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Decision on Jurisdiction and Merits

GLOSSARY OF ABBREVIATIONS
Arbitration Rules ICSID Rules of Procedure for Arbitration Proceedings
Association Agreement for the Corocoro Association Agreement between Corporation
Project Venezolana del Petróleo, S.A. and Conoco Venezuela B.V. dated 10 July 1996
BPD Barrels per day
Bicameral Report Report Approved by the Bicameral Commission for the Study of the Strategic Associations of PdVSA concerning the Projects Maraven-Conoco and Maraven-Total-Itochu-Maruveni for the Exploitation and Upgrading of Extra-Heavy Petroleum of the Orinoco Oil Belt, dated 12 August 1993
BIT or Treaty Agreement on Encouragement and Reciprocal Protection of Investments between the Kingdom of the Netherlands and the Republic of Venezuela signed on 22 October 1991
Claimants ConocoPhillips Hamaca B.V., ConocoPhillips Petrozuata B.V., ConocoPhillips Gulf of Paria B.V. and ConocoPhillips Company, collectively
Cl. Mem. The Claimants’ Memorial dated 15 September 2008
Closing Submissions The hearing at which the Parties’ presented their closing submissions held on 21 and 23 July 2010
Cl. Reply The Claimants’ Reply Memorial dated 2 November 2009
Congressional Authorisation for New Areas Agreement Authorising the Execution of Association Agreements for Exploration at Risk of New Areas and Production of Hydrocarbons under the Shared Profits System, Official Gazette No. 35,754, published 17 July 1995
CGP ConocoPhillips Gulf of Paria B.V.
CPH ConocoPhillips Hamaca B.V.
CPZ ConocoPhillips Petrozuata B.V.
Enabling Law The Law that Authorizes the President of the Republic to Issue Decrees Having Rank, Value, and Force of Law on the Matters Delegated Hereby, Official Gazette No. 38,617, published 1 February 2007
Ex. C- The Claimants’ Exhibit
Ex. R- The Respondent’s Exhibit
Hamaca Association Agreement Association Agreement between Corpoguanipa, S.A., Arco Orinoco Development Inc., Texaco Orinoco Resources Company, and Phillips Petroleum Company Venezuela Limited dated 9 July 1997
Hamaca Authorisation Agreement Approving the Framework of Conditions of the Association Agreement for the Production, Transportation and Upgrading of Extra-Heavy Crude to Be Produced in the Hamaca Area of the Orinoco Oil Belt, as well as the Marketing of the Upgraded Crude and Other Products Generated During the Process of Production and Upgrading of Such Crudes, to Be Entered into between Corpoven, S.A., a Subsidiary of Petróleos de Venezuela, and the Companies Atlantic Richfield Co. (ARCO), Phillips Petroleum Company and Texaco, Inc.), Official Gazette No. 36,209, published 20 May 1997
Hamaca Bicameral Report Report of the Bicameral Energy and Mines Committee of the Congress of the Republic of Venezuela on the Association Agreement among Corpoven S.A., Atlantic Richfield Company, Phillips Petroleum and Texaco, Inc. for the Exploration, Exploitation, Production, Blending, Processing, Transportation, Refining, Upgrading and Marketing of Extra-Heavy Crude from the Hamaca Area of the Orinoco Oil Belt, May 1997
Hearing The hearing on jurisdiction and the merits held from 31 May to 12 June 2010
ICSID Convention Convention on the Settlement of Investment Disputes Between States and Nationals of other States dated 18 March 1965
ICSID or the Centre International Centre for Settlement of Investment Disputes
Institution Rules ICSID Rules of Procedure for the Institution of Conciliation and Arbitration Proceedings
Investment Law The Venezuelan Law on the Promotion and Protection of Investments, Decree No. 356, Official Gazette No. 5,390 (Extraordinary) published on 22 October 1999
Law on the Effects of the Process of Migration Law on the Effects of the Process of Migration into Mixed Companies of the Association Agreements of the Orinoco Oil Belt, as well as the Exploration at Risk and Profit Sharing Agreements, Official Gazette No. 38,785, published on 8 October 2007
Ministry The Ministry of Energy and Mines or the Ministry of Energy and Petroleum or the People’s Ministry of Energy and Petroleum
New Hydrocarbons Law Decree with Force of the Organic Hydrocarbons Law, Decree No. 1,510, Official Gazette No. 37,323, published 13 November 2001
Nationalisation Law Organic Law that Reserves to the State the Industry and the Trade of Hydrocarbons, Extraordinary Official Gazette No. 1,769, published 29 August 1975 (entered into force on 1 January 1976)
Nationalisation Decree or Decree 5,200 Decree Having the Rank, Value and Force of Law of Migration to Mixed Companies of the Association Agreements of the Orinoco Oil Belt, as well as the Risk and Profit Sharing Exploration Agreements, Decree No. 5,200, Official Gazette No. 38,632, published 26 February 2007
Offtake Agreement Contract for the Purchase and Sale of Upgraded Extra Heavy Crude Oil (F.O.B.) between Petrolera Zuata, Petrozuata C.A. as Seller and Conoco Inc., as Buyer, dated 27 June 1997
Orinoco Belt Royalty Agreement Royalty Agreement of the Strategic Associations of the Orinoco Oil Belt between the Ministry of Energy and Mines and Petróleos de Venezuela, S.A. dated 29 May 1998
PdVSA Petróleos de Venezuela, S.A.
Petrozuata C.A. Petrolera Zuata, Petrozuata C.A.
Petrozuata Association Agreement Association Agreement between Maraven, S.A. and Conoco Orinoco Inc., as modified 18 June 1997
Petrozuata Authorisation Authorisation of the Association Agreement between Maraven, S.A. and Conoco, Inc., Official Gazette No. 35,393, published 9 September 1993
Procedure for Payment of Exploitation Tax (Royalty) Procedure for Payment of Exploitation Tax (Royalty) for Extra Heavy Crude Produced and Sulfur Extracted by Petrolera Zuata, Petrozuata C.A., between Petrolera Zuata, Petrozuata C.A. and the Ministry of Energy and Mines, 14 January 2002
RFA The Claimants’ Request for Arbitration dated 2 November 2007
Resp. C-Mem. Counter-Memorial of the Bolivarian Republic of Venezuela dated 27 July 2009
Resp. Rej. Rejoinder of the Bolivarian Republic of Venezuela dated 1 February 2010
Resp. Mem. on Objections to Jurisdiction Memorial of the Bolivarian Republic of Venezuela on Objections to Jurisdiction dated 1 December 2008
Royalty Agreement for the New Areas Royalty Agreement of the Association Agreements for the Exploration at Risk of New Areas and the Production of Hydrocarbons Under the Shared Earnings Scheme between the Ministry of Energy and Mines and Petróleos de Venezuela, S.A., dated 5 December 1995
Senate Report Senate Permanent Environmental and Land Use Planning Committee, Association between the Companies Maraven and Conoco for the Exploitation and Upgrading of Extra-Heavy Crude from the Orinoco Belt, April 1993
Tr. [Day]:page:line Transcript of the Hearing

 

I. INTRODUCTION

1.
This case concerns a dispute submitted to the International Centre for Settlement of Investment Disputes ("ICSID" or the "Centre") on the basis of (a) the Venezuelan Law on the Promotion and Protection of Investments (Decreto con Rango y Fuerza de Ley de Promotion y Protection de Inversiones) published on 22 October 1999 (the "Investment Law");1 and (b) the Agreement on Encouragement and Reciprocal Protection of Investments between the Kingdom of the Netherlands and the Republic of Venezuela signed on 22 October 1991 (the "BIT" or the "Treaty"),2 and the Convention on the Settlement of Investment Disputes between States and Nationals of Other States, dated 18 March 1965 (the "ICSID Convention").
2.
The dispute concerns the interests of Claimants in two extra-heavy oil projects located in the region in Venezuela known as the Orinoco Oil Belt (Faja Petrolífera del Orinoco) - the "Petrozuata Project" and the "Hamaca Project", and in an offshore project for the extract of light to medium crude oil - the "Corocoro Project".
3.
The Petrozuata Project was conducted through the Petrozuata Association, which was granted the rights to engage in the exploration, development, production, exploitation, transportation and upgrading of extra-heavy crude oil, and the marketing of the resulting crude oils and products, in the Zuata area of the Orinoco Oil Belt.3
4.
The Hamaca Project was conducted through the Hamaca Association, which held the rights to engage in the exploration, development, production, exploitation, blending, industrialisation, transportation, refining and upgrading and commercialisation of extra-heavy crude oil, and the transportation and use or disposal of by-products, in the Hamaca area of the Orinoco Oil Belt.4
5.
The Corocoro Project was one of eight joint ventures for the exploration and production of conventional crude oil under Profit Sharing Agreements.5 The Corocoro Project was conducted through the Corocoro Development Consortium, which had the rights to explore, discover, evaluate, develop and exploit commercial hydrocarbons reservoirs within the Gulf of Paria West, including the handling of any production from such reservoirs and the transportation of production.6
6.
The principal events on which the Claimants base their claims for compensation under the Investment Law and the Treaty include the following:7

a. Venezuela through various actions increased the effective royalty rate applicable to the extra-heavy oil production of the Petrozuata and Hamaca Associations from one percent to 33.33 percent.

b. Venezuela amended the tax law so that the tax on income derived from extraheavy oil production was raised from 34 percent to 50 percent.

c. Venezuela by Decree Law (i) mandated PdVSA to assume operational control of oil projects, including the Petrozuata, Hamaca and Corocoro Projects, and (ii) provided for cancellation of the exploration, production and commercialisation rights of the Associations and the Corocoro Project, and the transfer of such rights to mixed companies controlled by PdVSA - "Empresas Mixtas' - on terms to be agreed by 26 June 2007. The compensation provided for in the Decree Law was a minority interest in the Empresas Mixtas.

d. On 1 May 2007, a PdVSA subsidiary took control over operations at the Projects.

e. On 26 June 2007, the four-month period for reaching agreement set in the Decree Law expired and Venezuela nationalised ConocoPhillips’ interests in the Projects.

The factual context and details of these measures are discussed further at Section IV.F below.

II. THE PARTIES

A. The Claimants

7.
The Claimants are ConocoPhillips Petrozuata B.V. ("CPZ"), ConocoPhillips Hamaca B.V. ("CPH"), ConocoPhillips Gulf of Paria B.V. ("CGP"), and ConocoPhillips Company (collectively, "ConocoPhillips" or the "Claimants").

a. CPZ is a limited liability company incorporated under the laws of the Kingdom of the Netherlands ("the Netherlands").8 Its registered office is at:

Zurich Tower (15th Floor)

Muzenstraat 89 2511 WB Den Haag The Netherlands

CPZ held, through Petrolera Zuata, Petrozuata C.A., a 50.1 percent stake in the Petrozuata Association.9

b. CPH is a limited liability company incorporated under the laws of the Netherlands.10 Its registered office is at:

Zurich Tower (15th Floor)

Muzenstraat 89 2511 WB Den Haag The Netherlands

CPH held through Hamaca Holding LLC, a Delaware company, and Phillips Petroleum Company Venezuela Ltd, a Bermuda company, a 40 percent stake in the Hamaca Association.11

c. CGP is a limited liability company incorporated under the laws of the Netherlands.12 Its registered office is at:

Zurich Tower (15th Floor)

Muzenstraat 89 2511 WB Den Haag The Netherlands

CGP held, through Conoco Venezuela C.A., a 32.2075 percent stake in the Corocoro Development Consortium.13

d. ConocoPhillips Company is a corporation incorporated under the laws of the State of Delaware with its main office located at:14

600 North Dairy Ashford Houston, TX 77079 United States of America

ConocoPhillips Company held interests in the Petrozuata, Hamaca and Corocoro Projects, through its subsidiaries CPZ, CPH and CGP.15

B. The Respondent

8.
The Respondent is the Bolivarian Republic of Venezuela (the "Respondent" or "Venezuela").

C. The Parties

9.
The Claimants and the Respondent are hereinafter collectively referred to as the "Parties". The Parties’ respective representatives and their addresses are listed above.

III. PROCEDURAL HISTORY

10.
On 2 November 2007, the Claimants submitted to the Centre a Request for Arbitration against Venezuela pursuant to Article 36 of the ICSID Convention.
11.
The proceeding was brought under (a) the Venezuelan Law on the Promotion and Protection of Investments (Decreto con Rango y Fuerza de Ley de Promotion y Protection de Inversiones) published on 22 October 1999; and (b) the Agreement on Encouragement and Reciprocal Protection of Investments between the Kingdom of the Netherlands and the Republic of Venezuela signed on 22 October 1991.
12.
On 13 December 2007, the Secretary-General of ICSID registered the Request for Arbitration in accordance with Article 36(3) of the ICSID Convention and Rules 6(l)(a) and 7(a) of the Institution Rules. Pursuant to Rule 7(d) of the Institution Rules, the Secretary-General invited the Parties to proceed as soon as possible with the constitution of the tribunal in accordance with Articles 37 to 40 of the ICSID Convention.
13.
By letter dated 12 February 2008, the Claimants requested that — in the absence of an agreement on the procedure for constitution of the tribunal —the tribunal be constituted in accordance with Article 37(2)(b) of the ICSID Convention. By separate letter to the Respondent, the Claimants nominated, Mr L. Yves Fortier, CC, QC, a national of Canada, as arbitrator and proposed the appointment of Mr Emmanuel Gaillard, a national of France, as President of the Tribunal.
14.
By letter dated 20 February 2008, the Centre notified the Parties that Mr Fortier had accepted his appointment as arbitrator and provided a copy of Mr Fortier’s declaration made in accordance with ICSID Arbitration Rule 6(2).
15.
By letter dated 11 March 2008, the Respondent agreed that the tribunal would be composed of three arbitrators, the first two to be appointed by the parties and the president to be appointed by agreement of the parties, in consultation with the two party-appointed arbitrators. The Respondent noted that it did not agree with the proposed appointment of Mr Gaillard as president of the tribunal, and requested additional time to designate its party-appointed arbitrator.
16.
By letter dated 13 March 2008, the Claimants objected to the Respondent’s request for the extension of the deadline for appointment of its party-appointed arbitrator. The Claimants also indicated that they did not consent to the Respondent’s proposed procedure for appointment of the president of the tribunal and requested that, in accordance with Article 38 of the ICSID Convention, the Chairman of the Administrative Council appoint an arbitrator on behalf of the Respondent and a president of the tribunal.
17.
By letter dated 14 March 2008, the Centre informed the Parties that, pursuant to Article 38 of the ICSID Convention, they would soon be consulted with respect to the appointment of the remaining arbitrators. The Centre also confirmed that, until the process for appointment under Article 38 was completed, the missing arbitrators could be appointed in accordance with Article 37(2)(b) of the Convention.
18.
On 31 March 2008, the Respondent designated Sir Ian Brownlie, CBE, QC, a national of the United Kingdom, as arbitrator. By letter dated 3 April 2008, ICSID informed the Parties that Sir Ian Brownlie had accepted his appointment as arbitrator and provided a copy of Sir Ian Brownlie’s declaration and accompanying statement made in accordance with ICSID Arbitration Rule 6(2).
19.
By letter dated 15 April 2008, the Respondent stated that it was hopeful that the Parties would reach agreement on an appointee for president of the tribunal and suggested that ICSID refrain for a reasonable period of time from proposing a candidate. On 16 April 2008, the Claimants objected to any further delay in the appointment of a president of the tribunal and urged the Chairman of the Administrative Council to proceed with that appointment. On 2 May 2008, each Party informed the Centre that no agreement had been reached for the appointment of a presiding arbitrator.
20.
By letter dated 8 May 2008, the Centre informed the Parties that the Permanent Court of Arbitration would be asked to provide the Chairman of the ICSID Administrative Council with a recommendation on the appointment of the presiding arbitrator.
21.
On 29 May 2008, the Secretary-General of the Permanent Court of Arbitration invited the Parties to provide their views regarding the profile of an appropriate presiding arbitrator. Each Party provided its observations on 5 June 2008.
22.
By letter dated 13 June 2008, the Secretary-General of the Permanent Court of Arbitration informed the Parties of its intention to recommend to the Chairman of the Administrative Council that Judge Kenneth Keith, a national of New Zealand, be appointed as presiding arbitrator, and invited them to make comments on this proposal.
23.
On 1 July 2008, the Secretary-General of the Permanent Court of Arbitration recommended to the Chairman of the Administrative Council that he appoint Judge Keith as the presiding arbitrator. On 11 July 2008, the Centre informed the Parties that the Chairman of the Administrative Council had appointed Judge Keith as the president of the tribunal. By letter dated 18 July 2008, Judge Keith accepted his appointment as the presiding arbitrator.
24.
By letter dated 23 July 2008, the Centre informed the Parties that all of the arbitrators had accepted their appointments and that, pursuant to ICSID Arbitration Rule 6(1), the Tribunal was deemed to have been constituted and the proceeding to have begun on that date. Mr Gonzalo Flores, ICSID, was designated by the Secretary-General of ICSID to serve as the Secretary of the Tribunal.
25.
On 10 September 2008, Ms Katia Yannaca-Small, ICSID, was appointed as the Secretary of the Tribunal.
26.
The First Session of the Tribunal was held at the Peace Palace in The Hague on 13 September 2008. Present at the first session were:

Members of the Tribunal

Judge Kenneth Keith, President Mr L. Yves Fortier, CC, QC, Arbitrator Sir Ian Brownlie, CBE, QC, Arbitrator

ICSID Secretariat

Ms Katia Yannaca-Small, Secretary of the Tribunal

For the Claimants

Prof. James Crawford, SC, Matrix Chambers Mr Jan Paulsson, Freshfields Bruckhaus Deringer LLP Ms Lucy F. Reed, Freshfields Bruckhaus Deringer LLP Mr Alexander A. Yanos, Freshfields Bruckhaus Deringer LLP Mr Jason Doughty, ConocoPhillips

For the Respondent

Mr George Kahale, III, Curtis Mallet-Prevost, Colt & Mosle LLP Mr Mark O’ Donoghue, Curtis Mallet-Prevost, Colt & Mosle LLP Ms Miriam Harwood, Curtis Mallet-Prevost, Colt & Mosle LLP Ms Gabriela Alvarez Avila, Curtis Mallet-Prevost, Colt & Mosle LLP Ms Hildegard Rondón de Sansó, Bolivarian Republic of Venezuela Mr Armando Giraud, Bolivarian Republic of Venezuela Ms Moreeliec Peña, Bolivarian Republic of Venezuela

27.
During the First Session, the Tribunal determined several procedural matters and, with the Parties’ agreement, set the following timetable for briefing: (a) the Claimants’ Memorial to be submitted by 15 September 2008; (b) the Respondent’s Memorial on Jurisdiction to be submitted by 1 December 2008; (c) the Claimants’ Comments on Bifurcation to be submitted by 8 December 2008; and (d) the Respondent’s Reply to the Claimants’ Comments on Bifurcation to be submitted by 22 December 2008. It was also agreed that the Tribunal’s Procedural Order on Bifurcation would be issued by mid-January 2009.
28.
The Claimants submitted their Memorial and accompanying materials on 15 September 2008, as scheduled.
29.
On 1 December 2008, the Respondent submitted its Memorial on Objections to Jurisdiction, in which the Respondent requested the Tribunal to suspend the proceedings and to determine the Tribunal’s jurisdiction as a preliminary matter.
30.
The Claimants submitted their observations on the Respondent’s bifurcation request on 8 December 2008.
31.
The Respondent submitted its reply to the Claimants’ comments on the Respondent’s request for bifurcation on 22 December 2008.
32.
On 23 January 2009, the Tribunal issued Procedural Order No. 1, rejecting the Respondent’s application to bifurcate the proceedings. The Tribunal also requested the Parties to consult about the timetable for the filing of further written pleadings and to report to the Tribunal on their proposals.
33.
By letter dated 26 January 2009, the Respondent requested that the Tribunal reconsider its decision in Procedural Order No. 1 not to bifurcate the jurisdictional phase of the arbitration from the merits and quantum, and requested a hearing on the issue of bifurcation.
34.
On 29 January 2009, the Claimants objected to the Respondent’s requests in its letter of 26 January 2009 and submitted that the Tribunal’s decision in Procedural Order No. 1 should stand.
35.
By letter dated 29 January 2009, the Respondent submitted further observations on its request for reconsideration of Procedural Order No. 1.
36.
On 9 February 2009, the Centre informed the Parties that the Tribunal had confirmed its decision in Procedural Order No. 1 and saw no reason to have a hearing on the matter. The Tribunal also requested the Parties to consult about the timetable on the filing of further written pleadings.
37.
On 19 February 2009, the Respondent proposed a briefing schedule to the Tribunal. The Claimants made a counter-proposal on 20 February 2009.
38.
On 26 February 2009, the Tribunal informed the Parties that it had fixed the following timetable: (a) the Respondent’s Counter-Memorial to be filed by 24 July 2009; (b) the Claimants’ Reply to be filed by 23 October 2009; and the Respondent’s Rejoinder to be filed by 22 January 2010. The Tribunal also confirmed that the hearing dates would be determined at a later stage.
39.
Having considered the Parties’ observations, the Tribunal, by letter dated 7 May 2009, proposed to hold a two-week hearing in The Hague, from 31 May 2010 to 11 June 2010. These dates were later confirmed by the Tribunal.
40.
On 7 July 2009, the Tribunal agreed to the Parties’ request of 6 July 2009 to amend the briefing schedule.
41.
The Respondent submitted its Counter-Memorial on 27 July 2009.
42.
On 24 August 2009, the Claimants submitted their First Request for the Production of Documents. On 28 August 2009, the Tribunal invited the Respondent to provide its comments on the Claimants’ First Request for the Production of Documents. On 14 September 2009, the Respondent submitted its Objections and Responses to the Claimants’ First Request for the Production of Documents.
43.
The Claimants submitted their Reply on the merits on 2 November 2009.
44.
By letter of 4 January 2010, the Centre informed the Parties that Sir Ian Brownlie had passed away. Pursuant to Arbitration Rule 10(2), the proceeding was suspended and the Respondent was invited to fill the vacancy in accordance with Arbitration Rule 11(1).
45.
By letter dated 29 January 2010, the Respondent appointed Professor Georges Abi-Saab, a national of Egypt, as arbitrator. On 1 February 2010, the Centre informed the Parties that Professor Abi-Saab had accepted his appointment and provided a copy of his declaration made in accordance with Arbitration Rule 6(2). The Centre also confirmed that, in accordance with Arbitration Rule 12, the proceeding had resumed as of that day.
46.
One consequence of the replacement of an arbitrator at that stage of the proceedings was that the deliberations of the members of the Tribunal, following the hearings scheduled for May to July 2010, could not begin until early 2011.
47.
The Respondent submitted its Rejoinder on 1 February 2010.
48.
By letter dated 24 February 2010, the Respondent informed the Tribunal that the Parties had agreed to hold a pre-hearing conference for purposes of discussing hearing procedures.
49.
A pre-hearing telephone conference was held on 11 March 2010.
50.
On 19 March 2010, the Claimants submitted their Second Request for the Production of Documents.
51.
On 23 March 2010, the Tribunal issued Procedural Order No. 2, which established a provisional agenda for the hearing scheduled to take place from 31 May to 12 June 2010. Procedural Order No. 2 also provided that a hearing would be scheduled for the presentation of closing arguments on 21 and 23 July, 2010 in The Hague. Further, Procedural Order No. 2 established a procedure and timetable for the submission of new testimony and documents to be used at the hearing.
52.
The Respondent submitted its Objections and Responses to Claimants’ Second Request for the Production of Documents on 26 March 2010. On 31 March 2010, the Claimants submitted a reply to the Respondent’s Objections and Responses to their 26 March 2010 request for the production of documents.
53.
On 31 March 2010, the Claimants filed an Exhibit Submission, introducing additional documents. By email dated 1 April 2010, the Respondent requested the Tribunal to rule on the admissibility of the Claimants’ Exhibit Submission. On the same date, the Claimants responded to the Respondent’s email.
54.
By letter dated 12 April 2010, the Tribunal denied the Claimants’ Second Request for the Production of Documents and also convened a telephone conference to be held on 15 April 2010 to discuss the Claimants’ Exhibit Submission of 31 March 2010.
55.
On 14 April 2010, the Respondent filed its Additional Exhibit Submission consisting of exhibits for possible use at the upcoming hearing.
56.
On 15 April 2010, a telephone conference was held. Following the telephone conference, the Tribunal set deadlines for the Respondent to reply to the Claimants’ Exhibit Submission of 31 March 2010 and to reply to the Claimants’ Additional Exhibit Submission due that day.
57.
Pursuant to Procedural Order No. 2, on 15 April 2010, the Claimants submitted supplemental testimony and made a further Exhibit Submission.
58.
On 30 April 2010, the Respondent made a Partial Submission of Additional Exhibits.
59.
On 17 May 2010, the Respondent made a Submission of Additional Testimony and Documents in Response to Claimants’ Supplemental Testimony and Documents Submitted on 15 April 2010.
60.
On 26 May 2010, the Claimants submitted an update to their experts’ Valuation Reports of Claimants’ Investments in Venezuela, as well as a New Legal Authorities Submission.
61.
On 28 May 2012, the Parties submitted their Opening Skeletons, as envisaged in Procedural Order No 2.
62.
The hearing on jurisdiction and merits was held in The Hague from 31 May to 12 June 2010. The following individuals were present at the hearing:

Members of the Tribunal

Judge Kenneth Keith, President Mr L. Yves Fortier, CC, QC, Arbitrator Prof. Georges Abi-Saab, Arbitrator

ICSID Secretariat

Ms Katia Yannaca-Small, Secretary of the Tribunal

For the Claimants

Prof. James Crawford, SC Matrix Chambers Mr Jan Paulsson, Freshfields Bruckhaus Deringer LLP Mr Noah Rubins, Freshfields Bruckhaus Deringer LLP Ms Lucy F. Reed, Freshfields Bruckhaus Deringer LLP Mr D. Brian King, Freshfields Bruckhaus Deringer LLP Mr Alexander A. Yanos, Freshfields Bruckhaus Deringer LLP Mr Giorgio Mandelli, Freshfields Bruckhaus Deringer LLP Ms Jessica Bannon Vanto, Freshfields Bruckhaus Deringer LLP Ms Lucy Martinez, Freshfields Bruckhaus Deringer LLP Mr Phillip Riblett, Freshfields Bruckhaus Deringer LLP Ms Ruth Teitelbaum, Freshfields Bruckhaus Deringer LLP Mr Daniel Chertudi, Freshfields Bruckhaus Deringer LLP Mr Claude Stansbury, Freshfields Bruckhaus Deringer LLP Ms Janet Kelly, ConocoPhillips

Mr Clyde Lea, ConocoPhillips Mr Jason Doughty, ConocoPhillips

Mr Fernando Ávila, ConocoPhillips Ms Laura Robertson, ConocoPhillips Ms Angela McGinnis, ConocoPhillips

For the Respondent

Mr George Kahale, III, Curtis Mallet-Prevost, Colt & Mosle LLP

Mr Benard V. Preziosi Jr., Curtis Mallet-Prevost, Colt & Mosle LLP

Ms Miriam Harwood, Curtis Mallet-Prevost, Colt & Mosle LLP

Ms Gabriela Alvarez Avila, Curtis Mallet-Prevost, Colt & Mosle LLP

Mr Fernando Tupa, Curtis Mallet-Prevost, Colt & Mosle LLP

Mr Kabir Duggal, Curtis Mallet-Prevost, Colt & Mosle LLP

Mr Bernardo M Cremades Román, Curtis Mallet-Prevost, Colt & Mosle LLP

Ms Cristina Ferraro, Curtis Mallet-Prevost, Colt & Mosle LLP

Ms Lilliana Dealbert, Curtis Mallet-Prevost, Colt & Mosle LLP

Dr Gustavo Alvarez, Bolivarian Republic of Venezuela

Dr Bernard Mommer, Bolivarian Republic of Venezuela

Dra Hildegard Rondón de Sansó, Bolivarian Republic of Venezuela

Dra Beatrice Sansó, Bolivarian Republic of Venezuela

Dr Joaquin Parra, Bolivarian Republic of Venezuela Dr Armando Giraud, Bolivarian Republic of Venezuela Dra Moreeliec Peña, Bolivarian Republic of Venezuela Dra Natalia Linares, Bolivarian Republic of Venezuela

63.
On 12 June 2010, the Tribunal issued Procedural Order No. 3, which required each Party by 16 July 2010 to submit a skeleton of the issues to be addressed at the hearing to be held on 21 and 23 July 2010. Procedural Order No. 3 also provided that:

The Tribunal will order a final award at this stage, only if all claims are dismissed.

If all claims are not dismissed, then the Tribunal, if it is at all possible, is planning to decide the following issues at this stage:

(i) All jurisdictional issues;

(ii) All issues relating to the merits of any claim not dismissed for lack of jurisdiction;

(iii) The valuation date;

(iv) The relevance of the compensation provisions in the Petrozuata and Hamaca Projects;

(v) The discount rate;

(vi) Whatever part of the production profile the Tribunal feels it has heard sufficiently.

64.
On 16 June and 12 July 2010, the Respondent submitted further legal authorities. On 16 July 2010, the Claimants submitted further exhibits.
65.
The Parties submitted their Post-Hearing Skeletons on 16 July 2010.
66.
The hearing on the closing arguments was held in The Hague on 21 July and 23 July, 2010. The following individuals were present at the hearing:

Members of the Tribunal

Judge Kenneth Keith, President Mr L. Yves Fortier, CC, QC, Arbitrator Prof. Georges Abi-Saab, Arbitrator

ICSID Secretariat

Ms Katia Yannaca-Small, Secretary of the Tribunal

For the Claimants

Prof. James Crawford, SC, Matrix Chambers Mr Jan Paulsson, Freshfields Bruckhaus Deringer LLP Ms Lucy F. Reed, Freshfields Bruckhaus Deringer LLP Mr D. Brian King, Freshfields Bruckhaus Deringer LLP Mr Alexander A. Yanos, Freshfields Bruckhaus Deringer LLP Mr Giorgio Mandelli, Freshfields Bruckhaus Deringer LLP Ms Jessica Bannon Vanto, Freshfields Bruckhaus Deringer LLP Ms Lucy Martinez, Freshfields Bruckhaus Deringer LLP Mr Phillip Riblett, Freshfields Bruckhaus Deringer LLP Ms Ruth Teitelbaum, Freshfields Bruckhaus Deringer LLP Mr Daniel Chertudi, Freshfields Bruckhaus Deringer LLP Ms Janet Kelly, ConocoPhillips

Mr Clyde Lea, ConocoPhillips Mr Jason Doughty, ConocoPhillips Mr Fernando Avila, ConocoPhillips Ms Laura Robertson, ConocoPhillips Ms Angela McGinnis, ConocoPhillips Mr Jared Richards, ConocoPhillips

For the Respondent

Mr George Kahale, III, Curtis Mallet-Prevost, Colt & Mosle LLP Mr Benard V. Preziosi Jr., Curtis Mallet-Prevost, Colt & Mosle LLP Ms Miriam Harwood, Curtis Mallet-Prevost, Colt & Mosle LLP Ms Gabriela Alvarez Avila, Curtis Mallet-Prevost, Colt & Mosle LLP Mr Eloy Barbara de Parres, Curtis Mallet-Prevost, Colt & Mosle LLP Mr Fernando Tupa, Curtis Mallet-Prevost, Colt & Mosle LLP Mr Kabir Duggal, Curtis Mallet-Prevost, Colt & Mosle LLP Ms Gloria Diaz-Bujan, Curtis Mallet-Prevost, Colt & Mosle LLP Ms Katiria Calderón, Curtis Mallet-Prevost, Colt & Mosle LLP Mr Christopher Grech, Curtis Mallet-Prevost, Colt & Mosle LLP Dr Bernard Mommer, Bolivarian Republic of Venezuela Dra Hildegard Rondón de Sansó, Bolivarian Republic of Venezuela Dra Beatrice Sansó, Bolivarian Republic of Venezuela

