Page 1
Page 2
Page 3
Page 4
Page 5
Page 6
Page 7
Page 8
Page 9
Page 10
Page 11
Page 12
Page 13
Page 14
Page 15
Page 16
Page 17
Page 18
Page 19
Page 20
Page 21
Page 22
Page 23
Page 24
Page 25
Page 26
Page 27
Page 28
Page 29
Page 30
Page 31
Page 32
Page 33
Page 34
Page 35
Page 36
9EnronSempraSempraEnronwww.fulbright.comApril2011ArgentineFinancialCrisisincludingtheU.S.-ArgentinaBIT.ManyofthecaseswereledwiththeInternationalCenterforSettlementofInvestmentDisputesICSIDanarmoftheWorldBankandpursuanttotheICSIDConvention.ThetotalallegedamountofinvestorslosseswasestimatedatUS16billion.Argentinaraisedthenecessitydefenseinallcases.Allbuttwoarbitraltribunalsinitiallyrejectedthedefense.In2010howevertwoICSIDannulmentcommitteeswhichserveassemi-appellatebodieswithlimitedauthoritytoreviewICSIDawardssetasidethedecisionsoftheoriginaltribunalsintheandcases.Inthisarticleweexaminetheimplicationsofthesecasesfortheinternationalinvestmentcommunity.FirstweexplainthefactsunderlyingtheArgentinefinancialcrisisandtheensuingarbitrationcasesledagainstthecountrysecondweexaminesomeofthemainICSIDarbitrationawardsinthegassectorthirdweexaminetheandannulmentdecisionsandhowtheyimpactonthejurisprudenceandfourthweexplainsomeoftheimplicationsofthesedevelopmentsforthelegalandbusinesscommunities.In1989theArgentineRepublicstartedacomprehensiveprogramofeconomicreformswhichincludedtheprivatizationofpublicutilitiesaswellastheattractionofforeigninvestment.Thebasicinstrumentsgoverningtheseeconomicreformswerethe1991CurrencyConvertibilityLawwhichpeggedtheArgentinepesoatpartotheUnitedStatesdollar.WithrespecttoprivatizationofthegassectorthegovernmentpassedaGasLawandarelatedDecreein1992whichestablishedbasicrulesforthetransportationanddistributionofnaturalgas.TheGasLawamongotherthingscreatedthenewindustryregulatorEnteNacionalReguladordelGasENARGAS.ItalsoprovidedfortheunbundlingofGasdelEstadotheState-ownedgasmonopolyentityanddivideditintotwotransportationcompaniesandeightdistributioncompanies.EachcompanythenwasgrantedalicensewhichwasdesignedbasedonaModelLicenseagreement.Thenewcompanieswereopenedtoforeigninvestorsbymeansofpublictenderoffersthroughwhichsharesintheprivatizedcompanieswereobtained.TheseforeigninvestorsbecameclaimantswhenthenancialcrisisandArgentinasreactiontheretotookeffect.PursuanttotheGasLawENARGAShadtosetthetariffsfortransportationanddistributionofgasatfairandreasonablerateswhichwouldalsopermittheinvestorstohaveareasonablerateofreturn.UnderlicensesapplicableregulationsandtheGasLawthetariffsweresetforfive-yearperiodsatwhichpointtheycouldbereviewedandadjusted.InvestorscouldcalculatethetariffsinU.S.dollarsandthenconvertthemtoArgentinepesosatthetimeofbilling.Theinvestorswerealsoentitledtoasemi-annualtariffadjustmentinaccordancewiththeU.S.ProducerPriceIndexPPI.CMSGasTransmissionCMSLGEEnergyCorp.LGEEnronCorporationEnronandSempraEnergyInternationalSempraallU.S.companiesmadesubstantialinvestmentsintheArgentinegassector.Towardstheendofthe1990stheeconomiccrisisbegantounfoldinArgentinagivingrisetoseveredeflation.ThismadecalculationofgaspricesinaccordancewiththeU.S.PPIadjustmentmechanismunsustainablebecausethepricesweretoohighfortheconsumers.In2000thereforeENARGASreachedanagreementwithgascompaniestotemporarilysuspendU.S.PPIadjustmentofgastariffsandpromisedthattheywouldbereimbursedfortheirlosses.In2001howeverinthewakeofthedeepeningcrisisanArgentinecourtorderedthattariffscouldnotbeadjustedandENARGASsoinformedthecompanies.SubsequentlytheArgentinegovernmentdeclareddefault.Severalpresidentssucceededoneanotherinofcewithinamatterofdays.UltimatelyonJanuary62002thegovernmentdeclaredapublicemergencyuntilDecember102003laterextendedandannouncedmodicationstotheforeignexchangesystemthroughanEmergencyLaw.TheEmergencyLawwhichlaterbecamethemainbasisoftheinvestorsclaimsabolished1the1991CurrencyConvertibilityLawandterminatedthecurrencypegasaresultofwhichthepesowasdevaluedanddifferentexchangerateswereintroducedfordifferenttransactions2theU.S.PPIadjustmentmechanismand3the