Dr José Miguel Júdice, Presiding Arbitrator Mr Manuel Conthe Dr Raúl Emilio Vinuesa
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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 PCA Case No. 2011-17 Award Page 2 of 208 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 PCA Case No. 2011-17 Award Page 3 of 208 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 ...........................................................................................