|TABLE OF SELECTED ABBREVIATIONS/DEFINED TERMS|
|Accuracy First Quantum ER||Accuracy Asesores de Empresa S.A.U. ("Accuracy") Expert Report, titled "Economic Report on the Claimant and Its Quantum Valuation," dated 15 September 2015|
|Accuracy First Regulatory ER||Accuracy Expert Report, titled "Economic Report on the Incentives to the Solar Thermal Sector in Spain," dated 15 September 2015|
|Accuracy Second Quantum ER||Accuracy Expert Report, titled "Second Economic Report on the Claimant and Its Claim," dated 9 June 2016|
|Accuracy Second Regulatory ER||Accuracy Expert Report, titled "Second Report on Incentives in the Solar Thermal Sector in Spain," dated 9 June 2016|
|Al Jaber WS||Witness Statement of Dr. Sultan Al Jaber, dated 20 January 2015|
|Al Ramahi First WS||First Witness Statement of Mr. Mohamed Al Ramahi, dated 20 January 2015|
|Al Ramahi Second WS||Second Witness Statement of Mr. Mohamed Al Ramahi, dated 29 February 2016|
|Arbitration Rules||ICSID Rules of Procedure for Arbitration Proceedings 2006|
|Brattle First Quantum ER||Brattle Group Expert Report, titled "Financial Damages to Masdar," dated 21 January 2015|
|Brattle First Regulatory ER||Brattle Group Expert Report, titled "Changes to the Regulation of Concentrated Solar Power Installations in Spain," dated 21 January 2015|
|Brattle Second Quantum ER||Brattle Group Expert Report, titled "Rebuttal Report: Financial Damages to Masdar," dated March 2016|
|Brattle Second Regulatory ER||Brattle Group Expert Report, titled "Rebuttal Report: Changes to the Regulation of Concentrated Solar Power Installations in Spain," dated 1 March 2016|
|CL-[#]||Claimant's Legal Authority|
|Cl. Bif.||Claimant's Observations on Respondent' s Request for Bifurcation, dated 24 March 2015|
|Cl. Mem.||Claimant's Memorial on the Merits, dated 22 January 2015|
|Cl. Obs. EC||Claimant's Observations on the European Commission's Written Amicus Curiae Submission, dated 8 April 2015|
|CSP||Concentrated Solar Power|
|Cl. Rej. Jur.||Claimant's Rejoinder on Jurisdiction, dated 24 July 2016|
|Cl. Reply||Claimant's Reply on the Merits and CounterMemorial on Jurisdiction, dated 3 March 2016|
|Cl. RfA||Request for Arbitration, dated 30 January 2014|
|ECT||Energy Charter Treaty|
|Evans First WS||First Witness Statement of Mr. Jonathan Evans, dated 21 January 2015|
|Evans Second WS||Second Witness Statement of Mr. Jonathan Evans, dated 1 March 2016|
|FIT||Feed-in tariff mechanism introduced in Spain on 25 May 2007 by Royal Decree No. 661/2007|
|Garcia WS||Witness Statement of Mr. Raul Garda, dated 21 January 2015 (withdrawn)|
|Hearing||Hearing on Jurisdiction and Merits held on 1923 September 2016|
|ICSID or the Centre||International Centre for Settlement of Investment Disputes|
|ICSID Convention||Convention on the Settlement of Investment Disputes Between States and Nationals of Other States, dated 18 March 1965|
|JVA||Joint Venture Agreement, dated 12 March 2008, entered between Abu Dhabi Future Energy Company and Sener Grupo de Ingenieria, S.A. for the creation of Torresol Energy Investments S.A.|
|Montoya First WS||First Witness Statement of Mr. Carlos Montoya, dated 15 September 2015|
|Montoya Second WS||Second Witness Statement of Mr. Carlos Montoya, dated 6 June 2016|
|PER||Renewable Energy Plan 2005-2010 (in Spanish, '"Plan de Acción Nacional de Energías Renovables")|
|RAIPRE||"Registro Administrativo de Instalaciones de Producción en Régimen Especial"|
|RL-[#]||Respondent's Legal Authority|
|Resp. Bif.||Respondent's Request for Bifurcation, dated 3 March 2015|
|Resp. C-Mem.||Respondent's Counter-Memorial on the Merits and Memorial on Jurisdiction, dated 16 September 2015|
|Resp. Obs. EC||Respondent's Observations on the European Commission's Written Amicus Curiae Submission, dated 8 April 2015|
|Resp. Rej.||Respondent's Rejoinder on the Merits and Reply on Jurisdiction, dated 10 June 2016|
|Servert Gemasolar ER||Expert Report of Dr. Jorge Servert, titled "GEMASOLAR Solar Tower CSP Plant -Lifetime Analysis," dated 8 June 2016|
|Servert Valle ER||Expert Report of Dr. Jorge Servert, titled "Valle I & II Parabolic Trough CSP Plant - Lifetime Analysis," dated 8 July 2016|
|Tassabehji WS||Witness Statement of Mr. Ziad Tassabehji, dated 21 January 2015|
|Tr. Day [#], [Speaker(s)], page [_], line [_].||Transcript of the Hearing (English)|
|Tribunal||Arbitral Tribunal constituted on 18 July 2014|
• New documents: C-215 to C-229.
• Corrected documents: C-38; CL-21, CL-82; BRR-1, BRR-16, BRR-21, BRR-27, BRR-50, BRR-83, BRR-94.
• New documents: R-300 to R-304; RL-99; AMR-38.
• Corrected document: RL-8.
• Additional translations: R-98, R-107, R-253, R-255.
Mr. John Beechey President
Mr. Gary Born Arbitrator
Prof. Brigitte Stern Arbitrator
Ms. Luisa Fernanda Torres Secretary of the Tribunal
Mr. Niccolo Landi Assistant to the President of the Tribunal
Ms. Judith Gill QC Allen & Overy LLP, Partner
Mr. Jeffrey Sullivan Allen & Overy LLP, Partner
Mr. Simon Roderick Allen & Overy LLP, Partner
Mr. Yacine Francis Allen & Overy LLP, Senior Associate
Ms. Stephanie Hawes Allen & Overy LLP, Associate
Mr. Tomasz Hara Allen & Overy LLP, Associate
Mr. Jack Busby Allen & Overy LLP, Trainee
Ms. Sara Maria Moreno Sanchez Allen & Overy LLP, Trainee
Mr. Craig Heschuk Masdar Solar & Wind Cooperatief, General Counsel
Mr. Marwan Naim Nijmeh Mubadala Legal
Mr. Mohamed Al Ramahi Witness
Mr. Jonathan Evans Witness
Mr. Ziad Tassabehji Witness
Mr. Richard Caldwell Expert, Brattle Group
Mr. Jose Garcia Expert, Brattle Group
Mr. Carlos Lapuerta Expert, Brattle Group
Mr. John (Jack) Stirzaker Expert, Brattle Group
Mr. Diego Santacruz Abogacía General del Estado, Ministry of Justice
Mr. F. Javier Torres Abogacía General del Estado, Ministry of Justice
Ms. Mónica Moraleda Abogacía General del Estado, Ministry of Justice
Ms. Amaia Rivas Abogacía General del Estado, Ministry of Justice
Ms. Elena Oñoro Abogacía General del Estado, Ministry of Justice
Mr. Antolín Fernández Abogacía General del Estado, Ministry of Justice
Mr. Roberto Fernández Abogacía General del Estado, Ministry of Justice
Mr. Alfonso Olivas IDAE
Ms. Raquel Vázquez IDAE
Mr. Carlos Montoya Witness
Mr. Eduard Saura Expert, Accuracy
Mr. Christophe Schmit Expert, Accuracy
Mr. Alberto Fernández Expert, Accuracy
Ms. Laura Cózar Expert, Accuracy
Dr. Jorge Servert Expert
Mr. Paul Pelissier DR-ESTENO
Mr. Rodolfo Rinaldi DR-ESTENO
Mr. Trevor McGowan
Mr. Jesús Getan Bornn Mr. Mark Viscovi Ms. Amalia Thaler de Klem
During the Hearing, the following persons were examined:
Mr. Mohamed Al Ramahi Witness
Mr. Jonathan Evans Witness
Mr. Ziad Tassabehji Witness
Mr. Richard Caldwell Expert
Mr. Jose García Expert
Mr. Carlos Lapuerta Expert
Mr. Carlos Montoya Witness
Mr. Eduard Saura Expert
Dr. Jorge Servert Expert
"[...] The Tribunal notes that no direct answers have been forthcoming from Respondent to Claimant's request for specific confirmation that Isolux Netherlands, BV ('Isolux') has consented to the production of the Award in this proceeding. However, unless the Kingdom of Spain advises the Tribunal immediately to the contrary, the Tribunal will rely expressly on Respondent's representation that: 'there are no legal impediments for the Kingdom of Spain in order to submit such Award to the Arbitral Tribunal', on the basis that that representation is to be understood as encompassing the question of any necessary consent on the part of Isolux."
