Suez seeks $1.2bn in damages in Argentina
- From: Vol 11, Issue 8 (August 2010)
- Category: General
- Region: Americas
- Country: Argentina
- Related Companies: GdF Suez
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Suez Environnement and Agbar have won the right to claim limited damages for lost revenues associated with Argentinian water concessions. Was the ruling tribunal’s judgement flawed?
An international arbitration tribunal has ruled that Suez Environnement, Agbar and other European water companies are entitled to damages in connection with their former integral water cycle concessions in Buenos Aires and Santa Fé, Argentina.
ICSID (International Centre for Settlement of Investment Disputes) decided on 30 July that the Argentinian government unfairly refused to allow the concessionaires – which also include Veolia and Anglian Water – to raise tariffs during the period of economic turbulence following the devaluation of the Argentine peso in 2001. The effect of the devaluation eventually made the concessions so unprofitable that the European operators requested their termination.
Suez Environnement and the other claimants told the tribunal they invested $1.7 billion between 1993 and 2001 in the huge Aguas Argentinas concession which covered metropolitan Buenos Aires and outlying areas. They also claim to have invested $257 million between 1995 and 2001 in Aguas Santafesinas, a second concession.
Suez Environnement told GWI that “for the whole group, we are asking for $1.2 billion” in damages to reflect the scale of the investment. Nevertheless, the eventual amount payable – which has yet to be decided – is likely to be significantly lower than this. This is because the tribunal ruled that Argentina did not breach bilateral investment treaties (BITs) when it eventually expropriated the concessions in 2006, nor did it fail in its duty “to provide full protection and security to investors.”
The tribunal “can only grant damages for the period 2002 to 2006, which will dramatically reduce their quantity,” Gabriel Bottini, an Argentine government lawyer at the Procuración del Tesoro de la Nación, told GWI. Bottini is very critical of the arbitration tribunal’s make-up. “One of arbitrators, Kaufmann-Kohler, was a director of UBS, which was a shareholder of Suez,” he intimated to GWI. “She did not declare this,” and yet Argentina’s request for her to be replaced was “turned down”.
He also questioned the tribunal’s judgement, describing as “incredible” its rejection of the Argentinian government’s principal defence, namely that the devaluation of the peso was “a necessity” to defend the country’s economy, and thus outweighed BIT obligations. Taking this into account, it follows that if the arbitration tribunal awards damages which Argentina considers to be unfair, the Argentine government will have a strong case to take the decision to an annulment committee.
By a curious twist, on the same day the Aguas Argentinas resolution was published, an ICSID annulment committee quashed a previous award of damages against the Argentinian government – claimed by the creditors of Enron – on the grounds that the arbitration tribunal had not adequately assessed Argentina’s “defence of necessity” argument.
According to Bottini, “the contradiction between the two judgements” shows the problems ICSID has in arbitrating international investment disputes – “problems which ICSID itself is beginning to recognise”. No decision on whether to request an annulment hearing in the Aguas Argentinas case will be made until the award of damages has been decided, he said.
In August 2007, ICSID ruled in favour of Veolia and its Argentine subsidiary Compañía de Aguas del Aconquija (CAA) in a dispute related to the Tucuman water concession, which started in 1995 and was terminated in 1997. ICSID determined that provincial officials violated the rights of Veolia and CAA, and awarded the companies $105 million in damages.
Whatever the eventual outcome of this latest case, it will clearly have important implications for multinational companies’ investments in privatised water concessions in many parts of the world.