The prime minister is headed to India, keen for an accord in support of “Global Britain”.
It’s a shame the government isn’t as eager to defend past agreements on behalf of UK plc.
While Britain tries to lay down foundations for a stronger economic partnership and further its strategic “tilt” towards the Indo-Pacific region, oil and gas explorer Cairn Energy is preparing to seize Indian government assets under a long-running dispute.
An international tribunal ruled last December that New Delhi had breached its obligations under the bilateral investment treaty between the UK and India.
This was the culmination of years of wrangling, after the Indian tax department in 2014 launched a retrospective investigation of Cairn that resulted in the authorities seizing and selling most of a remaining stake in Cairn India.
Last year’s ruling ordered New Delhi to pay Cairn $1.2bn in damages plus interest and costs. Instead, the Indian government — which argues this is a question of its sovereign right to tax — last month petitioned a Dutch court to set aside the arbitration award, something that only happens in very limited circumstances.
In the meantime, Cairn can move ahead with enforcement if it chooses; it has identified $70bn in sovereign assets and registered the award in six jurisdictions including the UK, US, France, the Netherlands and Singapore.
This is hardly ideal for Cairn, which has morphed into an international debt collection outfit with some oil and gas attached. The award is now worth $1.7bn, (and increases by about $4m a month). That compares to Cairn’s market value of about $1.1bn; it also has a net cash position.
Some shareholders are, unsurprisingly, lobbying hard for the award to be paid — or for the company to press ahead with enforcement. The seizure of international sovereign assets isn’t unprecedented: both Venezuela and Argentina have suffered this fate in past disputes.
Yet the UK government doesn’t seem to want to get involved. The Department for International Trade wrote to Cairn last month saying as much, according to two people with knowledge of the letter, citing a “longstanding position” of not engaging in these types of disputes.
All parties should, of course, be able to pursue all legal means available to them. But this is a “clear treaty with a clear judicial verdict”, says one unimpressed investor, adding that they’d expect the government to support that. Others mutter about the attractiveness of India as an investment destination.
What is puzzling is that this “longstanding” government position doesn’t extend back very far. Theresa May’s government raised the matter with Indian prime minister Narendra Modi. As recently as 2018, the UK government was clear that it would continue to engage with New Delhi to support the outcome of the arbitration.
Perhaps Cairn is too awkward a topic for a government trying to make progress on a prized trade partnership with India as part of its post-Brexit agenda? Previous conversations have run aground over access to UK visas for workers and students. And New Delhi is a tricky counterpart, having not done a substantive trade deal since the 1990s.
But moves to start the seizure of Indian government assets by a UK company would hardly be a helpful backdrop to the (Covid-secure) flesh-pressing and warm words of a prime ministerial visit. The other route available to Cairn would also be incendiary: the company could sell its award to a hedge fund or other outfit that specialises in the pursuit of international debts.
Cairn perhaps is considered too small a niggle to derail bigger trade goals. But other companies, such as Vodafone, have found themselves in similar positions in India.
There’s no doubt that a new partnership with India could be valuable to certain sectors: Scottish whisky makers face tariffs of 150 per cent in what could be a huge growth market. (Remember, though, that the Treasury’s Brexit analysis put the impact of a host of new trade deals at a mighty 0.2 per cent addition to long-run GDP).
Ultimately, there is a principle at stake here. The government should be relied upon to stand up for its own international treaties and deals. Otherwise Global Britain isn’t worth the paper it’s written on.