"where the investor has acquired rights, or where the state has acted in such a way so as to generate a legitimate expectation in the investor and that investor has relied on that expectation to make its investment, action by the state that reverses or destroys those legitimate expectations will be in breach of the fair and equitable treatment standard and thus give rise to compensation."4
Other awards are to the same effect, holding in multiple circumstances that a state’s frustration of an investor’s legitimate expectations gives rise to liability under a fair and equitable treatment obligation.5
a. "The investor may rely... on representations and undertakings made by the host state including those in legislation, treaties, decrees, licenses, and contracts."17
b. "What the investor may legitimately expect must be evaluated in the light of all circumstances in each given case. The expectations may relate not only to the existing contractual or other relations between the investor and the host state, but may also concern the general legal framework in the host state."18
c. "[A]n investor may derive legitimate expectations either from (a) specific commitments addressed to it personally, for example in form of a stabilization clause, or (b) rules that are not specifically addressed to a particular investor but which are out in place with a specific aim to induce foreign investments and on which the foreign investor relied in making his investment."19
d. "Legitimate expectations may follow from explicit or implicit representations made by the host state, or from its contractual commitments. The investor may even sometimes be entitled to presume that the overall legal framework of the investment will remain stable."20
e. "Thus, withdrawal of undertakings and assurances given in good faith to investors as an inducement to their making an investments (sic) is by definition unreasonable."21
f. "[S]tability means that the investor’s legitimate expectations based on this legal framework and on any undertakings and representations made explicitly or implicitly by the host state will be protected. The investor may rely on that legal framework as well as on representations and undertakings made by the host state including those in legislation, treaties, decrees, licenses, and contracts."22
"Amounts of Prices for Electricity from Renewable Sources and Amounts of Green Bonuses
(1) The Office sets, one calendar year in advance, the purchasing prices for electricity from Renewable Sources (the "Purchasing Prices"), separately for individual kinds of Renewable Sources, and sets green bonuses, so that...
b) for facilities commissioned
1. after the effective date of this Act, there is attained, with the support consisting of the Purchasing Prices, a fifteen year payback period on capital expenditures, provided technical and economic parameters are met, such parameters consisting of, in particular, cost per unit of installed capacity, exploitation efficiency of the primary energy content in the Renewable Source, and the period of use of the facility, such parameters being stipulated in an implementing legal regulation,
2. after the effective date of this Act, the amount of revenues per unit of electricity from Renewable Sources, assuming support in the form of Purchasing Prices, is maintained as the minimum [amount of revenues]36, for a period of 15 years from the commissioning year of the facility, taking into account the industrial producer price index; the commissioning of a facility is also deemed to include cases involving the completion of a rebuild of the technological part of existing equipment, a change of fuel, or the completion of modernization that raises the technical and ecological standard of an existing facility..."37
"Subsection (b)(2) makes reference to the buy-out prices’ mentioned in subsection (b)(1), expressly stating that they are to ‘support’ the ‘revenues’ of solar PV plants. The buy-out prices themselves are set following the criteria contained in the Technical Regulation and the ERO methodology, which state that the price will ensure a 15 year payback of capital expenses and a return on investment of at least 7% per year over 15 years. Thus, there is no abstract promise of ‘revenues’ to investors. The revenues are tied to the buy-out prices, and the buy-out prices are, in turn, tied to the guarantee of a 15 year payback of capital expenses and a return on investment or profit of at least 7% per year over 15 years."44
a. The Czech Minister for Industry and Trade described the Act on Promotion, during the legislative approval process, as follows: "In the field of the support of electricity from renewable energy sources, the bill brings especially the long-term guarantee of feed-in tariffs and therefore it secures a stable business environment, which the potential investors call for intensively."53 Other government ministers made similarly explicit statements confirming that FiTs for electricity produced from renewable energy were guaranteed for fixed periods.54 These statements focused specifically on the guaranteed FiTs, over a 15-year period, and not, as the majority suggests, on FiTs that would produce a "return of investment" in 15 years.
