Tanta Linen dispute to be settled within a month…
  • …but Omar Effendi remains in limbo.
  • The Permanent Court of Arbitration wants to set up shop in the new capital
  • The investment dispute resolution committee has got new teeth.

The treasury could have been forced to cough up more than USD 20 bn over the past four years without the government’s settlement policy, El Bahabety said. Notable examples are the cases resolved with EMG Gas, Union Fenosa Gas and Agrium. Other settlements were with Al Kholoud for Touristic and Real Estate, and Emaar Misr after a two-year dispute over its Uptown Cairo development.

Progress is being made in several other cases: Tanta Linen and Oil’s settlement with its former Saudi owner would be reached within a month, El Bahabety said. The dispute originated when the government reversed the privatization of the company in 2013, prompting its new Saudi owner to demand compensation. A solution to end the long-standing dispute over Nile Cotton Ginning Company — the privatization of which was also scrapped by the government — is also in the works and the government is pushing towards a final agreement, he said.

Compensation coming … eventually: El Bahabety noted that the ministry aims to remunerate investors for losses that resulted from renationalizing state companies, but said this would take a year or so to wind up.

Progress is slower on the Omar Effendi dispute: Although Egypt reached a settlement with the International Finance Corporation a few years ago in a dispute related to the ongoing Omar Effendi affair, the government is no closer to reaching an agreement with the Saudi investor, almost a decade on. The Holding Company for Construction and Development last year offered to settle with Anwal United Trading Company, but El Bahabety says negotiations remain in limbo after the investor said that negotiations cannot go on.

The Permanent Court of Arbitration (PCA) might be setting up shop here: “We seek to have international arbitration centers setting up their headquarters here, and we will soon have a branch of the PCA, most likely in the new administrative capital,” El Bahabety told us. This would be the fourth PCA office to be set up outside of its headquarters in The Hague, and could promote Egypt as a venue for regional arbitration cases.

The authority responsible for handling international arbitration has been handed new powers: The Higher Authority for Arbitration and International Disputes — which includes the PM, central bank governor, 7 ministers and representatives from the military and the intelligence service — was given oversight last year on all arbitration cases in Egypt, with the power to handpick law firms and appoint arbitrators, El Bahabety told us. It is also now able to review investment contracts to make sure there are no loopholes or terms that could benefit one party over another. “It does not interfere in the technical and financial clauses, but rather reviews the agreement’s provisions including arbitration clauses, financial balance and force majeure,” he said.

Why is this necessary? Restructuring the committee aims to limit the number of arbitration cases being filed against the government by preempting potential problems, El Bahabety explains. He draws a link between the move and the reduction in the number of arbitration hearings — and enhancing both awareness of arbitration and of law at state agencies and state-owned companies, he said.

The ultimate goal of the changes: For investors to have confidence that (a) Egypt is taking concrete measures reduce potential for disputes between investors and government entities; (b) that we’re clearing our backlog of disputes; (c) that arbitration in Egypt is easier to pursue thanks to improved practices and a wider range of arbitral tribunals from which to choose.

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