On this basis, the Tribunal has decided to authorize the introduction of the Award into the record. Each Party shall have 14 days from the date the Award is produced within which to submit observations to the Tribunal concerning the Award.
"[…] The Tribunal has nothing to add to the directions issued in the Secretariat's letter of 1 December 2016. As stated in that letter 'unless the Kingdom of Spain advises the Tribunal immediately to the contrary, the Tribunal will rely expressly on Respondent's representation that: 'there are no legal impediments for the Kingdom of Spain in order to submit such Award to the Arbitral Tribunal', on the basis that that representation is to be understood as encompassing the question of any necessary consent on the part of Isolux.' It is for the Respondent to decide whether it confirms that the Tribunal might continue to do so in light of the matters raised by Claimant."
"The Tribunal has been informed that, on 12 December 2016, Respondent submitted a communication to the Secretary of the Tribunal only (without copying the Claimant) attaching the Isolux Award, and requesting that the Secretariat 'transmit the Award in the ISOLUX Case to the Arbitral Tribunal, with its unofficial English translation, in order for the Tribunal to transmit it to the Claimant declaring the confidentiality of said Award.' (English Translation.) On instructions of the Tribunal, the Secretariat has not yet transmitted the Isolux Award or its translation to the Members of the Tribunal.
The Tribunal considers that it has already made its position on this issue clear to the Parties. If, on that basis, Respondent wishes to introduce the Isolux Award into the record of this arbitration, it is for Respondent to do so following the regular form of communications established in Section 12.2 of Procedural Order No. 1, pursuant to which '[e]ach party's written communications shall be transmitted by email or other electronic means to the opposing party and to the Secretary of the Tribunal, who shall send them to the Tribunal."
"In order to determine the premiums, account shall be taken of the level of delivery voltage of the energy to the grid, effective contribution to improvement of the environment, saving in primary energy and energy efficiency, production of economically justifiable useful heat and the investment costs which have been incurred, in order to achieve reasonable rates of return by reference to the cost of money in the capital market."15
"Electrical energy producing power plants with an installed power capacity equal or inferior to 50MW that meet the requirements outlined below may be registered for operation under the special regime defined herein."17
Generators qualified under the Special Regime had the right to be connected to, and supply electricity to, the national grid. Plants that used as a primary energy source any of the nonconsumable renewable energies, biomass or any kind of bio fuel were granted a premium to be reviewed by the Government on an annual basis, pursuant to Article 28.2 of the Royal Decree.
"The tariffs, premiums, incentives and supplements resulting from any of the revisions provided in this section shall apply solely to the plants that commence operating subsequent to the date of the entry into force referred to […] above and shall not have a backdated effect on any previous tariffs and premiums."22 (Emphasis added)
The Explanatory Memorandum of RD436/2004 established that:
"[…] the Royal Decree guarantees operators of special regime installations fair remuneration for their investments and an equally fair allocation to electricity consumers of the costs that can be attributed to the electricity system […] ."23
The drawback remained, however, that the incentives were linked to the (variable) TMR, which was tied to general market energy prices. Nor were the incentives offered high enough in themselves to attract the necessary growth in investment, as the Government was to acknowledge in its Renewable Energy Plan ("PER", in Spanish, Plan de Acción Nacional de Energías Renovables) (see paragraph 112 below):
"[T]he incentives that have been established have not been sufficient to ensure the anticipated rate of growth. Although Royal Decree 436/2004 has, in some cases, brought about an improvement in returns on investment, it is necessary to provide further incentives if possible in particular technology areas in order to make them more attractive to future investors."24
(i) decisively to guaranteeing the long-term supply of energy through independent and inexhaustible energy sources;
(ii) to job creation (particularly in rural areas) and improved industrial competitiveness and accordingly they should be encouraged in order to secure long-term economic growth;
(iii) to the increased use of renewables to provide electricity in cities, which would reduce emissions from fossil fuels; and
(iv) to the development of renewables in Spain, which would help to achieve binding EU carbon emission goals.
The PER acknowledged, too, that two factors would be critical, if the requisite levels of investment were to be attracted.
First, incentives would be essential:
"[I]t is essential to position different technologies in such a way that their economic profitability becomes attractive to investors, therefore facilitating access to bank finance."26
Second, a stable regulatory framework had to be in place:
"[T]he financial market continues to view return on investment within a stable regulatory framework as the decisive factor. This highlights once again the importance of public initiatives to facilitate and stimulate the fulfilment of the targets that have been defined."27
The PER made clear that the Spanish Government was estimating the level of debt finance likely to be tapped in the period 2005-2010 at some EUR 18,198 billion - or 77.1% of the total investment. The PER noted:
"It is therefore essential to place the various technologies in a position where they are sufficiently profitable to be attractive to investors and to facilitate access to bank loans."28
"[…] A new paragraph b) is included in point 2 of Article 30 to the following effect: 'b) The energy thus generated will have priority access to transport and distribution networks, while respecting the continuing maintenance and safety of such networks.'"
"Until that which is foreseen in sections one to twelve of article 1 can be developed, in accordance with that established in the penultimate dispositions of this Royal Decree-law: 1. Electrical energy production installations with an installed power that is equal to or less than 50MW, that when Act 54/1997 entered in force, on November 27, were accepted by the scheme foreseen by Royal Decree 2366/1994 on December 4, on production of electrical energy by hydraulic installations, of cogeneration and others stored by renewable sources or resources, as well as those referred to in the second additional disposition to the mentioned Royal Decree, shall maintain the mentioned scheme. 2. The review of the average rate made by the Government shall not be applied to the prices, bonuses, incentives and rates that are part of the compensation for the electrical energy production activity in the special scheme."30
" [...] set out a set of policies required to achieve the goals of sustainable, secure and competitive energy [...] [w]ere the EU to succeed […] [t]he EU would have set the pace for a new global industrial revolution."31
"Spanish society today, in the context of reducing dependence on foreign energy, better use of available energy sources and a greater awareness of the environment, is increasingly demanding the employment of renewable sources of energy and efficiency in the generation of electricity as basic principles in the achievement of sustainable development from an economic, social and environmental point of view.
[...] [A]lthough the growth seen overall in the special regime for electricity generation has been outstanding, in certain technologies the targets posed are still far from being reached.
