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A. Introduction

The Claimant, CMS Gas Transmission Company, is a company established under the laws of the State of Michigan, United States. It is represented in this proceeding by:

Ms. Lucy Reed

Ms. Sylvia Noury

Freshfields Bruckhaus Deringer LLP

520 Madison Avenue

34th floor

New York, NY 10022

United States of America

Mr. Nigel Blackaby

Freshfields Bruckhaus Deringer

2-4 rue Paul Cézanne

75375 Paris Cedex 08


Dr. Guido Santiago Tawil

M. & M. Bomchil Abogados

Suipacha 268, piso 12

C1008AAF Buenos Aires


The Respondent is the Argentine Republic, represented in this proceeding by:

H.E. Osvaldo César Guglielmino

Procurador del Tesoro de la Nación

Procuración del Tesoro de la Nación

Posadas 1641

CP 1112 Buenos Aires



By letter of April 8, 2005 the Secretary of the Tribunal informed the parties that the Tribunal had declared the proceeding closed in accordance with Rule 38(1) of the Arbitration Rules. This Award contains the Tribunal's Award on the merits rendered in accordance with Arbitration Rule 47, as well as a copy of the Tribunal's Decision on Objections to Jurisdiction. In rendering its Award, the Tribunal has taken into account all pleadings, documents and testimony in this case insofar as it considered them relevant.

B. Summary of the Procedure

1. Procedure Leading to the Decision on Jurisdiction

On July 27, 2001, the Centre, in accordance with Rule 5 of the ICSID Rules of Procedure for the Institution of Conciliation and Arbitration Proceedings (Institution Rules), acknowledged receipt and transmitted a copy of the request to Argentina and to the Argentine Embassy in Washington D.C.
On August 15, 2001, the Centre requested CMS to confirm that the dispute referred to in the request had not been submitted by CMS for resolution in accordance with any applicable, previously agreed, dispute-settlement procedure, under Article VII (2)(b) of the BIT. On August 23, 2001, CMS confirmed that it had taken no such steps.
On August 24, 2001, the Secretary-General of the Centre registered the request, pursuant to Article 36(3) of the ICSID Convention (the Convention). On this same date, the Secretary-General, in accordance with Institution Rule 7, notified the parties of the registration of the request and invited them to proceed to constitute an Arbitral Tribunal as soon as possible.
On August 30, 2001, the Centre reminded Argentina of the Claimant's proposal concerning the number of arbitrators and the method of their appointment. Under this proposal, contained in paragraph 60 of the request for arbitration, the Arbitral Tribunal would consist of three arbitrators, one arbitrator to be appointed by each party and the third, who would be President of the Tribunal, to be appointed by agreement of the parties.

On September 13, 2001, Argentina informed the Centre of its agreement to the proposal of CMS concerning the number of arbitrators and the method of their appointment. On the same date the Centre informed the parties that since their agreement on the number of arbitrators and the method of their appointment was equivalent to the formula set forth in Article 37(2)(b) of the Convention, the parties were invited to follow the procedure set forth in Arbitration Rule 3 for the appointment of arbitrators.

On October 24, 2001 Argentina appointed H. E. Judge Francisco Rezek, a national of Brazil, as an arbitrator. On November 9, 2001, CMS appointed The Honorable Marc Lalonde P.C., O.C., Q.C., a national of Canada, as an arbitrator. The parties, however, failed to agree on the appointment of the third, presiding, arbitrator. In these circumstances, by letter of December 5, 2001, the Claimant requested that the third, presiding, arbitrator in the proceeding be appointed in accordance with Article 38 of the ICSID Convention.2

After consultation with the parties, Professor Francisco Orrego Vicuña, a national of Chile, was duly appointed as President of the Arbitral Tribunal. On January 11, 2002, the Secretary-General, in accordance with Rule 6(1) of the ICSID Rules of Procedure for Arbitration Proceedings notified the parties that all three arbitrators had accepted their appointments and that the Tribunal was therefore deemed to have been constituted on that date. On the same date, pursuant to ICSID Administrative and Financial Regulation 25, the parties were informed that Mr. Alejandro Escobar, Senior Counsel, ICSID, would serve as Secretary of the Arbitral Tribunal.

The first session of the Tribunal with the parties was held on February 4, 2002, at the seat of ICSID in Washington, D.C. At the session the parties expressed their agreement that the Tribunal had been properly constituted in accordance with the relevant provisions of the ICSID Convention and the Arbitration Rules and that they did not have any objections in this respect.
During the course of the first session the parties agreed on a number of procedural matters reflected in written minutes signed by the President and the Secretary of the Tribunal; and the Tribunal, after ascertaining the views of the parties on the matter, fixed the following time limits for the written phase of the proceedings: The Claimant would file a memorial within 120 days from the date of the first session; the Respondent would file a countermemorial within 120 days from its receipt of the Claimant's memorial; the Claimant would file a reply within 60 days from its receipt of the counter-memorial; and the Respondent would file its rejoinder within 60 days from its receipt of the reply. At the first session it was further agreed that in the event of the Respondent raising objections to jurisdiction, the following time limits would apply: the Respondent would file its memorial on jurisdiction within 60 days from its receipt of the Claimant's memorial on the merits; the Claimant would file its counter-memorial on jurisdiction within 60 days from its receipt of the Respondent's memorial on jurisdiction; the Respondent would file its reply on jurisdiction within 30 days from its receipt of the Claimant's counter-memorial on jurisdiction; and the Claimant would file its rejoinder on jurisdiction within 30 days from its receipt of the Respondent's reply on jurisdiction.
On May 24, 2002, the Claimant requested an extension till July 5, 2002 of the time limit fixed for the filing of its memorial. On June 6, 2002, the Tribunal granted the extension sought by the Claimant. In doing so, the Tribunal noted that Argentina would be entitled to an equivalent extension if requested, of the time limit fixed for its counter-memorial.
On July 5, 2002, the Claimant filed its memorial on the merits and accompanying documentation. On August 5, 2002, Ms. Margrete Stevens, Senior Counsel, ICSID, replaced Mr. Alejandro Escobar as Secretary of the Tribunal. On September 4, 2002, Argentina requested an extension till October 7, 2002, of the time limit fixed for the filing of the memorial on jurisdiction. On September 11, 2002, the Tribunal granted the extension sought by Argentina. On October 7, 2002, Argentina filed its memorial on jurisdiction.

On October 24, 2002, following the Respondent's filing of objections to jurisdiction, the proceeding on the merits was suspended in accordance with ICSID Arbitration Rule 41(3).

On December 17, 2002, the Claimant submitted its counter-memorial on jurisdiction. On January 22, 2003, the parties requested an extension of 30 days for each of the remaining two jurisdictional filings. On January 27, 2003, the Tribunal granted the extensions, and fixed the time limit for the filing of the Respondent's reply on jurisdiction for February 11, 2003; and the time limit for the filing of the Claimant's rejoinder on jurisdiction for March 25, 2003.
On February 13, 2003, the Respondent filed its reply on jurisdiction, and on March 25, 2003, the Claimant filed its rejoinder on jurisdiction.

On April 7-8, 2003, the hearing on jurisdiction was held at the seat of the Centre in Washington, D.C. Ms. Lucy Reed and Messrs. Nigel Blackaby, Jonathan Sutcliffe and Guido Tawil addressed the Tribunal on behalf of the Claimant. Mr. Ignacio Suarez Anzorena addressed the Tribunal on behalf of Argentina. The Tribunal posed questions to the parties, as provided in Rule 32(3) of the Arbitration Rules.

On July 17, 2003, the Tribunal issued its unanimous Decision on the Objections to Jurisdiction raised by the Argentine Republic. In its Decision, the Tribunal rejected the Respondent's contention that the Claimant could not, as a minority shareholder, bring a claim against Argentina and confirmed that the dispute arose directly from an investment made by the Claimant. On this basis, the Tribunal concluded that the Centre had jurisdiction and that the Tribunal was competent to consider the dispute between the parties in accordance with the provisions of the Argentina - U.S. BIT.
Certified copies of the Tribunal's decision were distributed to the parties by the Secretary of the Tribunal.

2. Procedure Leading to the Award on the Merits


On July 17, 2003, the Tribunal, following its Decision on Objections to Jurisdiction, issued, in accordance with Rules 19 and 41(4) of the Arbitration Rules of the Centre, Procedural Order No. 1 on the continuation of the proceeding on the merits. In that Procedural Order the Tribunal fixed the following schedule for the further procedures: as the Claimant had already filed its memorial on the merits of the dispute, the Respondent was directed to file a counter-memorial on the merits within one hundred and twenty (120) days from the date of the Order; the Claimant would file a reply on the merits within sixty (60) days from its receipt of the Respondent's counter-memorial; and the Respondent would file a rejoinder on the merits within sixty (60) days from its receipt of the Claimant's reply. The Order further contemplated that the Tribunal would propose a date for the hearing on the merits once it had received the above-indicated memorials.

