Florida-based firm APR Energy is suing the Australian government for the seizure of four gas turbines under obscure laws of the Personal Property Securities Act (PPSA). APR Energy is reportedly seeking 200 million USD in damages. The energy company, which provides power to customers in the Americas, Asia-Pacific, Middle East, and Africa, commissioned a mobile natural gas turbine power plant in Port Hedland, Pilbara, Western Australia, in 2015 (1). The power plant, according to the company’s website, was its first venture in Australia and served as an energy source at the center of Australia’s extractive industry for state-owned utility Horizon Power. A permanent power plant is expected to be completed in 2017, at which point the APR plant will no longer be needed.
Originally, APR leased the turbines worth a reported 64 million USD to the contracting firm Forge Group. Unbeknownst to APR, however, Forge Group used the turbines to secure debt through ANZ, the Australia and New Zealand Banking Group (2). When Forge Group went bankrupt, ANZ received ownership of the turbines over APR, citing the Personal Property Securities Act, which allows leased property to act as collateral for a loan (2). APR Energy, for its part, is suing the Australian federal government under the claim that the expropriation of its turbines is a blatant violation of the Australia-U.S. Free Trade Agreement and international law (3).
The Australia-U.S. Free Trade Agreement (AUSFTA) came into effect in 2005 and includes market access for goods, labor, cross-border services, and financial services, among other things (4). AUSFTA was not passed without a good deal of criticism in Australia. In fact, according to the National Institute of Economic and Industry Research, the AUSFTA “could cost the Australian economy up to $50 billion and 200,000 jobs (4). Most notably for the case of APR Energy, AUSFTA does not include an investor-state dispute settlement provision (3). Essentially, the lack of such a clause makes it difficult for the Australian government to be directly sued by a foreign enterprise. For APR, the lack of such a clause provides a difficult basis for bringing the matter to court. Regardless, APR is citing Articles 11.6 and 11.7 of AUSFTA, a pair of clauses that address compensation for expropriation, and given that power is being provided to a state-owned utility, APR claims this seizure is the equivalent of nationalization of its assets (3).
Expropriations, by definition, are acts of government that turn private property towards a certain use designed to benefit the overall public (5). The public entity, however, is required to provide compensation in an amount equaling the value of the asset. In the United States, one of the most prominent and controversial examples of an expropriation is the use of eminent domain to seize land for public use. Even with the requirement of just compensation for the use of expropriations, it is not uncommon for private citizens to exhaust all appeal processes available. In the case of APR, an ongoing court appeal will determine if the energy company is entitled to 200 million USD in damages to compensate for the seizure of its Australian power plant.
Should the appeals process yield the same result as the initial court decision, which stood in favor of ANZ and the Australian government, APR will be forced to accept the loss of its power plant. While Australian law is clear in allowing the use of leased property as loan collateral, this case may send a dangerous message to foreign investors seeking to pursue returns in Australia. To encourage foreign investment, domestic laws must be both transparent and understandable to potential foreign investors.
(1) "APR Energy Australian Power Plant Operational as Summer Heats up." APR Energy, 12 Feb. 2015. Web. 7 Oct. 2016.
(2) Garvey, Paul. "APR Urges Inquiry to Grill ANZ Chief on 'seizure'" The Australian. N.p., 5 Oct. 2016. Web. 8 Oct. 2016.
(3) Newsham, Jack. "Australia Faces $200M Claim Over US Co.'s Generator Seizure." Law360. N.p., 5 Oct. 2016. Web. 7 Oct. 2016.
(4) "US-Australia." Bilaterals. N.p., n.d. Web. 10 Oct. 2016.
(5) Root. "Expropriation." Investopedia. N.p., 19 Nov. 2003. Web. 10 Oct. 2016.
Image: © Gordon Tipene | Dreamstime.com - Oil refinery in Sydney, Australia.