[...] [T]he economic circumstances established by Royal Decree 436/2004 […] make it necessary to modify the compensation system and de-link it from the [TMR] , which has been used to date."33
Article 2.1 of RD661/2007 made clear that:
"Facilities for the production of electrical energy under Article 27.1 of Law 54/1997, of 27 November, may avail themselves of the special regime established under this Royal Decree."34
Article 9.1 provided for the registration of facilities producing electricity under the Special Regime:
"In order to ensure appropriate monitoring of the special regime and in particular in order to ensure the management and control of the receipt of the regulated tariffs, the premiums and supplements, both in respect of the categories, groups, and sub-groups, the installed power, and where applicable the date of entry into service, and in respect of the evolution of the electrical energy produced, the energy sold to the grid, the primary energy employed, the useful heat produced, and the primary energy saving achieved, facilities for the production of electrical energy under the special regime shall be subject to compulsory registration in Section Two of the Public Authority Register of facilities for the production of electrical energy indicated in Article 21.4 of Law 54/1997, which is a part of the Ministry of Industry, Tourism, and Trade. Section Two of the Public Authority Register indicated above shall hereinafter be known as the Public Authority Register for production facilities under the Special Regime [RAIPRE]."35
Its Explanatory Memorandum reiterates the principle of reasonable return in the following terms:
"The economic framework established in the present Royal Decree develops the principles provided in Law 54/1997 […] , guaranteeing the owners of facilities under the special regime a reasonable return on their investments, and the consumers of electricity an assignment of the costs attributable to the electricity system which is also reasonable […] ."36
Among the key features of RD661/2007 were the following:
(i) while the option of a fixed tariff or a premium was still offered, the tariffs were expressed in actual amounts per kWh and they were adjusted for inflation on a yearly basis in accordance with the consumer price index;
(ii) in the case of CSP, the fixed tariff was EUR 26.94/kWh for the first 25 years and thereafter EUR 21.55/kWh. Under the premium option, the premium was set at no less than 25.40 cents/kWh for the first 25 years and no less than 20.32 cents/kWh thereafter;
(iii) the CSP tariff was increased by 17%;
(iv) a floor (25.40 cents/kWh) and a ceiling (34.40 cents/kWh) were introduced to the premium option in order to ensure stability;
(v) Article 17 set out the rights to be enjoyed by producers under the Special Regime, among them:
"b) Transfer to the system their net production of electrical energy or energy sold, by way of the distribution or transport company upon condition that it is technically possible for it to be absorbed by the grid.
c) Receive, for the total or partial sale of their net electrical energy generated under any of the options appearing in Article 24.1, the compensation provided in the economic regime set out by this Royal Decree. The right to receive the regulated tariff, or if appropriate the premium, shall be subject to final registration of the facility in the Register of production facilities under the special regime of the General Directorate of Energy Policy and Mines, prior to the final date set out in Article 22. […]."37
(vi) the CSP producers continued to be permitted to produce energy using natural gas and receive the FITs, whether under the fixed tariff (up to 12% of total annual production attributable to gas usage) or the premium option (up to 15% of total annual production attributable to gas usage);38
(vii) pursuant to Article 22 of RD661/2007, once the CSP sector reached 85% of Spain's target capacity of 500 MW, a time limit of at least 12 months ("Tariff Window") would be fixed within which CSP installations would be required to register with the RAIPRE in order to have the benefit of RD661/2007's economic regime. Thereafter, new installations would be unable to access the tariffs and incentives established under RD661/2007, which remained available only to registered existing installations. The terms of Article 22.1 were as follows:
"1. As soon as 85% of the power target for any Group or Sub-Group as established in Articles 35-42 of the present Royal Decree has been reached, the maximum period during which such facilities as have been registered in the Public Authority Register of production facilities under the special regime prior to the date of the termination of such period shall have the right to a premium or if applicable the regulated tariff established in the present Royal Decree for such Group or Sub-Group, which shall be no less that twelve months, shall be established by Resolution of the General Secretariat for Energy.
To this effect, the National Energy Commission shall propose to the General Energy Secretariat a deadline taking into account the analysis of the data reflected in the information system indicated in Article 21 and taking into account the speed of implementation of new facilities and the average duration of the works for a standard project of any technology."39
Article 22.2 continued:
"2. Such facilities as have been given final registration in the Public Authority Register for production under the special regime of the Ministry of Industry, Tourism, and Trade, subsequent to the deadline for that technology, shall if they have elected option a) under Article 24.1, receive compensation for the energy sold equivalent to the final hourly price on the production market, and if they have elected option b), the price for the sale of the electricity shall be the price arising in the organized market or the price freely negotiated by the proprietor or the representative of the facility supplemented by the applicable market supplements if any:
Without prejudice to the above, such facilities shall be taken into account when determining the new power targets for the Renewable Energies Plan 2011-2020."40
(viii) options for the sale of net production of electrical energy produced by these facilities were set out in Article 24.1 of RD661/2007:
"In order to sell their net production of electrical energy in full or in part, the proprietors of facilities to which this Royal Decree is applicable should elect one of the following options:
a) Sell the electricity to the system through the transport or distribution grid, receiving for it a regulated tariff, which shall be the same for all scheduling periods expressed in Euro cents per kilowatt/hour.
b) Sell the electricity in the electrical energy production market. In this case the sale price of the electricity shall be the price obtained in the organised market or the price freely negotiated by the proprietor or the representative of the facility, supplemented where appropriate by a premium, in Eurocents [sic] per kilowatt/hour."41
(ix) Article 44.3 of RD661/2007 provided that the anticipated introduction of tariff revisions in 2010, on the expiration of the 2005-2010 PER planning period, would have no bearing upon installations, which had qualified for the RD661/2007 FITs prior to 1 January of the second year after the introduction of the revisions and which would continue to benefit from them:
"During the year 2010, on sight of the results of the monitoring reports on the degree of fulfilment of the Renewable Energies Plan (PER) 2005-2010, and of the Energy Efficiency and Savings Strategy in Spain (E4), together with such new targets as may be included in the subsequent Renewable Energies Plan 2011-2020, there shall be a review of the tariffs, premiums, supplements and lower and upper limits defined in this Royal Decree with regard to the costs associated with each of these technologies, the degree of participation of the special regime in covering the demand and its impact upon the technical and economic management of the system, and a reasonable rate of profitability shall always be guaranteed with reference to the cost of money in the capital markets. Subsequently a further review shall be performed every four years, maintaining the same criteria as previously.
The revisions to the regulated tariff and the upper and lower limits indicated in this paragraph shall not affect facilities for which the deed of commissioning shall have been granted priorto 1 January of the second year folowing the year in which the revision shall have been performed."42 (Emphasis added)
"In any event, the rights and expectations of the owners of the facilities are respected, with the necessary caution being exercised and the necessary transitional regime for adaptation being envisaged."45
Article 4.2 provided that:
"Registration in the […] Pre-Assignment Registry shall be a necessary condition to being awarded the right to the economic regime established in Royal Decree 661/2007 […] ."46
"[…] the economic regimen for the facilities that are registered in the Pre-Allocation Registry for Compensation [as they were] [...] will be as foreseen in Royal Decree 661/2007 […] ."47
Stabilisation commitments : "For solar thermoelectric technology facilities that fall under Royal Decree 661/2007 of 25 May, the revisions of tariffs, premiums and upper and lower limits referred to in article 44.3 of the aforementioned Royal Decree, shall not affect facilities registered definitively in the Administrative Registry of production facilities entitled to the special regime that is maintained by the Directorate-General for Energy and Mining Policy as of 7 May 2009, nor those that were to have been registered in the Remuneration Pre-assignment Registry under the fourth transitional provision of Royal Decree-Law 6/2009 of 30 April, and that meet the obligation envisaged in its article 4.8, extended until 31 December 2013 for those facilities associated to phase 4 envisaged in the Agreement of the Council of Ministers of 13 November 2009."50
"[…] currently […] the retribution [sic] applicable to the installations consists of the tariffs, premiums, upper and lower limits and supplements established in Royal Decree 661/2007, dated 25 May, and which are updated on an annual basis by order of the Ministry of Industry, Tourism and Trade. The values to be effective as of 1 January 2011 are the following:
Term Regulated Reference Upper Limit Lower Limit tariff c€/kWh premium c€/kWh c€/kWh
First 25 years 29.0916 27.4312 37.1483 27.4353
Thereinafter 23.2731 21.9449
Value of the reference supplement per reactive energy for the application of the bonus or malus percentage: 8.4681 c€/kWh."52
"The insufficiency of fees is endangering the economic-financial sustainability of gas and electrical systems. Significantly, the fundamental problem in the electrical sector is that the lack of convergence between revenues and costs for activities regulated in the electrical sector in these last 10 years has created a growing debt in the electrical system. This imbalance between revenue and costs in the system is unsustainable due to the impact of the growing debt accumulated on access licenses, present and future, for consumers, and the temporal impact on the indebtedness of the companies that are obligated to finance the system's deficit."57
"[I]t shall be equally distributed amongst consumers, the private sector and the public sector as part of a comprehensive reform of the electricity sector, which shall involve cost reduction measures for regulated activities, an increase of revenue from tolls, a review of energy planning and the establishment of a stable regulatory framework."58
"The taxable event is the production of electricity and its incorporation into the electricity system measured at power station bus bars, including the peninsular electricity system and those of the insular and extra-peninsular territories, in any of the facilities referred to in Chapter IV of Law 54/1997, of 27 November, concerning the Electricity Industry."60 (Emphasis added)
"Article 1. [...] As of 1 January 2013, in all methodologies which govern the updating of the remuneration, tariffs and premiums that apply to agents of the electricity system through the implementation of industry regulations and which are linked to the Consumer Price Index, this index will be replaced by the Consumer Price Index (CPI) at constant taxes excluding unprocessed foods or energy products."