By letter of October 2, 2003, the Respondent filed a request for suspension of the proceeding. By letter of October 14, 2003, the Tribunal invited the Claimant to file, no later than October 20, 2003, its observations on the Respondent's request for suspension; by letter of October 17, 2003 the Claimant filed its observations on the Respondent's request of October 2, 2003.
By letter of October 22, 2003, the Respondent filed a request for an extension of the time limit for the filing of its counter-memorial on the merits.
By letter of October 30, 2003, the Secretary of the Tribunal informed the parties of the Tribunal's decision to grant the Respondent's request for a 30-day extension for the filing of its counter-memorial on the merits; the new time limit was fixed for December 17, 2003.
By letter of October 31, 2003, the Secretary of the Tribunal informed the parties of the Tribunal's decision not to grant the Respondent's request for suspension of the proceeding.
On December 22, 2003, the Respondent filed its counter-memorial on the merits.
By letter of December 23, 2003, the Secretary of the Tribunal informed the parties of the Tribunal's proposal to fix the hearing on the merits for two weeks to begin at the end of May 2004.
By letter of January 7, 2004, the Respondent requested that the oral hearing be scheduled for the end of July 2004.
After consultation with both sides, the Tribunal informed the parties by letter of January 14, 2004 of its intention to fix the hearing on the merits for August 2004.
By letter of January 20, 2004, the Claimant filed a request for a five-week extension of the time limit for the filing of its reply on the merits.
After further consultations with both sides, the Tribunal informed the parties by letter of February 6, 2004 that the hearing on the merits would be held on August 9-20, 2004. Both parties confirmed their agreement that the hearing be held in Paris, France. By that same letter, the parties were informed that the Tribunal would grant the Claimant a four-week extension for the filing of its reply on the merits, and would similarly grant the Respondent a four-week extension for the filing of its rejoinder on the merits, should it so wish. The new time limit for the filing of the Claimant's reply on the merits was fixed for March 22, 2004.
On February 12, 2004, the Respondent filed a "Certificate Confirming the State of Necessity in Argentina."
On March 22, 2004, the Claimant filed its reply on the merits.
On May 27, 2004, the President held a conference call with counsel for the parties to discuss procedural arrangements for the hearing on the merits.
By letter of June 17, 2004, the Tribunal directed the Argentine Republic to file all remaining witness statements and expert reports with its rejoinder on the merits on June 25, 2004. To the extent that such statements and reports would not be available to the Argentine Republic on June 25, 2004, these were to be filed no later than July 9, 2004, i.e. no later than one month prior to the commencement of the hearing on the merits in Paris. In these circumstances, the Argentine Republic was requested to indicate on June 25, 2004, the names of any additional witnesses and experts whose statements or reports would be filed no later than July 9, 2004, and the subject-matter to which their testimony would be directed.
On June 28, 2004, the Respondent filed its rejoinder on the merits.

C. Considerations

3. The Privatization Program as the Background to the Dispute

4. Argentina's Measures in the Period 1999-2002 and the Emergence of the Dispute

5. CMS's Claim for Business and Financial Losses

6. The Respondent's Arguments in Respect of Business and Financial Losses

The Government of Argentina also asserts that in spite of the Claimant's argument to the effect that TGN invested over US$ 1 billion in infrastructure, the actual situation is that TGN did not comply with the mandatory investment requirement under the License of US$ 40 million and that TGN has repeatedly been fined because of this failure; instead heavy voluntary investments were made in the expansion of the transportation network for exports. A witness for the Respondent stated that TGN has participated actively in the creation and financing of the fiduciary fund for gas transportation mentioned above.30
It will be shown below that the Claimant opposes all such arguments. For now the Tribunal wishes to observe that the Argentine Government has not provided in its memorials an alternative valuation of the eventual losses affecting CMS, saying that it is for the Claimant to properly prove its claims. In this regard the Argentine Minister of Justice explained, at the hearing on the merits, that Argentina was "not obliged to propose another valuation."31 And although the Tribunal requested a clarification on this matter from Argentina's experts, none was provided.32

7. CMS's Legal Justification of its Claims

The Claimant is of the view that the measures adopted by the Argentine Government are in violation of the commitments that the Government made to foreign investors in the offering memoranda, relevant laws and regulations and the License itself.
Such commitments, it is asserted, included the calculation of tariffs in US dollars, the semi-annual adjustment in accordance with the US PPI and general adjustment of tariffs every five years, all with the purpose of maintaining the real dollar value of the tariffs.33
The Claimant argues that Argentina further agreed expressly not to freeze the tariff structure or subject it to further regulation or price controls; and that in the event that price controls were introduced, TGN would be entitled to compensation for the difference between the tariff it was entitled to and the tariff actually charged.34 Moreover, the basic rules governing the License could not be altered without TGN's consent.35
The Claimant is of the view that these guarantees constituted essential conditions for CMS's investment36 and that it has an acquired right to the application of the agreed tariff regime. The Claimant says that the Government of Argentina itself confirmed this in Decree No. 669/2000 by explaining the adjustment mechanism of the licenses as a "legitimately acquired right."37
It is further argued that the measures adopted are all attributable to the Argentine Government and result in the violation of all the major investment protections owed to CMS under the Treaty. It is claimed in particular that Argentina has wrongfully expropriated CMS's investment without compensation in violation of Article IV of the Treaty; that Argentina has failed to treat CMS's investment in accordance with the standard of fair and equitable treatment of Article II(2)(a) of the Treaty; that the passing of arbitrary and discriminatory measures violates Article II(2)(b); and that it has also failed to observe the many obligations entered into with regard to the investment in violation of the standard of Article II(2)(c) of that Treaty. Unlawful restrictions to the free transfer of funds in violation of Article V of the Treaty were also invoked in the Claimant's memorial, a claim that was later withdrawn.38
On the basis of its understanding of the measures adopted, their economic impact on the company and the legal violations invoked the Claimant requests compensation in the amount of US$ 261.1 million for Treaty breaches plus interest and costs.
The specific arguments invoked by the Claimant in support of its legal contentions will be examined by the Tribunal separately when discussing each of the claims made.

8. The Respondent's Legal Defense

In the view of the Argentine Government, the License, and the legal and regulatory framework governing it, provide only for the right of the licensee to a fair and reasonable tariff, encompassing costs of operation, taxes, amortizations, and a reasonable return on investments, but excluding altogether financial costs.39 It is further asserted that no guarantees were offered in respect of convertibility and currency devaluation and the risk inherent to the investment in these respects was expressly brought to the attention of the company.
The Respondent is of the view that any consequences arising from CMS's decision to rely on the report of private consultants for its investment strategies cannot be assigned to the Government. That report was not made by the Government and all responsibility for its contents was the subject of an express disclaimer.40
The Respondent argues in addition that, under the Gas Law, transportation and distribution of gas is a national public service which must take into account particular needs of social importance. To this end, the Government is under an obligation to ensure the efficient operation of the service and must control the implementation of the contract, including the alternative of amendment or unilateral termination.41 Thus, the regulation of tariffs is a discretionary power of the Government insofar as it must take social and other public considerations into account.
In the Respondent's view, it follows that no commitments could have been made by the Government to maintain a certain economic or exchange rate policy and that the State is free to change such policies, a right which cannot be subject to claims by individuals or corporations. In this respect, the argument follows, CMS could not have ignored the public law of Argentina and the risks involved in investing in that country.
In this context, it is further asserted, tariffs must ensure to consumers the minimum cost compatible with the certainty of supply,42 as long as the provision of the service is efficient. Because Argentina was characterized by an unstable economy, the tariffs took into account the added risk of investing in that country and were therefore higher than would normally have been the case. As a result profits were also higher.
The Respondent is of the view that the licenses did not contemplate the possibility of convertibility being abandoned and that the contractual regime was therefore incomplete.43 This, the Respondent filled in by means of the pesification in the domestic market and dollarization in the external market, thereby allowing consumers to continue to pay for gas and avoiding the collapse of demand.44 The Respondent also argues that tariffs did take into account the risk of devaluation, a point that will be discussed further below.
As a result of the above considerations, the Respondent argues that there has been no violation of the commitments made, explaining that the loss of value of CMS's shares is the result of recession and deflation, of a major social and economic crisis and the currency devaluation that followed. This devaluation, it is asserted, had already occurred in other important international financial markets.45 All the measures adopted by the Government, it is further argued, were needed for the normalization of the country and the continuous operation of public services. Had tariffs been adjusted by 300% as CMS would have wanted, public services would have been paralyzed, the income of licensees would have dramatically decreased and public reaction would have been beyond control.46
The Respondent further explains that, in this legal and regulatory context, there could be no violation of the Treaty and objects, in that regard, particularly to the legal claims of CMS. In the Respondent's view, none of the requirements under international law of indirect expropriation are met. The guarantees invoked by CMS are not the property of the company protected under the Treaty and TGN continues to operate normally. Nor was there a violation of the standard of fair and equitable treatment, or a case of arbitrariness or discrimination. The umbrella clause of the Treaty, the argument follows, cannot be invoked as no obligations were undertaken by Argentina in respect of CMS, only in respect of TGN, and the latter has not made any claim for contractual violation under the License.
In the alternative, the Republic of Argentina has invoked national emergency, brought about by the above-mentioned economic and social crisis, as grounds for exemption of liability under international law and the Treaty.
As with the Claimant's arguments, all the views expressed by the Respondent will be discussed in greater detail in connection with each claim.
Before proceeding any further, however, the Tribunal wishes to address one particular issue raised by the Respondent. The matter concerns the fact that certain loans were granted to TGN by the International Finance Corporation, an affiliate of the World Bank, and the suggestion that this might constitute some form of conflict of interest for an ICSID Tribunal operating under World Bank Group auspices.47
The Tribunal wishes to state clearly that no connection to this effect has ever interfered with its independent judgment of the case, and it would not permit this to happen. Neither has the Tribunal at any point been approached by World Bank officials on behalf of the IFC or any other Bank affiliate, nor would the Tribunal permit any representation of this kind. The Tribunal learnt about TGN's financing arrangements through the pleadings of the parties alone.

