0ORR~CK

October 12. 2007 Robert L Sills(212)506-5110rsills@orrick.com

BY HAND

Ms. Ana Palacio

Secretary GeneralInternational Centre for Settlement

of hwestment Disputes1818 H Street, N.W.Washington, DC 20433

E.T.I. Euro Telecom International v. Republic of Bolivia

Dear Ms. Palacio:

On behalf of our client. Claimant E.T.I. Euro Telecom International B.V.("E.T.I."). I enclose the original and five copies ofE.T.I. 's Request for Arbitration (the"Request") against Respondent Republic of Bolivia, dated October 12, 2007. together with ourfinn's check for the lodging fee of $25,000. In accordance with Institution Rule 1(1),E.T.!.states that it requests arbitration, and not conciliation.

. .

I note that, on May 2,2007, the World Bank received from Respondent a writtennotice of denunciation of the Convention on the Settlement of Investment Disputes betweenStates and Nationals of Other States (the "Convention"). That denunciationwill take effect OuNovember 3,2007. Respondent's denunciation of the Convention is irrelevant to this proceedingunder Convention Article 72. Nonetheless. to avoid unnecessary jurisdictional disputesbased onthe date of registration of the Request, ETI respectfulIy a.sksthat the Request be registered, jfpossible, before November 3,2007.

Very truly yours,

~~L.~Roben L. Sills

Encs-

RLS/ddj

1. INTRODUCTION

L E.1'.L Euro Telecom International N.V. (the "Claimant"), a national of the Kingdomof the Netherlands, submits this Request for Arbitration (the "Request") to theSecretary-General of the Intemational Centre for Settlement of Investment Disputes("ICSlD" or the "Centre") in accordance with Article 36, paragraph 1 of theConvention fQr the Settlement of Investment Disputes between States and Nationalsof Other States (the "Convention").

2. As described below, the Request concerns a legal dispute bet\veen the Claimant andthe Republic 'of Bolivia (the "Respondenf'), lU1derthe tcnns of the Agreement onEncouragement and Reciprocal PrOtection of Investments between the Kingdom ofthe Netherlands and the Republic of Bolivia (the "BIT"), I arising directly out of theClaimant's investment in Empresa Nacional de Telecomunicaciones El.1telS.A. (the"dispute"). Empresa Nacional de Telecomunicaciones Bntel S.A. ("ENTEL") is theleading telecommunications servioes provider ill Bolivia.

3. Following this Introduction, the other sections of this Request deal with (1) theParties; (ll) the consent by the Claimant and the Respondent (together, "the Parties")to the jurisdiction of the Centre; (HI) the existence of a legal dispute between theP~lties arising directly out of an investment; (IV) the jurisdiction of dIe Centre; (V)the constitution of the Tribunal; (VI) other particulars; and (VU) subm.issions. ThisRequest is accompanied by the AmIexeslisted at paragraph 76 below.

Il. THE PARTIES

Name and Address of the Parties

4. The Claimant is E.T.I. Euro Telecom International N.V., a legal or juridical person(such terms being synonymous) constituted in accordance with the law of theNetherlands. The Claimant's address is:-

Strawinskylaan 16271077XX AmsterdamThe NetherlandsAttn: Jerry SurowiecFacsimile: +31-20-30-10951Telephone: +31-20-30-10950E-mail address:j.surowiec@timint.nl

5. The Respondent is the Rcpub1ic of Bolivia. DIe Respondent's address is;

c/o His Excf:llencyEvo Morales AymaPr~sidente Constirucional de la RepublicaPalacio de GobiemoLa Paz, Bolivia

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Signed on March 10, 1992; entered into force on November I, 1994.A copy of theHIT is attached as Annex A.

