AWARD 31 January 2014 Tribunal: Dr José Miguel Júdice, Presiding Arbitrator Mr Manuel Conthe ...

208 Pages·2014·1.29 MB·English

PCA Case No. 2011-17

IN THE MATTER OF AN ARBITRATION BEFORE A TRIBUNAL CONSTITUTED PURSUANT TO

A. THE TREATY BETWEEN THE GOVERNMENT OF THE UNITED STATES OF AMERICA AND
THE GOVERNMENT OF THE REPUBLIC OF BOLIVIA CONCERNING THE ENCOURAGEMENT
AND RECIPROCAL PROTECTION OF INVESTMENT

- AND -

B. THE AGREEMENT BETWEEN THE GOVERNMENT OF THE UNITED KINGDOM OF
GREAT BRITAIN AND NORTHERN IRELAND AND THE GOVERNMENT OF THE
REPUBLIC OF BOLIVIA FOR THE PROMOTION AND PROTECTION OF INVESTMENTS

- AND -

C. THE UNITED NATIONS COMMISSION ON INTERNATIONAL TRADE LAW ARBITRATION
RULES (2010)

- between -

1. GUARACACHI AMERICA, INC.

2. RURELEC PLC

(the “Claimants”)

- v. -

THE PLURINATIONAL STATE OF BOLIVIA

(the “Respondent” or “Bolivia”, and together with the Claimants, the “Parties”)

AWARD

31 January 2014

Tribunal:
Dr José Miguel Júdice, Presiding Arbitrator
Mr Manuel Conthe
Dr Raúl Emilio Vinuesa
Secretary to the Tribunal: Martin Doe

CLAIMANTS’ REPRESENTATIVES: RESPONDENT’S REPRESENTATIVES:
Mr Nigel Blackaby Dr Hugo Raúl Montero Lara, Attorney General
Mr Noah D. Rubins Ms Elizabeth Arismendi Chumacero, Deputy Defense
Mr Lluís Paradell Attorney and Legal Counsel to the State
Ms Caroline Richard Office of the Attorney General
Mr Jeffery Commission
Mr Francisco Abriani Mr Eduardo Silva Romero
Ms Belinda McRae Mr José-Manuel García Represa
Freshfields Bruckhaus Deringer US LLP Mr Álvaro Galindo Cardona
Mr Juan Felipe Merizalde
Ms Ana Carolina Silva
Dechert LLP
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TABLE OF CONTENTS