9. Are the Measures Adopted Temporary or Permanent?

One particular aspect of this dispute is whether the measures adopted are temporary or permanent in nature, a matter that has importance in the context of the applicable law that will be discussed further below.
The Claimant rejects that the measures adopted are temporary insofar as they continue to be in force after several years. Moreover, all draft legislation introduced by the Government in Congress has tended to reinforce the effect of such measures. The Claimant invokes as clear evidence of this being the case the draft Public Utilities National Regulatory Act introduced in 2004, in which the measures in force were turned into permanent features of the tariff regime.48
The Respondent argues the opposite. In its view, the measures complained of are all of a temporary nature arising from the emergency and subject to renegotiation.49 The Government, it is argued, has made specific proposals to TGN in its efforts to achieve a successful renegotiation, including a proposal made on July 2, 2004, envisaging a 7% increase in tariffs in 2005 and completing their regularization in 2007.50 This has been described as a basic or first proposal.51 It is further stated that the Claimant has not been minded to present any counter-proposal.
The Claimant explains on this point that the proposal is insufficient to meet the adjustments necessary to achieve a just and reasonable tariff and to compensate for the losses the company has experienced.52 This is particularly so in light of TGN's own January 22, 2003 proposal. Under this proposal, TGN had requested four 17.8% increases to take effect between March and September 2003.53 Such increases would have represented close to a 90% adjustment.

10. Applicable Law: The Parties' Views

11. Applicable Law: The Tribunal's Findings

It is also necessary to note that the parties themselves, in spite of their doctrinal differences, have in fact invoked the role of both legal orders. The Republic of Argentina relies for its arguments heavily on provisions of domestic law, but also resorts to international law, for example in respect of treaty clauses on national security and customary law on state of necessity and other matters. Similarly, the Claimant invokes provisions of domestic law, regulations and the License to explain the rights TGN has under these instruments and the measures affecting them. But also the Claimant invokes Treaty guarantees and customary law on various issues.
The Respondent has suggested this arbitration might infringe upon or be in conflict with the Constitution of the Republic of Argentina.62 The Tribunal, however, does not believe this to be the case considering the prominent role of treaties under the Constitution and the fact that the arbitration proceeds under both the ICSID Convention and the Treaty. In fact, under Article 27 of the Argentine Constitution

"The federal Government is under the obligation to consolidate its relations of peace and commerce with foreign powers by means of treaties in conformity with the principles of public law provided for under this Constitution."

So too, Article 31 of the Constitution mandates that the Constitution, the laws enacted under it and treaties are "the supreme law of the Nation." Indeed, the Argentine courts have a long-standing record of respect for treaties and have duly recognized their hierarchical standing above the law.63 While treaties in theory could collide with the Constitution, in practice this is not very likely as treaties will be scrutinized in detail by both the Government and Congress.
The specific domestic legislation of Argentina and rules of international law applied by the Tribunal will be discussed in connection with the issues contended. In addition to the Constitution and the Argentine Civil Code, the gas legislation and regulations will be analyzed, together with the measures adopted under the Emergency Law and other pertinent matters. The Treaty and customary international law will also be applied in reaching the pertinent conclusions.
Before doing so, however, the Tribunal wishes to address a particular contention made by the Respondent, namely that the Tribunal would be exceeding its powers if it were to decide the dispute on the basis of the provisions of the License, and that such decision would be subject to annulment. The Tribunal must apply the relevant domestic and international law, including the License, as a validly made contract under Argentine law and subject to specific stability clauses, since it has a duty to decide the dispute under Article 42(1) of the Convention.