and

clo His Exccl1~ncyDavid Choquehllanca CespcdesMinistero de Relaciones Exteriores y Cu1toPlaza Murino -c.lngavi esq. c. JunfnLa Paz, BoliviaTelephone: +(591)(2) 2408900 ~ 2409114 -2408397 - 2408595 -2408405Facsil11ile: + (591 )(2) 2408642 -2408905 - 022112163E-mail: mreuno@rree.gov-bo

l1ze Re~ponde/lt is a Contracting State

6. The Respondent has been a Contracting State to the Convention Ca "Contra.ctingState") since July 23, 1995 and remains a Contracting State at the date of theRequest. 2

7. On May 2, 2007, the World Bank. the depositary of the Convention, received theRespondent's notice of denuncia.tion of the Convention.3 In accordance with Article71 of the Convention, the denunciation will take effect on November 3, 2007- Inaccordance with Article 72 of the Convention, however, the Respondent's notice ofdenunciation does not affect Respondent's rights or obligations under the Conventionarising out of Respondent's consent to the jurisdiction of the Centre. given byRespondent before the notice of denunciation was received by the depositary. TheRespondent gave its consent to the ju.risdiction of the Centre on November 1, 1994upon the entry into force of the BIT. The Respondent's denunciation of theConvention, therefore, does not aftect its rights or obligations arisin,g out of itsconsent, ill,c1udingits obligation to have the present dispute settled through arbjtrationin accordance with the Convention.

The Claimant is a National of Altother Contracting State

8. The Convention does not provide a complete set of criteria for detem)jning thenationality of a juridical person. Place of constitution or incorporation and place ofregistered seat have been generally accepted as criteria for detemlining the nationalityof juridical persons under international law. Having been constituted in theNethedands, the Claimant is a national of the Netherlands in accordance with thosegenerally accepted criteria.

9- In addition, it is generally accepted that the parties to a dispute may agree on thenationality of a juridical person for the purposes of the Convemion within reasonablebounds. It is well-sen1ed that an agreement on place of constitution Or incorporation

2

3

The Convention uses the expression "Contracting State" to wfer tQeach State party tothe Convention in the meaning given to "parry" by Article 2( 1)(g) of th~ ViennaConvention on the Law of Tl'eaties: "'parry' means a State which has consented to bebound by t.heh'eaty and for which the treaty is in force"-

Srte the ICSID News Rcl~ase dated May 16,2007, accessible from ICSID's web sit"at Imp:llwww.\vorldbank.org/icsid/highlights/05-16~07.htm.

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as the applicable criteria is reasonable and would be binding on the Pa.rtiesunder theConvention.

10. In this case, the Parties have agreed, pursuant to Article l(b)(ii) of the BIT, that theterm. "nationals" of a Contracting State to the BIT shall include, with regard to eachContracting State, lega.l persons constituted in acc.ordance with the law of thatContracting State. This agreement of the Parties applies to conciliation andarbitration under the Convention by virhle of Article 9(6) of the BIT. In accordancewith the agn~ement of the Parties, therefore, the Claimant is a national of theNetherlands.

11. The Netherlands has been a Contracting State since October 14, 1966 and remains aContracting State at the date of the Request.

12. The Claimant is a national of th<: Netherlands, and has been a national of theNetherlands since it was constituted in accordance with the laws of the Netherlands inMarch 1995.

B. The Claimant is, therefore, a national of another Contracting State (that is, a nationalof a Contracting State other than the Respondent) as provided for in Article 25(2) ofthe Convention.

14. The beneficial owner of Claimant is Telecom ltalia. S.p.A. ("TI"), a companyorganized under the laws of the Republic of Italy. TI's beneficial ownership interestin the Claimant is held as foHows. TI OWns100% of Telecom Italia InternationalN.V. ("TIr'), a company organized under the Laws of the Netherlands, which holdsinvestments in several telecommunications companies worldwide. TITowns 100% ofInternational Communication Holding N.V. ("ICH")) also a company organized underthe Laws of the Netherlands. ICH, in turo, owns 100% of the C1a.imant