LIST OF ABBREVIATIONS.........................................................................................................................5
CHAPTER I – INTRODUCTION................................................................................................................10
A. THE PARTIES........................................................................................................................................10
B. BACKGROUND TO THE ARBITRATION.....................................................................................................10
CHAPTER II – PROCEDURAL HISTORY...............................................................................................12
CHAPTER III – FACTUAL BACKGROUND............................................................................................26
A. INTRODUCTION.....................................................................................................................................26
B. FACTUAL CONTEXT PRIOR TO THE PRIVATIZATION OF EGSA.................................................................26
C. THE NEW REGULATORY FRAMEWORK FOR THE BOLIVIAN ELECTRICITY SECTOR....................................28
1. Legal Framework............................................................................................................................28
2. Guarantees Afforded by the Regulatory Framework........................................................................30
D. CREATION OF EGSA FOLLOWING THE CAPITALIZATION OF ENDE.........................................................30
E. INVESTMENTS PURPORTEDLY MADE BY THE CLAIMANTS.......................................................................31
F. REGULATORY AMENDMENTS DURING THE 2007-2008 PERIOD...............................................................37
1. Modification of the Capacity Price Calculation................................................................................38
2. Modification of the Spot Price Calculation......................................................................................40
3. Nationalisation of EGSA by Bolivia................................................................................................42
CHAPTER IV – APPLICABLE PROVISIONS..........................................................................................46
A. US-BOLIVIA BIT..................................................................................................................................46
B. UK-BOLIVIA BIT.................................................................................................................................54
CHAPTER V – THE PARTIES’ ARGUMENTS ON JURISDICTION.....................................................60
A. ALLEGED JOINDER AND/OR CONSOLIDATION OF CLAIMS WITHOUT THE RESPONDENT’S CONSENT...........60
B. ALLEGED LACK OF RURELEC’S CAPACITY AS AN INVESTOR, AS WELL AS OF A PROTECTED INVESTMENT.65
C. ALLEGED DENIAL OF BENEFITS TO GAI.................................................................................................75
D. ALLEGED PRESENTATION OF NEW CLAIMS NOT PROTECTED BY THE TREATIES.......................................80
E. PURPORTED DOMESTIC NATURE OF THE NEW CLAIMS...........................................................................87
F. ALLEGED EXERCISE OF THE FORK-IN-THE-ROAD CLAUSE......................................................................93
G. ALLEGED PREMATURE NATURE OF THE CLAIMS RELATING TO THE SPOT PRICE AND WORTHINGTON
ENGINES...............................................................................................................................................97
CHAPTER VI – THE PARTIES’ RELIEF SOUGHT ON JURISDICTION...........................................100
A. THE RESPONDENT’S RELIEF SOUGHT...................................................................................................100
B. THE CLAIMANTS’ RELIEF SOUGHT......................................................................................................101
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CHAPTER VII – ARGUMENTS OF THE PARTIES ON THE MERITS...............................................102
A. CLAIM FOR EGSA’S ALLEGED UNLAWFUL EXPROPIATION...................................................................102
1. The Claimants’ Arguments...........................................................................................................102
(i) Bolivia Made An Unlawful Expropriation................................................................................102
(ii) Claimants are Entitled to Compensation for the Nationalisation...............................................103
2. The Respondent’s Arguments.......................................................................................................109
(i) Bolivia Did Not Effect An Unlawful Expropriation...................................................................109
(ii) The Claimants are not Entitled to Receive any Compensation..................................................111
B. CLAIM FOR BREACH OF THE STANDARDS PROVIDED FOR IN THE TREATIES...........................................116
1. Fair and Equitable Treatment Standard..........................................................................................117
2. Full Protection and Security Standard............................................................................................120
3. Adoption of Unreasonable Measures.............................................................................................122
4. Ineffective Means Available to the Claimants................................................................................125
CHAPTER VIII – THE PARTIES’ RELIEF SOUGHT ON THE MERITS............................................130
A. THE CLAIMANTS’ RELIEF SOUGHT......................................................................................................130
B. THE RESPONDENT’S RELIEF SOUGHT...................................................................................................131
CHAPTER IX – DECISION ON JURISDICTION...................................................................................132
A. JOINDER OR CONSOLIDATION OF DISTINCT CLAIMS IN THE ABSENCE OF SPECIFIC CONSENT FROM THE
RESPONDENT......................................................................................................................................132
B. RURELEC’S STATUS AS AN INVESTOR AND ITS OWNERSHIP OF A PROTECTED INVESTMENT....................135
C. BOLIVIA’S RIGHT OF DENIAL OF BENEFITS AGAINST GAI.....................................................................140
D. JURISDICTION IN RESPECT OF THE ALLEGED NEW CLAIMS....................................................................144
E. THE DOMESTIC NATURE OF THE ALLEGED NEW CLAIMS......................................................................148
F. THE ALLEGED EXERCISE OF THE FORK IN THE ROAD CLAUSE...............................................................148
G. ALLEGED PREMATURE EXERCISE OF SPOT PRICE AND WORTHINGTON ENGINES....................................149
CHAPTER X – DECISION ON THE MERITS.........................................................................................150
A. THE SITUATION OF THE BOLIVIAN ELECTRICITY INDUSTRY AND ENDE BEFORE THE PRIVATIZATION
PROCESS............................................................................................................................................150
B. THE DATE OF THE INVESTMENTS MADE BY GAI AND RURELEC’S INDIRECT ACQUISITION OF GAI.........150
C. EGSA’S FINANCIAL SITUATION PRIOR TO THE NATIONALISATION........................................................150
D. THE REGULATORY MODIFICATIONS, ALLEGED CREEPING EXPROPRIATION, AND THE DIGNITY TARIFF..154
E. THE ILLEGALITY OF THE EXPROPRIATION............................................................................................158
F. ALTERNATIVE VALUATION METHODS.................................................................................................160
G. THE APPROACH TO DAMAGES.............................................................................................................162
H. REVENUE SIDE...................................................................................................................................164
1. Electricity demand........................................................................................................................166
2. Electricity supply..........................................................................................................................169
3. Price of Electricity........................................................................................................................172
4. Revenues from capacity payments.................................................................................................174
(i) Capacity Prices (“Precio Básico por Potencia”).....................................................................174
(ii) Eligible installed capacity........................................................................................................176
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5. Conclusion about Revenues..........................................................................................................177
I. COST SIDE..........................................................................................................................................178
1. OPEX...........................................................................................................................................178
2. CAPEX........................................................................................................................................179
3. Conclusions about Costs...............................................................................................................182
J. DISCOUNT RATE.................................................................................................................................182
1. Risk-free rate................................................................................................................................184
2. Market risk or equity premium......................................................................................................185
3. Beta..............................................................................................................................................187
(i) Unlevered beta of US electricity companies comparable to EGSA............................................187
(ii) EGSA’s optimal capital structure.............................................................................................188
(iii) EGSA’s specific beta and equity premium..........................................................................189
4. Country risk premium...................................................................................................................190
5. Should additional equity risk factors be added?.............................................................................190
6. The 1.5 country risk multiplier......................................................................................................193
7. Size Premium...............................................................................................................................196
8. Conclusion on discount factor.......................................................................................................201
K. EGSA’S FMV....................................................................................................................................202
L. INTEREST RATE..................................................................................................................................202
CHAPTER XI – COSTS.............................................................................................................................206
CHAPTER XII – AWARD.........................................................................................................................208
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LIST OF ABBREVIATIONS

