VZCZCXRO1584
RR RUEHRG
DE RUEHBU #1362/01 1671419
ZNR UUUUU ZZH
R 161419Z JUN 06
FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC 4939
INFO RUEHAC/AMEMBASSY ASUNCION 5573
RUEHMN/AMEMBASSY MONTEVIDEO 5624
RUEHSG/AMEMBASSY SANTIAGO 5185
RUEHBR/AMEMBASSY BRASILIA 5375
RUEHGL/AMCONSUL GUAYAQUIL 0092
RUEHRG/AMCONSUL RECIFE 0153
RUEHRI/AMCONSUL RIO DE JANEIRO 2003
RUEHSO/AMCONSUL SAO PAULO 2916
RUEATRS/DEPT OF TREASURY WASHDC
RUEHRC/USDA FAS WASHDC 2214
RUCPDOC/USDOC WASHDC
UNCLAS SECTION 01 OF 07 BUENOS AIRES 001362
SIPDIS
SIPDIS
WHA/BSC, WHA/EPSC, WHA, EB/IFD/OIA
E.O. 12958: N/A
TAGS: ECON EFIN ETRD EINV PGOV KIDE PREL OPIC AR
SUBJECT: 2006 REPORT ON INVESTMENT DISPUTES AND
EXPROPRIATION CLAIMS: ARGENTINA
REF: A. SECSTATE 60294
B. 05 BUENOS AIRES 1519
C. 04 BUENOS AIRES 1725
1. The following report outlines new and ongoing
investment disputes between the GOA and US investors,
updating Post,s 2004 Investment Disputes Report (reftel C)
and its 2005 update (reftel B). Post is aware of 21 disputes
involving 19 claimants against the GOA, of which 12 are
active. Since 2004, two cases -- Claimants J and M -- have
been settled. Three cases -- Claimants D,s second case,
Claimant I and Claimat K -- have been suspended, pending
completion of settlement negotiations. Another claimant --
Claimant L -- has requested a discontinuance of its claim.
Post also recommends the removal of three other cases --
Claimants B, C and H -- from the report. Claimants C and H
have not pursued their claims during the past four years, and
Claimant B sold its interests to a non-US company. Of the
remaining 12 cases, two -- Claimants R and S -- have been
added to the report since 2004.
2. Many of these claims arise in whole or in part from the
GOA's implementation of Emergency Law 25,561 on January 6,
2002. This law (among other things) converted contract
provisions denominated in US dollars into Argentine pesos at
a 1:1 rate and rescinded previously-sanctioned indexation of
contracts to US inflation indices. US investors contend that
such measures unilaterally derogate contractual agreements
and effectively expropriate US investor capital.
3. In addition to the claims below, post is aware of other
potential US claimants whose disputes are in administrative
or informal negotiation stages, or who believe their
investments are threatened with expropriation.
4. (a) Claimant A
(b) 2002
(c) Claimant A is a US energy sector utility with gas
distribution assets in Argentina. Its dollar-based gas
distribution contracts in Argentina were linked to the US
producer price index. In March 2002, Claimant A initiated
consultations under ICSID, claiming that various provisions
of Emergency Law 25,561 voided its distribution contracts and
effectively expropriated its capital investment. Claimant A
also charged that the GOA had failed to pay contractually
mandated subsidy payments in compensation for pricing its gas
at below market rates. Claimant A filed for ICSID
arbitration on September 10, 2002. Its request for
arbitration was accepted on December 6, 2002. On February
27, 2003, Claimant A,s business partner filed an arbitration
claim under a bilateral investment treaty between Luxembourg
and Argentina. The two claims will be treated jointly.
ICSID ruled against GOA's objections to its jurisdiction.
The final hearing was held in February, and the panel
appointed an independent damages expert. Both parties filed
post-hearing briefings on April 3, 2006. An award is
expected by the end of the year.