15. In light of the well accepted illternatiol1a1law principles and the unambiguous tennsof the BIT described above, there can be no reasonable dispute that the Claimant is anational of the Netherlands given that the Claimant is constituted in accordance withthe laws of the Netherlands. Nonetheless, the Claimant anticipates that theRespondent may assert that Claimant is a national not of the Netherlands, but ofItaly.Although, for the reasonS set out above, any such argument wouJd be unfounded,Claimant notes that the Treaty Between the Government of the Republic of Italy andthe Government of the Republic of Bolivia Regarding the Promotion and Protectionof Investments, signed April 30, 1990, and entered into force February 22, 1992 (the"Haly-Bolivia BlT"), is in fun force and effect. The Italy-Bolivi~ BIT providesClaimant with substantially the same rights to proceed before the Centre as the BIT,and would, if applicable, Iikc\vise constitute consent by Respondent to the jurisdictionofthc Centre, as described below.

16. The Claimant has taken an necessary internal actions to authorize the Requ.est, asevidenced in the resolution of its Board of Directors attached as Annex B, and inconfom1ity with Institution Rules 2(1)(f) and 2(2).

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Hr. TH:E PARTIES' CONSENT TO THE JURISDICTION OF THE CENTRE

The ResPQlldel/.t'"~. Consent

17. The Respon.dent has given its consent to submit the dispute to the Centre. forarbitration in accordance with the Convention, in Article 9(6) of the BIT, whichprovides:

"Ifboth Contracting Parties have acceded to the Convention on the Settlemuntof Investment Disputes between States and Nation.alsof other States of March18, 1965, any disputes that may arise from investment between One of theContracting Parties and a national of the other Contracting Party shall, inaccordance with the provisions of that Convention, be submitted forconciliAtion Or arbitration to tbe international Centre for Settlement ofInvesh!!.eutDisputes."

18.111e Respondenes consent became effective upon the combination of the entry intoforce of the BlT, on November 1,1994, and the enny into force for the Respondentof the Convention OnJuly 23, 1995. The Respondent's consent given in Article 9(6)of the BIT has already been determined to provide the basis for tb.ejurisdiction of theCentre in an arbitration proceeding entitled Aguas del TUl2ariS.A. v Republic ofBolivia (ICSID Case No. ARB/02/3). The Atbitral Tribunal in that proceeding issueda decision dated October 21, 2005, upholding its jurisdiction. A copy of the Decisionon Respondent's Objections to Jurisdiction in that matter is available athttp://www.worldbank.org/icsidlcases/adt- en.pdf.

The Claimant's Ct)Tlsent

J

19. The Claimant gave its consent to submit the dispute to the Centre, for conciliation orarbitration in acc.orelance with the Convention, by, imer alia, its letter to theRespondent dated April 30, 2007, a copy of which is attached as Annex C. In itsletter dated Apli130, 2007, the Claimant raised the dispute with the Respondent in tbeprecise terms of the BIT, and according1ybecame bound as of that date to submit thedispute for conciliation or arbitration to the Centre i1\accordance with Article 9(6) ofthe BIT.

20. This Request for Arbitration restates in writing the Cla.imant's consent to submit thedispute to the Centre for arbitration in accordance with the Convention. If for anyreason the Claima.nt's letter dated April 30, 2007 wet:edetem1ined not to constitute awritten consent in accordance with the Convention, then this Request constitutes s"Uchwritten consent.

The Date of Consent of the Parties

21. 'D1eRespondent acted to consent to submit the dispute to the Centre OnNovember 1,1994, such consent becoming effective On July 23, 1995. The Claimant acted toconsent to submit the dispute to the C~ntl'e On April 30) 2007. It fol1ows thar the"date of consent" of the Pa~1iesfor the purposes of the Convention is April 30, 2007,the date 011whiCh the second of the Partius acted to gi'v~consent, in accordance withInstitution Rule 2(3). Alternatively, the "daw of consent" is October 12, 2007, thedate ofthig Request for Arbitration.

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22. It follows, accordingly, that the Parties have consented in writin.g to submit th~dispute to the;;;Centre for settlement by arbitratio11 in accordance with the Convention,as set forth in Article 9(6) of the BIT and that the Claimant is entitled to initiatearbitration proceedings by means of this Request in accordance with the Convention.