"Article 2. […] Royal Decree 661/2007, of 25 May, regulating the production of electricity under a special regime, is hereby modified as follows:
One. In tables 1 and 2 of article 35, the value of the reference premium for all the subgroups is modified, and now has a value of 0 c€/kWh.
Two. In table 3 of article 36, the value of the reference premium for all the subgroups is modified, and now has a value of 0 c€/kWh. The values of the upper and lower limits are abolished. […]"62 (Emphasis added).
"4. Additionally, subject to the terms that the Council of Ministers might adopt pursuant to Royal Decrees, in relation to the remuneration for the generation of electricity calculated according to market price, installations may receive a specific remuneration [the Special Payment] composed of an amount per unit of installed capacity. Such amount shall cover, as appropriate, the investment costs of a standard installation that cannot be recovered through the sale of energy, as well as an amount for the operation of the installation to cover, as the case may be, the difference between exploitation costs and the revenues obtained from the participation of such a standard installation in the market.
For the calculation of that specific remuneration, the following elements shall be considered, based on the installation's regulatory useful life and by reference to the activities carried out by an efficient and well administered business:
a) The standard revenues for the sale of generated energy valued at market price of production;
b) The standard exploitation costs;
c) The standard value of the initial investment.
To that effect, the costs or investments determined by laws or administrative regulations that do not apply to the Spanish territory shall not be considered in any case. In the same manner, only those costs and investments related to the activity of electric energy generation can be taken into account.
As a result of the individual characteristics of the electricity system in the Spanish islands or the extra-peninsular territories, a standard installation for each of those electricity systems may be defined.
This remuneration regime shall not exceed the minimum required level to cover the costs that are necessary for installations to compete on an equal footing with the rest of the technologies in the market in order to allow those installations to obtain a reasonable return, by reference to the standard installation, as the case may be. Notwithstanding the above, exceptionally the remuneration regime might also include an incentive to investments and timely execution of an installation, if this was going to result in a significant cost reduction for the Spanish islands or the extra-peninsular territories' electricity systems.
Such reasonable return will be based on, before taxes, the average returns in the secondary market of the State's ten-year bonds plus the adequate differential.
The parameters of the remuneration regime can be revised every six years."64
RDL9/2013 changed the remuneration regime which previously was calculated based on production (rate per kW produced) to a regime based on efficiency criteria (investment costs, operating costs, revenues) and introduced a Special Payment.
" [T]he accumulation, during the last decade, of annual income/expense imbalances of the electric system, […] has created a structural deficit.
The causes of this imbalance lie in the excessive growth of certain cost items due to energy policy decisions, without guaranteeing any corresponding income by the system. All this has then been worsened by the absence of growth in electricity demand, fundamentally a consequence of the economic crisis.
[…] This situation of imbalance has reached the point where the debt accumulated by the electric system presently exceeds twenty-six thousand million euros, the structural deficit of the system totals ten thousand million per year and the failure to correct the imbalance will generate a risk of bankruptcy for the entire electric system. […] ."66
"1. The value on which the reasonable return of the standard installation shall hinge will be calculated as the average yield of ten-year Treasury Bonds in the secondary market of the 24 months prior to the month of May of the year prior to the start of the regulatory period increased in a differential.
The reviews of the value on which reasonable return shall hinge will be applicable in what is left of the regulatory useful life of the standard installation.
2. Before 1 January of the last year of the corresponding regulatory period, the Ministry of Industry, Energy and Tourism shall present to the Council of Ministers a draft bill that will include a proposal for the value of the differential indicated in the previous section during the next regulatory period, pursuant to the criteria established in Article 14.4 of Act 24/2013 dated 26 December.
In order to set this value, the Ministry of Industry, Energy and Tourism may obtain a report from the National Commission on Markets and Competition, which shall be issued before 1 July of the second-to-last year of the corresponding regulatory system, in addition to obtaining the services of an independent specialized entity."68
"The aforementioned Act 24/2013, dated 26 December, thus provides in its additional tenth provision that the first regulatory period will begin on the date that Royal Decree-Law 9/2013, dated 12 July, enters into force, and will end on 31 December 2019, also setting the amount on which the return of sample reference projects is based. Moreover, in its third final provision for this first regulatory period, in line with what was already established in the first additional provision of the aforementioned Royal Decree-Law, it sets the value on which reasonable return will hinge throughout the regulatory life of installations that produce electricity from renewable energy sources, co-generation and wastes and for which premium remuneration was recognized when the aforementioned Royal Decree-Law entered into force.
This new legal and economic framework regulated under Act 24/2013, dated 26 December, was set forth, first of all, in Royal Decree 413/2014, dated 6 June, regulating the production of electricity from renewable energy sources, co-generation and wastes, while in Article 12, it establishes the procedure for granting the specific remuneration regime. Secondly, the new legal and economic framework is established through the approval of this order, which primarily approves the remuneration parameters for standard installations that apply to specific installations for the production of electricity from renewable energy sources, cogeneration and wastes.
This order finalizes the changes to the remuneration model for renewable energy, co-generation and wastes, granting financial stability to the system in a definitive manner, at the same time as it guarantees a reasonable return on the installations. These installations will continue to receive additional revenue over and above what they receive from the market until the end of their operational life, as long as they have not obtained this level of return. Furthermore, the importance of this order resides in the fact that it concerns the determination of useful operational life and the quantification of the initial value of the investment, insofar as it concerns parameters that may not be revised."70
"(a) a declaration that the Respondent has breached Article 10(1) of the ECT;
(b) an order that the Respondent make full reparation to the Claimant for the injury to its investments arising out of Spain's breach of the ECT and international law, such full reparation being in the form of:
(i) full restitution to the Claimant by re-establishing the situation which existed prior to Spain's breaches of the ECT, together with compensation for all losses suffered prior to the reinstatement of the prior regime; or
(ii) pay the Claimant compensation for all losses suffered as a result of Spain's breaches of the ECT; and
(iii) in any event:
A. pay the Claimant pre-award interest at a rate of 1.60% compounded monthly; and
B. pay post-award interest, compounded monthly at a rate to be determined by the Tribunal on the amounts awarded until full payment thereof; and
(c) pay the Claimant the costs of this arbitration on a full indemnity basis, including all expenses that the Claimant have incurred or will incur in respect of the fees and expenses of the arbitrators, ICSID, legal counsel and experts; and
(d) any other relief the Tribunal may deem appropriate in the circumstances.
