Quadrant’s Damages Expert Testifies in Argentine Power Generation Arbitration

Quadrant’s damages expert, Dr. Flores, was retained by the Argentine Republic (“Respondent”) in an arbitration initiated by Orazul International España Holdings S.L. (“Claimant”) under the 1991 Argentina-Spain Bilateral Investment Treaty and ICSID rules (ICSID Case No. ARB/19/25).  This dispute arose from measures introduced by Respondent that modified the regulatory framework in the electricity sector.  Claimant alleged that these measures had a negative economic impact on its investments in a hydroelectric power plant, Planicie Banderita, and a thermal power plant, Alto Valle, by reducing the power generators’ revenues, creating a discriminatory pricing regime, and preventing the generators from collecting their revenues.

Dr. Flores testified on the economic impact the legislative measures enacted by Respondent following Argentina’s financial crisis and exchange rate devaluation from 2001 to 2002.  Dr. Flores analyzed regulatory measures through 2021 and assessed their impact on Claimant’s investments.  Such measures include, but are not limited to, the following key changes between 2002 and 2004: 

The 2002 law which provided for the abandonment of the fixed exchange rate regime between the peso and the U.S. dollar, one of the main causes of Argentina’s economic collapse.  This change led to the devaluation of the peso in 2002 and had the potential to impact generators who received capacity payments and remuneration in pesos but incurred operating and capital costs in U.S. dollars.

The 2003 changes to the determination of spot prices received by electricity generators.  These regulations (i) imposed a cap on the spot prices and (ii) based the spot prices on the variable cost of generators using natural gas.

The 2004 investment program initiated by Respondent to increase electric power supply. This program sought to avoid future electricity supply shortages by adding new power generation capacity to the country.  Power generators, like Claimant, were invited to participate in this program by investing their accrued receivables in the construction of new generators in exchange for interest payments and shareholding stakes in the new generators.

The Tribunal (President: Dr. Inka Hanefeld, Co-arbitrators: Mr. David R. Haigh KC and Prof. Alain Pellet) rendered an award rejecting all claims.

Respondent was represented by Procuración del Tesoro de la Nación de la República Argentina.  Dr. Flores was supported by a Quadrant team that included Ivan Lopez, Lauren Silber, Dario Gatti, and José Díaz Barriga.

Sources: ICSID; Italaw; Award