Dr Joaquin Parra, Bolivarian Republic of Venezuela Dr Armando Giraud, Bolivarian Republic of Venezuela Ms Moreeliec Peña, Bolivarian Republic of Venezuela Dra Natalia Linares, Bolivarian Republic of Venezuela

67.
On 9 September 2010, Ms Janet Whittaker, ICSID, was appointed as Secretary of the Tribunal, following Ms Yannaca-Small departure from ICSID’s Secretariat.
68.
On 4 October 2011, Mr Fortier wrote to the Secretary-General of ICSID to make the disclosure that the firm of which he was a partner, Norton Rose OR LLP, had announced that it would merge with the firm Macleod Dixon LLP, with effect from 1 January 2012. Mr Fortier stated that it had been brought to his attention as a result of conflict checks that had been conducted that Macleod Dixon LLP had provided and continued to provide legal services to ConocoPhillips Company, and was also acting adverse to the interests of the Respondent in other matters, including in a separate ICSID arbitration. On the same day, the Centre communicated Mr Fortier’s disclosure to the Parties.
69.
By letter dated 5 October 2011, the Respondent proposed the disqualification of Mr Fortier pursuant to Article 57 of the ICSID Convention.
70.
On 6 October 2011, the Centre informed the Parties that the proceeding was suspended in accordance with ICSID Arbitration Rule 9(6).
71.
On 12 October 2011, the President of the Tribunal, having consulted with Professor Abi-Saab, set a timetable for the Parties to submit observations and Mr Fortier to furnish explanations as provided for under Arbitration Rule 9.
72.
On 13 October 2011, the Respondent made a further submission and provided details of the legal authorities upon which it relied in support of its disqualification proposal.
73.
On 14 October 2011, the Parties were requested by Judge Keith and Professor Abi-Saab to submit any observations that they wished to make within the framework of the existing briefing schedule.
74.
On 18 October 2011, Mr Fortier informed Judge Keith, Professor Abi-Saab and the Parties of his decision to resign from the firm Norton Rose OR LLP effective as of 31 December 2011. Mr Fortier confirmed that, as of that date, his relationship with the firm would cease entirely.
75.
By letter dated 19 October 2011, the Claimants asserted that, in light of Mr Fortier’s 18 October 2011 letter, no basis remained for the Respondent’s proposal to disqualify Mr Fortier and invited the Respondent to confirm the same.
76.
On 19 October 2011, the Respondent stated that it was considering the issue and requested responses to the questions raised in its 13 October 2011 submission.
77.
By letter dated 24 October 2011, the Respondent stated that it continued to propose the disqualification of Mr Fortier as an arbitrator.
78.
The Claimants submitted their Reply to the Respondent’s Disqualification Proposal on 25 October 2011.
79.
On 27 October 2011, in view of the Parties’ correspondence of 26 October 2011, the Parties were requested to make their further submissions within the timetable established by Judge Keith and Professor Abi-Saab on 12 October 2011.
80.
On 28 October 2011, Mr Fortier requested an extension of the date for submission of his explanations. On 31 October 2011, Judge Keith and Professor Abi-Saab granted the extension requested.
81.
On 18 November 2011, Mr Fortier submitted his further explanations in connection with the Respondent’s disqualification proposal.
82.
On 1 December, 2011, the Respondent submitted its final observations in response to the Claimants’ submission of 25 October 2011 and Mr Fortier’s explanations of 18 November 2011.
83.
Claimants submitted their Additional Observations Concerning the Respondent’s Disqualification Proposal on 2 December 2011.
84.
In their decision dated 27 February 2012, Judge Keith and Professor Abi-Saab rejected the Respondent’s proposal for disqualification of Mr Fortier. By letter of even date, the Centre informed the Parties that the proceeding was no longer suspended and had resumed.
85.
The challenge and the process leading to its determination had as a consequence a further delay in the deliberation of the members of the Tribunal.
86.
On 28 February 2012, the Respondent submitted evidence regarding recent developments that it claimed had a bearing on issues in the case relating to quantum. On the same day, the Claimants requested the Tribunal to rule that the Respondent’s submission was inadmissible and otherwise to have an opportunity to respond. Later that day, the Respondent made observations regarding the Claimants’ request to declare the Respondent’s submission inadmissible. By letter dated 2 March 2012, the Tribunal admitted the Respondent’s submission and invited the Claimants to submit observations on the recent developments that the Respondent’s submission addressed. On 16 March 2012, the Claimants submitted observations on the Respondent’s submission. On 18 March 2012, the Respondent submitted further observations on its submission. On 19 March 2012, the Claimants objected to the Respondent’s most recent observations and requested an opportunity to respond. By letter dated 20 March 2012, the Tribunal invited the Claimants to provide any further comments that they might have. On 27 March 2012, the Claimants filed their supplemental observations. On 28 March 2012, the Respondent indicated that it would be ready to conduct a further hearing on quantum issues should the Tribunal have questions regarding the materials that it had submitted.
87.
By letter dated 25 May 2012, the Claimants requested permission from the Tribunal to submit new information. By letter dated 8 June 2012, the Respondent submitted its observations on the Claimants’ request. On 4 July 2012, the Tribunal granted the Claimants’ request and set a timetable for the Claimants to submit the relevant evidence and for the Respondent to submit a response to that evidence. The Claimants filed their new evidence on 11 July 2012. On 25 July 2012, the Respondent provided its responsive observations. On 3 August and 5 August 2012, the Claimants and the Respondent, respectively, submitted further observations. By letter dated 7 August 2012, the Tribunal indicated that it did not at that time require additional information but would revert to the Parties should the need arise.
88.
On 22 October 2012, the Tribunal informed the Parties that it had made significant progress in its decision-making and envisaged issuing findings early in 2013.
89.
On 21 November 2012, Mr Gonzalo Flores was re-appointed as Secretary of the Tribunal, following Ms Janet Whittaker's departure from ICSID’s Secretariat.
90.
By letter of 27 December 2012, Respondent brought to the Tribunal’s attention a decision on liability issued on 14 December 2012 in ICSID Case No. ARB/08/5 (Burlington Resources, Inc. v. Republic of Ecuador). Claimants’ submitted observations to Respondent’s letter on 3 January 2013. By letter of 4 January 2013, Respondent replied to Claimants’ letter of 3 January 2013.
91.
By letter of 11 February 2013, Respondent brought to the Tribunal’s attention a decision on jurisdiction issued of 8 February 2013 in ICSID Case No. ARB/10/5 (Tidewater Investment SRL and Tidewater Caribe, C.A. v. Bolivarian Republic of Venezuela). Claimants’ submitted observations to Respondent’s letter on 18 February 2013 and, on that same date, Respondent submitted a brief reply.
92.
By letters of 26 March and 26 July 2013, the Tribunal reported further on the progress made with respect to its deliberation, informing the parties of a medical proceeding undergone by Professor Georges Abi-Saab and of the impact of such proceeding in the progress of the Tribunal’s work.

IV. THE FACTUAL BACKGROUND TO THE DISPUTE

93.
This summary provides a general outline of the facts relevant to those aspects of the Parties’ dispute that are considered in this Decision.16 The facts relevant to the remaining issues for consideration by the Tribunal will be addressed in the context of future findings by the Tribunal.
94.
Additionally, this summary is not intended to address all of the factual issues of potential relevance. Specifically, it does not exhaustively cover all factual matters arising from the testimony of witnesses given at the hearing. The Tribunal may address additional facts from that testimony or otherwise in the course of its analysis of the Parties’ claims.

A. The Venezuelan Oil Industry and the Pre-Existing Legal Framework

95.
Venezuela is home to one of the world’s largest oil reserves, located in the Orinoco Oil Belt in Eastern Venezuela, north of the Orinoco River.17 The deposits are of extra-heavy oil, which "is a tar-like substance that acts as a dense liquid underground, but solidifies once brought to the surface, and contains large amounts of sulfur and other impurities".18
96.
The Venezuelan petroleum industry is a strategic sector of vital importance to the national economy.19 Article 302 of the Venezuelan Constitution gives special recognition to the petroleum industry:20

The State reserves to itself, through the pertinent organic law, and for reasons of national convenience, petroleum activity and other industries, operations, services and goods which are in the public interest and of a strategic character.

97.
In 1943, Venezuela enacted its first hydrocarbons law (the "1943 Hydrocarbons Law"), which reformed industry regulations and the contractual arrangements between the State and oil companies.21 The 1943 Hydrocarbons law instituted a Production Tax, which was set at 16% percent, subject to the possible reduction of the rate in certain circumstances.22
98.
In 1971, the government adopted the Law of Reversion, providing that all Venezuelan oil assets would revert to the State at the end of their terms of concession.23
99.
In 1975, the Venezuelan government enacted the Organic Law That Reserves to the State the Industry and the Trade of Hydrocarbons (the "Nationalisation Law"), nationalising its hydrocarbons sector.24 Pursuant to Article 1 of the Nationalisation Law, which superseded the 1971 Law of Reversion, the State reserved to itself:25

[E]verything related to the exploitation of national territory in search of oil, asphalt and other hydrocarbons; the exploitation of fields of the same, the manufacture or refining, transportation through special means and storage; domestic and foreign trade of the exploited and refined substances, and all of the works required for the management thereof, in the terms set forth by this law.

Article 5 provided for an exception in "special cases", as follows:26

The State shall carry out the activities indicated in Article 1 of this Law directly through the National Executive or through state-owned entities, being able to enter into operating agreements necessary for the better performance of its functions, but in no case shall such transactions affect the essence of the reserved activities.

In special cases and as deemed advisable to the public interests, the National Executive or the mentioned state entities may, during the exercise of the activities indicated above, execute association agreements with private entities wherein the State will have a participation that guarantees the control of such agreements for a fixed term. The prior authorization of both Chambers [of Congress] in a joint session shall be required for the execution of such agreements, under the terms established and once the National Executive has been informed with regard to all aspects related therewith.

100.
The 1975 Nationalisation law also mandated the creation of a new national oil company — Petróleos de Venezuela, S.A. ("PdVSA") — whose purpose was to coordinate, supervise and control all oil-related activities in Venezuela, and whose sole Shareholder was and remains the State.27 PdVSA acquired a number of operating subsidiaries, including Lagoven, S.A. ("Lagoven"), Maraven, S.A. ("Maraven") and Corpoven, S.A. ("Corpoven").28 As of 1978, Corpoven was responsible for the Machete region and, subsequently, the Hamaca region; Maraven, the Zuata region; and Lagoven, the Cerro Negro region.29
101.
After the passage of the 1975 Nationalisation Law, PdVSA and its subsidiaries carried out activities in the Venezuelan petroleum industry largely on their own, without the equity participation of private parties, for about the next 15 years.30

B. The Oil Opening

102.
Due, inter alia, to a lack of the technology required for exploiting heavy and extra-heavy oil and the high investment costs, Venezuela was unable properly to commercialise its large oil reserves in the Orinoco Oil Belt,31 or to explore oil production in new areas. In order to improve Venezuela’s oil production, it was considered necessary to: (a) encourage private investment in the oil sector; (b) rejuvenate existing fields; (c) develop Venezuela’s oil resources of extra-heavy crude oil; and (d) explore new fields of light and medium crude.32
103.
The Apertura Petrolera — or "Oil Opening" — was intended to pursue these objectives by enabling foreign investors to invest in the Venezuelan oil industry.33 The exception for associations in "special cases" in Article 5 of the 1975 Nationalisation Law provided the opening for foreign companies to enter the industry.34
104.
Accordingly, to facilitate investment in the Venezuelan oil industry and to make it more internationally competitive, various economic reforms were made.35 As set forth below, these reforms included: (1) the reduction in the income tax rate such that participants in vertically integrated heavy and extra-heavy oil projects would be subject to the general corporate tax rate rather than the rate applicable to other oil activities; and (2) the temporary reduction of the royalty rate applicable to such projects.36
105.
With respect to the income tax rate, in 1991, the Venezuelan Congress enacted amendments to the income tax law, reducing the applicable tax rate for vertically integrated heavy and extra-heavy oil projects in the Orinoco Belt. Accordingly, projects involving both extraction and refining of petroleum would be subject to the corporate income tax rate (then 30 percent) rather than the rate applicable to upstream projects involving the extraction of light and medium crude oil (67.7 percent).37

C. The Petrozuata Project

(1) Overview of the Petrozuata Project

106.
The Petrozuata Project was a vertically integrated project in the Orinoco Belt involved in the extraction, transportation, refining of extra-heavy crude oil, and the marketing of the upgraded crude oil (known as "syncrude").38 ConocoPhillips held a 50.1 percent interest in the Petrozuata Project, with the remaining 49.9% held by a PdVSA affiliate. The Petrozuata Project was designed to extract about 120,000 barrels per day ("BPD") of extra-heavy crude and to upgrade it into 104,000 BPD of syncrude. The Project’s term was 35 years. Petrozuata syncrude was sold to ConocoPhillips under an offtake agreement for further refining at its Lake Charles refinery, which ConocoPhillips reconfigured to process Petrozuata syncrude.39 Further details about the Petrozuata Project are set forth below.

(2) The Senate and Bicameral Reports

107.
In September 1990, Conoco sent a letter to PdVSA expressing interest in conducting feasibility studies on oil projects.40 In early 1991, a Strategic Associations Unit was established to oversee the commercialisation of the Orinoco Belt.41 Following various meetings in 1991 between Conoco representatives and the Strategic Associations Unit,42 on 17 November 1991, Conoco and PdVSA executed letters of intent indicating their interest in examining the feasibility of developing an extra-heavy oil project in the Orinoco Oil Belt using Conoco Delayed Coking Technology.43 The letters of intent envisaged three phases of project development, all of which would involve sharing costs.
108.
A Joint Steering Committee comprising Conoco and Maraven representatives negotiated and concluded a Joint Study Agreement with respect to the proposed project.44 In August 1992, Conoco and Maraven produced a report on the "Venezuela Heavy Oil Feasibility Study".45
109.
In April 1993, the Venezuelan Senate’s Permanent Environmental and Land Use Planning Committee issued a report with respect to the proposed Petrozuata Project ("Senate Report").46 The Senate Report was submitted to the Venezuelan Congress in May 1993.47 The Senate Report stated that PdVSA had "decided to promote the creation of... ‘Strategic Associations’ between operating subsidiaries and some foreign companies.... Making this decision will enable PdVSA to complement its efforts with the technological and financial resources of third parties and reactivate, with the least degree of risk, the development strategy for the Orinoco Belt..,".48 The Senate Report also proposed that "the granting of certain fiscal incentives for a certain period of time... could make the projects economically viable by improving their competitiveness in comparison with other options that the companies might have internationally".49 The Senate Report stated that the Petrozuata Project "represents a ‘special case’ and is in the public interest" under Article 5 of the 1975 Nationalisation Law.50
110.
In August 1993, the Bicameral Commission of Energy and Mines of the Senate of the Republic — a standing congressional committee — issued a report (the "Bicameral Report").51 The Bicameral Commission recommended the Petrozuata Project (referred to in the Bicameral Report as the "Maraven-Conoco Project") for approval by Congress in accordance with Article 5 of the 1975 Nationalisation Law.52
111.
The Bicameral Report provided a description of the legal framework governing and the technical aspects of the Petrozuata Project, as well as a summary of the basic aspects of the potential association agreement, including:53 (1) "a protection mechanism for foreign shareholders in the case that discriminatory actions take place through laws or administrative actions by national, state or municipal authorities that establish a discriminating unfavourable treatment... which translate into significant economic damage";54 and (2) a term of no longer than 35 years from the first commercial load.55 The Bicameral Report also recommended that Maraven hold a minority interest in the project.56
112.
The Bicameral Report recommended that the strategic associations under consideration should be exempt from the income tax rate usually applicable to hydrocarbons exploitation (67.7 percent),57 such that the lower income tax rate introduced in 1991 (as subsequently amended) would apply.58 The Bicameral Report also stated that "the Associations will process, through the respective institutional channels, possible incentives for the first years in the royalty segment".59

(3) The Congressional Authorisation

113.
On 10 August 1993, the Venezuelan Congress, having reviewed the Bicameral Report,60 authorised the strategic association between Conoco and Maraven. The congressional authorisation ("Petrozuata Authorisation") confirmed that "this authorization shall be exercised within the legal framework of the ‘terms and conditions’ stated exhaustively in [the Bicameral] Report".61
114.
The Petrozuata Authorisation set forth the terms and conditions for the proposed association agreement between Maraven and Conoco.62 The Petrozuata Authorisation approved up to 35 years of commercial production for the Petrozuata Project,63 and stated that it would be subject to Venezuelan tax law, the royalty provisions of the 1943 Hydrocarbons Law, and all other Venezuelan laws.64
115.
Further, the Sixteenth Condition stated:65

Provisions shall be included in the Association Agreement that enable Maraven to compensate the other parties, on equitable terms, for significant adverse economic consequences directly resulting from decisions made by national, state or municipal administrative agencies or any changes in the law that, because of their content or purpose, result in an unjust discriminatory treatment of the Company or such other parties, always understood in their Capacity as such and as parties to the Association Agreement, all without prejudice to the sovereign right to legislate inherent in the very existence of the national, state and municipal legislative branches.