5. (a) Claimant B
(b) 2002
(c) Claimant B is a US energy sector holding company that
had electrical generation and distribution assets in Entre
Rios, Buenos Aires and Rio Negro Provinces of Argentina. In
March 2002, Claimant B initiated consultations under ICSID,
claiming that various provisions of Emergency Law 25,561
voided its distribution contracts and effectively
expropriated its capital investment. Claimant B participated
in various informal meetings with GOA officials following the
initiation of consultations, but we are not aware of any
further action on its claim. Claimant B sold its interests
to a British-based investment company, which is pursuing the
case under the UK-Argentina bilateral investment treaty.
Post therefore recommends that this claim be removed from the
report.
BUENOS AIR 00001362 002 OF 007
6. (a) Claimant C
(b) 2002
(c) Claimant C is a US diversified insurance company with
specialized property and liability coverage assets in
Argentina. In March 2002, Claimant C initiated preliminary
consultations under ICSID arbitration guidelines, claiming
that numerous provisions of Emergency Law 25,561 unilaterally
derogated contractual agreements and effectively expropriated
Claimant C's capital investment. Its original investment was
$8 million. As four years have passed without any further
pursuit of this claim, post recommends that it be removed
from the report.
7. (a) Claimant D, first case
(b) 2001
(c) Claimant D, a US energy sector firm, has a substantial
minority investment in an Argentine gas pipeline whose
dollar-based transmission contract was linked to the US
producer price index. Claimant D initiated preliminary
consultations under ICSID arbitration guidelines in September
2001 following a GOA decision to cease approving
index-related increases in gas transmission fees. In May
2002, Claimant D began a process to expand its ICSID claim to
address certain provisions of Emergency Law 25,561. Claimant
D filed for ICSID arbitration on March 19, 2003. ICSID
agreed that this dispute would be heard by the same
arbitration panel hearing Claimant D's second arbitration
claim against the GOA (see below). ICSID issued a ruling on
jurisdiction in January 2004 in favor of Claimant. The
tribunal held a final hearing on the merits in November 2005.
The arbitrator selected by the GOA resigned in May, and the
case has been suspended pending the appointment of a new
arbitrator.
8. (a) Claimant D, Second Case
(b) 1996
(c) Six western Argentine provinces are attempting to
collect over $3 billion in retroactive stamp tax and gross
receipts tax duties from international energy companies
operating in their jurisdictions. Claimant D registered its
claim with ICSID on April 11, 2001. Because Claimant D
asserts that it does not have any stamp tax liability, there
is no information on the amount of this claim. In April,
2004, the Argentine Supreme Court ruled that the stamp tax
levies imposed by another province were invalid. Claimant D
and the GOA have agreed to suspend the case, pending a final
ruling by the Supreme Court.
9. (a) Claimant E
(b) 2000
(c) Claimant E is a US energy sector infrastructure firm,
which operates natural gas pipelines in Argentina through a
local company, under a licensed granted to the local company
by the GOA. The Argentine gas legal framework and the local
company's license linked the tariffs for gas transmission
services to the US producer price index. On October 20,
2000, following a decision by the GOA to cease approving
index-related increases in gas transmission tariffs, Claimant
E initiated preliminary consultations with the GOA under the
US-Argentine Bilateral Investment Treaty. On July 24, 2001,
Claimant E filed for ICSID arbitration, claiming over $100
million in compensation.
On January 6, 2002, the GOA passed Emergency Law 25, 561,
which abolished adjustments and indexation clauses in
contracts contained in licenses, and converted all
dollar-denominated tariffs into pesos at the mandatory rate
of 1 peso per USD. On February 13, 2002, Claimant E wrote to
the GOA, saying these measures further affected Claimant E's
proerty rights and were tantamount to an expropriation. On
BUENOS AIR 00001362 003 OF 007
July 5, 2002, Claimant E submitted its Memorial seeking
$261.1 million in damages from the GOA for expropriation of
its investment. On May 12, 2005, Claimant E received an
award of $133.2 million from the ICSID tribunal, with
interest to date of payment, and granting a right to the GOA
to purchase Claimant E's interest in the local subsidiary for
an additional payment. On September 27, 2005, the GOA filed
an application for institution of annulment proceedings. An
annulment panel has been formed and the first hearing in the
annulment process was held June 5, 2006. A final hearing is
expected in March 2007.
