An ICC tribunal seated in Buenos Aires has granted declaratory relief in favour of Brazil’s state-run energy company Petrobras against Uruguay in a dispute over the rising cost of gas imports – while dismissing its $50 million damages claim.

In a 137-page final award dated 18 March, a tribunal chaired by France’s Yves Derains declared that Uruguay has a duty to restore the economic and financial balance of its concession agreement with Petrobras subsidiary Conecta for the distribution of natural gas in the country; and an obligation to negotiate in good faith the adjustments required to bring about that rebalancing.

However, the tribunal – which included Spanish arbitrator Antonio Hierro, a former partner at Cuatrecasas, and Diego Fernández Arroyo, a Spanish-Argentine professor at Sciences Po Law School in Paris – rejected Conecta’s arguments that Uruguay had committed “serious and repeated” breaches of the concession agreement.

It rejected all other claims by both parties. Each side was ordered to bear its own costs.

Both sides relied on Uruguayan counsel in the dispute. Conecta was represented by Ferrere, while Uruguay relied on Ramirez Xavier de Mello Abal in Montevideo. The firms were contacted for comment. 

The parties have each hailed the award as a win for their side. Uruguay’s secretary to the presidency Miguel Ángel Toma said yesterday that the award was overwhelmingly in favour of the state. Conecta has issued a statement saying the award partially upheld its claim that Uruguay must renegotiate the concession.

The case was one of two arbitrations commenced by Petrobras subsidiaries in April 2017 under concession agreements signed with the state in the 1990s, which provide for the distribution of gas to the Uruguayan capital and other locations in the interior of the country.

The other arbitration, filed by Petrobras unit MontevideoGas, is yet to reach a hearing. The arbitration clause in that case provides for ad hoc proceedings seated in the Uruguayan capital, but the parties agreed to have the case administered by the Montevideo Chamber of Commerce. The arbitrators hearing the case have not been named.

Petrobras holds a 55% stake in Conecta, with the remaining shareholding held by Uruguay’s state oil company Ancap. The Brazilian company owns 100% of MontevideoGas. 

Both disputes relate to the repercussions of the Argentine energy crisis of 2004, where a national energy shortage led the Argentine government to impose a restriction on gas exports to preserve the supply for internal consumption.

According to Petrobras, the measures caused the price of imported gas from Argentina to rise eightfold between 2005 and 2015 and created a "financial imbalance" in the contracts, which Uruguay had repeatedly refused to address.

In the ICC award, the tribunal rejected Conecta’s argument that Uruguay’s failure to rebalance the concession had amounted to a repudiatory breach of the agreement. It therefore found Conecta did not have the right to unilaterally terminate the contract.

However, the tribunal accepted that measures taken by Argentina from 2004 onwards had led to an increase in the price of natural gas and a reduction in the volumes available to Uruguay.

These serious and unforeseen consequences had affected the economic and financial balance of the concession, and the state had a duty to rebalance the contract and negotiate in good faith to achieve that, it concluded.

The panel also rejected counterclaims by Uruguay that alleged Conecta had breached its obligations under the concession.

Last week, Uruguay defeated a $65 million claim by Florida company Italba, after an ICSID tribunal found that the US claimant had failed to prove it owned or controlled a local company that had its wireless spectrum licence revoked – therefore declining jurisdiction over the claim.

Conecta v Uruguay

Tribunal

  • Yves Derain (France) (Chair)
  • Antonio Hierro (Spain)
  • Diego Fernández Arroyo (Spain/Argentina)

Counsel to Conecta

  • Ferrere

Partners Sandra Gonzalez and Soledad Diaz in Montevideo

Counsel to Uruguay

  • State lawyers Verónica Duarte, Silvana Sena and Verónica González
  • RXA Abogados

Partners Juan Andrés Ramírez and Gabriel Valentin in Montevideo

 

This article was originally published on Global Arbitration Review, the leading resource on international arbitration news and community intelligence. Subscribe now.