IV. THERE IS A LEGAC DISPUTE BETWEEN TIJE PARTIES ARISINGDIRECTL Y OUT OF AN INVESTMENT

There Is a Lf:gal Dispute hetween the Parties

23. To qualify as a "legal dispute" for the purposes of Article 25(1) of the Convention, adispute:

"must concern the existence Qr scope of a legal right or obligation or the.nature or extent of the reparation to be made for breach. of a legal obligation. '~-)

24. The dispute in this case concerns the Respondent's breaches of its obligations underthe BIT and the Respondenfs violations of the Claimant's rights under the BIT, withrespect to the Claimant's investment in Bolivia, as well as the Respondent'sobligation to pay compensation to the Claimant as reparation fOTthe Respondent'sbreaches of the BIT.

25. The dispute thus concerns the scope of the Claimant's rights and the scope of theRespondent's obligations under the BIT and the ex.tentof reparations to be made by

. the Respondentfor breach of its legalobligationsunderthe BIT. There is therefo(ealegal dispute between the Parties.

The Claim4nt has made a substantial investment in Bolivia

26. In the 19908, the Respondent instituted a program to refonn and reorganize the $tatc-owned sectors of the economy. The Respondent's program included plans for theprivatization of certain State-owned enterprises through the sale of a controllinginterest iT!th~ir ~tock, together with a commitment by the purchaser to cause theacqu.ired et:!terprise to make investments in infra.structure in accordance with theagreement of the parties. In light of such commi1ments to invest by the prospectivepurcha.sers of sha.res, the program was known in Bolivia as. the program for the"capitalization" of State-owned enterprises. The capitalization program wasimplemented through the Respondent's Law No. 1544, dated March 21, 1994.

27. One of the enterprises subject to the capitalization program was the incumbenttelecommunications service provider, t'ENTEL". Founded in 1965 as a State-O\vnedcompany, ENTEL became a State enterprise under ministerial control in 1966. TIledevelopment of infrastructure and services over the following 30 years Wasmoderateat best. In June 1995, ENTEL again became a partially State-owned company for thepurposes of the Respondent's capitalization program. Following its successfulcapitalization, in which the Claimant ac.:quired a controlling interest throughsubscribing for and paying into the company a capital increase of lJSD 610 miUion,

.'

4Report ofth0 World Bank Executive Directors submitting the Convention to thesignature and ratification of the World Bank member States, March 18 1965,atparagraph 26.

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ENTEL experienced the largest infrastructure investment program in me history ofBolivian telecommunications. In 1996, ENTEL entered the Bolivian mobiletelephony market., of which it now has by far the largest share due to leadingtechnology and infrastTUctUre. ENTEL retained its long distance monopoly untilNovember 2001, when long di$tance service was deregulated and opened tocompetition.

28. On June 6, 1995, the Respondent invited the Claimant to participate in aninternational tender for bids to acquire a 50% shareholding in ENTEL withmanagement control. The Claimant duly submitted its bid pursuant to the tender, and,On September 29, 1995 the Respondent notified the Claimant that its bid had beenpreferred. On November 27, 1995, the Claimant entered into a Share SubscriptionAgreement (the "Share Subscription Agreement") among Claimant, Respondent andENTEL to subscribe and acquire a 50% shareholding in ENTEL, as well asmanagement control. In accordance with the Share Subscription Agreement, theClaimant subsequently invested USD 610 million in ENTEL, a1JdENTEL issued newshares to ET! so that ET! held 50%. The remaining 50% of the shareholding inENTEL was managed by two Bolivian pension fund adrninistrat01:sOnbehalf of theentire over-age population of Bolivia (approximately 47.5%) and by the employees ofENTEL (approximately 2.5%). The shares held by the pension fund administrators,however, have now been transfelTed to the Respondent by virtUeof Supren1eDecreeNo. 29101.

29. In accordance with the terms of its investment, the Claimant proceeded to causeENTEL to make substantial investments in Bolivia's telecommunicationsinfrastr:ucture. By August 2007, ENTEL had made such investments, on aconsolidated basis, in an amount ex.ceedingUSD 725 million.