b. The Czech Republic stated in a revised 2005 Report on the Act on Promotion that: "Act No 180/2005 on the promotion of electricity produced from renewable energy sources, which guaranteed the long-term, stable support required for business decisions, entered into effect on 1 August 2005. As of 1 January 2006 this Act introduced a new support system, the key features of which are:... the guarantee of revenue per unit of electricity) produced over a 15-year period as of the date a plant is put into operation [and] the preservation of the level of feed-in tariffs for 15 years for plants already in operation."55 Again, these statements focused specifically on the guaranteed FiTs (or "revenue" and "feed-in tariffs"), over a 15-year period, and not, as the majority incorrectly reasons, on guaranteed "profit" or "return of investment."
c. The Czech Republic explained in a 2005 Report to the European Commission that the Act on Promotion "provides for an unprecedented system of support in the form of fixed purchase feed-in) prices and, where necessary, supplements to market prices for electricity, and also guarantees a level of return on each unit of electricity produced for a period of 15 years."56 Once more, the Czech Republic’s statements were directed specifically to the guaranteed FiTs, over a 15-year period, and not, as the majority suggests, on "return of investment."
d. The Czech Republic explained in another 2005 report to the United Nations that "[t]he system of support [under Section 6 of the Act on Promotion] is based particularly on... providing guarantees to the investors and owners of installations, producing electricity from renewable sources who are subject to support pursuant to the Act, that the amount of revenue per unit of produced electricity from renewable sources acquired by the producers from the support will be maintained for a period of 15 years from bringing the installation into operation (or for a period of 15 years for installations that were brought into operation prior to the date of effect of the Act)."57 The same report stated that "Act No. 180/2000 Coll, newly introduced a fifteen-year guarantee of minimum purchase prices from the date of bringing the installations into operation..,"58 Once more, these statements were directed specifically to guaranteed "revenue" and "minimum purchase prices" for a 15-year period, not to "profits" or "return of investment."
e. The ERO’s Pricing Regulation for renewable energy provided, among other things, that "Feed-in tariffs and green bonuses determined pursuant to the [Act on Promotion] shall apply throughout the entire expected lifetime of the facility producing electricity as set out by the Public Notice implementing certain provisions of the [Act on Promotion], Throughout such lifetime of the facility producing electricity, which falls in the relevant category determined pursuant to the type of renewable source used and date of putting into operation, the feed-in tariffs shall be increased annually taking in consideration the price index of industry manufacturers at least by 2% and at maximum by 4%, with the exception of facilities combusting biomass and biogas."59 Again, the Czech Republic’s focus was on guaranteed levels of "feed-in tariffs," not just "profits" or "return of investment."
f. The Czech Renewable Energy Agency’s website, available to the public, stated that "The amount of the feed-in tariffs is guaranteed for period of 15 years and prices indices of industry products are taken in consideration here. In contrast to green bonuses, the fifteen-year guarantee of amount of revenues for electricity unit since the year of putting the facility for production of electricity from renewable energy sources into operation must not be influenced."60 The Czech Renewable Energy Agency also confirmed on its website that the FiTs not only apply during the lifetime of the plant but are also adjusted based on the Index of Industrial Production and thereafter subsequently increased by a minimum of 2%.61 Yet again, this refers unequivocally to guarantees of the "amounts of the feed-in-tariffs" and "amount of revenues for electricity unit," not "profits" or "return of investment."
g. The ERO stated in a 2007 Report on its activities that "From the perspective of guaranteed support for renewable resources, another major change was the amendment to public notice no. 150/2007, on regulatory methods in the energy industries and procedures for price control. The new provisions set forth that feed-in tariffs and green premiums shall be applied throughout the service life of electricity generating plants and also that feed-in tariffs shall be increased annually to reflect PPI [the Index of Industrial Production], by at least two per cent but no more than by four per cent, throughout the service life of electricity generating plants, with the exception of those that fire biomass and biogas."62 Once more, the focus was unequivocally on guaranteed FiTs, not profits or return of investment.
