Argentina again condemned by an ICSID Tribunal for the measures adopted under the Emergency Law

On February 26, 2001, Enron Corporation and Ponderosa Assets LP (the “Claimants”) filed a request for arbitration against Argentina (the “Defendant” or “Argentina”) before the ICSID for breach of the Argentina – US Bilateral Investment Treaty entered into by the parties on November 14, 1991 (the “BIT”).[i]

The Claimant’s request for arbitration was related to its shareholding participation in Transportadora de Gas del Sur S.A. (“TGS”), the natural gas transportation licensee that operates the southern gas pipeline system.

Initially, the Claimant’s claim referred to the intention of some provinces of Argentina to impose a certain stamp tax on TGS’s operations. The Claimants considered this decision as a violation of the BIT.

Afterwards, in 2003, the Claimants filed before the ICSID a new claim against Argentina under the BIT. This additional claim was based on the prohibition imposed by Argentina on adjusting tariffs in line with the United Stated Producer Price Index (“IPP”) and the enactment of the Emergency Law No 25,561, which nullified PPI adjustments and the calculation of tariffs in US dollars, both rights granted to TGS under the regulatory framework.

The Arbitral Tribunal (the “Tribunal”)[ii] decided to include this new claim as an ancillary claim to the stamp tax claim of February 2001.

However, on December 8, 2005, the Tribunal declared the discontinuance of the stamp tax claim, and decided to continue the arbitration exclusively on the ancillary claim.

In the ancillary claim the Claimants alleged that Argentina’s prohibition on PPI tariff adjustments and the enactment of Law No 25,561 violated the following BIT clauses and standards:

(i)         the non-expropriation clause;

(ii)        the fair and equitable treatment standard;

(iii)       the non-discrimination clause;

(iv)        the umbrella clause; and

(v)         the full protection and security clause.

As in the CMS[iii], Azurix[iv], LG&E[v] and Siemens[vi] cases, the Tribunal considered that Argentina’s political and economic measures adopted, in this case under Emergency Law No 25,561, violated the fair and equitable treatment standard[vii]. The Tribunal also found that the umbrella clause stated in the BIT[viii] had been violated in the case. On the other hand, the Tribunal dismissed the Claimants’ allegations related to the violation of the other BIT standards.

The Tribunal rejected Argentina’s defense based on the existence of an emergency and state necessity. It was held that the requisites stated in domestic law (and Court decisions) and international law[ix] had not been met in the case. Accordingly, the LG&E case is still the only case in which the Tribunal has accepted Argentina’s defense based on the emergency and necessity state for any period of time.

After ruling on the liability of Argentina under the BIT, the Tribunal determined the amount of the compensation due to the Claimants.

The Tribunal applied the compensation principle of investment fair market value[x], and accepted the damages claim based on the prohibition on the IPP tariffs adjustment for an amount of US$ 15.8 million

In summary, the Tribunal determined the Claimant’s right to collect from Argentina a total amount of US$ 106.2 million plus interest owed from January 1, 2002 to May 22, 2007 at a 6-month average LIBOR rate plus 2% per each year, compounded semi-annually.