10. (a) Claimant F
(b) 2000
(c) Claimant F is a diversified US energy sector firm with
gas transmission assets in Argentina, whose dollar-based
transmission contract was linked to the US producer price
index. In October 2000, following a GOA decision to no
longer approve index-related increases in gas transmission
fees, Claimant F initiated preliminary consultations under
ICSID arbitration guidelines. It formally filed for ICSID
arbitration in March 2001. In May 2002, Claimant F began a
process to expand its ICSID claim to include provisions of
Emergency Law 25,561. On April 30, 2004, the arbitral panel
issued its decision on jurisdiction, ruling in favor of
Claimant F on all jurisdictional issues. The panel held a
hearing on the merits in January 2005, and both parties
submitted post-hearing briefs in February 2005. Claimant is
awaiting a decision from the tribunal.
11. (a) Claimant G, First Claim
(b) 2001
(c) Claimant G is a water resource management company that
through a local subsidiary won a 30-year concession in 1999
to manage a significant share of Buenos Aires province's
water and wastewater management facilities. Many of its
tariff rights under the Concession Contract were effectively
repudiated by the Province when the water in one city turned
sour in April 2000 because of algae in the local reservoir,
which was under the Province's exclusive control. According
to Claimant G, provincial officials blamed Claimant G for the
problems, refused to allow the company to bill for its
services, required the company to provide bottled water to
the town at the company's expense, and publicly announced
that people should not pay their water bills. The Province
also allegedly repudiated Claimant G's right to amortize its
bid payment. In January 2001, Claimant G filed for ICSID
arbitration. Following unsuccessful settlement efforts, an
ICSID panel was constituted in July 2001, and the case was
formally accepted by the panel in September 2001. While the
arbitration case remains in process, Claimant G filed for
bankruptcy in December 2001 and returned operation of all its
water and wastewater management facilities to provincial
authorities in March 2002. The final hearing on the merits
was held in March 2005, and an award on the merits is
expected by the end of June 2006.
12. (a) Claimant G, second claim
(b) 2003
(c) Claimant G held, through a local subsidiary, a
concession to manage a significant share of Mendoza
province's water and wastewater management facilities.
Claimant G filed for ICSID arbitration in 2003, alleging that
by interfering with Claimant G,s contractual rights, the
province effectively repudiated its concession. ICSID
registered the claim on December 8, 2003. Each side has
appointed an arbitrator, but a panel president has not yet
been selected.
13. (a) Claimant H
(b) 2000
BUENOS AIR 00001362 004 OF 007
(c) In early 1998, Claimant H purchased a 40 percent
interest in Provincia de Salud S.A. ("Provincia de Salud")
and a 20 percent interest in Provincia Aseguradora de Riesgos
del Trabajo, S.A. ("Provincia ART"), whose parent is the
Banco de la Provincia de Buenos Aires ("Provincia"), which is
owned by the Buenos Aires provincial government. Claimant H
alleged that its $28 million investment in Provincia Salud
had been depleted through mismanagement and waste of
corporate assets, compounded and overseen by irresponsible
governance processes under the overall control of Provincia.
Claimant H also alleged that its partner abused its position
as a majority shareholder and violated the shareholder's
agreement by allowing Provincia Salud to incur unauthorized
obligations (many to other subsidiaries of Provincia). In
May 2000, Provincia forced an increase in the capital of
Provincia Salud upon terms and under circumstances that
Claimant H describes as an effective confiscation of its
investment. Claimant H began both local legal action and
arbitration under the BIT, but in March 2002, Claimant H sold
its shares in Provincia Salud and abandoned its arbitration
claim and legal action. Claimant has not pursued this claim
further during the past four years, and post recommends that
this case be removed from the report.