Adjudication Decree Supreme Decree No. 24047, 29 June 1995, published in the Gaceta
Oficial No. 1886 on 30 June 1995
BIE Bolivia Integrated Energy Limited
BIT Bilateral Investment Treaty
Birdsong Birdsong Overseas Ltd.
Bolivia Plurinational State of Bolivia
BV Book Value
CAF Andean Development Fund (in Spanish: Corporación Andina de
Fomento)
CAPEX Capital Expenditures
CAPM Capital Asset Pricing Model
Capitalization Law Law No. 1544, 21 March 1994, published in the Gaceta Oficial No.
1824 on 22 March 1994
CCGT Combined Cycle Gas Turbine
CER Certified Emission Reductions
Claimants Guaracachi America, Inc., and Rurelec Plc.
Claimants’ Post-Hearing Claimants’ Post-Hearing Brief dated 31 May 2013
Brief
CNDC
National Power Dispatch Comittee (in Spanish: Comité Nacional de
Despacho de Carga)
Compass Lexecon Valuation report prepared by Mr Abdala on behalf of Compass Lexecon
Counter-Memorial on Claimants’ Counter-Memorial on Jurisdiction dated 26 October 2012
Jurisdiction
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DCF Discounted Cash Flow
Econ One Valuation report prepared by Mr Flores on behalf of Econ One
EdI Estudios de Infraestructura
EGSA Empresa Eléctrica Guaracachi S.A. (formerly known as Empresa
Eléctrica Guaracachi SAM)
Electricity Law Law No. 1604, 21 December 1994, published in the Gaceta Oficial No.
1862 on 21 December 1994
ENDE National Electricity Company (in Spanish: Empresa Nacional de
Electricidad)
Energais Energía para Sistemas Aislados Energais S.A.
ESA Energía para Sistemas Aislados ESA S.A.
ESMAP Energy Sector Management Assistance Program
EV Enterprise Value
FMV Fair Market Value
FOB Free on board
GAI Guaracachi America, Inc.
GDP Gross Domestic Product
GPU General Public Utilities Power Inc.
ICSID International Centre for Settlement of Investment Disputes
IEL Integrated Energy Limited
Investment Law Law No. 1182, 17 September 1990, published in the Gaceta Oficial No.
1162 on 17 September 1990
IRR Internal Rate of Return
MEC Mercados Energéticos Consultores
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Memorial on Jurisdiction Respondent’s Memorial on Jurisdiction dated 17 September 2012
MFN Most Favoured Nation
MTP Medium Term Programming
Nationalisation Decree Supreme Decree No. 0493, 1 May 2010, published in the Gaceta Oficial
No. 127NEC on 1 May 2010
Alleged violations of the BITs by Bolivia in connection with: (i)
New Claims
electricity spot prices; (ii) capacity payments; and (iii) the two
Worthington engines. According to the Respondent, these claims were
raised neither in the Notice of Dispute dated 13 May 2010 nor in the
Notice of Arbitration dated 24 November 2010.
OPEX Operating Expenses
PBP Capacity Price (in Spanish: Precio Básico por Potencia)
PCA Permanent Court of Arbitration
POES Optimal Plan for Expansion of the Interconnected System (in Spanish:
Plan Óptimo de Expansión del Sistema Interconectado)
PPI US Producer Price Index
Privatization Law Law No. 1330, 24 April 1992, published in the Gaceta Oficial No. 1735
on 5 May 1992
Procedural Order No. 1 Terms of Appointment and Procedural Order No. 1
Rejoinder on Jurisdiction Claimants’ Rejoinder on Jurisdiction dated 20 December 2012
Rejoinder on the Merits Respondent’s Rejoinder on the Merits dated 21 January 2013
Reply on Jurisdiction Claimants’ Reply on Jurisdiction dated 26 November 2012
Reply on the Merits Respondent’s Reply on the Merits dated 21 January 2013
Request for Bifurcation Respondent’s Request for Bifurcation dated 9 August 2012
Respondent Plurinational State of Bolivia
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Respondent’s Post-Hearing Respondent’s Post-Hearing Brief dated 31 May 2013
Brief