116.
The Eighteen Condition stated:66

The Association Agreement to be signed, the commercial company that will be created and the activities of various sorts based on such legal acts, in particular commercial activities, are operations and businesses that are within the jurisdiction of, or obligate, Maraven, or Petróleos de Venezuela, S.A. (PdVSA) only, to the extent of the guarantees that it grants under Condition Ten [sic, the Spanish version refers to the Seventeenth Condition]; in no case do they alone bind the Republic of Venezuela, which can occur only in the event that such responsibility were to be assumed by the valid express legal act of its representatives.

(4) Further Amendments to the Income Tax Law

117.
On 11 August 1993, the Venezuelan Congress passed an enabling law authorising the President to amend the income tax law to provide that the strategic associations should be "excluded from the tax regime applicable to taxpayers that are engaged in the production of hydrocarbons and related activities and instead, are included within the ordinary tax regime established in the [income tax] law for corporations and taxpayers similar to such".67
118.
On 26 August 1993, the then-President Velasquez issued a Decree Law to provide, similarly to the 1991 Income Tax Law, that entities involved in "vertically-integrated projects in the field of producing, refining, emulsification, transportation or marketing of extra-heavy crude oil" would be subject to the general corporate income tax rate.68 In 1994, the general corporate income tax rate was set at 34 percent.69

(5) The Petrozuata Association Agreement

119.
After Congress issued the Petrozuata Authorisation, negotiations ensued among Conoco and Maraven with respect to the potential terms of the Association Agreement.70 On 31 May 1995, Conoco and Maraven signed an Agreement in Principle confirming the parties’ concurrence on the terms that would govern the joint venture and stating their intention to conclude an Association Agreement within the year.71
120.
On 10 November 1995, Maraven and a Conoco subsidiary, Conoco Orinoco, Inc., concluded an Association Agreement to develop a part of the Zuata region of the Orinoco Oil Belt through a corporation known as Petrozuata (the "Petrozuata Association Agreement").72
121.
The Association’s purpose was as follows:

[T]o produce, transport, and upgrade Extra Heavy Oil obtained from the Assigned Area and to market and sell Upgraded Crude Oil and other by-products pursuant to [an Offtake Agreement] with Conoco Inc.73

Extraordinary Measures in Economic and Financial Matters), Official Gazette, No. 35,280, published 23 August 1993 at Art. 1(3).

122.
An Offtake Agreement was signed on 27 June 1997 and it provided that Conoco would purchase all of the upgraded crude oil produced by the Petrozuata Project, for refining in its Lake Charles refinery.74 The lenders to the Project were given a lien on the proceeds received by the Project under the Offtake Agreement.75
123.
The Petrozuata Association Agreement was for a 35-year term from the date of the first commercial production. The agreement governed the relationship between Maraven and Conoco and established the corporate structure of the Petrozuata Association.76 A joint venture company formed by Conoco and Maraven, Petrolera Zuata, Petrozuata C.A. ("Petrozuata, C.A."), was the project operator. Conoco owned 50.1 percent of Petrozuata, C.A. through Conoco Orinoco Inc., and Maraven owned a minority share of 49.9 percent.77
124.
Section 9.07 of the Petrozuata Association Agreement provided that Maraven would compensate Conoco according to a certain procedure and a sliding scale formula (using the price of Brent crude oil as a benchmark), in the event that certain actions of "national, state, or municipal, administrative, or legislative authorities",78 constituting "Discriminatory Actions" caused Conoco to suffer "Significant Economic Damage".79 Both "Discriminatory Actions" and "Significant Economic Damage" were defined in the Section 1.01 of the Petrozuata Association Agreement.80
125.
Exhibit I to the Petrozuata Association Agreement set out the "Initial Investment and Business Plan" for the Project.81 This plan stated that:82

Based on a letter from the Ministry of Energy and Mines, the plan assumes a reduction of the royalty tax to 1% during the third party debt repayment period.

The letter in question had agreed in principle to a one percent royalty rate for the first nine years of the heavy oil associations.83 It was envisaged that, following these initial nine years, the royalty rate would return to 16% percent.84

126.
Exhibit I also stated that:

The Company will be taxed at the regular rate applicable to corporations in Venezuela, 34%.

127.
Pursuant to Section 13.16, disputes arising in connection with the Petrozuata Association Agreement were to be referred to ICC Arbitration.85
128.
The Board of Conoco’s then-parent company, ET. du Pont de Nemours and Company, issued its approval of the Petrozuata Project on 29 May 1996.86

(6) Financing of the Petrozuata Project

129.
The parties to the Petrozuata Association Agreement set out to obtain project financing, consisting of a bond issuance and a commercial bank facility.87
130.
The Offering Circular of 17 June 1997 for the Petrozuata Project financing set out, inter alia, a description of the project and certain terms of the Petrozuata Association Agreement, and an assessment of the risk factors associated with the project.88
131.
With respect to royalties, the Offering Circular made reference to the 3 October 1994 letter in which the Minister of Energy and Mines "agreed in principle in a letter to reduce the royalty rate for Maraven’s strategic associations to 1% for approximately nine years".89 The Offering Circular also stated that: "The Ministry could unilaterally modify (increase or decrease) the royalty at any time".90
132.
Financing for the Petrozuata Project closed on 27 June 1997. The cumulative project debt, which was incurred by the joint venture company, Petrozuata C.A., was US$ 1.45 billion.91

(7) The Orinoco Belt Royalty Agreement

133.
On 29 May 1998, a royalty agreement was executed between the Ministry and PdVSA which applied to the Orinoco Belt strategic associations engaged in extra-heavy crude oil exploitation ("Orinoco Belt Royalty Agreement").92
134.
Clause Four of the agreement established a nine-year royalty reduction for the relevant extra-heavy oil projects, as follows:93

Based on the Sole Paragraph of Article 41 of the [1943] Hydrocarbons Law, which authorizes the Government to make adjustments to the Royalty, the Ministry grants a rebate in the Royalty in favour of each Association whenever it is evidenced to its satisfaction that the minimum margins of profitability for the commercial exploitation of hydrocarbons cannot be reached. For this purpose, the methodology in Clause five hereof to perform such Royalty rebate is established.

135.
Clause Five provided that during the early or development production stage of a project, the applicable royalty rate would be 16% percent. It also established via a formula that a one percent royalty rate would apply until the accumulated gross income of a project exceeded three times the total investment made; however, this reduction could apply for a maximum of nine years from the date of commencement of commercial production.94
136.
The Petrozuata Association adhered to the Orinoco Belt Royalty Agreement on 8 October 1998.95

(8) Implementation of the Petrozuata Project and Commencement of Production

137.
The Petrozuata upgrader was constructed and entered into service in April 2001. Petrozuata began full syncrude production and made its first commercial sales on 12 April 2001, commencing the 35-year production life of the Association Agreement, the term of which would run until 11 April 2036.96 It also marked the beginning of the Project’s nine-year royalty reduction.97

(9) The Insertion of the Claimant CPZ into the Chain of Ownership

138.
ConocoPhillips decided to restructure its investment in the Petrozuata, Hamaca and Corocoro Projects, in order to ensure that its investments would be covered by the Treaty.98 Accordingly, in 2005, the Claimant CPZ was inserted into the chain of ownership of the Petrozuata Association.99
139.
On 26 July 2005, CPZ was incorporated in the Netherlands with Conoco Orinoco Inc. as its sole shareholder.100 On 27 July 2005, Conoco Orinoco Inc. transferred its ownership interest in Conoven Holding Ltd. — the indirect owner of a 50.1 percent interest in the Petrozuata Association — to CPZ.101
140.
On 11 August 2005, Conoven Holding Ltd. transferred its ownership interest in Conoco Venezuela Holding, C.A. — the Venezuelan entity that was then a direct 50.1 percent owner of the Petrozuata Association — to CPZ.102

D. The Hamaca Project

(1) Overview of the Hamaca Project

141.
The Hamaca Project was also a vertically integrated extra-heavy oil project located in the Orinoco Belt. Hamaca’s design level was extraction of 190,000 BPD of crude oil and production of 180,000 BPD of syncrude. The project’s term was 32 years. ConocoPhillips owned a 40 percent interest in the Hamaca Project and the other two participants were a PdVSA subsidiary and Chevron, each of which held a 30 percent interest.103 Further details about the Hamaca Project are provided below.

(2) Initial Discussions among Phillips and PdVSA Regarding the Hamaca Project

142.
In June 1995, Phillips advised PdVSA of its potential interest in investment opportunities in the Orinoco Oil Belt.104 Following discussions among Phillips and Corpoven, including with respect to the applicable income tax and royalty rates, in October 1996, Phillips confirmed its interest in an extra-heavy oil project in the Hamaca region of the Orinoco Oil Belt — the Hamaca Project.105
143.
In December 1996, Corpoven, Phillips, ARCO and Texaco concluded a Joint Study Agreement and an Agreement for the Conduct of the Hamaca Project, which would proceed in four stages.106

(3) The Congressional Authorisation of the Conditions for the Hamaca Project

144.
On 24 April 1997, following the review and approval of the Congressional Bicameral Energy and Mines Committee of draft conditions submitted by the Ministry in accordance with Article 5 of the Nationalisation Law,107 the Venezuelan Congress approved the framework of conditions for the Hamaca strategic association ("Hamaca Authorisation").108
145.
The Hamaca Authorisation approved the execution of the Association Agreement for the Hamaca Project, which would involve the production, transportation and upgrading of extraheavy oil produced in the Hamaca area, as well as the marketing of the upgraded crude and other products.109
146.
The terms and conditions of the Hamaca Authorisation were similar to those of the Petrozuata Authorisation.110 These conditions included a term of either 35 years from the first commercial shipment of upgraded crude or 40 years from the date the Association Agreement was concluded, whichever event came earlier.111 The conditions also provided that the Association Agreement would be governed by Venezuelan law and disputes arising under the agreement would be resolved by ICC arbitration.112
147.
Condition Fifteen provided that:113

... [U]nder the provisions of the single paragraph of Article 9 of the Income Tax Law currently in effect, the Parties and each of the Entities shall pay tax under the ordinary regime established in such law for companies and entities consolidated into them [ ie, the normal corporate rate of 34 percent], for any income realized in connection with the activities of the Association.

148.
Condition Sixteen provided that:114

The National Executive Branch may agree on a mechanism for adjusting the imposition of the exploitation tax established in Article 41 of the [1943] Hydrocarbons Law to the Parties.

Crude and Other Products Generated During the Process of Production and Upgrading of Such Crudes, to Be Entered into between Corpoven, S.A., a Subsidiary of Petróleos de Venezuela, and the Companies Atlantic Richfield Co. (ARCO), Phillips Petroleum Company and Texaco, Inc.), Official Gazette No. 36,209, published 20 May 1997 ("Hamaca Authorisation").

149.
Condition Nineteen provided that:115

... The Association Agreement, the creation and operation of Entities and other activities shall not impose any obligation on the Republic of Venezuela or restrict the exercise of its sovereign rights, the exercise of which shall not give rise to any claim, regardless of the nature or characteristics thereof, by other States or foreign governments.

150.
Condition Twenty-One, similarly to the Petrozuata Authorisation, provided for compensation in the event that a participant’s net cash flows was "materially and adversely affected as the direct, necessary and demonstrable result of discriminatory or unfair measures...".116
151.
A final report of the Bicameral Commission ("Hamaca Bicameral Report") authorised the draft Hamaca Association Agreement as compliant with the framework of conditions in the Hamaca Authorisation.117

(4) The Hamaca Association Agreement

152.
The Hamaca Bicameral Report was submitted to the Venezuelan Congress on 29 May 1997,118 and, on 11 June 1997, the Hamaca Association Agreement was authorised by Congress.119
153.
On 9 July 1997, Phillips Petroleum Company Venezuela Limited signed the Hamaca Association Agreement, alongside ARCO and Texaco affiliates, and Corpoguanipa, S.A. (on behalf of Corpoven).120 Ultimately, the Phillips affiliate held a 40 percent interest in the Hamaca Project, while Corpoguanipa, S.A. and Texaco (now Chevron) each held a 30 percent interest.121
154.
The Hamaca Project was structured as an unincorporated joint venture. The project’s purpose was to produce and upgrade extra-heavy crude oil, and to market a new synthetic crude oil and the by-products of the upgrading process.122 The Project would extract extra-heavy crude oil from horizontal well pads, following which the extra-heavy crude oil would be mixed with a diluent and transported by pipeline to an upgrading plant at the Jose Industrial Complex. The crude would be processed into syncrude ("Hamaca Syncrude") and sold on the open market.123
155.
The Hamaca Association Agreement expressly referenced the framework of conditions approved in the Hamaca Authorisation.124 Similarly to the Petrozuata Association Agreement, the Hamaca Association Agreement included provisions for granting compensation to parties affected by governmental measures that constituted "Discriminatory Actions".125 The compensation formula was linked to the price of Brent crude oil.126 The definition of "Discriminatory Action" stated that:127

... reductions or increases in the royalty rate applicable to the crude oil produced by the Parties... will not be considered Discriminatory Actions under this provision unless such changes result in a royalty rate for the Parties in their capacity as participants in the Association, in excess of the maximum rate specified by law for the hydrocarbon industry in general.

156.
Pursuant to Article XVII, the Hamaca Association Agreement was governed by Venezuelan law and disputes arising under the agreement were to be resolved through ICC arbitration.
157.
The "General Business Plan" at Annex B to the Hamaca Association Agreement set forth "Fiscal Assumptions", including that "until Project payout royalty rate will be reduced to 1% of the Extra-Heavy Oil Produced, and thereafter increased to the prevailing royalty rate, currently 16 % %".128 The General Business Plan also stated that the Project entitled the parties to be qualified for "the generally applicable Venezuelan corporate income tax rate, currently 34%...".129

(5) The Orinoco Belt Royalty Agreement

158.
As discussed above,130 the Orinoco Belt Royalty Agreement was executed on 29 May 1998. Phillips formally adhered to the Orinoco Belt Royalty Agreement on 29 October 1998.131

(6) Financing of the Hamaca Project

159.
On 22 June 2001, the financing for the Hamaca Project closed. The project incurred approximately US$ 1.1 billion in project finance debt.132
160.
The Hamaca Confidential Preliminary Information Memorandum provided a description of the Hamaca Project, including the associated risks. The section of the Memorandum on "Financial Projections" referred to the reduced 1 percent royalty for the nine years following the first commercial shipment (or until the Project had recovered three times the project costs, whichever date was sooner) after which the 16.67 percent royalty rate would become effective, and to the applicable income tax rate being the general corporate tax rate of 34 percent.133

(7) Implementation of the Hamaca Project and Commencement of Production

161.
Following the construction of the essential aspects of the Project, including drilling and transportation facilities and the upgrader, the establishment of necessary contractual arrangements within the Jose Industrial Complex, and pre-marketing activities,134 the Hamaca Project commenced development production of extra-heavy crude oil in October 2001.135 The upgrader commenced commercial production of upgraded crude oil in October 2004.136
162.
In accordance with the Hamaca Association Agreement, the term of the Project would last either 40 years from the signing of the Association Agreement on 9 July 1997 or from the date of the first commercial shipment, whichever took place first. Thus, the term of the Hamaca Association was scheduled to end on 8 July 2037.137

(8) The Insertion of the Claimant CPH Into the Chain of Ownership

163.
In 2006, ConocoPhillips restructured its investment in the Hamaca Association.138
164.
On 17 July 2006, the Claimant CPH was incorporated in the Netherlands with Phillips Petroleum International Investment Company as its sole shareholder.139
165.
On 22 September 2006, Phillips Petroleum International Investment Company transferred to CPH its ownership interest in Hamaca Holding LLC — a Delaware company that indirectly held ConocoPhillips’ 40 percent interest in the Hamaca Association.140

E. The Corocoro Project

(1) Overview of the Corocoro Project

166.
An additional aspect of the Oil Opening was Venezuela’s decision to open up new exploration areas for light and medium crude oil ("New Areas").141
167.
The Corocoro Project was an offshore project for the extraction of light to medium crude oil, on the basis of a profit sharing agreement. ConocoPhillips held a 32.2075 percent interest in the project. The other participants held interests as follows: CVP, a PdVSA subsidiary (35 percent); Eni (25.8 percent); and another investor (7 percent).142 Production at the Corocoro Project did not take place prior to ConocoPhillips’ handover of the operatorship of the Project to PdVSA on 1 May 2007.143 Further details about the Corocoro Project are set out below.