Claimant reserves its rights to amend or supplement this relief and to request such additional, alternative or different relief as may be appropriate."73
"In addition to the reservation of rights contained at paragraph 505 of the Memorial, the Claimant also reserves its right to address any discrepancies that the Claimant subsequently discovers between the English and the Spanish versions of Spain's Counter-Memorial, the Claimant having relied on the English translation."74
"Insofar as Spain's jurisdictional Objections are concerned (and in addition to the relief set out at paragraph 504 of the Claimant's Memorial and paragraphs 1032 to 1033 of the Claimant's Reply),
(a) the dismissal of all of Spain's jurisdictional Objections; and
(b) an order that Spain bear the cost of bringing its jurisdictional Objections."75
"[...] in accordance with the principles of efficiency and procedural economy, [the bifurcation of] this proceeding, providing for a separate phase of jurisdiction and admissibility, so that the Preliminary Objections presented in this Document can be analysed and resolved by the Tribunal in a separate and previous manner.
This request for bifurcation should not be construed as a waiver of the Kingdom of Spain's right to raise other objections of jurisdiction or regarding the admissibility of the claims presented by the Claimants, at the appropriate time during the proceedings.
The Kingdom of Spain reserves the right to supplement, modify or complement the arguments outlined in this Request and to formulate, where appropriate, subsequent jurisdictional or admissibility objections as soon as these circumstances become apparent during the proceedings, in accordance with the provisions of Article 41 of the ICSID Convention, and with the rest of the ICSID Convention, the ICSID Rules, Procedural Order No. 1 and the decisions of the Arbitral Tribunal."76
"a) a Declaration that the Tribunal has no jurisdiction over the Claimant's claims, or, as the case may be, its [sic] inadmissibility, referring to Jurisdictional Objections;
b) In the alternative, in case the Arbitral Tribunal decides it has jurisdiction over this dispute, the dismissal of all the Claimant's pretensions regarding to merits as the Kingdom of Spain has not breached the ECT in any way;
c) In the alternative, to dismiss all Claimant's claims for compensation; and
d) an Order that Claimant pay all the costs and expenses that arise from the present arbitration, including the administrative expenses incurred by ICSID, the fees of the arbitrators and the fees of the legal representation of the Kingdom of Spain, their experts and advisers, as well as any other cost or expense incurred, including interest at a reasonable interest rate from the date on which said costs were incurred until the date of its [sic] effective payment.
The Kingdom of Spain reserves the right to supplement, amend or complement these observations and to present any additional argument as needed, in accordance with the ICSID Convention, the ICSID Arbitration Rules, the Procedural Orders and the directives of the Arbitral Tribunal in order to respond to all allegations made by Claimant with regard to this matter."77
"In light of the arguments expressed in this writ, […] :
a) To declare its lack of jurisdiction over the claims of the Claimants [sic] or, if applicable, their inadmissibility, in accordance with what is set forth in section III of this Document, referring to Jurisdictional Objections;
b) Subsidiarily, for the case that the Arbitral Tribunal decides that it has jurisdiction to hear this dispute, that it dismiss all the claims of the Claimants [sic] on the merits because the Kingdom of Spain has not breached in any way the ECT, in accordance with what is stated in paragraphs (A) and (B) of section IV of this Document, on the substance of the matter;
c) Subsidiarily, to dismiss all the Claimants' [sic] claims for damages as said claims are not entitled to compensation, in accordance with section V of this Document; and
d) Sentence the Claimants [sic] to pay all costs and expenses derived from this arbitration, including ICSID administrative expenses, arbitrators' fees, and the fees of the legal representatives of the Kingdom of Spain, their experts and advisors, as well as any other cost or expense that has been incurred, all of this including a reasonable rate of interest from the date on which these costs are incurred and the date of their actual payment.
The Kingdom of Spain reserves the right to supplement, modify or complement these pleadings and present any and all additional arguments that may be necessary in accordance with the ICSID Convention, the ICSID rules of arbitration, procedural orders and the directives of the Arbitral Tribunal in order to respond to all allegations made by the Claimant in regards to this matter."78
(i) lack of jurisdiction "ratione personae": Respondent contends that the dispute is, in reality, a dispute between two States, the UAE (and specifically Abu Dhabi) and the Kingdom of Spain; under international law, the conduct of Claimant must be attributed to the UAE, which is not a party to the ECT. Accordingly, neither the requirements of Article 26 of the ECT, nor those of Article 25 of the ICSID Convention have been met;
(iii) lack of jurisdiction "ratione voluntatis": Respondent contends that it denied Claimant the benefits of Part III of the ECT in a timely fashion and in reliance upon the provisions of Article 17 of the ECT; it says that Claimant maintains no "substantial business activities" in The Netherlands (being the Area of the Contracting Party in which it is accepted that Claimant is organised);
(iv) lack of jurisdiction "ratione voluntatis" relating to tax measures, in light of the provisions of Articles 10(1) and 21 of the ECT, being a lack of jurisdiction to entertain the dispute arising out of the introduction, pursuant to Law 15/2012, of the TVPEE ("Levy") on the production and incorporation into the grid of electricity within the ambit of the Spanish electrical system; and
(v) the "intra-EU" objection: Respondent submits that the Tribunal has no jurisdiction to hear the claims, because it says that there is an:
"[A]bsence of any investor protected in accordance with the ECT. The Claimant does not come from the territory of another Contracting Party as the Netherlands, just like the Kingdom of Spain, are Member States of the European Union. The ECT does not apply to disputes pertaining to intra-EU investments."79
(i) the actions of a legal person must be considered actions performed by the State when such person acts in the exercise of elements of governmental authority; and
(ii) the actions of a legal person are considered actions of the State when such person acts under the control, direction or instructions of the State.
(i) Article 26(6) of the ECT requires this Tribunal to:
"[…] decide the dispute in accordance with this Treaty and applicable rules and principles of international law"; and
(ii) there is authority in ICSID case law for the proposition that attribution is relevant to jurisdiction. Respondent relies upon Tulip82 and CSOB.83 In the former case, the tribunal had determined that:
"The issue of attribution relates both to the Tribunal's jurisdiction and to the merits of this dispute. Attribution is relevant […] for the purposes of the BIT and Art. 25 of the ICSID Convention."84
And in CSOB, the tribunal had concluded that:
"[…] for purposes of the Convention a mixed economy company or government-owned corporation should not be disqualified as a 'national of another Contracting State' unless it is acting as an agent for the government or is discharging an essentially government function."85
"[T]he key goals and functions of the Claimant have been determined/defined expressly by [Abu Dhabi] and those are the objectives of economic and social policy, objectives/goals of [Abu Dhabi] ."87
"(i) [T]o contribute to the economic diversification of Abu Dhabi;
(ii) to maintain, and later expand, Abu Dhabi's position in evolving global energy markets; (iii) position Abu Dhabi as a developer of technology, rather than an importer; and (iv) to make a meaningful contribution towards sustainable human development."88
"[...] for purposes of the Convention, a mixed economy company or government owned corporation should not be disqualified as a 'national of another Contracting State' unless it is acting as an agent for the government or is discharging an essentially government function. [...]."
" […] [the fact that] CSOB is a public sector rather than a private sector entity, does not address the here crucial issue […] For, as has been shown above, such ownership or control alone will not disqualify a company under the here relevant test from filing a claim with the Centre as 'a national of another Contracting State.'"93
"[T]o produce a commercially attractive rate of return by taking advantage of the financial incentives offered by the RD661/2007 special regime."99
"[…] acting as an agent for the government or is discharging an essentially government function."104
Indeed, Respondent has expressly acknowledged that Masdar is not exercising any public function prerogative.