ROME 1995 and 2001 Wholesale Electricity Market Operation Regulations (Reglamento de
Operación del Mercado Eléctrico Mayorista), of 28 June 1995 and 2
March 2001, respectively
RPT 1995 and 2001 Prices and Tariffs Regulations (Reglamento de Precios y Tarifas de la
Electricidad), of 28 June 1995 and 2 March 2001, respectively
Rurelec Rurelec Plc.
SCC Arbitration Institute of the Stockholm Chamber of Commerce
SIN National Interconnected System
SIRESE Sistema de Regulación Sectorial
SPV Special Purpose Vehicle
SSDE Superintendencia de Electricidad
Statement of Claim Claimants’ Statement of Claim dated 1 March 2012
Statement of Defence Respondent’s Statement of Defence dated 15 October 2012
Treaties US-Bolivia BIT and UK-Bolivia BIT
UFV Domestic Inflation Index (in Spanish: Unidad de Fomento de Vivienda)
UK-Bolivia BIT Agreement between the Government of the United Kingdom and
Northern Ireland and the Government of the Republic of Bolivia for the
Promotion and Protection of Investments; executed on 24 May 1988
and in force since 16 February 1990
UNCITRAL United Nations Commission on International Trade Law
UNCITRAL Rules United Nations Commission on International Trade Law Arbitration
Rules, as revised in 2010
UNDP United Nations Development Programme
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US-Bolivia BIT Treaty between the Government of the United States of America and
the Government of the Republic of Bolivia Concerning the
Encouragement and Reciprocal Protection of Investment; executed on
17 April 1998 and in force since 6 June 2001
USD United States Dollars
VCLT Vienna Convention on the Law of Treaties of 22 May 1969
WACC Weighted Average Cost of Capital (in Spanish: Costo Promedio
Ponderado del Capital – CPPC)
WB Willing Buyer
WBS Willing Buyer Standard
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CHAPTER I – INTRODUCTION
A. THE PARTIES
1. The Claimants in the present arbitration are Guaracachi America, Inc., a company
incorporated in the United States of America, with its principal place of business at
Loockerman Square 32, Suite L-100, Dover, Delaware, United States of America
(hereinafter, “GAI”), and Rurelec Plc, a company constituted under the laws in force in the
United Kingdom, with its principal place of business at Prince Consort House, 5th Floor, 27-
29 Albert Embankment, London SE1 7TJ, United Kingdom (hereinafter, “Rurelec”, and
together with GAI, the “Claimants”). The Claimants are represented in these proceedings
by:
Nigel Blackaby, Freshfields Bruckhaus Deringer US LLP
Noah D. Rubins, Freshfields Bruckhaus Deringer US LLP
Lluís Paradell, Freshfields Bruckhaus Deringer US LLP
Caroline Richard, Freshfields Bruckhaus Deringer US LLP
Jeffery Commission, Freshfields Bruckhaus Deringer US LLP
Francisco Abriani, Freshfields Bruckhaus Deringer US LLP
Belinda McRae, Freshfields Bruckhaus Deringer US LLP

2. The Respondent in the present arbitration is the Plurinational State of Bolivia (hereinafter,
“Bolivia” or the “Respondent”). The Respondent is represented in these proceedings by:
Hugo Raúl Montero Lara, Attorney General
Elizabeth Arismendi Chumacero, Deputy Defense Attorney and Legal Counsel to
the State
Eduardo Silva Romero, Dechert (Paris) LLP
José-Manuel García Represa, Dechert (Paris) LLP
Álvaro Galindo Cardona, Dechert LLP
Juan Felipe Merizalde, Dechert LLP
Ana Carolina Silva, Dechert (Paris) LLP
B. BACKGROUND TO THE ARBITRATION
3. The Claimants commenced these proceedings by a Notice of Arbitration dated 24 November
2010 pursuant to Article 3 of the United Nations Commission on International Trade Law
Arbitration Rules, as revised in 2010 (hereinafter, the “UNCITRAL Rules”), Article IX of