h. The ERO conducted presentations to foreign investors both inside and outside of the Czech Republic, including presentations in Prague, Warsaw and elsewhere. These road-shows included powerpoint presentations that told potential investors that the Act on Promotion provided a 15-year guarantee of FiTs.63
i. For example, in a 2006 presentation in Prague, the ERO stated that "[s]upport of electricity production from renewable sources in accordance with Act no. 180/2005 Coll" included "economic return 15 years" and "keeping of support for 15 years in due consideration of price index of industry producers (regarding feed-in tariffs')."64
ii. The following year, in a presentation in Warsaw entitled "Support of Renewable Electricity in the Czech Republic," the ERO reiterated that the Act on Promotion "guaranteed" a "15 years payback period of investments."65 Similarly, the Czech Energy Agency stated in a presentation given in a 2006 workshop in Beroun that the Act on Promotion provided a "guarantee for tariffs for 15 years (tariff assessments of ER[O])."66
i. The Czech Republic’s 2010 Action Plan, submitted to the European Union in July 2010, addressed the question "[h]ow long is the fixed tariff guaranteed," by stating "[t]ariffs are guaranteed according to the following table," listing a "Feed-in price guarantee (in years)" for photovoltaic sources as "20 [years]."67 The same Action Plan also stated, in response to a question whether "any tariff adjustment [is] foreseen in the scheme," by stating that "Feed-in prices for new production installations are calculated on an annual basis, taking into account current investment costs. For existing sources, i.e. production installations already in operation, the prices are increased by 2 to 4 percent according to the development of the industrial producer price index."68 The same document stated that there were no caps on the amounts of electricity eligible for the guaranteed tariffs.69 As with all the Czech Republic’s other statements, the Action Plan referred to guaranteed "tariffs" and "feed-in-prices," not "return of investment."
j. A "Frequently Asked Questions" section on the ERO’s website reproduces the provisions of Public Notice No 150/2007, including the statements that the "feed-in-tariffs and green bonuses apply throughout the useful life of the plants" and that the "the feed-in tariffs are adjusted annually to the Index for Industrial Production and increased - except for plants producing biomass and biogas energy - by at least 2%, however no more than 4%."70 The FAQs also address the question whether "it [is] correct, that the anticipated useful life for the photovoltaic systems was extended and hence also the time period the feed-in-tariff... to be paid" by confirming that "feed-in-tariffs and green bonus for the photovoltaic systems commissioned after 1 January 2008 may be claimed for 20 years."71 One again, the references are to guaranteed "feed-in-tariffs," not "return of investment."
k. Public statements made throughout the relevant time period by the representatives of the Czech Republic consistently emphasized the government’s commitment to providing a stable legal framework for the investors and guaranteed FiTs for a 20-year period.72 Similarly, Czech authorities repeatedly declared that governmental support under the Act on Promotion provided a "stable business environment"73 for specific categories of renewable energy investors,74 including assurances that "the amount of the feed-in tariffs is guaranteed for period of 15 years."75
"The Act on Promotion required that, provided the investment met technical and economic benchmarks, the Subsidy level would be sufficient to receive a payback of the investment costs within 15 years. To accomplish this objective, the Subsidy for each installation was to be fixed at the date of commissioning for a period of at least 15 years, subject to an annual adjustment for inflation."79
"[Counsel for Claimant]: And if I may, I will read it out to you what Section 6(b).2 says: ‘After the date of the effect of this act, the amount of revenues stays unchanged for the unit of electricity from Renewable Sources with the support of buy-out prices for the period of 15 years since the year when the device was put into operation as a minimum amount.’... So, this price at the time when the plant is put in operation was guaranteed for a period of 15, later extended to 20 years; is that correct?