12. The Limits of the Tribunal's Jurisdiction

13. Did the Claimant have a Right to a Tariff Calculated in US Dollars?

14. Did the Claimant have a Right to Adjustment of Tariffs in Accordance with the US PPI?

15. Did the Claimant have a Right to Stabilization Mechanisms under the License?

16. Was the Economic Balance of the License Altered in Light of Changing Realities?

17. A Fair and Reasonable Tariff

One of the few points on which the parties seem to be in agreement is that tariffs should be fair and reasonable as envisaged under the governing legal regime. Yet, what is fair and reasonable is the subject of substantial disagreement.
The Respondent has made the argument that tariffs that were kept and adjusted in dollars could not be fair and reasonable in the context of the recession and deflation that affected Argentina. This was particularly so, in the Respondent's view, because internal prices kept falling in the wake of the currency devaluation and hence the costs of the company were greatly diminished, a consequence to which a dollar standard could not adjust. Hence the decisions to abandon the dollar denomination and to freeze the tariffs.
The Claimant has explained in this respect that its operating costs did in fact decrease as a result of the devaluation from US$ 70.3 million in 2001 to US$ 37.2 million in 2002. However, during the same period revenue decreased from US$ 253 in 2001 to US$ 125.1 million in 2002. The end result was that operating income fell by 52% in one year. In the Claimant's view, the devaluation did not necessarily lead to a reduction in costs as many expenses remained fixed in dollars and local suppliers quickly adjusted their prices to compensate for the devaluation.
As a matter of principle, a devaluation of 300% must necessarily have an effect on the company cost structure. However, costs are unlikely to decrease in the same proportion, in part because some costs are kept in dollars and in part because financial costs must also be considered, not just operating costs. This issue has resulted in disagreement between the parties.
The Claimant has explained that its financial costs are reasonable for a capitalintensive infrastructure industry. TGN financed about one half of its investment by debt to be amortized over the life of the project. The total debt of TGN, both domestic and external, amounts to US$ 590 million, of which 93% corresponds to foreign loans and remains payable in dollars. Only 7% of TGN's debt, that is the domestic portion, was pesified. As a result of the tariff freeze, TGN has defaulted on all its loans and has ceased to repay capital, paying approximately only one-third of the interest due.
The Claimant has also explained that higher debt resulted in lower capital costs and thus in maximum efficiency. This, in its view, was the very reason that led ENARGAS to use TGN's leverage of 46% debt to 54% equity in the estimates preparatory to the second tariff review, which never took place.76
In the Respondent's view, such financial decisions are attributable only to the company, as discussed above. In fact, the Government of Argentina believes that TGN, in relying on foreign debt, chose the worst of all financial options to the detriment of other alternatives, such as the use of its own capital or debt in Argentina, in pesos or even in dollars, which was later pesified.77 It follows, in the Respondent's view, that the risk entailed in this decision cannot now be attributed to Argentina and that, in any event, such proportion of debt was unwise and the company was so warned by ENARGAS. The Respondent explains that TGN increased its debt-equity ratio from approximately 0.50 in 1997 to over 1.00 in 2001; had TGN's ratio been used in calculating tariffs, these would have been lower, not higher, because the rate of return required would also have been lower.78
The Claimant believes differently. It could not borrow on the domestic capital market as it did not have capacity to absorb large borrowing. Moreover, no one could have foreseen that devaluation and decoupling of tariffs from dollars would be forthcoming as all the guarantees offered pointed in the opposite direction. Thus, at the time it made sense to borrow in international markets thereby taking advantage of low interest rates.
As to the discussion about the debt-equity ratio, the Claimant also explains that a 62% debt to total capital is standard in the gas industry, and thus a 50% ratio as that of TGN is perfectly reasonable, particularly when taking into account the stability surrounding the approval of the project. Furthermore, it is explained that the initial tariffs were calculated by the Government on a 33:67 debt to equity ratio, allowing for a lower cost of capital and higher bidding for the licenses.
A related point of contention is that while the Respondent argues that the company opted to distribute profits to shareholders instead of reinvesting it, and thus failed to increase its own capital contribution as opposed to having financed debt, the Claimant asserts that this is simply patently erroneous as 70% of its profits were reinvested and merely US$ 168 million paid in dividends, a figure representing only a 4% annual return.
The Claimant is also of the view that debt restructuring as a mitigating alternative mentioned in Argentina's argument is simply not possible because creditors are not in a position at present to forecast companies' revenues. The difficulty experienced by the very Government of Argentina in restructuring its foreign debt proves in the Claimant's view that the exercise was not easy to carry out, and even less so could this be done by way of reorganization under the aegis of Argentine courts.
The conclusion of this discussion calls for a determination of whether financial costs are a factor in the calculation of tariffs so as to reach the fair and reasonable result mandated by the Law. In Respondent's view, it is not. In the Claimant's view, it is an essential factor.
The Tribunal has no doubt that financial costs are included as an element of the calculation of tariffs. This is so, first, because no project of this magnitude could be carried out without its financing being calculated within the return necessary to make it viable. Second, the legal meaning of the Gas Law unequivocally leads to the same conclusion. Indeed, Article 38(a) of the Law provides that the service providers who operate economically and prudently shall have "the opportunity of obtaining an income sufficient to recover all reasonable operating costs applicable to the service, taxes, depreciation ("amortization" in Spanish) and a reasonable rate of return...". So too Article 2(4) of the Gas Decree provides for the recovery of all reasonable costs "including the cost of capital."
In the Tribunal's view it is quite clear that "depreciation" or "amortizacion" refers, in particular, to the debt financing which is written off over the years. There is yet a another reason supporting this conclusion. Debt was a part of the tariff as calculated before the freeze and it is quite unlikely that the Government and the regulatory agency, as well as all the companies, would have read the Law mistakenly. Neither is there any reason to believe that experienced companies would not have operated economically and prudently.
It follows that the freeze adopted cannot be reconciled with the objective of a fair and reasonable tariff, not just because of the dollar connection and adjustment discussed above, but also because, by not taking into account the financial reality of the project, such frozen tariffs do not reflect the real costs of the operator. This is why financial costs were taken into account by ENARGAS both in the first and the second five-year tariff review, even if the latter was never finalized. Presumably this was also reflected in the Government's 2000 tariff increases, which were subject to the court injunction, and might also be included in the new increases that government officials have repeatedly assured are a necessary step under the renogotiation process.
The effects of the devaluation have quite evidently given rise to profound adjustments in the economy of Argentina, but not all such effects have benefited the operator. Far from it: the combined effect of tariff freezes and devaluation, even if the latter resulted in a decrease of operating costs, led to the evaporation of operating income, prompted constant negative results in the balance sheet and caused the default mentioned. A tariff causing these results cannot be judged under any standard to be fair and reasonable.
The Tribunal cannot rule out the argument that a tariff kept and adjusted in dollars might be unrealistic in view of the changing economic realities that have been mentioned. But, even within the context of the Argentine legal framework and the License itself, there are ways to take these changes into account without abandoning the legal guarantees offered, as will be discussed further below.
The Respondent has argued in addition that the tariffs were higher than normal because they took into account, from the outset, the risk of devaluation expressed in terms of the Argentine country-risk. To this end, the discount rate used was also higher so as to allow for a greater return to the company because of that risk ("WACC" or Weighted Average Cost of Capital), as was also the case with the interest rate. The Stone & Webster consultant report commissioned by ENARGAS in order to make the first five-year review of tariffs had suggested a rate of return of 18.6% on the capital contributed by the company. This was eventually established by the regulatory agency as a 16.07% rate of return, thus reflecting, in the Respondent's view, the effect of the higher country-risk.
While this discussion is related more to the question of valuation of damages and the determination of the value of the company made by the Claimant's financial experts, which will be examined separately, it nonetheless reveals an important feature of the tariff regime that, it is argued, did provide for protection against devaluation. While, in the Claimant's view, this protection was a part of the legal promises and assurances given, it appears in the Respondent's view that it was given by means of the financial mechanisms put in place, particularly the tariff. These arguments, it will be seen, have important legal implications.
It follows that the devaluation must not only be considered as a part of the broad economic measures affecting the country as a whole but also as a specific feature applicable to the Claimant and having a direct impact on its operations. As such and to that extent, it falls under the Tribunal's jurisdiction. The Tribunal has noted above that the devaluation indeed did have an adverse economic effect on the operator because, in conjunction with other measures, it resulted in a tariff that was not fair and reasonable.
Moreover, the Claimant also explains, the distortions this situation has created are at the very heart of the crisis of the energy sector affecting Argentina. It is further asserted that artificially low tariffs led to an increased demand and, as revenues are insufficient to make further investments in transportation and distribution, the energy market has collapsed and has required new and different arrangements, including the fiduciary fund mentioned above and the importation of gas from Bolivia at high costs.79 On this basis, the argument about subsidization of other sectors of the economy becomes convincing.

18. Investments and Exports

There is yet another element of the discussion relevant to the correct understanding of the cost structure and the implications of devaluation and pesification: the investment program and its connection with the export market.
The Claimant asserts that three kinds of investment were made: US$ 40 million of mandatory investment, principally related to the improvement of safety and network integrity; US$ 12 million of non-mandatory investment destined for expansion; and US$ 29.5 million for projects aimed at strengthening efficiency. Not only were these goals achieved, the argument goes on, but TGN made investments exceeding US$ 1 billion that resulted in significant network expansion and distribution to many new users while keeping the gas price among the lowest in the world.80
The Respondent challenges these assertions and argues that investment targets were not met and that, as a consequence, the Claimant was fined repeatedly and the posting of security required. In Respondent's view, most of the investments made were related to the expansion of transportation networks for export markets. These investments were additional to what was envisaged in the License, the sole purpose of which was the supply of the domestic market and not the international market. This point, however, is also disputed by the Claimant.
Tariffs for the export market, as explained above, after the initial clarifications of the measures adopted, have been kept in US dollars and adjusted in accordance with the US PPI. About a fourth of TGN's revenues, the Respondent explains, originate in exports and this, in its view, is an amount sufficient to cover all the costs of the Claimant, including those related to the domestic market and financial costs. Moreover, the Respondent has further asserted, that the export tariffs are "excessive."81
Clarification of the question became necessary when several Chilean importers of gas began making payments in pesified tariffs.82 A later request by the Chilean company Colbun, also an importer of gas, to the effect that export tariffs should not be kept in dollars or adjusted in accordance with the US PPI, was turned down by governmental decree in Argentina.83
The discussion does not end there since the Claimant explains that of the US$ 1 billion invested only US$ 271 million were related to export sales, which under the Gas Law, was to be carried out under terms similar to those governing the domestic business. According to the Claimant, Argentina derives many important benefits from this export activity. Finally, the question of fines and security, it is also argued, was raised in a context of political confrontation unrelated to the real facts.
But even when taking into account the positive influence of exports on the company's revenues, the Claimant argues, the end result has been that overall revenues have been insufficient to cover operating and other costs and that this shortfall is shown in expert reports which include export revenues.
The Tribunal is persuaded that the required investments were made and indeed exceeded by far; it is also persuaded that the export markets have somewhat compensated for revenue shortfalls. However, the compensating effect of export revenues has not fully redressed a situation which carries the heavy burden of the measures in force affecting the domestic market. This situation amplifies the cross-subsidizing effects of the measures adopted in the Argentine economy.

19. Duration of the License

The parties have also disputed another aspect relevant for the determination of rights and obligations under the contract: the duration of the License.
In the Claimant's view, TGN is entitled to an extension of the license beyond the initial period of 35 years ending in 2027. This extension would, under the terms of the License, be for an additional ten years, ending in 2037. The Respondent believes, to the contrary, that the License does not entail a right of automatic renewal and is subject to performance requirements that have not been met by the Claimant, as well as to other conditions set forth in Clause 3.2 of the License.
Indeed, the License is very clear about the fact that this right is conditional and subject to a number of steps, both substantive and procedural, which might or might not take place. As it would be impossible to establish at present whether these conditions might be met, the Tribunal is persuaded by the Respondent's argument to the effect that no damages should be considered beyond the year 2027. This will therefore be the year which the Tribunal will rely on for its determination of damages.

20. Discussion of Legal and Contractual Obligations under Argentine Law

In view of the conclusions reached by the Tribunal on the question of applicable law it must now examine the effect of the measures with reference to Argentine law and the contracts involved in this dispute.
The fundamental legal principle guaranteeing the right to property is established in Article 17 of the Constitution which provides that

"The right to property is inviolable and no inhabitant of the Nation can be deprived of it except by a judicial decision founded in the law."

