INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT DISPUTES WASHINGTON, D.C. In the matter between HRVATSKA ELEKTROPRIVREDA D.D. (Claimant) and THE REPUBLIC OF SLOVENIA (Respondent) (ICSID Case No. ARB/05/24) DECISION ON THE TREATY INTERPRETATION ISSUE Members ofthe Tribunal The Hon. Charles N. Brower, Arbitrator Mr Jan Paulsson, Arbitrator Mr David A. R. Williams, Q.C., President Secretary ofthe Tribunal Ms Aissatou Diop Representing the Claimant Representing the Respondent Mr Robert W. Hawkins Mr Stephen Jagusch Mr Stephen M. Sayers MrMarkLevy Hunton & Williams LLP Mr Laurent Gouiffes Mr Anthony Sinclair Allen & Overy LLP Table ofContents I. THE PARTIES AND THE NATURE OF THEIR DiSPUTE...........................................................4 CLAIMANT: HRVATSKA ELEKTROPRIVREDA, D.O............................................................................................4 RESPONDENT: THE REPUBLIC OF SLOVENIA ....................................................................,.............................. 4 OTHER ENTn'lES RELEVANT TO THE DISPUTE ................................................................................................4 The KrSko Nuclear Power Plant .......................................................................................................4 Nuklearna Elektrana Krsko vu .........................................................................................................4 Elektro-Slovenija, d.o.o. ljubljana ......................................................................... ~ .......................... 4 THE NATURE OF THE DiSPUTE ....................................................................................................................4 II. PROCEDURAL HISTORY LEADING TO PROCEDURAL ORDER (NO 4) OF 6 OCTOBER 2008 DIRECTING DETERMINATION OF THE TRUE INTERPRETATION OF THE 2001 AGREEMENT ("THE TREATY INTERPRETATION ISSUE") .............................................................................................6 III. SUMMARY OF THE FACTS ................................................................................................10 THE GOVERNING AGREEMENTS................................................................................................................ 10 The 1970 Agreement Established the Parity Principle ..................................................................11 The 1974 Pooling Agreement Continued the Parity Principle ...................................................... 12 The 1982 Annex to the Pooling Agreement Further Implemented the Parity Principle .............. 13 The 1982 Self-Management Agreement Extended the Parity Principle ....................................... 13 THE OPERATION OF NEK IN THE 90s AND THE DIFFERENCES BETWEEN THE PARTIES......................................... 15 The Creation of a Decommissioning Fund ....................................................................................16 The Replacement of the Steam Generators at the Krsko NPP ..................................................... 16 The Dispute on the Appointment of NEK's Deputy General Manager .........................................17 The Dispute over HEP/s Financial Obligations towards the Krsko NPP......................................... 19 NEK's Financial Problems ...............................................................................................................21 The Nuclear Safety Concerns at the Krsko NPP ............................................................................22 The Suspension of Electricity Deliveries to HEP............................................................................ 22 Slovenia's Proposals For an Agreement Over Electricity Supply to HEP ....................................... 23 The 1998 Decree ...................................................................................: ....................................... 24 THE 2001 AGREEMENT ..........................................................................................................................26 Negotiations Leading to the 2001 Agreement.. ............................................................................ 26 The Content of the 2001 Agreement ............................................................................................27 The Ratification ofthe 2001 Agreement.......................................................................................31 NEK's OFFERS FOR SALE OF ELECTRiCiTY...................................................................................................31 IV. THE PARTIES' SUBMISSIONS ...........................................................................................33 2 CLAIMANT'S SUBMISSIONS ON THE ReSPONDENT'S LIABILITY UNDER THE 2001 AGREEMENT ............................. 33 RESPONDENT'S SUBMISSIONS ON THE TREATY INTERPRETATION ISSUE ...........................................................34 CLAIMANTS REPlvSUBMISSIONS ON THE RESPONDENTS LIABILITY UNDER THE 2001 AGREEMENT.................... 34 CLAIMANTS SUBMISSIONS ON IMPLIED TREATY TERMS ...............................................................................35 RESPONDENTS SUBMISSIONS ON CAsE A15 .............................................................................................. 36 V. RELEVANT PRINCIPLES OF TREATY INTERPRETATION ...................................................... 37 V!. DiSCUSSiON......................................................: ............................................................... 39 THE TRIBUNAL'S JURISDICTION ................................................................................................................40 THE TREATY's TERMS .............................................................................................................................40 OBJECT AND PURPOSE ............................................................................................................................43 THE TREATY'S CONTEXT..........................................................................................................................45 ARTICLE 32 OF THE VIENNA CONVENTION .................................................................................................4S GOOD FAITH .........................................................................................................................................48 THE NON-IsSUE OF RETROACTIVITY ..........................................................................................................49 VII. THE DECISiON...................................................................................................................51 3 I. THE PARTIES AND THE NATURE OF THEIR DISPUTE CLAIMANT: HRvATSKA ELEKTROPRIVREDA, D.O. 1. The Claimant, Hrvatska elektroprivreda, d.d. ("HEP"), is the national electric company of Croatia. It was formed in July 1990 pursuant to the 1990 Electricity Act by the consolidation of 119 formerly independent electricity organisations. In 1994 HEP's status changed from a state-owned company to a joint-stock company. From 1994 to the present 100% of the stock in HEP has been owned by the Government of Croatia 1 RESPONDENT: THE REpUBLIC OF SLOVENIA 2. The Respondent, the Republic of Slovenia ("Slovenia"), came into existence on 25 June 1991 when the Slovenian parliament declared independence from the former Socialist Federal Republic ofYugoslavia.2 OTHER ENTITIES RELEVA~T TO THE DISPUTE The Krsko Nuclear Power Plant 3. The socialist republics of Slovenia and Croatia agreed in the 1970s to jointly construct and operate a nuclear power plant in Slovenia, the Kr~ko Nuclear Power Plant C"Krlko NPP"). The construction of the Krsko NPP commenced in 1974. The KrSko NPP has been in commercial operation since 1983. It is located just outside of the town of Krsko in south-eastern Slovenia, approximately 15 kilometres west of the border between Croatia and Slovenia.3 Nuklearna Elektrana KrSko vu 4. Nukleama elektrana Kriko ("NEK"), a limited liability company, is a "work­ organisation"; it was established as a joint venture by the national electricity companies of Croatia and Slovenia in 1974 to build and operate the Krsko NPP. NEK applied for and holds the licence to operate the Krsko NPP. Elektro-Sloveniia, d.D.o. Liubl iana 5. Elektro-Slovenija, d.o.o. Ljubljana ("ELES-GEN") is a wholly-owned subsidiary of Elektro-Slovenija, d.o.o. ("ELES"), the national electric power transmission company of Slovenia. THE NATURE OF THE DISPUTE 6. This case arises out of a dispute between HEP and Slovenia concerning the ownership and operation of the Krsko NPP. The plant is a significant national power resource for both countries. I Claimant's Memorial on the Merits ("Claimant's Memorial"), para 13 :1 Claimant's Memorial, para 14 3 Claimant's Memorial, paras 15*16 4 7. The KrSko NPP was designed and constructed in the 1970s with funds contributed equally by the national power industries of the Socialist Republics of Slovenia and Croatia when they were both still part of the former Yugoslavia. The costs of design, development and construction totalled US $1.2 billion. HEP is the successor-in­ interest of the original Croatian investors that contributed US $600 million to design and construct the Plant. The KrSko NPP constituted the single largest foreign investment ofany Croatian company at the time. 8. The financing, construction, operation, management and use of the Kr~ko NPP was regulated by four inter-related agreements entered into by the Socialist Republics of Slovenia and