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Azurix wins $165 million vs Argentina in latest ICSID ruling

Dow Jones Newswires

Azurix Wins $165 Million Vs Argentina In Latest ICSID Ruling

18 July 2006

By Michael Casey, Dow Jones Newswires

BUENOS AIRES -(Dow Jones)- Former Enron Corp. (ENE) water unit Azurix Corp. has been awarded $165 million against Argentina in the latest ruling on dozens of international arbitration claims brought against the country by foreign companies.
A person familiar with the situation confirmed Tuesday that both parties were informed Monday of the decision by a tribunal at the International Center for the Settlement of Investment Disputes, or the ICSID. The center is sponsored by the World Bank and functions as the main international body for resolving bilateral investment treaties.

The decision follows a similar ruling last year on breach-of-contract charges brought against Argentina by CMS Energy Corp. (CMS) of the U.S. It also comes after another international legal loss for Argentina, which last week failed to get the International Court in The Hague to issue an injunction against the construction of two pulp plants in Uruguay.

As with the CMS case, in which Argentina was ordered to pay $133 million, the government has the right to appeal the latest ICSID award. That process is expected to take another two years.

If Argentina loses on appeal, it will need to decide whether to follow through on a threat made last year by former Justice Minister Horacio Rosatti not to recognize ICSID rulings.

However, Argentina’s prosecutor general, Osvaldo Guglielmino, was quoted in local media Tuesday as saying the government was pleased with the result in the Azurix case despite the loss.

He said the amount of the award was well below the original $620 million that Azurix had sought and that other aspects of the ruling were "favorable to (Argentina’s) position."

Guglielmino didn’t elaborate. However, in the past, Argentine officials, including Rosatti, have said that although the ICSID isn’t a body governed by precedents, Argentina hoped to obtain rulings that will help it with its broader battle against the dozens of utilities that have filed claims against the government.
Officials have said they want rulings recognizing that companies that lost money as a result of policy changes made during Argentina’s recent financial crisis can’t use bilateral treaties as way to absolve themselves of investment risk responsibilities.

It isn’t clear what the Azurix ruling says on such matters. Rulings aren’t made public by the ICSID, and any release of the content of a ruling is up to the contending parties. Neither side has formally released the details of this decision.

Azurix officials weren’t immediately available for comment Tuesday.

The company’s case relates to its contract to manage the Aguas de Buenos Aires concession, which it signed with Buenos Aires province in 1999.

The province, the company said, refused to keep rates in line with the framework outlined in its contract and didn’t provide promised infrastructure.

These charges mirror those brought by France’s Suez SA (12052.FR), which had its Aguas Argentinas contract - a separate, larger concession than that of Buenos Aires - rescinded by the national government earlier this year after a long and bitter dispute. Suez maintains its own claim at the ICSID, which it first filed in 2002.

For its part, the Buenos Aires government said that Azurix didn’t meet minimum investment requirements and was guilty of substandard service.

Water-quality complaints were lodged shortly after Azurix took control of the concession in 1999. This led the province’s water regulator to order Azurix not to charge customers for water for a number of weeks in 2000 in order to pay for its failure to maintain standards.

The problems with the water eventually were identified as the result of algae, not chemical toxins, as some had thought. Azurix then pointed the finger back at the province, which it said had contracted to put in place a functioning algae-removing plant and had failed to do so in time.

But the province stayed on the offensive, fining the company later in 2000 for outages in certain parts of the province.

The following year, Enron announced it would break up Azurix and sell it. Shortly afterward, in October 2001, the water unit announced its withdrawal from the Buenos Aires contract, citing breaches of contract by the province. By then Enron itself was in the midst of its own crisis and on the way to financial collapse.
In early 2002, after Argentina had experienced its own financial crisis, the national government, operating under emergency powers, converted dozens of public service contracts from dollars into devalued pesos. It also froze rates.

Many of the foreign parent companies of these utilities, most of which are from countries that have signed bilateral treaties with Argentina, followed Azurix’s lead and filed claims with the ICSID.

As many as 36 companies have at one time had claims outstanding. Some of these have been suspended pending negotiations with the government over new contracts and a few have been withdrawn as a condition for signing a new contract. But most remain in place, with total claims outstanding estimated at $16 billion.

(Drew Benson contributed to this article.)