The exercise of this basic guarantee, like other fundamental rights enshrined in the Constitution, is regulated under the law, as indicated in Article 14, but cannot be altered by that law, as expressly mandated by Article 28 of the Constitution. Indeed, this Article mandates that "the principles, guarantees and rights recognized in the preceding articles shall not be altered by the laws regulating their exercise."
The argument made by the Respondent to the effect that such guarantees are not absolute and are subject to the requirements of social needs and public interest is indeed correct,84 but this does not contradict the central role of the right to property and the obligation to pay compensation in case of government interference with its exercise.
Article 42 of the Constitution has occasionally been invoked as an example of the social needs restricting rights to property, in that this provision recognizes the right of consumers and users of goods and services to the protection of health, safety and economic interests, adequate and truthful information, freedom of choice and equitable and dignified treatment. This particular legitimate objective, pertains, however, to so-called third generation rights and is embodied in a separate chapter of the Constitution referring to new rights. To this extent such rights should be viewed as future aspirations rather than enforceable rights similar to fundamental constitutional rights.
The basic principle of Argentine law governing contracts and the ensuing obligations is contained in Article 1197 of the Civil Code which provides:

"Conventions made in contracts constitute for the parties a rule that must be observed as the law."85

This principle is in harmony with the rights protected under the Constitution. There is indeed a long-standing tradition of Argentine court decisions and the writings of distinguished jurists highlighting the importance of the faithful enforcement of contracts as the expression of the will of the parties.86 There is also the view, however, that the State has the duty to intervene under the law stipulated in the contract so as to redress possible imbalances.87 Here again the law does not ignore social needs but makes them subject to very precise conditions and requirements. Thus, the need to ensure stability remains a basic concern and any departure therefrom must be in the form of a clearly established legal justification.
These various points of view underlie the legal arguments made by the parties in this dispute. The Claimant has argued that there are a number of rights, both under the law and under the contract, with particular reference to the License, that have not been observed by the Respondent and these legal obligations should be given full effect. The Respondent, however, is of the view that if the parties had wished to contract in dollars they could have done so explicitly under Article 1197 of the Civil Code, but they chose instead to contract by reference to the Convertibility Law.88 It is also argued that even if the Gas Decree and the License had referred to a dollar-related tariff, these instruments could not contradict the Law which itself did not refer to this standard. In any event, the Respondent asserts, the economic conditions of the crisis necessarily resulted in the change of the terms of the contract.
Moreover, the fact that the regulations and the contract provided for tariffs in dollars is consistent with Article 619 of the Civil Code to the extent that it provides that the obligation to pay a sum in a particular currency is satisfied when payment is made in the stipulated currency at the time it becomes due. This article amended a prior reference to payment in national currency.
The Tribunal has stated above, however, that parallel to legally enforceable obligations arising from the commitments and assurances that Argentina gave in the privatization process, there have been inescapable economic realities that cannot be ignored.
There is broad agreement on the fact that Argentina was affected by a deep crisis of an economic, social and political nature. The downturn in the economy commencing in 1999, the rising levels of poverty and the rapid turnover of politicians occupying the highest offices in the nation, coupled with social upheaval and civil disobedience, was a dramatic reality. Witness statements introduced by the Respondent both in writing and in the oral hearing were eloquent in this respect.89 These developments have been deplored by the Claimant. Needless to say, also the Tribunal has the greatest sympathy for the plight of the Argentine people under the circumstances and respects its efforts to overcome the situation.
The issue for the Tribunal to establish is whether, under Argentine law, there is any valid excuse for not complying with the terms of the contractual and legal arrangements Argentina had entered into.
The Argentine Government has invoked in the alternative the existence of a state of necessity under international law as an exemption from liability. The state of international law on this question will be examined separately.
The Tribunal also notes that a decision of the Argentine Supreme Court held, in respect of "pesification," that this measure was compatible with Article 17 of the Constitution and that Articles 617 and 619 of the Civil Code could not be read in a blind manner.93 Based on the Emergency Law and force majeure, the Court overturned a decision of the Federal Court of Paraná. This decision, however, does not overrule other decisions of the Supreme Court and other tribunals in Argentina as it only applies to the case at hand. Moreover, the Procurador General based his own report to the Court on the fact that the measures were temporary and that the crisis was largely over, a consideration on which the Court also relied.94 Dissenting views were also expressed.95
In light of this discussion, the Tribunal is persuaded that the state of necessity under domestic law does not offer an excuse if the result of the measures in question is to alter the substance or the essence of contractually acquired rights. This is particularly so if the application of such measures extends beyond a strictly temporary period.
A second concept under which contractual rights might eventually be adjusted is that of unjust enrichment. Although not formally invoked by the Respondent in this dispute, it underlies some of its arguments, particularly the argument that the dollar-based tariff would result in unfairness and unreasonableness, or more importantly that tariffs would have been excessive either in the domestic or the export markets.
A number of provisions of the Argentine Civil Code are inspired by the concept of unjust enrichment and it has often been applied by Argentine courts.96 However, given the difficulty in establishing who has gained and who has lost without legitimate cause, the application of the concept has been surrounded by uncertainty.
In this particular instance, the application of the dollar standard at the time of the recession might, for example, have appeared as an unfair advantage. However, as discussed, the facts point in the opposite direction, namely to where the operator of the service suffers the entire burden of the situation and in fact subsidizes other sectors of the economy which thus become the real beneficiaries. Therefore, although the crisis and the measures taken brought about legal and economic uncertainties, the Tribunal cannot ignore contractual rights on the basis of an alleged unjust enrichment.
This Tribunal wishes to add a further observation. In 1968 another mechanism for the adjustment of contracts was introduced in the Argentine Civil Code with the inclusion of Article 1198. Under the terms of this Article, contracts must be done, interpreted and enforced in good faith in accordance with what the parties should have reasonably understood. If the burden of one party were to become excessively onerous as a result of extraordinary and unforeseeable events, it could request the termination of the contract, except if that party was liable and remiss; the other party could then offer more equitable terms as a means to forestall termination. This mechanism has also given rise to important scholarly writings and court decisions.97
The theory of "imprévision" was thus expressly introduced into the Argentine Civil Code. The Respondent has relied on this theory in explaining the meaning of the Emergency Law and its reference to this particular Article.98 The purpose of this law, in the Respondent's argument, is to rebalance the benefits of the parties against the backdrop of changing realities.
The Federal judge issuing the 2000 injunction had this mechanism in mind as well when she explained that "it could be that the balance of interests between the licensees and the consumers that was sought by the law broke down as a result of emerging economic situations. It would seem possible to argue that the economic and financial equation of the contract would break when the consumer must pay more for the same service even if the economy is evidencing negative figures. "99
The provisions of the Emergency Law, however, fail to meet certain essential conditions for the operation of the theory of "imprévision." First, if the imbalance were foreseeable, the theory is not applicable. As explained above, in arguing that the tariff included both the devaluation as well as the country risks, the Respondent is simultaneously admitting that this risk was foreseeable and actually foreseen. In this respect the Claimant believes the risk of devaluation was indeed foreseen as it argues that express guarantees were offered to offset such risk. Second, the concept requires the aggrieved party to request the termination of the contract before a competent court, while in the present dispute the measure was unilaterally decided by one party. In addition, the views of the courts have been rather critical of the measures adopted as noted above. In essence, the pesification was imposed and the target of rebalancing and compensating differences in 180 days was not met.
The approach taken by the French Conseil d'Etat, however, as will be explained, is most pertinent for the attribution of liability in the present case.
The Tribunal must note that other traditional legal excuses, such as force majeure, are not available in this case as the events discussed were foreseeable and foreseen.

