The International Centre for Settlement of Investment Disputes obliges the Spanish State to pay 128 million euros in compensation to the Eiser Infrastructure fund for damages suffered because of cuts to renewables.

Written on 30 May 2017

The investment arbitration tribunal under the authority of the World Bank, sentences the Spanish State to pay 128 million euros plus interest in compensation for damages caused by the cuts of the feed-in-tariff for three solar thermal plants projected by the British fund Eiser Infrastructure.o renewables.

The International Centre for Settlement of Investment Disputes (“ICSID”), an investment arbitration tribunal under the authority of the World Bank, issued its first ruling, upheld in part by the claims of the British fund Eiser Infrastructure and its Luxembourg subsidiary Energia Solar Luxembourg S.à r I, in which it declares that Spain failed to comply with article 10.1 of the Energy Charter Treaty (“ECT”) as a result of regulatory changes introduced to cut feed-in-tariff for renewables. Consequently, the ICSID sentenced the State to pay 128 million euros, plus the corresponding interest, in compensation to the British fund for the investments made in three projected solar thermal plants in Ciudad Real. The Tribunal dismisses the damages alleged as a result of the application of the Tax on the value of electrical energy production (“IVPEE”), on considering that it does not have the jurisdiction to assess this tax as being contrary to the ECT.

The Court concludes that the obligation to provide fair and equitable treatment (article 10 of the ECT) necessarily entails an obligation to provide fundamental stability in the essential characteristics of the legal regime which investors rely on when making long-term investments. This does not mean that the regulatory regimes cannot evolve, clearly they can. “[T]he legitimate expectations of any investor […] [should] contemplate the realistic possibility that the competent authorities could implement reasonable changes and modifications to the legal framework, within the limits of the powers conferred upon them by law.”

We must point out that the decision of the ICSID has been adopted unanimously by three arbitrators –the arbitrator from New Zealand proposed by the Kingdom of Spain also supported Eiser’s arguments-.

In summary, we would highlight the following:

  • Together with further documentary evidence, the plaintiffs based their arguments on the CNE Report 3/2007 dated 14 February 2007 on the proposed RD 661/2007, in which the elements necessary to promote production under the Special Regime are identified. It also highlights the importance of the guarantee of stability of the proposed decree for investors and their financers.
  • According to the ruling, the expert appointed by the State Attorney’s Office (BDO) calculates the profitability of Eiser’s solar thermal projects at 5%, while Brattle, an expert appointed by Eiser, calculates them at 3.7%, far from the “reasonable profitability” (7.39%) established by the Government.
  • In view of the exception indicated by the State Attorney’s Office on the Tribunal’s lack of jurisdiction as a result of which the ECT is not applicable to disputes relating to investments made within the European Union, the Tribunal recognises its competence and concludes that the perception of the provisions of the ECT, interpreted in accordance with the Vienna Convention on the Law of Treaties, is clear and supports the plaintiff’s capacity to submit its claims.
  • Having assessed the plaintiff’s evidence and arguments, the Court considers that the investments made met with the characteristics required by the ECT and the ICSID insofar as they were for a substantial duration and they involved risks which were assumed by the plaintiffs. Consequently, the Tribunal rejects the exception alleged by the State Attorney’s office in this regard.
  • Even though the State Attorney’s office gave extensive arguments of public and private international law for a shareholder not to be able to claim for injuries suffered by a company in which it is a shareholder, the Court completely rejects such an exception, claiming that the plaintiffs may submit claims for the reduction in the value of their shareholdings due to conduct contrary to the ECT.
  • The Tribunal, rejecting the defendant’s arguments regarding its lack of jurisdiction, declared that the plaintiffs fulfilled the requirements set out in article 26 of the ECT, related to requesting negotiations to settle disputes and, subsequently, comply with a waiting period of three months before initiating an arbitration procedure.
  • Despite the fact that the State Attorney’s Office argued that given that the facilities promoted exceeded the limit of 50 MW in order to qualify for the Special Regime, the Tribunal admitted the plaintiffs’ allegations declaring that the equipment nameplates showed values close to, but less than 50 MW and, in any case, the plants were investigated by the National Comission of the National Commission on Markets and Competition, who confirmed that the plant equipment complied with the technical requirements for registration with the Special Regime.

Although arbitration awards do not create “precedents” and merely generate inter-party effects, the award in question could set a specific precedent for 26 claims that are pending resolution in Spain before the ICSID.

In any event, the Ministry of Energy, Tourism and the Digital Agency has announced through a press release that it is considering appealing the award of the ICSID. However, in this case, there is no secondary inspection board as such, but they would have to commence a procedure for annulment of the award for breach of public order. This procedure does not involve a review of the fund, through the facts or the rights, and is limited exclusively to the reasons listed in article 52.1 of the ICSID Convention – incorrect formation and corruption, serious breach of a procedural norm, non-expression of the reasons on which it is based and manifest excess of powers.

In this context, and due to the fact that the doors to the arbitration remain open, many other hesitant investors may be encouraged to claim damages from the Kingdom of Spain suffered as a result of the energy reform.