(2) The Congressional Authorisation of Exploration at Risk in New Areas and Profit Sharing Agreements

168.
On 4 July 1995, the Venezuelan Congress approved a framework of conditions for the conclusion of Association Agreements for the Exploration at Risk of New Areas and the Production of Hydrocarbons Under the Shared Profits System Agreements ("Congressional Authorisation for New Areas").144 The Congressional Authorisation for New Areas allowed an affiliate of PdVSA to carry out the bid processes necessary to select the private investment companies with which it would conclude Association Agreements.145
169.
The conditions in the Congressional Authorisation for New Areas envisaged private investors holding equity in projects,146 and allowed the PdVSA affiliate to acquire an interest of up to 35 percent in the event of a commercial discovery.147 The Authorisation provided for terms of up to 20 years for commercial operations as of the approval of the Development Plan, but no longer than 39 years from the conclusion of the relevant agreement.148 Similarly to the Petrozuata and Hamaca Authorisations, the Congressional Authorisation for New Areas provided that an Association Agreement would be governed by Venezuelan law and that disputes would be resolved by ICC arbitration between the parties.149
170.
Condition 19 stated that:150

The Agreement... shall in no case give rise to liability or [xz'c] any nature or type to the Republic of Venezuela, nor be detrimental to its sovereign rights, and the exercise of such Agreement shall in no case give rise to claims by other Governments or foreign powers.

171.
Additionally, Condition Twenty One provided that:151

The Executive may establish a system allowing for adjustments to the tax specified in the royalty rate in Article 41 of the [1943] Hydrocarbon Law when it is shown at a given time that it is not possible to achieve the minimum margins of profitability for one or more Development Areas during the performance of the Agreement.

172.
Unlike the vertically-integrated heavy and extra-heavy oil projects, there was no special income tax rate applicable to the New Area projects. Accordingly, these projects would be subject to the 67.7 percent income tax rate applicable to upstream petroleum activities.152

(3) Royalty Agreement for the New Areas

173.
On 5 December 1995, the Ministry and CVP (the PdVSA affiliate designated to implement the profit sharing system), concluded a Royalty Agreement for the New Areas.153 Pursuant to the formula in the royalty agreement, the royalty rate would be adjusted quarterly and would range from one percent to a maximum of 16% percent. The agreement also provided that: "[h]owever, in accordance with the law, in no event will the exploitation tax rate (royalty) exceed 16%%".154

(4) The Association Agreement for the Corocoro Project

174.
In 1996, Conoco successfully bid on one of the New Areas—an offshore medium crude project in the Gulf of Paria West.155 Conoco later acquired a portion of an area in the Gulf of Paria East intended to be unitised with the Gulf of Paria West area, to engage in the drilling operation that became known as the Corocoro Project.156
175.
On 19 June 1996, the Venezuelan Congress approved the Association Agreements governing the New Areas.157
176.
On 10 July 1996, Conoco Venezuela B.V. concluded an Association Agreement with CVP ("Association Agreement for the Corocoro Project"), providing for a 39-year term and for Conoco to be the operator of the project.158
177.
Among its terms, Section 25 of the Agreement provided that:159

This Agreement... shall in no event impose any obligation on the Republic of Venezuela or limit the exercise of its sovereign rights.

(5) Declaration of Commerciality With Respect to the Corocoro Project

178.
On 29 April 2002, Conoco adhered to the Royalty Agreement for the New Areas.160 In October 2002, ConocoPhillips,161 with its partners ENI and OPIC, made an official declaration of commerciality.162

(6) The Corocoro Development Plan

179.
The Development Plan submitted by ConocoPhillips and its partners on 1 November 2002 was approved by CVP and the other members of the Control Committee on 8 April 2003.163
180.
On 10 April 2003, CVP acquired a 35 percent interest in the Corocoro Project, reducing the interests of the other investors.164 (ConocoPhillips eventually held a 32.2075 percent interest in the Corocoro Project.)165 On 16 May 2003, the partners in the Corocoro Project entered into a Consortium Agreement.166
181.
A revised Development Plan Addendum, approved by all Project partners, was issued on 3 March 2005.167 The Claimants assert that during the development of the Corocoro Project, US$ 650 million was spent on construction and implementation of the necessary infrastructure.168
182.
The Corocoro Project had not commenced production before ConocoPhillips handed over the operatorship of the Project to PdVSA on 1 May 2007.169

(7) The Insertion of the Claimant CGP Into the Chain of Ownership

183.
The Claimant, CGP, was incorporated in the Netherlands on 26 July 2005.170 On 11 August 2005, ConocoPhillips Gulf of Paria Ltd. transferred its ownership interest in Conoco Venezuela C.A. — the Venezuelan entity that directly held the interest of ConocoPhillips in the Corocoro Project — to CGP, thereby inserting CGP into the chain of ownership.171

F. The Facts Giving Rise to The Dispute

184.
The factual context and details of the principal measures taken by Venezuela on which the Claimants base their claims for compensation under the Investment Law and the Treaty are elaborated below.

(1) Election of President Chávez and Promulgation of the Investment and New Hydrocarbons Laws

(a) Election of President Chávez

185.
Mr Hugo Chávez Frias was elected President of Venezuela on 6 December 1998 and assumed the presidency in February 1999.

(b) Promulgation of the Investment Law

186.
On 22 October 1999, President Chávez promulgated the Investment Law. Article 1 of the Investment Law states that its objective is:172

[T]o provide investments and investors, both domestic and foreign, with a stable and predictable juridical framework whereby the former and the latter may work in a secure environment, by regulating the actions of the State towards these investments and investors.

The Investment Law contains obligations to treat investments fairly and equitably and not to expropriate investments without prompt, fair and adequate compensation.173

187.
Article 22 of the Investment Law provides as follows:174

Disputes arising between an international investor whose country of origin has in effect a treaty or agreement for the promotion and protection of investments with Venezuela, or any disputes which apply the provisions of the Convention Establishing the Multilateral Investment Guarantee Agency (MIGA) or the Convention on the Settlement of Investment Disputes between States and Nationals of other States (ICSID), shall be submitted to international arbitration under the terms provided for in the respective treaty, should it so provide, without prejudice to the possibility of using, when applicable, the systems of litigation provided for in the Venezuelan laws in force.

(c) Promulgation of the New Hydrocarbons law and Execution of the Procedure for Payment of Exploitation Tax (Royalty)

188.
On 13 November 2001, exercising powers delegated to him to legislate changes to the hydrocarbons laws in force, President Chávez issued a new Organic Law of Hydrocarbons ("New Hydrocarbons Law").175 Under the New Hydrocarbons Law, private companies were only allowed to participate in oil projects through mixed enterprises in which the State held a majority stake.176 The New Hydrocarbons Law also fixed the royalty rate at 30 percent.
189.
In January 2002, the Ministry executed an agreement with the Petrozuata Association reaffirming that the one percent royalty would remain applicable to its production in accordance with the Orinoco Belt Royalty Agreement ("Procedure for Payment of Exploitation Tax (Royalty)").177 The Procedure for Payment of Exploitation Tax (Royalty) further stipulated that thereafter the royalty rate would be 16% percent.178

(2) Measures Taken to Increase the Applicable Royalty Rate

(a) Amendment of the Orinoco Belt Royalty Agreements

190.
Minister Ramirez, in a letter to PdVSA dated 8 October 2004, referred to the increase in Brent crude oil prices that had taken place and indicated that the changed economic circumstances meant that the reduced royalty rate of one percent could not be justified.179 On 10 October 2004, President Chávez announced that the government would increase the royalty rate applicable to the Orinoco Belt extra-heavy oil projects from one percent to 16% percent.180
191.
ConocoPhillips objected to the increased royalty rate including by letter to the Ministry of 22 November 2004, stating that the royalty rate increase on the commercial production of the Petrozuata and Hamaca Associations was not in conformity with the Orinoco Belt Royalty Agreement as the conditions on which an increased rate could be imposed had not occurred.181 ConocoPhillips reserved its legal rights with respect to the royalty rate increase.
192.
According to the Claimants, the Corocoro Project stalled apparently because of its objection to the increase in the royalty rate.182 In the following months, a number of meetings between ConocoPhillips and government officials, including President Chávez, Minister Ramirez and Vice Minister Mommer, took place.183 On 14 January 2005, in a letter to Minister Ramirez, ConocoPhillips withdrew its objection to the increased royalty rate.184 On 3 March 2005, the Corocoro Development Plan Addendum was approved and progress on the Project recommenced.185

(b) Imposition of a Higher Royalty Rate on Production of Between 120.000 and 145.000 Barrels Per Day

193.
Vice Minister Mommer informed ConocoPhillips on 26 April 2005 that, effective 1 May 2005, production above 120,000 BPD up to 145,000 BPD would be permitted but that a 30 percent royalty rate would apply to production of between 120,000 BPD and 145,000 BPD.186

(c) Further Increase in the Effective Royalty Rate - the Extraction Tax

194.
On 16 May 2006, the Venezuelan National Assembly approved and implemented a new "Extraction Tax" of one-third of the value of all hydrocarbons extracted "from any deposit".187 The taxpayer had the right to deduct the amount paid as a royalty from the amount of Extraction Tax owed.188
195.
The introduction of the Extraction Tax raised the effective royalty rate applicable to each of the Petrozuata, Hamaca and Corocoro Projects from 16% percent to 33% percent.189 On 29 November 2006, ConocoPhillips sent a letter to Vice Minister Mommer objecting to the application of the Extraction Tax and reserving its rights with respect to the measure.190

(3) Increase in the Income Tax Rate for Extra-Heavy Oil Projects

196.
The National Assembly approved an increase in the income tax rate for the extra-heavy oil projects from 34 percent to 50 percent on 29 August 2006.191 The increased income tax rate became effective on 1 January 2007.192
197.
In its letter of 29 November 2006 to Vice Minister Mommer, ConocoPhillips also protested the application of the income tax increase.193

(4) The Nationalisation Decree and Venezuela’s Taking of the Claimants’ Interests in the Petrozuata, Hamaca and Corocoro Projects

(a) Draft Contracts for Conversion of the Projects Into Empresas Mixtas

198.
In August 2006, "Not Binding Term Sheets for the Migration of the Associations" were sent to ConocoPhillips.194
199.
On 8 January 2007, President Chávez announced195 a new program of nationalisation pursuant to which all oil projects in Venezuela, including the Petrozuata, Hamaca and Corocoro Projects, would be subject to the legal regime of the New Hydrocarbons Law.196
200.
Later in January, ConocoPhillips received draft contracts for the conversion into empresas mixtas of the Hamaca Association, the Petrozuata Association and the Corocoro Project.197

(b) The Claimants Notify the Respondent of the Existence of a Dispute Under the Investment Law and the Treaty

201.
On 31 January 2007, ConocoPhillips transmitted to the government of Venezuela a letter notifying the Respondent of the existence of a dispute arising under the Investment Law and the Treaty.198 In that letter, the Claimants consented to ICSID arbitration of the dispute.199

(c) Promulgation of Decree Law 5.200

202.
On 1 February 2007, the Venezuelan National Assembly passed the Law that Authorises the President of the Republic to Issue Decrees having Rank, Value, and Force of Law on the Matters Delegated Hereby (the "Enabling Law").200 The Enabling Law granted President Chávez the power to enact or modify legislation governing the Orinoco Belt strategic associations and the New Areas.201
203.
On 26 February 2007, Decree Law 5,200 on the "Migration to Mixed Companies of the Association Agreements of the Orinoco Oil Belt, as well as the Risk and Profit Sharing Exploration Agreements" was issued.202 Decree Law 5,200 directed that the Orinoco Oil Belt associations and the associations under the Exploration at Risk and Profit Sharing scheme be transformed into mixed companies, of which PdVSA (or a PdVSA affiliate) would hold at least 60 percent of the shares.203
204.
Decree Law 5,200 required the creation of a "Transition Commission" for each association, to which control of the association’s activities was required to be transferred by 30 April 2007.204 Additionally, Article 4 afforded foreign investors such as ConocoPhillips four months — until 26 June 2007 — "to agree to the terms and conditions of their possible participation in the new Mixed Companies".205 Absent such an agreement, on the expiry of the four-month term, "the Republic through Petróleos de Venezuela, S.A. or any of its affiliates that has been designated to such effect, shall assume directly the activities performed by the associations...".206

(d) Negotiations Regarding the Claimants’ Interests in the Project

205.
Both before and after the enactment of Decree Law 5,200, meetings took place among ConocoPhillips’ and Venezuela’s representatives to discuss the transfer of the Petrozuata, Hamaca and Corocoro Projects to the mixed companies’ regime.207
206.
Among the issues discussed at meetings and in related communications was the question of compensation for ConocoPhillips’ rights in the Projects. According to the Claimants, any offer of compensation by Venezuela was premised on the waiver of their rights to seek compensation through other legal means, which they were not willing to do.208 No offer of compensation was made for the Corocoro Project.209

(e) PdVSA Assumes Operational Control of the Projects

207.
A PdVSA affiliate assumed physical control of the operations of the Petrozuata, Hamaca and Corocoro Projects on 1 May 2007.210

(f) Expiry of the Period for Reaching Agreement Under the Nationalisation Decree

208.
On the expiry of the four-month term envisaged in Decree Law 5,200, no agreement had been reached regarding the Claimants participation in the new mixed enterprises. Accordingly, as envisaged in Article 4 of Decree Law 5,200, on 26 June 2007 Venezuela assumed ConocoPhillips’ interests in the Petrozuata, Hamaca and Corocoro Projects.211 No compensation has been provided for the taking.212
209.
On 8 October 2007, the Venezuelan National Assembly ratified the Law on the Effects of the Process of Migration into Mixed Companies of the Association Agreements of the Orinoco Oil Belt, as well as the Exploration at Risk and Profit Sharing Agreements ("Law on the Effects of the Process of Migration").213
210.
Article 1 of the Law on the Effects of the Process of Migration provided that the Orinoco Belt association agreements and Exploration at Risk and Profit Sharing Agreements would be "extinguished as of the date of the publication of this Law in the Official Gazette of the Bolivarian Republic of Venezuela".214 Article 2 of the Law transferred the interests of the Orinoco Belt associations including Petrozuata and Hamaca, and of the Exploration at Risk and Profit Sharing Agreements, to the mixed companies.
211.
On 29 July 2007, President Chávez gave a speech in which he discussed the various measures in the context of the "progressive recovery of oil sovereignty".215 On 8 February 2008, Minister Ramirez, stated that "[s]tarting in 1999, the Bolivarian government of President Hugo Chávez initiated a policy for the recovery of Absolute Oil Sovereignty and management of [Venezuela’s] main resource".216

V. SUMMARY OF THE PARTIES’ POSITIONS

A. The Claimants’ Requests for Relief

212.
In their Request for Arbitration, the Claimants requested that the Tribunal:217

(a) DECLARE that Venezuela has breached:

(i) Article 11 of the Foreign Investment Law and Article 6 of the Treaty by unlawfully expropriating and/or taking measures equivalent to expropriation with respect to ConocoPhillips’ investments in Venezuela;

and

(ii) Articles 1 and 6 of the Foreign Investment Law and Article 3 of the Treaty by failing to accord ConocoPhillips’ investments in Venezuela fair and equitable treatment, full protection and security, and by taking arbitrary and discriminatory measures impairing the use and enjoyment of its investments in Venezuela;

(b) ORDER Venezuela to pay damages to ConocoPhillips for its breaches of the Foreign Investment Law and the Treaty in an amount to be determined at a later stage in these proceedings, including by payment of compound interest at such a rate and for such period as the Tribunal considers just and appropriate;

(c) AWARD such other relief as the Tribunal considers appropriate; and

(d) ORDER Venezuela to pay all of the costs and expenses of this arbitration, including ConocoPhillips’ legal and expert fees, the fees and expenses of any experts appointed by the Tribunal, the fees and expenses of the Tribunal and ICSID’s other costs.