30. The Respondent, by itS Supreme Decree No. 28172 dated May 19, 2005 andMinisterial Resolution No. 194 dated August 12, 2005, confmned that ENTEL a.ndthe Claimant had fulfilled their obligations under t"heShare Subscription Agreemept.In rehance on those official act.ions by the Respondent, on September 25, 2005 theshareholders of ENTEL carried out a reduction in its capital and a distribution of thecorresponding amounts of capital to all of its shareholders.

31. As a result of Claimant's investment in ENTEL, and the benefitS that flowed !l'omENTEL's association with Telecom ItaIia, one of the most prominentteleconlmunications operators, Respondent and the inhabitants of Bolivia enjoy adramatically improved telecommunications infrast!ucture. ENTEL's achievementsinclude a significant increase in the penetration of telephone services in Bolivia; thedevelopment of new, modem and efficient services, including inrernet and mobiletelephone services; consistent growth as a leading telecommu.nications company inthe region; a source of employment and high-value technical training for Boliviancitizens; and, through the shareholding of Bolivian stakeholders (until such share!.were h-allsfcrredto Re~pondent), becoming a.secure, efficient and economically soundSource of revenue for such stakeholdet:s. For example, in Octob0r 2006, bNTELundeliook to provide mobile phone coverage and internet access to more than 1,000local communities throughout the nine administrative distrkts of the:;territory ofBolivia over a period of 24 months.

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l1ze Claimant Ims un investmel1(/or the purposes of the Crmventiol1

~ 32. The Convention does not define the term "investment". Th\::ordinary meaning of theterm, however, includes the purchase of an equity interest in.a company. When sucha purcha.se is substantial and made abroad for the long tenn, as in the case of theClaimant's purchase of a 50% equity participation in ENTEL, it qualifies under well~accepted usage as a fonn of foreign direct investment.5 In the consjst~ntjurisprudence of al.'bitraltribunals constituted pursuant to the Convention, it has neverbeen questioned that foreign direct investment qualifies as a form of "inVest111em"forthe purpose of Article 25(1) of the Conventioll.6

33. In addition, and without limitation, by virtUe of Al1icle 1(a)(ii) of the BIT, the Partieshave agreed to include, inter alia, "rights derived from shares, bonds and other kindsof interests in companies and joint ventures," such as th.e rights that the Claimantenjoys from. its shareholding in ENTEL, as fonns of investments for the purposes ofthe BIT. This definition applies to Article 9(6) of the BIT, which sets forthRespondent's consent to arbittate before ICSID, in accord&ncewith the provisions ofthe Convention, "any disputes that may arise from investment between one of theContracting Parties and a national of the other Contracting Party. . . ." In light of thefact that the te:rm"investmenf' is not defined in me Convention, leading commentaryand the jurisprudence of arbitral tribunals has given effect to this type of agreementwhen it falls, as it does in this case, within reasonable bounds. )

34. Accordingly, the Claimant has an investment for the purposes of the Convention.

The Respondi;1It took measures against the Claimant's investment in .../iolationof the BIT

35. On Janumy 22, 2006, President Evo Morales, the leader of the "Movement TowardsSocialism", took office in Bolivia on an' electoral platfonn advocating significantState intervention in the Bolivian economy. The Respondent's initial implementationof this platform was aimed at the nationalization of the hydrocarbons industry. OnMay l, 2006 the Respondent issued Supreme Decree No. 28701 nationalizing thecountry's hydrocarbon resources.?

36. [n June 2006, the Respondent published a national development plan whi.chcontemplated the re-nationalization of various formerly State-ownc:;:denterprises thathad been privatized under the capitalization program in accordance. with Law No.1544, enacted on March 21, 1994. Rather than enact new legislation to implementtha.t change of policy, however, the national development plan fo~esaw that re-nationalizatiQn would take place through administl.'ativeaction through the reversionto tbe State, where applicable, of the sha.res managed by the pension fundadministrators on behalf of the over-age population of Bolivia and through thepurchase of additional shares necessary to give the State at least a 51% shareholdingin each company.

