By Fernando Cabrera Diaz
30 September 2008
The Dominican Republic faces two possible treaty claims in a dispute with a consortium it hired to extend and operate an important highway connecting the capital with the eastern part of the island.
The dispute centres on a 2001 concession contract signed between the Concesionaria Dominicana de Autopistas y Carreteras, S.A. (CODACSA), a consortium of American, Spanish and Dominican investors, and the Dominican Republic. The contract called for CODACSA to operate a toll highway connecting Santo Domingo to San Pedro de Macoris and to expand the highway further east to the popular tourist destination La Romana.
CODACSA alleges that it has not been allowed to adjust the tolls or receive the required ‘shadow toll”, which has prevented the company from obtaining the financing it needs to complete the project.
CODACSA initiated a contract-based arbitration under the auspices of the International Court of Arbitration in June. The same month, two letters of intent were sent to the Dominican Republic, one on behalf of the American investors under the Dominican Republic-Central American Free Trade Agreement (CAFTA-DR) and the other on behalf of the Spanish investors under the Dominican Republic-Spain Bilateral Investment Treaty. These letters set in motion a six-month period which must elapse before a claim can be submitted under either treaty.
According to Claudia Salomon of DLA Piper, counsel for CODACSA, the consortium is alleging, among other things, expropriation and breach of the fair and equitable provisions of both treaties.
The Dominican Republic, for its part, counters that CODACSA has breached the concession agreement. Speaking to daily Listin Diario on 24 August, Public Works Minister Díaz Rúa accused the company of failing to adequately invest in the project, and instead directing only a small portion of its toll revenues — RD$ 35 million (approx. US$ 1 million) out of RD$ 1,000 million (approx. US$ 29 million) collected over seven years — towards developing the project.
According to Mr. Díaz Rúa, this has resulted in an over four year delay in the highway extension.
Gaela Gehring Flores of Arnold & Porter LLP, which represents the Dominican Republic, echoed the minister’s sentiments, tellingthat “in general the claimant’s position misrepresents the rights and obligations of the parties under the concession contract.”
She explained that CODACSA had seriously breached the contract by its failure to complete works in accordance with the planned schedule of construction, by not living up to its maintenance commitments and by its failure to take the basic steps necessary to obtain financing for the project.
Ms. Gehring Flores added that, in her view, this was a contract dispute which was already being heard by the International Court of Arbitration, and she failed to see how the investors’ claims rose to the level of treaty violations.