213.
In their Memorial, the Claimants reiterated that:218

Venezuela’s persistent and intentional breaches of its obligations to ConocoPhillips have given rise to the claims asserted herein. Venezuela has violated its obligations to ConocoPhillips Company under the Foreign Investment Law. Venezuela has also violated its obligations to the Dutch subsidiaries of ConocoPhillips Company -CPZ, CPH and CGP - under the bilateral investment treaty between the Netherlands and Venezuela.

214.
With respect to their request for damages, the Claimants stated that:219

[...] ConocoPhillips respectfully turns to this Tribunal to vindicate its rights and award it redress in an amount provisionally quantified at US$30,305,400.000.

215.
More specifically, in their Memorial and Reply, the Claimants claimed the following compensation:220

(a) Damages for the lost income to the Claimants as a result of the fiscal overpayments required of the Petrozuata and Hamaca Projects prior to June 26, 2007, in an amount to be determined as at the date of the Tribunal’s Award.

(b) Damages for the lost income to the Claimants that would have accrued from their interests in the Petrozuata, Hamaca and Corocoro Projects in the period between June 26, 2007 and the date of the Tribunal’s Award, in an amount to be determined as at the date of the Tribunal’s Award.

(c) Damages for the total loss to the Claimants of their interests in the Petrozuata, Hamaca and Corocoro Projects, in an amount equal to the fair market value of those interests, to be determined as at the date of the Tribunal’s Award.

(d) Damages to reflect the additional losses the Claimants will suffer as a result of the United States federal and state income tax liability of ConocoPhillips Company on the Tribunal’s Award, in an amount to be determined as at the date of the Tribunal’s Award.

(e) Pre-award interest on (a) and (b) above from the date of each loss of income that would have accrued to the Claimants but for Venezuela’s unlawful actions, at rates reflecting the historic cost of equity of each Project (as relevant), as at the date of the Tribunal’s Award, compounded annually, or at such other rate and compounding period as the Tribunal determines will ensure full reparation.

(f) Post-award interest on (a), (b), (c) and (e) above at a rate equal to the cost of equity of each Project (as relevant), as at the date of the Tribunal’s Award, compounded annually, or at such other rate and compounding period as the Tribunal determines will ensure full reparation.

(g) A declaration that the Tribunal’s Award is made net of all Venezuelan taxes, and that Venezuela may not impose any tax on the Claimants arising from the Tribunal’s Award.

(h) All of the Claimants’ costs of arbitration, including legal and expert costs.

B. The Respondent’s Requests

216.
In its Memorial on Objections to Jurisdiction, the Respondent asserts that:221

With respect to the jurisdictional objections, the claims set forth in the Request should be dismissed in their entirety inasmuch as: (i) Article 22 of the Investment Law does not provide a basis for finding "consent" on the part of the Republic to arbitration of this dispute; (ii) ConocoPhillips does not qualify as an "international investor" as defined in the Investment Law Regulation, and thus would not be entitled to bring claims under the Investment Law concerning the Projects even if Article 22 did constitute a consent to jurisdiction; (iii) Claimants CPZ, CPH and CGP are merely corporations of convenience created for the purpose of obtaining ICSID jurisdiction in this case in an abuse of the corporate form and therefore jurisdiction under the Dutch Treaty should be rejected; and (iv) the interests held by Claimants CPH and CGP in any event are indirect investments which do not qualify for protection under the Dutch Treaty.

217.
The Respondent, in its Counter-Memorial reiterated that "[f]or the reasons set forth above and in the Memorial on Objections to Jurisdiction, the claims should be rejected in their entirety for lack of jurisdiction".222 The Respondent further stated that:223

In the event that the Tribunal were to find jurisdiction on any of the claims asserted, those claims should nevertheless be dismissed for the substantive reasons set forth above. In the event that the claims are not rejected in their entirety for lack of jurisdiction or on the merits, the aggregate amount of compensation in respect of the three Projects should not exceed US$583 million, with simple interest. In addition, Claimants should be ordered to reimburse Respondent for all reasonable costs and expenses, including legal fees, relating to this Arbitration.

218.
In its Rejoinder, the Respondent repeated its requests in its Memorial on Objections to Jurisdiction and Counter-Memorial that the Claimants’ claims be dismissed for lack of jurisdiction and on the merits. Further, the Respondent stated that, if the claims are not rejected in their entirety, "the aggregate amount of compensation in respect of the three Projects should not exceed US$570.5 million, with simple interest".224

VI. JURISDICTION

A. Introduction

219.
The preamble to the ICSID Convention declares that a Contracting State by the mere fact of ratifying, accepting or approving the Convention is not under any obligation to submit any particular dispute to conciliation or arbitration. Under Article 25 of the Convention, the jurisdiction of the Centre extends to a legal dispute arising directly out of an investment between a Contracting State and a national of another Contracting State that the parties to the dispute consent in writing to submit to the Centre.
220.
On the adoption of the Convention, the Executive Directors of the World Bank in their report of 18 March 1965 affirmed that "[c]onsent of the parties is the cornerstone of the jurisdiction of the Centre".225 That consent of the two parties they said and, as subsequent decisions have confirmed, need not be expressed in a single instrument: in particular, "a host State might in its investment promotion legislation offer to submit disputes arising out of certain classes of investments to the jurisdiction of the Centre, and the investor might give his consent by accepting the offer in writing".226
221.
The Claimants gave their consent to the jurisdiction of the Centre over their claims, which are the subject of this proceeding, in their letter of 31 January 2007 advising the Minister of Energy and Petroleum, the Minister of Foreign Affairs and the Attorney-General of Venezuela of the existence of a dispute arising in relation to the measures taken by Venezuela.227
222.
The Claimants submit that Venezuela gave its consent to the jurisdiction of the Centre under:

a. Article 22 of the Investment Law;228 and

b. Article 9 of the Netherlands-Venezuela BIT.229

223.
In their Memorial, the Claimants invoke:230

• the Investment Law as the basis for jurisdiction over the claims made by ConocoPhillips Company, a national of a State Party to the Convention (the United States of America), and Venezuela, also a State Party to the Convention; and

• the BIT as the basis of jurisdiction over the claims made by the three Dutch Claimants.

224.
The Respondent objects to both the Investment Law and the BIT as bases for jurisdiction.

B. Article 22 of the Investment Law

225.
Article 22 of the Investment Law provides as follows:

Las controversias que surjan entre un inversionista internacional, cuyo pais de origen tenga vigente con Venezuela un tratado o acuerdo sobre promotion y protection de inversiones, o las controversias respecto de las cuales sean aplicables las disposiciones del Convenio Constitutivo del Organismo Multilateral de Garantía de Inversiones (OMGI - MIGA) o del Convenio sobre Arreglo de Diferencias Relativas a Inversiones entre Estados y Nacionales de Otros Estados (CIADI), serán sometidas al arbitraje internacional en los términos del respectivo tratado o acuerdo, si así este lo establece, sin perjuicio de la posibilidad de hacer uso, cuando proceda, de las vías contenciosas contempladas en la legislation venezolana vigente.

The translations into English provided by the Parties differ in detail. Venezuela’s translation is as follows:231

Disputes arising between an international investor whose country of origin has in effect with Venezuela a treaty or agreement on the promotion and protection of investments, or disputes to which are applicable the provisions of the Convention Establishing the Multilateral Investment Guarantee Agency (OMGI-MIGA) or the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID), shall be submitted to international arbitration according to the terms of the respective treaty or agreement, if it so provides, without prejudice to the possibility of making use, when appropriate, of the dispute resolution means provided for under the Venezuelan legislation in effect.

The Claimants’ translation is to this effect:232

Disputes arising between an international investor whose country of origin has in effect a treaty or agreement for the promotion and protection of investments with Venezuela, or any disputes to which apply the provisions of the Convention Establishing the Multilateral Investment Guarantee Agency (MIGA) or the Convention on the Settlement of Investment Disputes between States and Nationals of other States (ICSID), shall be submitted to international arbitration under the terms provided for in the respective treaty or agreement, should it so provide, without prejudice to the possibility of using, when applicable, the systems of litigation provided for in the Venezuelan laws in force.

While there are small differences between those translations the Parties do not see them as significant.233 Nor does the Tribunal.

226.
The Claimants contend that Venezuela gave its consent to jurisdiction through Article 22; Venezuela rejects that interpretation. Venezuela also submits that, wholly apart from the question of consent, jurisdiction over the claims made by ConocoPhillips Company is lacking because it does not qualify as an "international investor" under the Investment Law and therefore is not within the scope of Article 22.234 The Claimants reject that contention.
227.
The Parties agree, as indeed Article 41(1) of the ICSID Convention, reflecting a long and well established principle, makes clear, that "the Tribunal shall be the judge of its own competence".
228.
The Parties disagree, however, on the following matters relating to the interpretation of Article 22 of the Investment Law:

a. the starting point : must Article 22 state the consent of Venezuela clearly and unequivocally, or is the provision to be interpreted objectively and in good faith?

b. the applicable law : is Article 22 to be interpreted in accordance with Venezuelan law or international law or on some other basis? If international law is applicable, is it the law relating to the interpretation of treaties or some other area of international law that is to be applied?

c. the text of Article 22 : in the light of the answers to the two preceding questions, what is the meaning of the text?

229.
In relation to the third issue, the Parties addressed: the words and structure of Article 22, its plain or ordinary meaning, its object and purpose, its context, both immediate and over a longer period, including the Respondent’s attitude to international arbitration and to arbitration generally; the opinions of commentators, including those said to be involved in the preparation of the Investment Law; and the discussion of those issues in decisions of tribunals in other ICSID cases holding that Article 22 did not incorporate a unilateral consent by Venezuela to ICSID arbitration.235
230.
The Tribunal will now address those issues and, in the light of its conclusions on them, particularly the third issue, to which the Parties gave most attention, determine whether the Respondent, by enacting Article 22 of the Investment Law, has given its consent to ICSID jurisdiction.

(1) The Starting Point

231.
The Respondent contends that to satisfy the requirement of consent in Article 25(1) of the ICSID Convention, the statement of consent must be "clear and unequivocal" and not merely arguable from ambiguous language.236 In support of that proposition, it cites ICSID decisions and ICSID commentaries including a statement by the drafters of the ICSID Model Clauses recording consent: "[t]he one basic requirement that any consent clause must fulfil is that it should unequivocally show submission to the jurisdiction of the Centre of a particular dispute or class of disputes".237 It also refers to a statement by the International Court of Justice to the effect that the consent to the jurisdiction of that Court must be "voluntary and indisputable",238 and to commentators similarly urging the Court to be cautious in assuming jurisdiction.239
232.
The Claimants reject the Respondent’s starting point: "the only issue before this Tribunal is whether, as a matter of international law, the language included by Venezuela can be reasonably construed in good faith to constitute consent to arbitrate certain claims within Article 25 of the ICSID Convention".240 In support of that approach the Claimants also cite ICSID decisions.

(2) The Applicable Law

233.
The Respondent contends that the Investment Law, as part of the law of Venezuela, must be interpreted in light of principles of Venezuelan law.241 It is well established under that law that consent to arbitration must be clear and unequivocal.242 As will appear, it also contends that the plain language of Article 22 does not, in any event, provide for consent.
234.
The Claimants submit that the question whether the Respondent consented to ICSID arbitration under Article 22 is a matter of international law: "[b]y referring to consent under the ICSID Convention, Venezuelan law incorporates a renvoi to international law in relation to that question".243 The question whether Venezuela consented to ICSID arbitration in its national law, the Claimants continue, is a matter to be determined within the meaning of Article 25 of the ICSID Convention and, thus, under international law, not Venezuelan law.244 In support of its contentions, each Party has referred the Tribunal to decisions of ICSID Tribunals.
235.
An ICSID Tribunal reviewed the range of ICSID decisions on the issue of the governing law when consent is claimed to have been given in the national law. It provided this summary:

From this review of ICSID case law, it results that in four cases, the question was not dealt with. In SPP v. Egypt, the tribunal decided to apply ‘general principles of statutory interpretation,’ ‘taking into consideration relevant rules of treaty interpretation and principles of international law applicable to unilateral declarations.’ In CSOB v. Slovak Republic, the Tribunal took its decision only on the basis of the latter principles. In Zhinvali v. Georgia, it opted for domestic law ‘subject to ultimate governance by international law’.245

236.
It commented that, in those cases, the States’ (claimed) consent to arbitration "was not contained in a treaty to be interpreted according to the Vienna Convention on the Law of Treaties... but in a unilateral offer made by that State in one form or another".246 "[T]hat very problem", it continued, arose when the International Court of Justice interpreted unilateral declarations accepting its jurisdiction under Article 36(2) of its Statute. Those international instruments, according to the Court, "must be interpreted by reference to international law".247 That Tribunal said that it shared this analysis:248

Unilateral acts by which a State consents to ICSID jurisdiction are standing offers made by a sovereign State to foreign investors under the ICSID Convention. Such offers could be incorporated into domestic legislation or not. But, whatever may be their form, they must be interpreted according to the ICSID Convention and to the principles of international law governing unilateral declarations of States.

237.
That Tribunal then considered "the rules of interpretation" as fixed by the International Court when interpreting unilateral declarations accepting the compulsory jurisdiction of the Court under Article 36(2) of its Statute.249 It concluded in these terms:250

[T]he International Court of Justice interprets ‘the relevant words of a declaration including a reservation contained therein in a natural and reasonable way, having due regard to the intention of the State concerned.’ The Court does so by starting with the text and, if the text is not clear, by giving due consideration to the context and examining the ‘evidence regarding the circumstances of its preparation and the purposes intended to be served.’ Thus the intention of the declaring State must prevail.

(3) The Text of Article 22

238.
The task of the Tribunal in this case is to determine whether Venezuela in enacting Article 22 has given its consent to ICSID jurisdiction. Has it made a standing offer to foreign investors under the ICSID Convention? It is only when that question has been answered that the need to determine the extent of the consent might arise.
239.
Accordingly, the Tribunal now addresses the question just asked by reference to the words and structure of Article 22, its ordinary meaning, its object and purpose and its context, both immediate and long term, along with the other matters mentioned in paragraph 237 above.
240.
The Claimants make their submissions relating to the words and structure and ordinary meaning of Article 22 by emphasising two different versions of the article. In the first, they address the following parts of the provision:

... disputes to which are applicable the provisions of... the Convention on the Settlement of Investment Disputes between States and Nationals of other States (ICSID), shall be submitted to international arbitration according to the terms of the respective treaty or agreement, if it so provides....