"[…] a classical one, based on the law under which the juridical person has been incorporated […]."105
(a) with respect to a Contracting Party:
(i) a natural person having the citizenship or nationality of or who is permanently residing in that Contracting Party in accordance with its applicable law;
(ii) a company or other organization organized in accordance with the law applicable in that Contracting Party;"106
It is common ground between the Parties that Claimant is incorporated in The Netherlands and organized under the laws of that country, and that it satisfies therefore the nationality test under both the ICSID Convention and the ECT. In other words, the nationality of Claimant is that of The Netherlands, a Contracting State for the purposes of Article 25 of the ICSID Convention and a Contracting State of the ECT.
(i) there had been no contribution of economic resources, because Claimant's equity investment in Torresol Energy was financed by Mubadala via ADFEC, and because bank financing provided by Spanish banks to Torresol was underwritten by shareholder guarantees from Mubadala and ADFEC, with the result that there had been no investment in the "objective or ordinary sense" of the term; and
(ii) there had been no assumption of risk by Claimant.
"[…] has not come up with any funds and has not assumed any risk for the investment, as Masdar is simply a shell company, a ghost company set up for purely tax purposes in order to be able to act as a channel for the investment of the Government of Abu Dhabi in the Kingdom of Spain."107
"[W]as a mere eventuality, [it] could have existed or not, but that would not have changed the material investment."108
In any event, submits Respondent, ADFEC and Mubadala remained:
" [J]ointly obligated as concerns each and every single obligation subscribed to by Masdar ever since it was set up. In other words, Masdar is not carrying out any investment. The funds and the assumption of risk are always to be pinned on the shoulders of Mubadala."109
(i) shares in Torresol Energy, debt interests in the Operating Companies (through Torresol Energy) that own and operate the Plants and interests in those Plants (Article 1(6)(b));
(ii) claims to money (Article 1(6)(c));
(iii) returns (Article 1(6)(e)); and
(iv) rights conferred by law, including those conferred by RD661/2007 (Article 1(6)(f)).
(i) since Article 1(6) of the ECT must be regarded as an agreement between the Parties on the definition of "investment" for the purposes of protection under the ECT; and
(ii) since Article 26 of the ECT (and specifically Article 26(4)(a)(i)) must be regarded as an agreement between the Parties to refer disputes in respect of such investments to arbitration under the ICSID Convention,
it must follow that Claimant's assets and interests, which fall within the meaning of "investment" for the purposes of Article 1(6) of the ECT must also constitute "investments" for the purposes of Article 25(1) of the ICSID Convention.
(ii) a contribution on the part of the investor;
(iii) a contribution to the development of the host State; and
(iv) some risk taking.
(i) when it became a party to the JVA on 9 June 2008, Claimant, in its capacity as shareholder in Torresol Energy, assumed joint and several liability (with ADFEC) for the fulfilment of all obligations under the JVA rights and obligations, including:
- its subscription for and payment for the shares;
- its application of reasonable endeavours to promote, develop, grow and support Torresol Energy's business;
- its contributions to investment and funding provided in the business plan of Torresol Energy, including a commitment to provide "additional financing in the form of equity or shareholder loans";
(ii) it has contributed some EUR 119,028,669 in equity and shareholder loans to the investment in Torresol Energy and the Plants; and it is a full participant in the risk of the operation of the Plants as an equity investor in Torresol Energy and as a creditor pursuant to the shareholder loans.
"'Investment' means every kind of asset, owned or controlled directly or indirectly by an Investor and includes:
(a) tangible and intangible, and movable and immovable, property, and any property rights such as leases, mortgages, liens, and pledges;
(b) a company or business enterprise, or shares, stock, or other forms of equity participation in a company or business enterprise, and bonds and other debt of a company or business enterprise;
(c) claims to money and claims to performance pursuant to contract having an economic value and associated with an Investment;
(d) Intellectual Property;
(f) any right conferred by law or contract or by virtue of any licences and permits granted pursuant to law to undertake any Economic Activity in the Energy Sector."114
" [...] [T]he definition of an 'Investment' in Article 1(6) of the ECT should be recognised as more broad compared to other acts on investment protection, namely: as a treaty covering maximum possible varieties of assets in the energy sector and optional operations therewith."115
"683. The Arbitral Tribunal does not share Claimant's position that the definition of the concept of investment in the ECT is sufficient in and of itself. The list of assets listed in ECT Article 1(6) provides examples of investment but [it] does not define the concept. [...]
684. The Arbitral Tribunal shares the position of the Kingdom of Spain when it argues that this additional definition must be objective, in the absence of a subjective definition included in the ECT. It is not convinced by the Claimant's argument that the objective definition developed by many other courts faced with the absence of a definition in other bilateral or multilateral treaties, in particular but not exclusively within the ICSID arbitration, would be inapplicable. More than just the content of each treaty, what truly matters is the silence of each one regarding the definition of the concept of investment. This is the common feature of these treaties which justifies a definition of the concept of investment.
685. As noted by the Claimant, the source of this definition is the award of 2001 in the case Salini Construttori Spa and Italstrade Spa v. Kingdom of Morocco where the court considered that an investment: 'infers: contributions, a certain duration of performance of the contract and a participation in the risks of the transaction.' It added the condition of 'contribution to the economic development of the host State of the investment' (free translation). With the evolution of arbitral jurisprudence, the objective definition of the notion of investment now includes only: (i) a contribution, (ii) the receipt of returns and (iii) the assumption of risks."118
" [...] [U]nder ICSID jurisprudence, Tribunals have generally found the origin of capital used in investments immaterial. According to doctrinal authorities, the origin of the funds is irrelevant for the purposes of jurisdiction. Whether investments are made from imported capital, from profits made locally, from payments received locally or from loans raised locally, makes no difference to the degree of protection enjoyed."
C. Objection Based on Lack of Jurisdiction "Ratione Voluntatis’ (Denial of BENEFITS)
"Each Contracting Party reserves the right to deny the advantages of this Part to:
(1) a legal entity if citizens or nationals of a third state own or control such entity and if that entity has no substantial business activities in the Area of the Contracting Party in which it is organized […] ."122
(i) the legal entity to which the advantages may be denied is legally incorporated in the territory of a Contracting Party;
(ii) the entity must be owned or controlled by nationals of a third State; and
(iii) the legal entity has no substantial business activities in the territory in which it is set up.
" [W]as not even paying for the rent of an office, nor does it have any permanently employed people in The Netherlands, nor does it give any instructions to invest in The Netherlands."
Rather, it was set up in a building, where
" [H]undreds of companies are being represented. It has no wor k ers at all there; they simply have two members on the board of directors that give them fiduciary services. They [...] submit [...] only shortened annual accounts. They didn't even submit the full accounts in 2014 […] they have [...] gone to the [UAE] in order to find a [law] firm to defend them [and not to The Netherlands] […] They are simply a mailbox, a shell company, set up for mere convenience and [which] carries out no substantial business activity in The Netherlands."124
" [it] has exercised its rights to deny benefits wholly adequately at the opportune time […] ."126
"Claimant did not configure its investment thinking of the protections under the ECT. Rather it placed itself in The Netherlands in order to seek tax advantages."127
(i) the decision of the UNCITRAL tribunal in Ulysseas128 for the proposition that a retrospective denial of the advantages of a BIT could not be excluded, because it was known to a putative investor from the time that it made its investment that the host State might not grant the protections offered by the Treaty during the life of the investment; and
(ii) the decision in Guaracachi & Rurelec,129 in which the tribunal had pointed out that:
"The very purpose of the denial of benefits is to give [a State] the possibility of withdrawing the benefits granted under the BIT to investors who invoke those benefits. As such, it is proper that the denial is 'activated' when the benefits are being claimed."