21. Adjustment Mechanisms under the License and the Law

The Tribunal, however, does not need to look into general principles of law to find an answer as to how the contract in this case could be adjusted to new economic realities. The pertinent mechanisms are embodied in the law and the License itself.
The Gas Law provided for a mechanism in which the final price to the consumer would be determined by reference to three factors: first, the price of gas at the wellhead, that is at the point of injection into the transportation system; second, the transportation tariff; and third, the distribution tariff. The Tribunal notes that the first of these factors has already been successfully renegotiated and adjusted.102
The Respondent explains in this connection that, irrespective of the currency used, the operator must obtain a reasonable return, as this is mandated under the law in conjunction with the concept of a fair and reasonable tariff. It is further explained that, in case of devaluation, the tariff should be reduced as a consequence of lower domestic prices, while, in case of revaluation of the peso, tariffs should increase as costs would also increase.103
To this end, the Law provided for the periodic revision of tariffs so as to reflect the changes in the value of goods and services related to the activities of the operator.104 As explained by the Respondent, three adjustment mechanisms were devised to attain this result. The first was the January and July adjustments of tariffs in accordance with the US PPI. The second adjustment mechanism was to take account of increased efficiency (Factor X),105 which would apply as from the first five-year review and which could have resulted in the decrease of tariffs if efficiency had increased. The third adjustment mechanism was to apply in connection with investment (Factor K),106 and was also applicable as from the first five-year review. This third adjustment mechanism could result in the increase of tariffs so as to finance investments that could not otherwise be financed by the tariffs in force. The Claimant believes in this connection that factors X and K could only be introduced in the context of five-year reviews and not in other instances.
In addition, the Law provided for a five-year review107 which would undertake a comprehensive examination of the tariffs and the method used for their calculation, also taking into account as far as possible factors X and K. The parties have different interpretations as to the extent of the five-year review. While, for the Claimant, adjustments would be basically automatic following the application of factors X and K,108 for the Respondent, this review could be broader and include other elements relevant to tariff determination.109 Otherwise, the Respondent asserts, the Claimant would have an insurance policy or a super-right under the License that would ensure profits under any circumstances, irrespective of the prevailing economic conditions.
The Tribunal is of the view that Argentina's interpretation of this issue is in part correct. While taking factors X and K into consideration, the review might be broader if justified by circumstances. Annex F of the Offer, for example, provides that future reviews of tariffs could include changes in the form of tariffs and the categories of consumers and services available.110
This interpretation, however, does not mean that the tariff structure envisaged under the law and the License could be dismantled at will. On the contrary, the guiding principles would always have to prevail. Among such principles was the guarantee of a reasonable rate of return; stability, coherence and foreseeability; and the need to avoid significant variations in the tariffs when applying factors X and K.111 In this sense, as argued by the Claimant, it is not a discretionary power.
It must also be kept in mind that the License expressly included a commitment to the effect that it would not be altered unless the written consent of the licensee was first obtained and that tariffs would not be frozen or subject to price controls. Otherwise compensation would be paid.
The first five-year review was completed in 1997 but the second review, scheduled to take place in 2002, was never completed.
The Gas Law also provides for an Extraordinary Review that can be initiated by the licensees or ENARGAS so as to correct tariffs that might be deemed inadequate, discriminatory or preferential in circumstances which are both objective and justified.112 The effect of certain taxes can also result in a corresponding adjustment of the related tariffs.113
The Tribunal can therefore conclude that if a rebalance of the contractual commitments was required because of changing economic circumstances and their effect on costs and returns, the mechanisms to meet this objective were available under the law and the License. The necessary adjustments could be accommodated within the structure of the guarantees offered to the Claimant. This approach, in turn, would have made any unilateral determination by the Respondent unnecessary. The Claimant itself accepts that tariffs could be lowered within the regulatory framework to reflect the reduction in peso costs and thus also recognizes that the adjustment mechanism, under that scenario, would not have worked to its advantage.114

22. Attribution of Liability under Argentine Law

From the above discussion, it is clear that the legal commitments made by the Republic of Argentina to the Claimant under the applicable law and the License were not kept. This is so under the legal framework governing the gas sector but it is also so under the applicable provisions of the Civil Code and administrative law. In the absence of any express and clear provision allowing one party to depart from solemn contractual obligations undertaken toward another party, the sanctity of contracts established in the Civil Code and the protection of property mandated by the Argentine Constitution unquestionably prevail as recalled on more than one occasion by the Argentine Supreme Court. The Court has held that

"...when under a law in force an individual has fulfilled all the substantial acts and obligations and formal requirements provided to be entitled to a right, it must be held as acquired, and its modification by a later norm is inadmissible without infringement of the constitutional right to property."115

This is the case in the context of this dispute.

There is of course the question of the reality of the crisis that has been described. The Tribunal explained above that this reality cannot be ignored and it will not do so. The crisis, however, can only be taken into account as a matter of fact. And facts of course do not eliminate compliance with the law but do have a perceptible influence on the manner in which the law can be applied.
In the case of Compagnie Générale d'éclairage de Bordeaux, also known as Gaz de Bordeaux, cited above, the French Conseil d'Etat had to decide a dispute in 1916 which, in a number of respects, was similar to the present one. As a consequence of the Great War the price of coal had more than tripled, amply surpassing the price originally envisaged under the concession contract for the provision of public gas lighting to the City of Bordeaux. The concession contract was held to govern the respective obligations of the parties until its expiration, in particular the provision of a public service and its remuneration by means of the tariffs stipulated. Normal market conditions could move the price in a manner favorable or unfavorable to the company and this was to be considered a normal business risk that each party was to have considered at the time of entering into legal obligations.
The economic impact of the war led to such price increases that the adjustment envisaged under the contract was clearly insufficient and the economic viability of the contract was profoundly affected. The company could not, therefore, be required to provide the service in such abnormal conditions. The Conseil d'Etat accordingly held that

".just as the Company cannot argue that it should not be required to bear any increase in the price.it would be totally excessive if it is admitted that such increases are to be considered a normal business risk; on the contrary, it is necessary to find a solution that puts an end to temporary difficulties, taking into account both the general interest. and the special conditions that do not allow the contract to operate normally.; to this end it is necessary to decide, on the one hand, that the Company is required to provide the concession service and, on the other hand, that during this period it must bear only that part of the adverse consequences that the reasonable interpretation of the contract allows."116

On this basis, it was decided that the City of Bordeaux should pay compensation covering the remaining deficit and that, failing agreement of the parties on the amount of compensation, this was to be fixed by the judge to whom the case was remanded.
The Government has the duty to redress this abnormal situation, first, by putting an end to what by definition should be a temporary situation, a step that might be adequately taken in the context of the continuing negotiations between the parties, and next by paying compensation for the damage caused.
Similar to what was the case in Gaz de Bordeaux, since the parties have as yet been unable to reach an agreement through the process of contract renegotiation, compensation is to be fixed by a judge. As this Tribunal has no judge to whom the case could be remanded for that purpose, it will fix the compensation to that effect on its own authority.

23. Crisis Period Distinguished

The Argentine Government has argued that a distinction should be made between two sets of measures. On the one hand, the measures adopted in 2000, which specifically affected the gas industry. And on the second hand, those of general economic impact not directly related to the gas industry, which were adopted in 2001 - 2002 in the context of the then unfolding crisis. This distinction of the origin of the measures is not feasible. Thus, it has been shown that the general economic policy measures of 2001-2002 also had very specific effects on the Claimant, effects which the Tribunal is bound to take into account separately from the wider effects or justification of those measures.
The factual situation, however, allows the Tribunal to take into account different situations present at distinct periods in time. The crisis had in itself a severe impact on the Claimant's business, but this impact must to some extent be attributed to the business risk the Claimant took on when investing in Argentina, this being particularly the case as it related to decrease in demand. Such effects cannot be ignored as if business had continued as usual. Otherwise, both parties would not be sharing some of the costs of the crisis in a reasonable manner and the decision could eventually amount to an insurance policy against business risk, an outcome that, as the Respondent has rightly argued, would not be justified. On the other hand, a number of the measures adopted did indeed contribute to such hardship and the burden of those ought not to be placed on the Claimant alone.
The Tribunal will take into account these different realities in reaching a determination on the appropriate compensation. However, it must first examine the extent of the protection granted under the Treaty and the issue concerning the state of necessity under international law.

24. Has there been Expropriation of the Investment?

Having established that the Respondent did not keep the commitments and obligations it had undertaken under its own legislation, regulations and the Licence to TGN, the question is then what is the legal situation in terms of the protection granted by the Treaty to the investor.
The Claimant's first major allegation in this respect is that there has been an expropriation in breach of the express provision of Article IV(1) of the Treaty. This Article provides as follows:

"Investments shall not be expropriated or nationalized either directly or indirectly through measures tantamount to expropriation or nationalization (‘expropriation') except for a public purpose; in a non-discriminatory manner; upon payment of prompt, adequate and effective compensation; and in accordance with due process of law and the general principles of treatment provided for in Article II (2)."

The Claimant argues in this connection that expropriation need not be direct or result in the transfer of title or physical possession but that it can also be indirect if the result, as held by the Tribunal in Metalclad, is to deprive the owner "...in whole or in significant part, of the use or reasonably-to-be-expected economic benefit of property even if not necessarily to the obvious benefit of the host State."121 A wealth of cases and scholarly writings are invoked in support of this contention and of the argument that such an expropriation might be entirely independent of the State's intention.122
Emphasis is placed by the Respondent on the argument that neither has there been substantial deprivation of the fundamental rights of ownership nor have these rights been rendered useless; to the contrary, the value of shares of a comparable company has been increasing since the crisis. In the Respondent's discussion of the issue, it is stated that all the specific criteria used to deny substantial deprivation in the Pope & Talbot v. Canada case are met in this case also: the investor is in control of the investment, the Government does not manage the day-to-day operations of the company, no officers or employees of the company is under arrest, the payment of dividends has not been interfered with, the directors and managers of the company are appointed by the company, and the investor has full ownership and control of the investment.128
It remains necessary to examine the extent of the interference caused by the measures on the Claimant's business operations under the other standards of the Treaty. This question will be addressed next by the Tribunal.