[REDACTED] : For the sources at that given period that were under the price tariff or Price Decision, yes, for those this is correct."80
"[Counsel for Claimant]: [The Q&A section from the ERO homepage] says in the English translation: ‘As explained above, the current law defines that feed-in tariffs and green bonus for photovoltaic systems commissioned after 1 January 2008 may be claimed for 20 years.’ Is that correct?
[REDACTED] : Yes."81
"[Arbitrator]: Mr. Di Rosa, just so I understand it because I didn’t pick this up in your first description of the Act on Promotion, if I understand what you've just said, you would accept that in Section 6 the Act guaranteed for a 15-year period a specified Purchasing Price for tariff?
[Counsel for Respondent]: That's what the—that's what the statute contemplated, yes."82
None of the awards cited by the Respondent suggested that the presence of the particular language which the Respondent relies upon was necessary for a conclusion that the statutory provision constituted a stabilization guarantee. Instead, these awards all formulated the standards for an investor’s legitimate expectations expansively, without reliance on the particular formulae cited by the Respondent.104 Likewise, other investor-state awards also frame the inquiry into legitimate expectations more broadly, without imposing any form requirement of the sort demanded by the Respondent; instead, these awards expressly contemplate the possibility that stabilization guarantees may arise from statutory text because, as with the Act on Promotion, that text guarantees specific treatment for a prescribed time period.105
a. On 24 August 2009, the Czech Ministry of Industry and Trade announced for the first time its intention to seek amendments to the Act on Promotion to reduce incentives for solar energy. The Ministry proposed doing so because of concerns that too many solar installations were being planned and that this would result in a financial burden on the Czech Republic (which, as discussed above, had guaranteed the FiTs payable to such installations). Importantly, in addressing a reduction in incentives for solar energy, the Ministry directed its attention only to the so-called 5% brake rule in Section 6(4) of the Act on Promotion, which it proposed abolishing prospectively (in January 2010), while also making it clear that the proposed changes would not affect the 15-year guarantee of minimum FiTs for existing solar facilities.110 Thus, while expecting imbalances in the renewable energy sector, the Ministry’s proposal was directed only to the level of guaranteed minimum FiTs for future solar installations, not for existing solar installations.
b. The day after the Ministry of Industry and Trade’s 24 August announcement, the Ministry’s press department clarified the limited scope of the proposed changes in an interview published in a Czech newspaper (Právo) explaining that "the payback period of the investment will be guaranteed, specifically by a guarantee which is already included in the law saying that the investment in the solar system has to be paid off within 15 years."111 There was again no suggestion by the Ministry that the guaranteed FiTs for existing solar installations under Section 6(1)(b)(2) would be affected.
c. A letter from the Ministry of Industry and Trade to the ERO of 28 August 2009 confirmed the Ministry’s intention to preserve the treatment of existing solar installations, explaining that this was motivated in part by concerns about claims by existing investors in renewable energy. According to the Ministry, "the goal of section 6(4)... was to ensure the investors in renewable sources certainty of payback of their investments, transparency, and predictability. A simple cancellation could thus entail a risk of suits filed by investors against the Czech Republic on grounds of lost investments."112 Again, the Ministry was at pains to emphasize that the rights of existing investors would not be affected by any amendments to the Act on Promotion, which would entail only a prospective amendment to Section 6(4)’s 5% brake rule.