"Article 26 provides a procedural remedy for a covered investor's claims: and it is not physically or juridically part of the ECT's substantive advantages enjoyed by that investor under Part III. As a matter of language, it would have been simple to exclude a class of investors completely from the scope of the ECT as a whole, as do certain other bilateral investment treaties; but that is self-evidently not the approach taken in the ECT. This limited exclusion from Part III for a covered investor, dependent upon certain specific criteria, requires a procedure to resolve a dispute as to whether that exclusion applies in any particular case; and the object and purpose of the ECT […] clearly requires Article 26 to be unaffected by the operation of Article 17(1) [...] ."130
"[E]xercising its right at this time to deny the Claimant the application of the benefits of Part III of the ECT in concurrence with the circumstances of Article 17."131
"Each Contracting Party reserves the right to deny the advantages of this Part to:
(1) a legal entity if citizens or nationals of a third state own or control such entity and if that entity has no substantial business activities in the Area of the Contracting Party in which it is organized; or
(2) an Investment, if the denying Contracting Party establishes that such Investment is an Investment of an Investor of a third state with or as to which the denying Contracting Party:
(a) does not maintain a diplomatic relationship; or
(b) adopts or maintains measures that:
(i) prohibit transactions with Investors of that state; or
(ii) would be violated or circumvented if the benefits of this Part were accorded to Investors of that state or to their Investments."142
"[A] legal framework in order to promote long-term co-operation in the energy field, based on complementarities and mutual benefits, in accordance with the objectives and principles of the [European Energy] Charter."144
"It is difficult to imagine that any Contracting Party, whatever its general policy regarding mailbox companies, would refrain from exercising its right to deny the substantive protections of the ECT to an investor who has already commenced arbitration and is claiming a substantial sum of money. A good faith interpretation does not permit the Tribunal to choose a construction of Article 17 that would allow host states to lure investors by ostensibly extending to them the protections of the ECT, to then deny these protections when the investor attempts to invoke them in international arbitration."145
"The Treaty seeks to create a predictable legal framework for investments in the energy field. This predictability materializes only if investors can know in advance whether they are entitled to the protections of the Treaty. If an investor such as Khan Netherlands, who falls within the definition of 'Investor' at Article 1(7) of the Treaty and is therefore entitled to the Treaty's protections in principle, could be denied the benefit of the Treaty at any moment after it has invested in the host country it would find itself in a highly unpredictable situation. This lack of certainty would impede the investor's ability to evaluate whether or not to make an investment in any particular state. This would be contrary to the Treaty's object and purpose."146
"With regard to the question of whether the right under Article 17(1) of the ECT can only be exercised prospectively, the Tribunal considers that the above-mentioned notification requirement […] can only lead to the conclusion that the notification has prospective but no retroactive effect. Accepting the option of a retroactive notification would not be compatible with the object and purpose of the ECT, which the Tribunal has to take into account according to Article 31(1) of the VCLT and which the ECT in its Article 2, expressly identifies as 'to promote long-term co-operation in the energy field.' Such long-term co-operation requires, and it also follows from the principle of legal certainty, that an investor must be able to rely on the advantages under the ECT, as long as the host state has not explicitly invoked the right to deny such advantages. Therefore the Tribunal finds that Article 17(1) of the ECT does not have retroactive effect."
"[…] the object and purpose of the ECT suggests that the [exercise of Article 17] should not have retrospective effect. A putative investor, properly informed and advised of the potential effect of Article 17(1), could adjust its plans accordingly prior to making its investment. If, however, the right's exercise had retrospective effect, the consequences for the investor would be serious. The investor could not plan in the 'long term' for such an effect (if at all); and indeed such an unexercised right could lure putative investors with legitimate expectations only to have those expectations made retrospectively false at a much later date."
"Article 17 ECT, as clearly indicated by its introductory words 'of this part' only applies to Part III of the ECT, leaving unaffected the dispute resolution provision in Part V with Art.26 ECT (see tribunal in Plama v. Bulgaria). And further, Art. 17 ECT would only apply if a state invoked that provision to deny benefits to an investor before a dispute arose and Respondent did not exercise this right."
"A further question is whether the denial of advantages should apply only prospectively, as argued by Claimant, or may also have retrospective effects, as contended by Respondent. The Tribunal sees no valid reasons to exclude retrospective effects. In reply to Claimant's argument that this would cause uncertainties as to the legal relations under the BIT, it may be noted that since the possibility for the host State to exercise the right in question is known to the investor from the time when it made its the investment, it may be concluded that the protection afforded by the BIT is subject during the life of the investment to the possibility of a denial of the BIT's advantages by the host State."
"The same must be said in relation to the supposedly retroactive application of the clause. The Tribunal cannot agree with the Claimants when they argue that the Respondent is precluded from applying the denial of benefits clause retroactively. The very purpose of the denial of benefits is to give the Respondent the possibility of withdrawing the benefits granted under the BIT to investors who invoke those benefits. As such, it is proper that the denial is 'activated' when the benefits are being claimed."
"4.52. As to timing, Costa Rica observes that CAFTA Article 10.12.2 is silent on when a CAFTA Party may deny benefits; and it suggests that, consequently, 'denial of benefits may occur at any time, regardless even of the existence or not of an investment arbitration' (paragraph 6), particularly when a tribunal is examining its jurisdiction (paragraphs 8 & 9), although such a denial could not be legally effective after an award was made (paragraph 7)."155 (Emphasis added)
"4.56. The USA observes (in common with Costa Rica) that a CAFTA Party is not required to invoke denial of benefits under CAFTA Article 10.12.2 before an arbitration commences; and that it may do so as part of a jurisdictional defence after a claim has been submitted to arbitration (paragraph 5). The USA likewise observes that this CAFTA provision contains no time-limit for its invocation; and that a contrary interpretation would place an untenable burden on a CAFTA Party, contrary to the purpose of CAFTA Article 10.12.2:
[...] It would require the respondent, in effect, to monitor the ever-changing business activities of all enterprises in the territories of each of the other six CAFTA-DR Parties that attempt to make, are making, or have made investments in the territory of the respondent [citing Ms. Kinnear's NAFTA Commentary] . This would include conducting, on a continuing basis, factual research, for all such enterprises, on their respective corporate structures and the extent of their business activities in those countries. To be effective, such monitoring would in many cases require foreign investors to provide business confidential and other types of non-public information for review. Requiring CAFTA-DR Parties to conduct this kind of continuous oversight in order to be able to invoke the denial of benefits provision under Article 10.12.2 before a claim is submitted to arbitration would undermine the purpose of the provision.' (paragraph 6)."156
"4.83. (iii) Timeliness: There is no express time-limit in CAFTA for the election by a CAFTA Party to deny benefits under CAFTA Article 10.12.2. […]
4.85. Second, this is an arbitration subject to the ICSID Convention and the ICSID Arbitration Rules, as chosen by the Claimant under CAFTA Article 10.16(3)(a). Under ICSID Arbitration Rule 41, any objection by a respondent that the dispute is not within the jurisdiction of the Centre, or, for other reasons, is not within the competence of the tribunal 'shall be made as early as possible' and 'no later than the expiration of the time limit fixed for the filing of the counter-memorial'. In the Tribunal's view, that is the time-limit in this case here incorporated by reference into CAFTA Article 10.12.2. Any earlier time-limit could not be justified on the wording of CAFTA Article 10.12.2; and further, it would create considerable practical difficulties for CAFTA Parties inconsistent with this provision's object and purpose, as observed by Costa Rica and the USA from their different perspectives as host and home States (as also by the Amicus Curiae more generally). In the Tribunal's view, the Respondent has respected the time-limit imposed by ICSID Arbitration Rule 41."157 (Emphasis added)
"[…] 'substantial' in this context means 'of substance and not merely of form'. It does not mean 'large', and the materiality, not the magnitude of the business activity is the decisive question."158
"[T]he requirement […] that is foreseen on Article 26(1) of the ECT which states that to access arbitration the dispute must be between a Contracting Party and investors from different Contracting Parties."198
"[A]bsence of any investor protected in accordance with the ECT. The Claimant does not come from the territory of another Contracting Party as the Netherlands, just like the Kingdom of Spain, are Member States of the European Union. The ECT does not apply to disputes pertaining to intra-EU investments."199
" [A]t the time of signing of the ECT, none of the [C]ontracting [P]arties intended to confer the right to an EU investor to rely on investor-State arbitration against a Member State."201
(i) reliance by an EU investor on investor-State arbitration against another EU Member State would violate the EU Treaties; the ECT:
"[C]annot create new rights and obligations for EU investors vis-avis EU Member States, because the Treaties and EU legislation adopted in the field of energy contain a complete set of rules, including on judicial protection, for the protection of investments of nationals of a Member State when investing in another Member State."202
(ii) a general principle had emerged, based upon Article 344 of the Treaty on the Functioning of the European Union ("TFEU") and the judgment of the ECJ in Commission v. Ireland (C-459/03), to the effect that:
"EU Member States cannot agree that intra-EU disputes concerning the interpretation or application of EU law can be subject to a method of dispute settlement different from those provided in the treaties on which the Union is founded."203
(iii) since Respondent had notified the disputed measure to the Commission under Article 108(3) TFEU, the Tribunal was invited to suspend the arbitration pursuant to its case-management authority and the principle of comity, to the extent that it considered that it would be necessary to establish whether the national support scheme constituted State aid in order to decide the dispute.204
"Where two or more Contracting Parties have entered into a prior international agreement, or enter into a subsequent international agreement, whose terms in either case concern the subject matter of Part III or Part V of this Treaty,
(1) nothing in Part III or Part V of this Treaty shall be construed to derogate from any provision of such terms of the other agreement or from any right to dispute resolution with respect thereto under that agreement; and
(2) nothing in such terms of the other agreement shall be construed to derogate from any provision of Part III or Part V of this Treaty or from any right to dispute resolution with respect thereto under this Treaty,
where any such provision is more favourable to the Investor or Investment."218 (Emphasis added)
"[M]inimises the regulatory risk by granting stability and predictability to the economic incentives during the service life of the facilities. This is done by establishing a transparent annual adjustment mechanism, associating incentives to trends in a robust index such as the average or reference tariff (TMR), and by exempting existing facilities from the four-year review because only new incentives affect the new facilities.
