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1977, the Government of Kuwait1 terminated the concession and
expropriated certain property of Aminoil. Aminoil disputed the
termination and expropriation, and that dispute, along with
certain of Kuwait’s claims, was submitted to arbitration. The
arbitrators reached a decision that resolved Aminoil’s and
Kuwait’s competing claims, and the arbitrators awarded Aminoil
$179,750,764. In arriving at that sum, the arbitrators included
$55,147,935 as a “level of inflation” adjustment. (We must
determine whether the so-called “level of inflation” adjustment
is an amount realized on the sale or other disposition of any of
the property expropriated by Kuwait.)
B. Events Leading to the Expropriation
By an agreement entered into on June 28, 1948, Kuwait
granted Aminoil the concession to explore for and exploit crude
oil, natural gas, and other natural resources in the Kuwaiti
section of an area on the frontier between Kuwait and Saudi
Arabia then known as the “Neutral Zone” and later known as the
“Divided Zone”. (Hereafter, the term “concession agreement”
refers to the agreement entered into on June 28, 1948 (including
its subsequent amendments), the term “concession” refers to the
concession obtained by Aminoil pursuant to the concession
1 Hereafter, we will use the term “Kuwait” to refer to the
Government of Kuwait except where the context indicates that we
are referring to the geographical area comprising the country of
Kuwait.
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