International arbitration is a potentially powerful tool for investors. They can use it to attack governments that have changed contractual terms. Sometimes those defenses are battles by robbed investors against unfair expropriation; sometimes they are attacks by international oligarchs on the democratic rule of law. Usually, they are both.
But there is a problem for investors: arbitration is slow and expensive. This is true even after a decision comes down. To enforce you need to go to national courts and start chasing down assets and sales. That is doable, but it is not easy.
As a result, most arbitrations are settled after a decision comes down, simply to spare the investor the hassle. What we do not know is the gap between the awards granted and the amount paid.
In 2012, ICSID ordered Ecuador to pay Occidental Petroleum $1.77 billion plus interest. In total, that came to $2.26 billion as of 2012, compounded at 4.188%. After that, the award accrued interest at the 6-month LIBOR (compounded monthly), which would put its total value at $2.29 billion as of November 2015.
That month, a second ICSID panel granted a partial annulment, reducing Ecuador’s liability to $1.07 billion. (Page 133; explanation here.) With interest, that would make the November 2015 value of the award $1.38 billion.
And how much will Occidental get? $980 million. ($979.9 million, to be exact.) That is a full 29% discount off the arbitral award. In short, Occidental decided that $980 million now was worth an additional $379 million after who knows how many years and legal battles. (I also suspect that Ecuador also agreed to let Occidental back into the country, although that option won’t be worth much until oil prices rise.)
In short, yes, countries pay arbitration awards. They pay those awards because private companies can impose very real sanctions if they do not pay. But the system is slow and expensive ... to in this case almost a third of the headline value. Whether that is a feature or a bug probably depends on your politics.