The Alliance One investment Case – Implications From the Cancellation of a Concession in Mozambique

A US firm stripped of investment rights without notice

In 2005, the Government of Mozambique decided to withdraw the award of the Chifunde concession from the Alliance One. Which was formed out of a merger between the US-based companies Dimon and Stancom, both of whom held concessions in the Mozambican provinces of Niassa, Tete and Manica.

International observers find the government’s decision to switch the concession from Dimon to MLT illegal, since it violates existing investment agreements signed by the Government. According to Government’s officials, the reason is simply clear. The government wants tobacco processing to happen in Mozambique, and so urged all the concessionary companies to build processing plants. Adding that only MLT responded, and has built the second largest processing plant in Africa in Tete City. This explains that: its reward was the Chifunde concession (quoted from Savana Newspaper of May 2006).

The present article outlines the legal basis and requisites for a dispute settlement initiative in case of remedy and compensation for the claimants. It reviews different alternatives available for a conciliation / dispute settlement mechanism and suggests the most efficient process towards this goal.

The Legal basis for a conciliation / arbitration claim

There are different legal frameworks under which the investment dispute can be settled. The following instruments are, more or less, all relevant for this case which mainly relates to the protection of investment rights, including concession rights, and expropriation procedures:

The Chifunde Concession Agreement (between the Investment climate   Government of Mozambique and the tobacco companies: Alliance One viz. Stancom and Dimon). For the moment we do not have this document, which is the most important to understand the case. It should be obtained asap.

The Mozambican Investment code: Law No. 3/93 of June 24, 1993, on Investment and subsequent amendments contained in Decree No. 14/93 on July 21, 1993 and decree No. 36/95 on August 8, 1995.

The Mozambican law holds that “when deemed absolutely necessary for weighty reasons of national interest or public heath and order, the nationalization or expropriation of goods and rights…shall (result in the owner being) entitled to just and equitable compensation.”

The US-Mozambique BIT of December 1, 1998, which came into effect on March 3, 2005, and the Trade and Investment Framework Agreement (TIFA) signed on June 21, 2005, which establishes a Council on Trade and Investment charged with the task of holding consultations and work towards the removal of impediments to bilateral trade and investments. Since the investor is composed of US companies, the BIT is the major instrument which should be used for legal reference.

The Convention on the Settlement of Investment Disputes between States and Nationals of Other States also known as the ICSID Convention. This convention, which established International Centre for Settlement of Investment Disputes ((ICSID), was adopted on March 18, 1965 and entered into force on October 14, 1966, when it had been ratified by 20 countries. As on April 10, 2006, 143 countries have ratified the Convention to become Contracting States. It was ratified by both Mozambique and the USA, and entered into force for as follows:

(a) Mozambique ratification/accession to the convention (Resolution no. 10/92 of the Assembleia da República, Bulletim da República, 25 September 1992, I Série (39) pag. 197 (3) 2o Supplemento).

(b) The United States of America: ratification of the convention:

– Signature of convention on August 27, 1965

– Deposited the instrument of ratification on June 10, 1966

– Entry into force of the convention: October 14, 1966

The Convention establishing the Multilateral Investment Guarantee Agency – MIGA, concluded at Seoul (Korea), on October 11, 1985. It entered into force on April 12, 1988. Both the uS and Mozambique are members of MIGA.


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