25. Has there been a Breach of Fair and Equitable Treatment?

26. Has there Been Arbitrariness and/or Discrimination?

Article II(2)(b) of the Treaty provides that

"Neither Party shall in any way impair by arbitrary or discriminatory measures the management, operation, maintenance, use, enjoyment, acquisition, expansion, or disposal of investments."

The Claimant invokes the test defined in the Pope and Talbot case, and asserts that because the measures adopted are opposed to the rule of law or surprise a sense of judicial propriety, it follows that there has been arbitrary treatment of the investor and hence the Treaty standard has been breached. In the Claimant's view, dismantling the whole legal framework of the gas industry is contrary to any reasonable expectation.
The Claimant further asserts that such measures are discriminatory because they result in a dissimilar treatment of investors in similar situations, in accordance with the test defined in the Goetz v. Burundi case.144 In particular, the Claimant explains that other public services relying on dollar-based tariffs, such as telephone companies, water distribution enterprises, banks, waterway transportation companies and other businesses, and significantly, the gas producers, have all been treated in a more favorable manner.145 It is also argued that discrimination does not relate exclusively to nationality and can result from the compulsory transfer of resources of one economic agent or sector to another, as has happened in the Argentine economy.
The Respondent rejects such considerations and argues that the measures adopted were reasonable and proportional to the objective pursued. It is argued, following the findings in the ELSI case, that discrimination requires intentional treatment in favor of a national and to the detriment of a foreign investor, a treatment that does not apply to other nationals in a similar situation.146 The Genin v. Estonia case is also invoked by the Respondent to the effect that discrimination and arbitrariness require bad faith or a willful disregard of due process of law.147
The Respondent also asserts, following Professor Schachter, that arbitrariness can in no case be used to describe legislation to carry out economic, social or political objectives.148 In any event, it is argued, the standard provides that discrimination is forbidden in respect of similarly situated groups or categories of people, which is not the case in respect of the gas industry. Neither, in the Respondent's view, is there any discrimination based on nationality, this being the only one envisaged by the prohibition under international law.
Be that as it may, the fact is that to the extent that the measures persisted beyond the crisis, the differentiation between various categories or groups of businesses becomes more difficult to explain. Indeed, the Government of Argentina has successfully concluded renegotiations and other arrangements with a number of industries and businesses equally protected by guarantees of investment treaties. This includes the gas producers, but not the transportation and distribution side of the industry. The gas producers have been allowed to proceed to a gradual tariff adjustment to be completed by mid-2005.150 The longer the differentiation is kept the more evident the issue becomes, thus eventually again reinforcing the related finding about the breach of fair and equitable treatment.
The Tribunal, therefore, cannot hold that arbitrariness and discrimination are present in the context of the crisis noted, and to the extent that some effects become evident they will relate rather to the breach of fair and equitable treatment than to the breach of separate standards under the Treaty.

27. Has the Protection under the Umbrella Clause been Breached?

D. State of Necessity Contended in the Alternative

The Government of Argentina has contended in the alternative that in the event the Tribunal should come to the conclusion that there was a breach of the Treaty the Respondent should be exempted from liability in light of the existence of a state of necessity or state of emergency.160Force majeure, emergency and other terms have also been used by the Respondent in this context.
This contention is founded on the severe economic, social and political crisis described above and on the belief that the very existence of the Argentine State was threatened by the events that began to unfold in 2000. The Respondent asserts in this respect that economic interest qualifies as an essential interest of the State when threatened by grave and imminent peril.
It is argued that the Emergency Law was enacted with the sole purpose of bringing under control the chaotic situation that would have followed the economic and social collapse that Argentina was facing. State of necessity based on this crisis would exclude, in the Respondent's argument, any wrongfulness of the measures adopted by the government and in particular would rule out compensation.
In support of its argument the Respondent invokes first the existence of the state of necessity under Argentine law and its acceptance under the Constitution and the decisions of courts. The Tribunal has already discussed the meaning of the state of necessity and the state of emergency under Argentine law and its interpretation by the Supreme Court, with particular reference to its temporary nature and the requirement not to upset the rights acquired by contract or judicial decision. These issues will not be discussed here again.
The Respondent has also invoked in support of its contention the existence of a state of necessity under both customary international law and the provisions of the Treaty. In so doing, the Respondent has raised one fundamental issue in international law.

28. The Respondent's View of the State of Necessity under Customary International Law

The Respondent has mainly based its argument on this question on the ruling of the International Court of Justice in the Gabcíkovo-Nagymaros case which held that the state of necessity is recognized by customary international law for "precluding the wrongfulness of an act not in conformity with an international obligation."161
The French Company of Venezuelan Railroads case is invoked so as to justify that the government's duty was to itself when its "own preservation is paramount."162 Further support is found in the Dickson Car Wheel Co. case where it was decided that the "foreigner, residing in a country which by reasons of natural, social or international calamities is obliged to adopt these measures, must suffer the natural detriment to his affairs without any remedy, since Governments.are not insurers against every event."163
In addition to the discussion of these and other cases, the Government of Argentina also relies on the work of the International Law Commission under the leadership of the Special Rapporteurs F. V. García-Amador, Roberto Ago and James Crawford. In particular the Respondent argues that it meets the criteria set out in Article 25 of the Articles on International Responsibility.164 The specific terms of Article 25 will be discussed further below.
In the Respondent's view the Argentine State was not only facing grave and imminent peril affecting an essential interest, but it did not contribute to the creation of the state of necessity in a substantive way. This situation, it is argued, was prompted for the most part by exogenous factors. It is further asserted that the measures adopted, particularly the pesification of contractual relations, were the only measures capable of safeguarding the essential economic interests affected. By introducing the measures, the Respondent argues, the essential interests of another State that was a beneficiary of the obligation breached or, for that matter, those of the international community as a whole were not affected and foreign investors were also not treated in a discriminatory manner.

29. The Claimant's View of the State of Necessity Under Customary International Law

The Claimant first argues in connection with the state of necessity that the Respondent has not met the heavy burden of proof required by the International Court of Justice in the Gabcíkovo-Nagymaros case. The Claimant notes that the Court made reference to the work and views of the International Law Commission insofar the latter explained that ".the state of necessity can only be invoked under certain strictly defined conditions which must be cumulatively satisfied; and the State concerned is not the sole judge of whether those conditions have been met......Those conditions reflect customary international law."165
The Claimant asserts next that neither has the Respondent complied with the conditions set down for the operation of state of necessity under Article 25 of the Articles on State Responsibility. In the Claimant's view, severe as the crisis was, it did not involve "grave" or "imminent" peril nor has it been established that the Respondent State did not contribute to the emergency as most of the causes underlying the crisis were endogenous. Moreover, it is asserted that the Respondent has not shown that the measures adopted were the only means available to overcome the crisis.

30. The Tribunal's Findings in Respect of the State of Necessity under Customary International Law

The Tribunal, like the parties themselves, considers that Article 25 of the Articles on State Responsibility adequately reflect the state of customary international law on the question of necessity. This Article, in turn, is based on a number of relevant historical cases discussed in the Commentary,166 with particular reference to the Caroline,167 the Russian Indemnity,168Société Commerciale de Belgique,169 the Torrey Canyon170 and the Gabcíkovo-Nagymaros cases.
Article 25 reads as follows:

"1. Necessity may not be invoked by a State as a ground for precluding the wrongfulness of an act not in conformity with an international obligation of that State unless the act:

(a) is the only way for the State to safeguard an essential interest against a grave and imminent peril; and

(b) does not seriously impair an essential interest of the State or States towards which the obligation exists, or of the international community as a whole;

2. In any case, necessity may not be invoked by a State as a ground for precluding wrongfulness if:

(a) the international obligation in question excludes the possibility of invoking necessity; or

(b) the State has contributed to the situation of necessity."