The guarantees covered in Royal Decree 436/2004 have allowed cheaper financing, with lower project costs and a lower impact on the electricity tariff ultimately paid by the consumer."230
" [A]lthough it is difficult to defend the petrification of regulations, it is necessary to try to achieve sufficient legal certainty to counteract regulatory uncertainty and risk as much as possible […] .
[…] The constitutional doctrine admits that if its need is sufficiently justified, it is possible to retroactively enforce a regulation provided that, in exchange, an adequate transition period is established and investors are compensated.
In the opinion of the majority of the [CNE] Managing Board, the need to retroactively enforce the proposed Royal Decree is not sufficiently justified, the proposed transition period is not adequate […] and […] investors are not sufficiently compensated."232
"[R]ecent history tells us that even though renewable technologies are expensive, the Government is willing to provide a reasonable return for investors by keeping the subsidies, even in the event of tariff deficits being generated over time."239
"This agreement […] assumes the reinforcement of the visibility and stability of the regulation of these technologies in the future, guaranteeing the current subsidies and rates of RD661/2007 for the facilities in operation (and for those included in the preregistration) starting in 2013 […] ."242
"[T]hanks to the existence of a solid, stable and predictable economic and legal support regime […] ."243
"[…] currently and by virtue of […] Royal Decree Law 6/2009 […] the retribution [sic] applicable to the installations consists of the tariffs, premiums, upper and lower limits and supplements established in Royal Decree 661/2007 […] updated on an annual basis [...]" [The values effective as of 1 January 2011 for (a) the first 25 years and (b) thereafter were then set out.]244
"[N]othing was left of the 661 economic regime. The foundation on which Masdar had invested had been completely abolished and replaced by something very different."246
(i) Law 15/2012 stripped away the right of the installations to use natural gas for any part of their annual production and still receive FITs;
(ii) the 7% Levy, likewise introduced by Law 15/2012, was applied to production revenues and not to profits. It amounted to a thinly disguised tariff cut for renewable installations and a limit to the rights under the economic regime that Law 15/2012 purportedly applied to Ordinary and Special Regimes producers alike. In reality, however, it did not; whereas ordinary generators could pass on the extra cost to consumers, the Special Regime generators operated in a regulated environment and received a guaranteed price for energy produced. A 7% charge on revenues constitutes a 7% reduction in revenues. To the argument advanced by Respondent that the effect of the Levy was cost neutral, because an amount equivalent to the Levy was used to finance the cost of the Spanish electricity system earmarked for developing renewables and its offset was paid back to the plants through their remuneration package, Claimant answers that this is a circular argument; the moneys raised by the Levy were not given back; they were being used to fund the Government's obligation to pay incentives. Furthermore, under the regime introduced by the 2013 legislation, any entitlement to incentives was limited. If the threshold benchmark for full production hours was not met, for whatever reason, the full operational element of the incentives payment, which included the reimbursement of the 7% Levy, would not be recovered;
(iii) RDL2/2013 reduced the RD661/2007 premium to zero, with the effect that the premium FIT option disappeared, leaving only the fixed tariff option. Incentives were no longer adjusted by reference to the consumer price index, but to a variant of the same index, at constant taxes and excluding unprocessed foods or energy products;
(iv) within a matter of weeks, that system was scrapped by the enactment on 12 July 2013 of RDL9/2013. RD661/2007 was repealed and the FIT regime was replaced by a form of remuneration described as a "Special Payment;"
(v) on 26 December 2013, Law 54/1997 itself was supplanted by Law 24/2013. The formal distinction between the Ordinary and Special Regimes was abolished and, save for express exceptions, renewables producers and conventional generators were to be treated alike. Priority of dispatch for renewables producers was subject to the determination of the Spanish Government. The Special Payment itself and estimates of income derived from energy sales were to be reviewed every six and three years respectively;
(vi) the effect of RD413/2014, which was followed almost immediately by the Ministerial Order of 16 June 2014, was to eradicate any vestiges of the RD661/2007 regime. Not only was the new regime applied to installations which had qualified for protection from any change to the RD661/2007 regime, but there was a clawback of incentives paid prior to the introduction of the new regime. Stability and predictability had been swept away; Claimant says that if an installation is to receive any incentive payments at all, it is only to the extent that there are sufficient funds in the system, leaving an investor with no assurance that a Special Payment will be received when due, as opposed to being paid at some point in the five-year period following the year in which there was a funding shortfall.
"The regulation must offer sufficient guarantees to ensure that the economic incentives are stable and predictable throughout the service life of the facility."247
"The Government prioritises profitability and stability in the new Royal Decree."
It anticipated a rise to 8% profitability for facilities choosing to supply distributors and between 7 and 11% for those participating in the wholesale market.249 Claimant draws attention to the fact that the Ministry's own review of the then draft legislation anticipated:
"For the market option, a premium is proposed that ensures a project IRR of 9.5% for the typical 25-year case, with a minimum of 7.6% and a maximum of 11% in the band limits."250
Claimant points out that Respondent's position now is that 7.3% is a reasonable return.
"[I]f you've got those stability provisions in, yes you can change the rules, you can change the tariffs; but you cannot backdate it for facilities that had already sunk their capital on a different regulatory regime basis because they cannot change what they have already spent, they cannot change the debt finance arrangements that they have already entered into."252
(i) breach of the fair and equitable treatment ("FET") provision, in that:
(a) Claimant's legitimate expectations have been frustrated;
(b) Spain has not been transparent in its conduct;
(c) the measures Spain has taken are unreasonable and disproportionate; and
(d) Spain has failed to offer a stable legal framework pursuant to Article 10(1).
Claimant contends that these breaches are non-cumulative and that the breach of any one of them amounts to a breach of the FET provision;
(ii) breach of the non-impairment standard; and
(iii) breach of the "umbrella clause," including the obligations undertaken by Spain in RD661/2007 and the 28 December 2010 ministerial Resolutions.
"A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in t