5 Stte World Bank Guidelines on the Treatment of Foreign Direct Investment, 1992.

See Feda..;(N. V. v. Venezuda (ICSID Case No. ARB/96/3), Decision on Jurisdic~iondated July 11, 1997; Telenor Mobile Communications itS v Rtpublic of J-Jul1gaty(rCSID Case No. ARB/04/15), Award dated September 13, 2006, at:paragraph 60.

Reprillted in 45 International Legal Materials 1020 (2006).

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37. In the months following the publicarion of the na.tional development plan, theRc;spondent initiated a canmaign of unfair and inequitable conduct intcnded to imp~rthe value ofShe Claimant'S equity i!1reresti~ ENTEL and to pressure the Claimant:,0.§..uuenderits interest in ENTEL to the Respondent tor httle -or no compensation.~sou!liQclJJ~low~

38- First, on July 7, 2006, the Respondent notified ENTEL that it was imposing onENTEl the equivalent, at cuuent exchange rates, of USD 25 million in pu.rportedwithholding taxes associated with the capital distribution made to the Claimant as partof the 2005 capital reduction described above. The Respondent made that claimdespite the fact that the transaction was not ta..xable(two prominent internationalaccounting firms had provided their opinions, at the time of the capital reduction andassociated capital distribution, in this respect); the previous continuation byappropriate agencies of the Bolivian government that all conditions necessary for suchdistribution had been met; and the fact that the Respondent had made no previoussuggestion that that transaction was taxable. The Respondent now claims that a totalof USD 25 millign_-(at cunent exchange rates) in withholding taxes is du.e in9_ODnertiOl1withthat ttansC\ction.tQgether with USD 26 lnillion (at cuuent exchange

..rflt&.~)in pF.nalues and interest . ..

39. On April' 1. 2Q05;/OnMaYI!~_~O~; and on Mav 15- 2007 Respondent, through the"Superintcndertcia de Tolecomunicaciones" ("SlT1'EL'~), the agency of the Boliviangovernment in charge of regulating and overseeing the Bolivian telecommunicationsmarket, stated that it was imposing substantial fines on ENTEL. purportedlv becauseof ENTEL's failure either to provide telecommunications service of adequate qualityto v~rious areas in .t$O!1Vlaor torthe aUeged failure to meet seIYice deploymentcommitments. Accordin£io-Sittel, -the-alleged failures took place, in substanticiTpart,in the year.s 1998 through 2003. For each of those years, ENTEL made a timely,detailed and satistactory filing with SITTEL of all required reports regarding theprovision of telecommunications service and the fulfilment of deploymentcommitroents~ and SmEL took no advert.e action against B{I.'E~ ~i!h-!~spect tosuch matters prior to April 1, -2005. SITTEL'g currei£ clalInsare'-unfounded anduntnnely.

40. On March 30, 2007~ the Respondent published Supreme Decree No. 29087,establishing an ad hoc commission (the "Commission") mandated to negotiatethe"recovery" of ENTEL for the Bolivian State within a period of thirty days. nieCommission consisted of three ministerial and tWo vice-ministerial members of theBolivian Government. It has been presided over by the Respondent's Minister of thePresidency, Sr. Juan Ram6n Quintana.

41. The Claimant was surprised and concerned by the sudden promulgation of SupremeDecree No. 29087. The Claimant was also surprised and concerned by the briet:thirty-day timcframe provided in Supreme Decree No. 29087 for the Commission tocany ou.t its mandate of acquiring the Claimant's shares in and control of ENTEL.The thirty day period provided for in the Decree was an unrealistically aggressivetime frame within which to conduct such a process, and it would have been essentiallyimpossible to do so in a fair and equitable manner.

42. The preamble of Supreme Decree No. 29087 refeued to a supposed "process oftechnical, Rnal1cialand kgal review, the results of which show serious indications of

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