Antin Infrastructure Services Luxembourg S.à.r.l. and Antin Energia Termosolar B.V. v. The Kingdom of Spain,Case No. ARB/13/31
In a final award dated June 15, 2018, an ICSID tribunal found Spain in breach of thestandard under Article 10(1), in a case initiated by Antin Infrastructure Services Luxembourg S.à.r.l. and Antin Energia Termosolar B.V. (jointly, Antin), companies constituted in Luxembourg and the Netherlands, respectively.
Background and claims
One of Spain’s policies to stimulate investment in the renewable energy sector was Royal Decree 661 of 2007 (RD661/2007), under which renewable energy generators would benefit from a premium set by the Spanish government above the wholesale market price. The basis of remuneration for generators was a feed-in tariff (FIT) for the lifetime of the installation.
Antin’s investments on the basis of RD661/2007 consisted of the acquisition of shareholding in two operational concentrated solar power (CSP) plants (the Andasol Companies) located in Granada, southern Spain, in 2011. Antin claimed that the regulatory regime changed considerably since it made its investment—particularly in light of the new regime, created by Law 15/2012 of December 28, 2012, which effectively excluded the Andasol Companies from the application of RD661/2007, particularly the right to receive a FIT, and created a tax on the value of electrical energy produced (TVPEE).
The claimants argued that these changes had significant harmful effects on the Andasol Companies, and thus on their investments. According to the expert report submitted by the claimants, the premium payments expected under RD661/2007 considerably exceeded the special payments provided under the new regime. Additionally, according to the claimants, their freedom of cash flows and equity cash flows was also considerably reduced.
Antin initiated arbitration seeking a declaration that Spain breached the FET standard under ECT Article 10(1) and full restitution to the claimants by re-establishing the situation that existed prior to Spain’s alleged ECT breaches, together with compensation for all losses suffered before restitution as a result of Spain’s alleged treaty breaches.
Tribunal accepts jurisdiction over the disputes
Spain also argued that the tribunal lacked subject matter jurisdiction (ratione materiae) since the claimants did not own or control, directly or indirectly, the assets identified by them as their investment, and therefore did not have protected investments under ECT Article 1(6). The tribunal considered that the terms of ECT Article 1(6) meant that the investment must be either owned or controlled by the investor, directly or indirectly, but that nowhere in the ECT text or context was there a requirement that only the real and ultimate owner or beneficiary may submit claims to arbitration, as Spain had argued. Accordingly, the tribunal rejected this objection as well.
The third objection was that the tribunal lacked subject matter jurisdiction (ratione materiae) to hear any claims related to the tax on the value of electricity production, introduced by Law 15/2012 (TVPEE), given that Spain did not consent to arbitrate disputes regarding alleged violations of ECT Article 10(1) arising from tax measures, by way of the exclusion contained in ECT Article 21. The tribunal found that the TVPEE was designed with a general public purpose, not with the aim of destroying Antin’s investments. Accordingly, it upheld Spain’s jurisdictional objection to decide on the TVPEE.
Fair and equitable treatment under ECT Article 10(1)
Antin argued that it invested in Spain in reliance of the regime under RD661/2007, a measure designed to attract foreign investment. Specifically, the claimants argued that they legitimately expected that, because their plants complied with all the registration requirements, they would be subject to the FIT regime for their entire operational life, since they were based on an offer by Spain under a royal decree.
In particular, Antin alleged that Spain frustrated this legitimate expectation, among others, withdrawing the FIT for electricity production using natural gas, introducing the TVPEE as a disguised and unjustified cut of the FIT, eliminating the economic regime under RD661/2007 in its entirety and introducing a substantially less favourable regime without FIT.
The tribunal concluded that the FET obligation under ECT Article 10(1) comprises an obligation to afford fundamental stability in the essential characteristics of the legal regime relied upon by the investors in making long-term investments. However, it agreed with Spain that this did not mean that an investor could have a legitimate expectation that the legal framework could not evolve or that a state party to the ECT is precluded from exercising its regulatory powers to adapt the regime to the changing circumstances in the public interest. Rather, according to the tribunal, it means that an investor’s legitimate expectations may be defeated if the host state eliminates the essential features of the regulatory framework relied upon by the investor in making a long-term investment.
In conclusion, the tribunal held that the tariff deficit faced by Spain did not justify the elimination of the key features of the RD661/2007 regime and its replacement by a wholly new regime, not based on any identifiable criteria. This, according to the tribunal, amounted to a violation of the investor’s legitimate expectations and the FET standard.
Decision and costs
The tribunal decided that Spain breached the FET standard under ECT Article 10(1). Spain advocated the asset-based method and opposed the discounted cash flow (DCF) method proposed by Antin, which, according to Spain, was speculative. The tribunal disagreed, considering that the alleged unpredictability of the DCF method was fundamentally tied to the unpredictability of the Spanish legal regime, and decided to apply the DCF method. Spain was ordered to pay Antin EUR 112 million as compensation for the FET breach, along with pre- and post-award interest of 2.07 per cent, compounded monthly.
Notes: The tribunal was composed of Eduardo Zuleta Jaramillo (President, appointed by the Chairman of the ICSID Administrative Council, Colombian national), Francisco Orrego Vicuña (claimants’ apointee, Chilean national) and J. Christopher Thomas (respondent’s appointee, Canadian national). The award is available at https://www.italaw.com/sites/default/files/case-documents/italaw9875.pdf.
Trishna Menon is an Associate at Clarus Law Associates, New Delhi, India.