The Tribunal must now undertake the very difficult task of finding whether the Argentine crisis meets the requirements of Article 25, a task not rendered easier by the wide variety of views expressed on the matter and their heavy politicization. Again here the Tribunal is not called upon to pass judgment on the measures adopted in that connection but simply to establish whether the breach of the Treaty provisions discussed is devoid of legal consequences by the preclusion of wrongfulness.
A first question the Tribunal must address is whether an essential interest of the State was involved in the matter. Again here the issue is to determine the gravity of the crisis. The need to prevent a major breakdown, with all its social and political implications, might have entailed an essential interest of the State in which case the operation of the state of necessity might have been triggered. In addition, the plea must under the specific circumstances of each case meet the legal requirements set out by customary international law.
In the instant case, the Respondent and leading economists are of the view that the crisis was of catastrophic proportions; other equally distinguished views, however, tend to qualify this statement. The Tribunal is convinced that the crisis was indeed severe and the argument that nothing important happened is not tenable. However, neither could it be held that wrongfulness should be precluded as a matter of course under the circumstances. As is many times the case in international affairs and international law, situations of this kind are not given in black and white but in many shades of grey.
It follows that the relative effect that can be reasonably attributed to the crisis does not allow for a finding on preclusion of wrongfulness. The Respondent's perception of extreme adverse effects, however, is understandable, and in that light the plea of necessity or emergency cannot be considered as an abuse of rights as the Claimant has argued.
The Tribunal turns next to the question whether there was in this case a grave and imminent peril. Here again the Tribunal is persuaded that the situation was difficult enough to justify the government taking action to prevent a worsening of the situation and the danger of total economic collapse. But neither does the relative effect of the crisis allow here for a finding in terms of preclusion of wrongfulness.
The International Law Commission's comment to the effect that the plea of necessity is "excluded if there are other (otherwise lawful) means available, even if they may be more costly or less convenient," is persuasive in assisting this Tribunal in concluding that the measures adopted were not the only steps available.172
A different condition for the admission of necessity relates to the requirement that the measures adopted do not seriously impair an essential interest of the State or States towards which the obligation exists, or of the international community as a whole. As the specific obligations towards another State are embodied in the Treaty, this question will be examined in the context of the applicable treaty provisions. It does not appear, however, that the essential interest of the international community as a whole was affected in any relevant way, nor that a peremptory norm of international law might have been compromised, a situation governed by Article 26 of the Articles.
In addition to the basic conditions set out under paragraph 1 of Article 25, there are two other limits to the operation of necessity arising from paragraph 2. As noted in the Commentary, the use of the expression "in any case" in the opening of the text means that each of these limits must be considered over and above the conditions of paragraph 1.173
The first such limit arises when the international obligation excludes necessity, a matter which again will be considered in the context of the Treaty.
The second limit is the requirement for the State not to have contributed to the situation of necessity. The Commentary clarifies that this contribution must be "sufficiently substantial and not merely incidental or peripheral". In spite of the view of the parties claiming that all factors contributing to the crisis were either endogenous or exogenous, the Tribunal is again persuaded that similar to what is the case in most crises of this kind the roots extend both ways and include a number of domestic as well as international dimensions. This is the unavoidable consequence of the operation of a global economy where domestic and international factors interact.
In the present case there are, as concluded, elements of necessity partially present here and there but when the various elements, conditions and limits are examined as a whole it cannot be concluded that all such elements meet the cumulative test. This in itself leads to the inevitable conclusion that the requirements of necessity under customary international law have not been fully met so as to preclude the wrongfulness of the acts.

31. The Emergency Clause of the Treaty

The discussion on necessity and emergency is not confined to customary international law as there are also specific provisions of the Treaty dealing with this matter. Article XI of the Treaty provides:

"This Treaty shall not preclude the application by either Party of measures necessary for the maintenance of public order, the fulfillment of its obligations with respect to the maintenance or restoration of international peace or security, or the protection of its own essential security interests."

Article IV(3) of the Treaty reads as follows:

"Nationals or companies of either Party whose investments suffer losses in the territory of the other Party owing to war or other armed conflict, revolution, state of national emergency, insurrection, civil disturbance or other similar events shall be accorded treatment by such other Party no less favorable than that accorded to its own nationals or companies or to nationals or companies of any third country, whichever is the more favorable treatment, as regards any measures it adopts in relation to such losses."

The meaning and extent of these clauses has prompted an important debate between the parties and the legal experts requested by them to discuss the issue, namely Dean Anne-Marie Slaughter and Professor José E. Alvarez.
The Tribunal will now consider the views of the parties and the experts on this matter, beginning with those of the Claimant.

32. The Claimant's View of the Treaty's Emergency Clauses

The Claimant argues that the Treaty clauses provide very narrow and specific exceptions to liability that do not allow the Respondent to invoke the operation of the state of necessity or emergency.
The Claimant asserts first that under Article 25(2) of the Articles on State Responsibility necessity may not be invoked if the international obligation in question excludes the possibility of invoking necessity. This, in the Claimant's view, is the case here as the object and purpose of the Treaty, which is to provide protection to investors in circumstances of economic difficulty, exclude reliance on such difficulties for nonperformance of the obligations established under the Treaty. Moreover, the Claimant argues, both under the Treaty umbrella clause embodied in Article II(2)(c) and Article X the Respondent has the duty to observe obligations entered into with regard to investments.
The Claimant invokes in support of its views the Himpurna case where force majeure was not accepted as precluding the wrongfulness of acts of devaluation and the contractual obligations were upheld even in circumstances of economic adversity.175Socobelge,176 on which the Himpurna tribunal relied in part, is also invoked by the Claimant as an example of contract enforcement in spite of an economic crisis. To the same effect the Claimant invokes the Martini case.177
In connection with the specific clause of Article XI of the Treaty the Claimant, following the expert opinion of Professor José E. Alvarez, argues first that this clause is not self-judging, and therefore requires the Tribunal and not the Respondent to decide when or to what extent essential security interests were at stake. The Claimant makes the further point that if the State were to have discretion in this regard, such discretion should be provided expressly. Provisions of this kind include Article XXI of the GATT as well as provisions in the bilateral investment treaties concluded by the United States with Russia178 and with Bahrain.179 It is further affirmed, that this requirement was also the conclusion of the International Court of Justice in the Nicaragua case,180 and the Oil Platforms case.181
The Claimant argues next that economic crises do not fall within the concept of "essential security interests," which is limited to war, natural disaster and other situations threatening the existence of the State. In its view, this is also the meaning of Article 25 of the

Articles on State Responsibility, the interpretation given to Article XXI of the GATT and the scope of the Russian Indemnity case.

A third argument made by the Claimant is that, in any event, Article XI does not exempt the Respondent from liability as this provision does not allow for the denial of benefits under the Treaty.
The Claimant discusses in this context the meaning of Article IV(3) of the Treaty which, it is argued, is not intended to reduce the obligations of the host state to investors but rather to reinforce such obligations, and cannot be read to include economic emergency. The ICSID cases American Manufacturing v. Zaire182 and AAPL v. Sri Lanka183 are invoked as precedents supporting this interpretation.
It is further argued in this regard that even if the Article were to include economic difficulties the Claimant would still be entitled to full protection under the most favored nation clause (MFNC) of both Articles II(1) and IV(3) of the Treaty, and certainly nothing less than the treatment local investors or those from other countries have received from the Respondent. The MFNC is also invoked in support of the argument that other bilateral investment treaties concluded by the Respondent do not contain provisions similar to Article XI and thus the Claimant is entitled to the better treatment resulting from the absence of such exceptions.

33. The Respondent's View of the Treaty's Emergency Clauses

Articles IV(3) and XI of the Treaty provide, in the Respondent's view, for the lex specialis governing emergency situations which the Government has implemented in order to maintain public order, protect its essential security interests and reestablish its connections with the international economic system, all with a view to granting investors treatment not less favorable than that granted to nationals.
The Respondent argues first that the object and purpose of the Treaty do not exclude the operation of necessity or emergency, which are expressly provided for in periods of distress. To this effect, the Respondent further argues, the decisions invoked by the Claimant in support of its views are not relevant to the present case.
The Respondent particularly rejects the reliance by the Claimant on the tribunal's decision in the Himpurna case. The Claimant invoked that decision to draw a comparison with the Indonesian crisis and to show that the tribunal in that case had held that necessity was excluded by specific commitments undertaken by contract and treaty. The present dispute, the Respondent argues, has emerged under circumstances very different from those that prevailed in Indonesia and the Himpurna case in no way contradicts the position taken by Argentina in light of extraordinary circumstances.
The Respondent also rejects the relevance of the situation of Greece in the 1930s as taken into account in the decision in the Socobelge case. This decision was also invoked by the Claimant to show that the obligations under a contract were upheld in spite of financial hardship, in the case of Greece. The Respondent believes the Argentine crisis to have been much worse and deeper and that force majeure as discussed in that case was held to be beyond the powers of the Permanent Court of International Justice.
As to the Martini case, invoked by the Claimant as an example of state of necessity not having been accepted as an excuse and of contractual commitments having been strictly enforced, the Respondent does not consider it relevant to the present case as it did not deal with a case of institutional abnormality.
The expert opinions of Dean Anne Marie Slaughter, introduced by the Respondent on December 15, 2003 and June 23, 2004, elaborate on the meaning and the coverage of the relevant Treaty articles. It is first asserted in this respect that Article XI of the Treaty needs to be interpreted broadly and this in fact was the intention of the parties.