241.
In relation to that text, the Claimants’ first contention was that the express reference in Article 22 to the ICSID Convention is significant. Under the principle of effective interpretation, "a fundamental principle of interpretation", a legal text should be interpreted in such a way that a reason and a meaning can be attributed to every word in the text.251 Second, the Claimants emphasise the mandatory wording of the provision: certain categories of dispute "shall be submitted to international arbitration". That mandatory wording, they say, is to be contrasted with the permissive terms of the provision at the end of Article 22 relating to litigation in Venezuelan courts and of Article 23 about Venezuelan national courts and arbitral tribunals.252 The third argument relates to the final phrase of the provision as quoted above — the arbitration is to be carried out "under the terms provided for in the respective treaty or agreement, should it so provide".253 There is no question, according to the Claimants, that the ICSID Convention provides for arbitration, as well as the rules for conducting the arbitration. In answer to the Respondent’s argument that "if it so provides" means "if the respective treaty or agreement establishes, by its terms, that the dispute shall be submitted to international arbitration", the Claimants contend that the essence of such an interpretation would be that Article 22 is pointless from start to finish.254 That argument returns to the effectiveness argument.
242.
The Respondent, in answer to the Claimants’ first point about the principle of effective interpretation, contends that that principle does not permit the reading out of the statute words that are there or reading in words that are not there. The Claimants’ reading would deny effect to the words "if it so provides". In the opinion of the Respondent, those words, to move to the second and third submissions made by the Claimants, state a condition which has to be satisfied and which has not been: Article 25 of the ICSID Convention requires that the Parties to the dispute consent to the jurisdiction of the Centre and Venezuela has not given that consent. Moreover, submits the Respondent, Article 22 does serve a useful purpose in making clear that Venezuela intended to honour all existing international commitments it had undertaken for international arbitration. In the context of "the traditional Venezuelan hostility to international arbitration" that affirmation was significant.255
243.
Before it considers those contextual matters to which the Parties gave considerable attention and the opinions of commentators on the Investment Law, including those said to have been involved in the preparation of the Law, the Tribunal sets out the second way in which the Claimants present Article 22 in support of their argument that, by that provision, Venezuela has consented to ICSID jurisdiction:

... disputes to which are applicable the provisions of... the Convention on the Settlement of Investment Disputes between States and Nationals of other States (ICSID), shall be submitted to international arbitration....

244.
The Claimants’ contention that Article 22 should be read in this abbreviated way is based in significant part on the use of the words "treaty or agreement" both at the beginning of the Article and towards its end, by contrast to the word "Convention" which is used twice in relation to identified texts, one of them being the ICSID Convention. The submission is that the words "treaty or agreement" are used as abstract categories, to be distinguished from the two specified Conventions, and, in the context of Article 22, do not include those two Conventions. Accordingly, the Claimants continue, in terms of the version of Article 22 set out above, disputes to which the provisions of the ICSID Convention apply "shall be submitted to international arbitration". There is no need to read on. Indeed it would be "nonsense" if the words "if it so provides" were "supposed to reach back to modify the ICSID Convention. It would be foolish to ask whether the ICSID Convention provides for arbitration. That is what the ICSID Convention is all about".256
245.
It is convenient to consider at this stage the Claimants’ argument based on the abbreviated text (as set out in paragraph 243) — an argument, which was not made in the two earlier cases on Article 22 and that was mainly developed in the oral hearings.
246.
It is true that the argument gains some support from the literal terms of Article 22 and its possible distinction between treaties and agreements on the one side and the two specified Conventions on the other. It does, however, face what, in the opinion of the Tribunal, is an insurmountable hurdle when the provisions of those two Conventions dealing with disputes are considered. The MIGA Convention establishes procedures for the settlement of four different types of disputes:257

a. questions of interpretation and application of the Convention arising between the Agency and a member State or between members: they are to be decided by the Board of the Agency, with a right of appeal by any member to the Council of the Agency (Article 56);

b. disputes arising under a contract of guarantee or reinsurance between the Agency and the other Party: they are to be submitted to final arbitration in accordance with the rules in the contract of guarantee or reinsurance (Article 58);

c. disputes between the Agency as subrogee of an investor and a member: they are to be settled in accordance with the procedure laid down either in Annex II to the Convention or in an agreement between the Agency and the member for an alternative method or methods of dispute settlement. Annex II provides for negotiation, and, if it fails, for arbitration on the submission of either party, or for conciliation if they agree; the conciliation and arbitration processes are regulated in some detail, by reference to the parallel provisions in the ICSID Convention (Article 57(b)); and

d. any dispute other than those in (a), (b) and (c) above between the Agency and a member or former member (or an agency thereof): they are also to be settled in accordance with Annex II (Article 57(a)).

247.
The detail of those processes, including the use of arbitration in some cases but not in others, indicates plainly that "disputes to which are applicable the provisions of the [MIGA] Convention... shall be submitted to international arbitration" only "according to the terms of the respective treaty or agreement [here the MIGA Convention]".258 That final phrase, omitted in the Claimants’ abbreviated version, cannot be ignored in considering the reference to that Convention in Article 22. Those words are not to be read out of the text.
248.
The same is true when the provisions for the settlement of disputes included in the ICSID Convention are considered. The first point is that investment disputes to which are applicable the provisions of the Convention may be submitted to conciliation under its Chapter III rather than to arbitration under Chapter IV. Second, "[a]ny dispute arising between Contracting States concerning the interpretation or application of the Convention which is not settled by negotiation shall be referred to the International Court of Justice by any party to the dispute unless the States concerned agree to another method of settlement"259. As with the provisions of the MIGA Convention, those provisions make it clear that it is not enough, as the abbreviated version of Article 22 would have it, to say that "disputes to which are applicable the provisions of... [the ICSID Convention] shall be submitted to international arbitration. The submission has to be ‘according to the terms of the respective treaty or agreement [here the ICSID Convention, Chapter IV]"’.
249.
The Claimants’ argument based on the abbreviated version of Article 22 must therefore fail.
250.
The Tribunal accordingly returns to the fuller version of Article 22 set out in paragraph 225 above on which the Parties placed their primary emphasis. As already indicated, in addressing the meaning of that text, they gave considerable attention to the context, especially Venezuela’s attitude to international arbitration over the last 100 or more years and more recently.
251.
The most immediate context to the parts of Article 22 being considered is the final phrase of that provision and Article 23 and Article 1. The final phrase saves the existing rights of the investor or the State to bring proceedings under Venezuelan Law. Article 23 similarly recognises the right of the investor to submit a dispute arising in connection with the application of the Law, once it has exhausted administrative remedies, to national courts or arbitral tribunals of Venezuela, that is to say to bring proceedings unilaterally. The clear grant or recognition of those unilateral powers to initiate proceedings under national law provides a sharp contrast to the provisions of Article 22 relating to international arbitration, according to the Respondent. The Claimants comment in respect of Article 23 that it uses the permissive word may as opposed to the mandatory shall that is used in Article 22.260 The reply of the Respondent is that this is a misreading of Article 23, which provides for national, not international, arbitration at the option of the investor; the permissive "may" becomes mandatory once the investor exercises that option.261
252.
It is the Claimants who emphasise Article 1 of the Investment Law:

This Decree-Law is intended to provide investments and investors, both domestic and foreign, with a stable and predictable legal framework whereby the former and the latter may work in a secure environment, by regulating the actions of the State towards these investments and investors so as to bring about the increase, diversification and harmonic complementarity of investments in favour of the national development goals.262

Article 22, they submit, must be interpreted with the purpose of realising the goals, expressed in Article 1, of promoting and protecting foreign investment.263 The Respondent submits that it is the final phrase of Article 1, with its emphasis on advancing the objective of national development, which expresses the purpose of the Investment Law. Further, such a purposive provision does not itself have substantive effect.264

253.
The Parties’ submissions on the external context, beyond the terms of the Investment Law itself, addressed traditional and more recent Venezuelan attitudes toward arbitration, both national and international, and the particular background to the enactment of the Investment Law. In respect of that last matter, they gave close attention to the opinions of a number of commentators including some said by the Claimants to be the drafters, or involved in the drafting, of the Law. The Tribunal has not found this material helpful. It does not lead to a clear result.265 What is critical for the Tribunal is the wording of Article 22 read in the immediate context in accordance with accepted principles of interpretation which appear to be the same in international law and Venezuelan law.266
254.
Against that background, the Tribunal returns to the terms of Article 22 to determine their meaning. It begins with the difference between the Parties about the question whether the consent of Venezuela must be stated clearly or unequivocally or the provision is to be interpreted objectively and in good faith. Given that States are subject to binding third party dispute settlement procedures only if they so consent and, given the weight of authority referred to earlier, particularly as found in decisions of the International Court of Justice and in the particular ICSID context, the Tribunal considers that its approach should be cautious. In the words of the International Court of Justice in considering the very first challenge made to its jurisdiction, the consent must be "voluntary and indisputable",267 and in the words of both ICSID tribunals "clear and unambiguous".268 The necessary consent is not to be presumed. It must be clearly demonstrated. As will be seen, the difference on this issue may not be significant.
255.
That also appears to be the case with the Parties’ initially different positions on the applicable law. By the end, they were in broad agreement that the meaning of Article 22 was to be determined by considering its terms in context and in the light of their purpose.269 The Tribunal is of the same opinion. No significant difference is to be seen between Venezuelan law as found in Article 4 of the Civil Code and decisions of the Supreme Court of Venezuela, the law reflected in Article 31 of the Vienna Convention on the Law of Treaties and the statements to be found in relevant decisions of international courts and tribunals. They all call for particular attention to be given to the text, along with the other matters. The question remains: did Venezuela in Article 22 of the Law give its consent to international arbitration under ICSID?
256.
So far as the text is concerned, the Respondent, it will be recalled, gave particular weight to the phrase "according to the terms of the respective treaty or agreement, if it so provides". The final four words, it said, state a condition. The treaty — in this case the ICSID Convention — does not, according to the Respondent, itself "provide" for international arbitration. On the contrary, in its Article 25, the ICSID Convention expressly requires that the State consent to jurisdiction. That condition has not been satisfied. For the Claimants, that contention was answered by the fact that ICSID does provide for international arbitration: it regulates all the necessary elements.
257.
The Tribunal considers that those four words — if it [the treaty or agreement] so provides [should it so provide] — present the essential issue to be determined. They do state a condition — as indeed the Claimants’ expert on Venezuelan law accepted. In the Tribunal’s opinion, that condition has not been satisfied. It is not enough, as the Claimants contend, that the ICSID Convention provides for international arbitration. That treaty must itself manifest Venezuela’s consent to arbitration; but that treaty does not do that, as its Article 25 and preamble make clear. The ordinary meaning of the terms of Article 22, and especially of the condition, leads the Tribunal to the conclusion that Venezuela does not by that means consent to international arbitration under the ICSID Convention. Other considerations support that conclusion.
258.
If the Claimants’ position was correct, it would follow that, if Venezuela in a future investment treaty were to accept the possibility of international arbitration but not to consent to it in that treaty, the Investment Law, by way of Article 22, would provide for that consent notwithstanding the deliberate choice of the State Parties to the treaty and the absence of reciprocity that that reading would introduce. That cannot be correct. A further possible difficulty with the Claimants’ reading of Article 22 is that the consent of the investor would also apparently not be required: the State would have a unilateral right to initiate the process against the investor and the investment dispute "shall be submitted to international arbitration", notwithstanding the plain terms of Article 25 of the ICSID Convention.270 If that is not a direct consequence of the "mandatory" reading, then Article 22 leaves the investor with an option.
259.
The Claimants, it will be recalled, invoke the principle of the effective interpretation of treaties: a reason and meaning is to be attributed to every word in the text. In their view, the Respondent’s interpretation would deprive the reference to ICSID in Article 22 of all effect. The Respondent submits, to the contrary, that the Claimants’ proposed interpretation would deprive the expression "if it so provides", also included in Article 22, of all effect. The principle of effective interpretation does not enable a court or tribunal to rewrite the provision that it is interpreting, in particular, by writing words out of the text. The Respondent also submits that, on its reading of Article 22, the reference to ICSID, along with the reference to the other treaties and agreements, does have a useful purpose: it made it clear that Venezuela intended to honour all existing international commitments that it had undertaken for international arbitration, including those in particular BITs in which it plainly had already accepted that investors had the option to bring international arbitration proceedings against it. In the context of the traditional Venezuelan hostility to international arbitration, that affirmation, it says, was significant.271 The Respondent points out that other provisions of the Investment Law, relating to sectors of economic activity reserved by law to the State or to Venezuelan investors, and the law and policy regulating the entry and stay of foreigners and labour legislation,272 are not necessary as a matter of Venezuelan law: they do no more than replicate provisions of the constitution and other laws, and appear in a general law which gives a more comprehensive sense of the law applying to investments made by national investors and foreign investors. The Claimants’ expert agreed.273 There is the further consideration, to quote from the ICSID decision in the Biwater Gauff case, that a provision such as Article 22 may have some effect by clearing the way for the State to conclude specific types of dispute resolution agreements without internal issues such as ultra vires arising and as such it provides a sense of certainty for investors.274
260.
Given its broad scope and general nature, the 1999 Decree is not, in the opinion of the Tribunal, the kind of law to every provision of which distinct legal effect is necessarily to be given. In that respect it differs from legal instruments with a single purpose such as declarations accepting the compulsory jurisdiction of the International Court of Justice under Article 36(2) of its Statute. Accordingly, on the matter of effective interpretation, the Tribunal agrees with the contentions made by the Respondent.
262.
Accordingly, the Tribunal concludes that it does not have jurisdiction under Article 22 of the Investment Law. It follows that it need not consider the Respondent’s contention that the Tribunal does not have jurisdiction over ConocoPhillips Company’s claims on the basis that ConocoPhillips Company is not an "international investor" under Article 22 of the Law.
263.
Another consequence of the ruling that Venezuela by way of Article 22 does not consent to international arbitration is that the Tribunal does not have jurisdiction over the claim made by ConocoPhillips Company based on its loss of future tax credits. It will be recalled that only ConocoPhillips Company and not the Dutch companies made that claim and that ConocoPhillips Company is not able to claim under the Dutch BIT. In any event, after the present Tribunal has issued its Award, ConocoPhillips Company will be at liberty to consider any measure which Venezuela may adopt with respect to any element of the Award that has a bearing on US tax credits of ConocoPhillips Company and then decide whether such measures give rise to any claim before an appropriate forum.

C. Article 9 of the Bilateral Investment Treaty Between the Netherlands and Venezuela

264.
Article 9, paragraphs (1), (3), (4) and (5) of the Treaty provide as follows:

1. Disputes between one Contracting Party and a national of the other Contracting Party concerning an obligation of the former under this Agreement in relation to an investment of the latter, shall at the request of the national concerned be submitted to the International Centre for Settlement of Investment Disputes, for settlement by arbitration or conciliation under the Convention on the Settlement of Investment Disputes between States and Nationals of other States opened for signature at Washington on 18 March 1965.

3. The arbitral award shall be limited to determining whether there is a breach by the Contracting Party concerned of its obligations under this Agreement, whether such breach of obligations has caused damages to the national concerned, and, if such is the case, the amount of compensation.

4. Each Contracting Party hereby gives its unconditional consent to the submission of disputes as referred to in Paragraph 1 of this Article to international arbitration in accordance with the provisions of this Article.

5. The arbitral award shall be based on:

- the law of the Contracting Party concerned;

- the provisions of this Agreement and other relevant Agreements between the Contacting Parties;

- the provisions of special agreements relating to the investments;

- the general principles of international law; and

- such rules of law as may be agreed by the parties to the dispute.

265.
The three Dutch claimants contend that Venezuela has consented to ICSID arbitration under Article 9(1) in respect of their claims:

(1) CPZ, CPH and CGP are Dutch nationals within the definition of "nationals" in Article 1(b) of the BIT:

[t]he term "nationals" shall comprise with regard to either Contracting Party... (ii) legal persons constituted under the law of that Contracting Party.

(2) The dispute concerns qualifying investments of the three companies in Venezuela within the meaning of Article 1(a) and 9(1). "Investments" include "rights derived from shares, bonds and other kinds of interest in companies and joint ventures".

