Warning on investment in Laos

Warning on investment in Laos

Jody Jordahl, head of the Macau-based property investment company Sanum Investments would like to be in his Laos office but is instead in Cambodia because he believes he’s at serious risk of arrest if he tries to enter the country.

Sanum is suing the Lao government for $500 million over what it claims are illegal seizures of its assets, including a slot-machine club in Vientiane, a hotel and entertainment complex in Savannakhet and land for a similar project in Paksong.

After signing a master agreement with Lao partner ST Group, in which Sanum acquired 60 per cent of ST Group’s current and future gaming projects in May, 2007, Sanum had proceeded to make significant investments in the country’s gaming industry, according to Jordahl.

Sanum was originally due to take over management of Vientiane’s Thanaleng Slot Machine Club in October last year, according to Jordahl, but conflicts with ST Group began as the date drew nearer.

“Quite frankly, I think they saw how much it was making and they didn’t want to abide by the terms of our agreement,” Jordahl said.

He said the turnover date was amended to April, 2012.

When that date arrived, ST Group sent out a letter saying it would unilaterally cancel all agreements with Sanum and locked it out of the property, Jordahl said.

What followed was what Sanum alleges to be misconduct by the Lao government in terms of placing control of the Thanaleng Slot Machine Club in the hands of the ST Group, imposing a $5 million fine and conducting illegal audits, resulting in a retrospective $23 million tax bill.

According to Jordahl, none of these processes were conducted in a free and fair manner or complied with international regulations.

Now, with a notice of arbitration filed at the World Bank’s International Centre for Settlement of Investment Disputes (ICSID), Jordahl said Sanum would rather forgo the long process for dialogue with the Lao government.

He said Sanum would persist, however, with the proceedings in order to highlight potential issues faced by foreign investors entering into agreements with developing nations, particularly given Laos’ entry to the World Trade Organisation (WTO) and Southeast Asia increasingly becoming a destination for foreign direct investment (FDI).

“It’s a very exciting time for Southeast Asia and there’s a lot of potential here, but if the country cannot be trusted, it will have very significant long-term consequences, not only for Laos but the rest of the region as well.”

Attempts to contact the ST Group and the Lao Ministry for Planning and Investment for a comment were unsuccessful.

According to Profesor Luke Nottage from the University of Sydney’s faculty of law, an expert in Asia-Pacific economics, regulations and arbitration, there are some common violations in investor-state arbitrations.

“In recent years, the most common alleged or actual breaches have probably been indirect expropriations. For example, changes to tax regimes disproportionately targeted at or affecting foreign investors... or violation of ‘fair and equitable treatment’,” Nottage said.

He also said examples of direct expropriation had been on the increase, pointing to a case involving the British mining company Churchill and Indonesia.

In Nottage’s view, companies considering investment in developing Asia-Pacific nations should ensure their home countries have a thorough investment agreement with the target nation.

“Ensure your home state has included a comprehensive, carefully drafted investment treaty – including an investment chapter in a free-trade agreement – that includes provisions for investor-state arbitration before an international tribunal like ICSID.”

The UN Conference on Trade and Development’s World Investment Report says developing economies in East and Southeast Asia received $335.5 billion in FDI, 22 per cent of global FDI spending.

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