BRAZIL

Petrobras settles award payment but reserves right to appeal

Brazilian state oil and gas company Petrobras has paid over US$700 million to satisfy an award in favour of offshore drilling contractor Vantage Drilling whom it accused of corruption – while retaining its right to appeal the confirmation of the award in the US courts.

The settlement comes a month after the US District Court for the Southern District of Texas entered a judgment worth US$733 million confirming the award. The parties have agreed that the latest payment satisfies that judgment in full.

Petrobras said it had made the payments to stop interest accruing on the award and lift the attachment over its Dutch assets. However, Petrobras will continue to pursue an appeal in the US Court of Appeals for the Fifth Circuit to overturn the district court’s judgment and have the award set aside.

The dispute relates to a long-term contract for the lease of a deepwater drilling ship, which was terminated by Petrobras in 2015 after it emerged that Vantage’s agent in Brazil, Hamylton Padilha, had entered into a plea agreement with Brazilian authorities over his role in obtaining bribes for former Petrobras executives.

In the final award, the tribunal found Petrobras liable for the wrongful termination of the contract and awarded Vantage US$622 million plus interest.

 

MEXICO

Mexico utility brings gas pipeline claim against US Sempra Energy

Mexican state-owned Comisión Federal de Electricidad (CFE) has initiated arbitration against Mexican energy infrastructure unit Ienova, a subsidiary of California-based Sempra Energy, requesting the nullification of certain clauses in a transportation service agreement governing the construction of a US$2.5 billion natural gas pipeline between Mexico and the US.

According to reports, the arbitration will be heard under LCIA rules.

The dispute relates to a contract that CFE signed with Ienova and Canada’s TC Energy, formerly known as TransCanada, to build a pipeline from the south of Texas to Tuxpan.

In its request for arbitration, it is understood CFE has requested that clauses in the transportation service agreement that provide for reimbursements of fixed capacity payments in a force majeure situation be redrafted as they are too onerous on the state.

Mexican taxi dispute leads to ICC and NAFTA claims

A joint venture formed by L1bero Partners, a Canadian company owned by prominent Mexican businessmen Ricardo Salinas and Fabio Covarrubias, and by Espiritu Santo Holdings (ESH) has threatened Mexico with a claim under the North American Free Trade Agreement (NAFTA) and a pending ICC claim as regards a concession to provide digital taximeter and ride-hailing technology for taxi cabs in Mexico City.

The dispute relates to a concession awarded to the joint venture in 2016 for the provision of technology to Mexico City’s fleet of 138,000 registered taxi cabs. The notice, which is not public, appears to have been filed after city authorities sought to unilaterally amend the concession terms in November 2018.

However, L1bero’s joint venture partner ESH says the NAFTA notice was improperly filed without its approval. It alleges the move is part of a broader pattern of “corporate fraud and malfeasance” by which L1bero has taken steps to seize control of the joint venture and misappropriate its assets and technology for itself.

ESH, which is controlled by Mexican nationals Santiago León and Eduardo Zayas, launched an ICC arbitration against L1bero on 1 May, seeking a declaration that the “illicit seizure” of the business is in breach of their partnership agreement. The proceeding will be seated in New York.

Both the NAFTA and ICC disputes became public after ESH applied last month to the US District Court for the Southern District of New York for emergency injunctive relief in support of the ICC case.

 

PERU

Peru faces ICSID claim in electricity generation dispute

Singaporean companies IC Power and its parent company Kenon Holdings (Kenon), linked to a prominent Israeli businessman Idan Ofer, have filed a third party-funded ICSID claim worth more than US$150 million against Peru under the Singapore-Peru free trade agreement (FTA) concerning investments in the electricity sector.

The dispute relates to events that occurred when the claimants owned and operated Peruvian electricity generation companies Kallpa and Samay I, and to actions by Peru’s mining and energy regulator Osinergmin relating to secondary frequency regulation, or SFR – a service required to adjust power generation on electrical grids to maintain the frequency of the system.

The regulator established in 2014 that SFR would be provided through a firm and variable base provision, with the provider of the firm base provision having priority on the daily electricity dispatch to keep its turbines permanently on to respond to frequency changes.

Kenon claim that in April 2016, Kallpa was granted the exclusive right to provide the SFR firm base for three years, independent of its declared generation costs. However, Osinergmin issued a resolution two months later that Kenon says withdrew that exclusive right and amounted to a retroactive amendment, causing the claimants losses.

The dispute also covers another resolution by the regulator concerning transmission tolls, which introduced a new methodology requiring each generation company to pay for a number of transmission lines, irrespective of the lines the company actually uses. Kenon says the change benefited the state-owned electricity companies including Electroperu, to the detriment of its subsidiaries.

Kenon no longer owns the companies, having sold its entire Latin American and Caribbean energy portfolio to private equity firm I Squared Capital for US$1.2 billion at the end of 2017.

 

VENEZUELA

Venezuela defeats enforcement of treaty claim by US shipbuilder

The US District Court of the District of Columbia has refused to enforce US shipbuilder’ Huntington Ingall´s US$129 million award against Venezuela’s Ministry of Defence in a 17-year dispute over a contract to upgrade two missile-armed navy frigates.

The US Court said it could not ignore the fact that Huntington Ingalls had previously asked a federal court in Mississippi to retain jurisdiction in the case.

The dispute relates to a 1997 contract awarded to Huntington Ingalls’ predecessor Northrop Grumman Ship Systems for the repair and upgrade of two frigates owned by the Venezuelan navy. Work on the frigates was undertaken in Mississippi. As part of the deal, Venezuela raised US$315 million through a private placement of eurobonds and placed the funds in trust with Bank of New York Mellon with the purpose of paying the shipbuilder in instalments for work completed. However, Northrop complained that the condition of the frigates had deteriorated significantly beyond normal wear and tear, causing costs and delays not accounted for under the contract.

In 2002, the contractor sued the Ministry for damages in the US District Court for the Southern District of Mississippi, which granted an injunction freezing the BNY Mellon funds pending resolution of the dispute. The court later agreed to Northrop’s request to compel arbitration. This resulted in an abortive ICC arbitration in Mexico City and a US$70 million settlement in 2005 that was subsequently struck down after Venezuela argued its then US counsel had not been authorised to agree to it.

In 2010, the Mississippi court ordered a new arbitration, adding that it would “retain jurisdiction in order to bring this matter to conclusion after arbitration.”

While the contract provided for ICC arbitration in Caracas, the court said it would be “unreasonable” for the case to be seated there in view of the deterioration in US-Venezuela diplomatic relations.