d. In September 2009, the ERO wrote an open letter to the Czech Chamber of Deputies, citing delays in the introduction of any legislative changes to Section 6(4)’s 5% brake rule and again explaining that any amendments to the FiTs would only affect energy sources commissioned after "7 January/ 2011,"113 The ERO noted that this delay would enable solar investors that were already in the process of completing investments "to prepare sufficiently in advance for the change in the conditions for investing which should eliminate entirely the risk of possible lawsuits in the Czech Republic regarding protection of investments."114
e. Adopting the ERO’s recommendations, the Czech government proposed an amendment to the Act on Promotion in November 2009. The Explanatory Report to that Draft Act 137/2010 once more made clear the Czech government’s commitment to preserving the statutorily-guaranteed treatment of solar installations that had already been commissioned. The Report stated that one of the aims of "[t]he proposed wording...[was] to enable the [ERO] to adjust the prices for solar power... as of 1 January 2011."115 The Report repeated the explanation, provided in the ERO’s earlier statements, that the prospective character of the amendment was intended to provide "[i]nvestors...[to] prepare sufficiently in advance for amendment of the conditions for investment, which should entirely eliminate the risk of potential lawsuits against the Czech Republic related to protection of investments."116
f. The proposed amendment to the Act on Promotion was adopted on 21 April 2010. The amendment provided only for the prospective elimination of Section 6(4)’s 5% brake rule for solar facilities commissioned after 1 January 2011 (not January 2010).117 The proposed amendment did not alter the guaranteed FiTs under Section 6(1)(b)(2) for existing solar installations that had already been commissioned or that would be commissioned prior to I January 2011. The Czech Republic’s witnesses confirmed, in cross-examination, that the proposed amendment (and reduced FiTs) would apply only to solar installations commissioned after 1 January 2011, and not to installations previously commissioned.118
g. In February 2010, TSO and DSOs agreed on a moratorium refusing "new connection requests" for photovoltaic installations.119 The moratorium was intended to address the expected regulatory imbalance in the renewable energy sector, but only affected new installations, not existing investments. This was confirmed by the Czech Republic’s witnesses: "It was already—in February 2010 there was a Moratorium on grid connection, so no more new connections for approval to the grid were being issued. There were still some speculative connections that had been issued in the past that were sort of bought and sold in the market, and that’s why a lot of the Parties were able to commission plants notwithstanding the Moratorium."120
h. In July 2010, the Czech Republic’s 2010 Action Plan (submitted to the EU) stated that "[t]ariffs are guaranteed according to the following table," listing a "Feed-in price guarantee (in years)" for photovoltaic sources as "20 [years]."121 The same document contained various further assurances to existing solar investors.122 There was no suggestion that the FiTs which had been guaranteed for existing investors would be changed, notwithstanding the Czech government’s awareness of imbalances in the renewable energy sector.
i. In September 2010, the Czech government again considered legislation that would have reduced the burden of subsidies for renewable energy. In connection with proposed legislation addressing the issue, an Explanatory Report confirmed again that changes to FiTs would only take effect with respect to solar installations commissioned after "1 January 2011." The Report also made clear that the proposed legislation would not be applicable to "[p]hotovoltaic power plants already connected to the electric power system" and that the investors’ "right to claim support [would be]preserved under existing conditions."123 Furthermore, the government explicitly stated that "[f]acilities not yet connected to the electric power system but which started operation before January I, 2011 will have 12 months to be connected to the electric power system" and would also have "their right to claim support... preserved."124
Due diligence is not a condition to protection of an investment under international law, whether under the fair and equitable treatment standard or otherwise. What is sometimes referred to as an obligation to conduct due diligence is relevant only where particular inquiries would have led an investor to alter its expectations about national law protections.131 An investor is under no abstract duty to conduct due diligence.
"[A]n investor cannot be required to conduct an extensive legal investigation. To determine whether the expectations invoked by the investor are reasonable, key elements are what every prudent investor needs to know about the regulatory framework before investing and the actual information held by an investor.... In particular, a legitimate investor expectation cannot be induced by a regulatory framework when the investor’s actual information allowed him to foresee and anticipate the unfavorable development of this regulatory framework before making the investment. In order to breach the legitimate expectations of the investor, the new regulatory measures should not have been foreseeable, either by a prudent investor or by an investor who, by reason of his personal situation, had specific reasons to foresee those measures."132
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