(3) A dispute in relation to an investment as defined in Article 9(1) is present here. The claims in the arbitration concern Venezuela’s obligation under the Treaty and international law in relation to the investments of CPZ, CPH and CPB in the Venezuelan hydrocarbons sector.275

266.
The Respondent contends that the three companies cannot gain access to ICSID under the Dutch Treaty for two reasons:

(1) the claimants are "corporations of convenience" created in anticipation of litigation against the Respondent for the sole purpose of gaining access to ICSID; and

(2) the investments relied on by CPH and CGP are indirect investments and fall outside the definition of an investment, which does not extend to investments in Venezuela owned or controlled indirectly by Dutch nationals through one or more intermediaries.276

267.
The Respondent also contends that, even if those arguments do not succeed, several of the claims would fail because, at the time the particular measure that was at the basis of the claim was taken, the Dutch claimants were not in existence or had not been inserted into the corporate chain of ownership.277 It will be seen that the facts relating to this argument and the argument about "corporations of convenience" overlap.

(1) "Corporations of Convenience"

268.
The Respondent cites a number of ICSID decisions in support of its argument that, notwithstanding that the claimants in those cases technically met the nationality requirements of the relevant treaties, the tribunals refused, or considered refusing, the claims. The basis for such refusals was, in the Respondent’s terms, abuse of the corporate form and blatant treaty or forum shopping, which should not be condoned. On the facts, it says that ConocoPhillips had no valid business purpose for this corporate restructuring and the Tribunal should find that it has no jurisdiction under the BIT.
269.
The Claimants have two responses. The first relates to the facts, including the timing of the restructuring of their investments in Venezuela which, they say, occurred before the dispute arose. They made those investments before the changes were made in the tax law and before the investments were confiscated. Second, there is no principle of law, they contend, which precludes a corporation from altering its form, by creating subsidiaries or reincorporating to benefit from the protection of another country’s laws.278
270.
That last contention of the Claimants is supported, in their view, by the relevant part of the definition of "nationals" — they are "legal persons constituted under the law of that Contracting Party [the Netherlands]". The Parties in determining the personal scope of the BIT did not include any additional element of control, as provided in subparagraph (iii) of the definition of nationals for legal persons constituted under the law of a third State, a test which is elaborated in the Protocol to the Treaty but only in respect of that specific part of the definition of a national.279
271.
Four of the cases cited by the Parties share two significant features. The first is that the definition, or its relevant part, of "investors", "legal persons" and "companies" is essentially to the same effect as the definition of nationals in Article 1 (b)(ii) of the BIT:280

a. an "investor" includes an entity established in the territory of the Ukraine in conformity with its laws and regulations.281

b. "nationals" include legal persons constituted in accordance with the law of that Contracting Party...,282

c. "investor" includes "legal entities incorporated or constituted in accordance with Israel’s laws and having their permanent seat in the territory of the State of Israel.283

d. definition applicable in this case, in the Mobil case.

272.
The second significant feature is that, in those cases, the tribunals deciding the challenges to jurisdiction did not dismiss the challenges simply on the basis that those formal requirements were met — as they were, and, as the Respondent accepts, they were here.284 The tribunals went on to consider whether the objection to jurisdiction should be upheld on a distinct broader basis. In the third case, the tribunal did in fact uphold that challenge. In another case, Autopista Concesionada de Venezuela, C.A. ("Aucoven") v. Bolivarian Republic of Venezuela,285 which turned on the definition of "national of another Contracting Party State" in Article 25(2)(b) of the ICSID Convention itself, the tribunal similarly did not limit itself to the parties’ definition of foreign control in their concession agreement — the expression used in Article 25(2)(b). While accepting that it could not discard the criterion which the parties had established, it did qualify that proposition in the event that the criterion proved "unreasonable".286 It then considered matters of fact similar to those considered in the other four cases mentioned and those which are taken up later in this Decision.
274.
It may be observed that, apart from the ICSID cases, the authorities cited concern claims that States have abused their powers or acted in bad faith. In the present context, the doctrine is being invoked in relation to the actions of a corporate body, not of a State, but it is a corporate body seeking to make use of a procedure of an international character to settle a dispute with a State, set up by States which drafted, concluded and accepted the Convention. That Convention has as its purpose to establish a "Centre... to provide facilities for conciliation and arbitration of investment disputes between Contracting States and nationals of other Contracting States in accordance with the provisions of the Convention".290 There is jurisdiction only if the parties to the dispute have each consented and throughout the process each is treated on an equal footing, as indeed the principles of due process and natural justice require. That equality of position in the present context is, in this Tribunal’s view, a further factor supporting the growing body of decisions placing some limits on the investor’s choice of corporate form, even if it complies with the relevant technical definition in the treaty text.
276.
The facts relating to the incorporation of the Dutch companies and their placing in the chain of ownership of the projects appear earlier in this Decision. In brief:

a. The three projects began in the 1990s. The Petrozuata and Hamaca projects were set up through US companies in 1995 and 1997 and, although the Corocoro project was undertaken initially in 1996 through a Dutch company (Conoco Venezuela BV), those interests were transferred three years later to a Venezuelan company (Conoco Venezuela CA).

b. The Dutch companies were incorporated and took interests in the projects as follows:

• CPZ was incorporated on 26 July 2005 and the relevant ownership interest was transferred to it on 27 July 2005;291

• CGP was incorporated on 26 July 2005 and the relevant ownership interest was transferred to it on 11 August 2005;292 and

• CPH was incorporated on 17 July 2006 and the relevant ownership interest was transferred to it on 22 September 2006.293

c. The record includes notifications to the Venezuelan Mercantile Registry in respect of CPZ on 3 November 2005294 and on 9 January 2007,295 and to PdVSA on 25 September 2006;296 and in respect of CGP on 11 January 2007.297

277.
Those steps and their timing are to be related to the elements of the claims and other significant events as follows:

a. 10 October 2004 : the royalty rate increase announced on Venezuelan television, which was protested by letter from ConocoPhillips on November 22, 2004, following which the protest was withdrawn on 14 January 2005.

b. 12 April 2005 : the Minister of Energy and Mines declared the illegality of the Operating Service Agreements and the initiation of the "migration" of those agreements to a new form of mixed companies under the 2001 Hydrocarbons Law.

c. 26 April 2005 : Vice Minister Mommer announced to ConocoPhillips that enhanced 30 percent royalty rates would be applied to production of between 120,000 and 145,000 barrels a day.

d. June 2005 : Minister Ramirez announced that the income tax law would be amended.

e. 16 May 2006 : the 33% percent extraction tax was enacted.

f. 29 August 2006 : the tax law was amended so that the income tax rate for extraheavy oil producing companies was raised from 34 percent to 50 percent.

g. 1 January 2007 : the law increasing the income tax rate for extra-heavy oil companies to 50 percent took effect.

h. 8 January 2007 : President Chávez announced the nationalisation of all projects operating outside the framework of the 2001 Hydrocarbons Law.

i. 31 January 2007 : ConocoPhillips sent a letter to the Venezuelan Government giving notice of a dispute and referring to the events described at (e), (f), (g) and (h) above.298

j. 26 February 2007 : Decree Law 5,200 calling for the transformation of all oil associations into mixed companies was promulgated.

k. February to June 2007 : negotiations took place concerning ConocoPhillips’ interests in the projects.

l. 1 May 2007 : PdVSA took physical control of the projects.

m. 26 June 2007 : the four month period for reaching agreement under (j) above expired and Venezuela took ConocoPhillips’ interests in the projects.

278.
Against that chronology and bearing in mind the matters weighed by other tribunals considering objections to jurisdiction made on the basis of "treaty abuse", this Tribunal makes a number of observations. The first is that the transfers of ownership in 2005 and 2006 did not attempt to transfer any right or claim arising under ICSID or a BIT from one owner to another. Indeed, at the time of the transfers, ConocoPhillips had withdrawn its only claim of breach and had done that in the clearest of terms. It was not until May 2006 that the first of the actions, which were later to be the subject of the letters from ConocoPhillips notifying the Venezuelan government of a dispute, was taken. The Tribunal later considers the significance of the date of that measure and of 29 August 2006 for the CPH claim.
279.
It is the case, to turn to a second matter, that the only business purpose of the restructuring, as acknowledged by the Claimants’ principal witness on this matter, was to be able to have access to ICSID proceedings.299 But as against that, as already noted, no claim had been made at the time of the restructuring and, subject to the qualification made in respect of the claims by CPH about the two measures taken in 2006, none was in prospect at the times of the restructurings.
280.
One major factor indicates that ConocoPhillips wished to continue to carry out the projects and that proceedings under the BIT were not in prospect at that time. That factor, a very weighty one in the Tribunal’s opinion, is ConocoPhillips’ continuing expenditure on the projects. According to its evidence, which was not challenged, ConocoPhillips invested approximately U.S.$ 434 million on the three projects after the decision to restructure was made in mid-2OO5.300 The total ConocoPhillips’ expenditure after the enactment of the Investment Law was U.S.$ 5.3 billion.301 For the Tribunal, this continued substantial involvement in the development and operation of the projects is evidence telling strongly against any finding of treaty abuse.
281.

Accordingly, the Tribunal rejects that challenge to jurisdiction.

(2) Indirect Investment

(3) Ratione Temporis

287.
The Respondent contends that the Tribunal has no jurisdiction over the claims made by CPH in respect of the extraction tax that was enacted in May 2006 and the amendment to the Income Tax Law enacted in August 2006 before that company was inserted in September into the corporate chain relating to the Hamaca project. The Claimants and CPH in particular do not challenge the principle that the Dutch companies have no claims in respect of actions taken by Venezuela before they had acquired the relevant interest.
288.
The law increasing the extraction tax to 33% percent came into force on 24 May 2006 and, accordingly, CPH can make no claim in respect of it.
289.
While the income tax increase was enacted before CPH was inserted into the chain of ownership in the following month, September 2006, the increase did not come into effect until 1 January 2007.307 Which date is decisive? The date of the enactment of the law providing for the increase or the date it took effect in the law? In principle, the Tribunal considers that a breach of obligation does not occur until the law in issue is actually applied in breach of that obligation and that cannot happen before the law in question is in force.308 In this particular context the relevant date was 1 January 2007, some months after CPH acquired its ownership interest. Accordingly the Respondent’s objection to the Tribunal’s jurisdiction over CPH’s claim based on the increase in income tax must be rejected.

D. Conclusion

290.
For the foregoing reasons the Tribunal decides that:

a. It does not have jurisdiction under Article 22 of the Investment Law and that accordingly the claims by ConocoPhillips Company are dismissed; and

b. It has jurisdiction under Article 9 of the Bilateral Investment Treaty over:

i. the claims brought by ConocoPhillips Petrozuata BV, ConocoPhilips Hamaca BV and ConocoPhillips Gulf of Paria BV in respect of (1) the increase in the income tax rate which came into effect on 1 January 2007 and (2) the expropriation or migration; and

ii. the claims brought by ConocoPhillips Petrozuata BV and ConocoPhillips Gulf of Paria BV in respect of the increase in the extraction tax in effect from 24 May 2006.

The Tribunal recalls that one consequence of its decision above relating to Article 22 of the Investment Law is that it does not have jurisdiction over the claim by ConocoPhillips Company based on its loss of future tax credits.309

VII. MERITS

A. Claims for Breach of the Obligation of Fair and EquitableTreatment: Articles 3 and 4 of the Netherlands-Venezuela Treaty

(1) Introduction

291.
The Claimants base their claims of breaches by the Respondent of its obligation to accord their investments fair and equitable treatment on the requirements to that effect included in the Investment Law and the Treaty. Since the Tribunal has held that it has no jurisdiction over the claims brought under the Investment Law, this section of the Decision is concerned only with the obligations owed to the Dutch companies and arising under the Treaty.
292.
Article 3 of the Treaty places an obligation on each Contracting Party to ensure the fair and equitable treatment of the investments of nationals of the other Contracting Party. It is in these terms:310

(1) Each Contracting Party shall ensure fair and equitable treatment of the investments of nationals of the other Contracting Party and shall not impair, by arbitrary or discriminatory measures, the operation, management, maintenance, use, enjoyment or disposal thereof by those nationals.

(2) More particularly, each Contracting Party shall accord to such investments full physical security and protection which in any case shall not be less than that accorded either to investments of its own nationals or to investments of nationals of any third State, whichever is more favourable to the national concerned.

(3) If a Contracting Party has accorded special advantages to nationals of any third State by virtue of agreements establishing customs unions, economic unions, monetary unions or similar institutions, or on the basis of interim agreements leading to such unions or institutions, that Contracting Party shall not be obliged to accord such advantages to nationals of the other Contracting Party.

(4) Each Contracting Party shall observe any obligation it may have entered into with regard to the treatment of investments of nationals of the other Contracting Party. If the provisions of law of either Contracting Party or obligations under international law existing at present or established hereafter between the Contacting Parties in addition to the present Agreement contain a regulation, whether general or specific, entitling investments by nationals of the other Contracting Party to a treatment more favourable than is provided for by the present Agreement, such regulation shall to the extent that it is more favourable prevail over the present Agreement.

In a Protocol to the Treaty signed on the same day as the Treaty as "an integral part" of it, the Contracting Parties agreed to the following:311

2. Ad Article 3(1):

The Contracting Parties agree that the treatment of investments shall be considered to be fair and equitable as mentioned in Article 3, paragraph 1, if it conforms to the treatment accorded to investments of their own nationals, or to investments of nationals of any third State, whichever is more favorable to the national concerned, as well as to the minimum standard for the treatment of foreign nationals under international law.

293.
That detailed specification of the fair and equitable treatment standard constitutes one departure from the model Netherlands BIT, a model followed in scores of other Dutch treaties. A second departure is the use of the word "arbitrary" instead of "unreasonable" in the second limb of Article 3(1): the obligation not to impair, by arbitrary or discriminatory measures, the operation... of the investments by the nationals of the other Party. There is also a third departure, namely, the specification of the applicable law included in paragraph (5) of Article 9 on applicable law beginning with the law of the Contracting Party concerned, an addition to the model. It does not appear to have a particular significance in this case, but it is to be related to the general position of Venezuela in the negotiation of the BIT, discussed in the next paragraph.
294.
The reporting by both Contracting Parties to their legislatures, when seeking approval of the ratification of the Treaty, makes it clear that these changes were made at the request of the Venezuelan negotiators and to respond to their concerns. The letter from the Netherlands’ Minister for Foreign Affairs to the Dutch Parliament explained that:312

The Venezuelan delegation had problems with the [usual] formulation of [the general article for the treatment of investors]. Because the carrying out of obligations under this article can also be the subject of disagreements between an investor and a host country which can be presented for international arbitration, the Venezuelan delegation feared that under the wording of this article the scope of the international arbitration provision was not narrow enough and thus opened the possibilities for misuse. To appease these objections, the word ‘arbitrary’ has been substituted for ‘unreasonable’. Also, a protocol-text (section 2) has been laid down in which the basic treatment is further defined as containing either national treatment, or most-favored-nation treatment, depending on which of the two treatments is the most favorable for the investor. Apart from that, the treatment must fulfill the minimum standard under international law for the treatment of foreigners.

The letter goes on to explain that the paragraph about applicable law was added in response to "fundamental objections" initially presented by Venezuela to international arbitration, based on the Calvo doctrine. The agreed text "can be seen as a break-through".313 The Explanatory Statement to the Venezuelan Congress is to the same effect:

Treatment not inferior to the minimum required by International Law for the treatment of foreign nationals. This is, by definition, a pre-existing obligation of the Parties, independently of the Agreement. Its express inclusion in the Protocol which is an integral part of the Agreement has, however, a great importance because it specifies expressions such as ‘fair and equitable treatment,’ and thus limits the discretion of eventual arbitrators when examining the behaviour of any of the Parties.314

(2) The Relationship between Articles 3 and 4

295.
The claims based on Article 3 were at first put in terms of what the Claimants saw as guarantees of fiscal stability given by the Respondent in respect of their investments in the three projects. Later, as will appear, the submissions emphasised what the Claimants saw as breaches by the Respondent of their reasonable or legitimate expectations based on regulatory frameworks, breaches caused by various increases in income tax and royalties or extraction tax.
296.
The Respondent disputes the factual and legal bases of the contentions advanced by the Claimants under Article 3. The Respondent also submits that, as a matter of interpretation of the BIT, the various changes in tax and royalty rates that it introduced do not fall within the scope of Article 3; rather they are to be assessed by reference to Article 4. As a matter of convenience and logic that submission is considered first.

(3) The Effect of Article 4

(4) The Ordinary Meanings and Purposes of Article 3 and Article 4