14. (a) Claimant I
(b) 2002
(c) Claimant I owns and operates several hydrocarbon and
hydroelectric power plants in Argentina. It has invested $1
billion in equity and $1 billion in debt in these projects.
In March 2002, Claimant I pursued informal negotiations,
claiming that the pesification of its dollar-denominated
distribution contracts, and the devaluation of the peso, have
resulted in the effective expropriation of a large portion of
the value of Claimant I's investment. In April 2005, one of
Claimant I's subsidiaries signed a definitive agreement on
re-negotiation of its concession agreement with the GOA. The
agreement was ratified by the Argentine Congress in May, and
Claimant I expected the GOA to sign and publish the agreement
in the near future. As part of that agreement, Claimant I
agreed to suspend the portion of its claim related to this
subsidiary, and to definitively drop its claimonce a near
tariff agreement is approved. Negotiations continued between
the GOA on agreements and Claimant's other two distribution
subsidiaries and its generation business. On January 23,
2006, ISCID suspended proceedings upon the request of both
parties, pending a final settlement agreement.
15. (a) Claimant J
(b) 2001
(c) Claimant owned an interest in an oil and gas company
involved in the exploration for and production of
hydrocarbons in Neuquen, Rio Negro, Santa Cruz, Tierra del
Fuego and Mendoza Provinces of Argentina. On February 25,
2002, Claimant J requested consultations, claiming over $100
million in damages allegedly resulting from the pesification
of its contracts, the dilution of fiscal credits, the
imposition of export taxes, the losses on sales due to the
exchange rate, and the imposition of an oil export tax in
alleged violation of 1992 decrees guaranteeing export tax
stability. On October 16, 2002, Claimant J filed notice of
its intention to negotiate before beginning formal ICSID
arbitration. ICSID formally registered the claim on June 5,
2003. On April 4, 2005, both sides filed a request with
ICSID for the discontinuance of proceedings based on a final
settlement agreement between the parties, but has not yet
been accepted formally by ICSID.
16. (a) Claimant K
(b) 2001
(c) Claimant K is an information systems provider that won
a $37 million public bid contract to provide information
services to the judicial branch. The contract amount was
BUENOS AIR 00001362 005 OF 007
payable in 36 equal, monthly installments beginning when the
system was completed. Work started in early 1998. 85
percent of the work had been completed by November 1999, and
the remaining 15 percent was completed in December 2000.
During work on the contract, Claimant K agreed to do $30
million in additional information systems work for the GOA.
It also provided the GOA with $3.5 million in postal
machinery. In January 2001, the GOA began paying for the 85
percent work completed in November 1999, and in February
2001, on the remaining 15 percent. In December 2001, the
contract was pesified by law when Argentina did away with its
fixed, 1-to-1 conversion system with the US dollar. From
January 2002 through April 2003, the GOA made no payments
under the contract, even after it had been pesified. The GOA
has recognized the $3.5 million debt for the postal
machinery, but it allegedly refuses to recognize the $30
million in additional work.
Claimant K filed notice of its intention to pursue ICSID
arbitration in October 2002. It held friendly consultations
with the GOA in February 2003 without success. ICSID
formally registered Claimant K's claim on October 15, 2003.
The claim is based on allegations of the pesification of the
original contract, the refusal to recognize the additional
work done under the contract, and the non-payment from
February 2002 through April 2003. Total claim amount is
approximately $55 million. According to Claimant K, it did
not include a claim for the value of the postal machinery
because the GOA has recognized that debt and repeatedly
promised to pay it. Before an arbitral panel was constituted
to hear the claim, the parties signed an agreement in August
2005 to postpone the case and jointly appointed accounting
and technical experts to examine the facts. A report from
the accounting expert is expected by the end of June 2006,
and the technical expert will begin work once that report is
completed. These reports will be used as the basis for
settlement negotiations.
17. (a) Claimant L
(b) 2004
(c) Claimant L is a US reinsurance company that underwrote
Argentina's privatized pension system between 1994 and 2001.
Claimant L,s liability is based upon the market value of the
pension system's assets. In 2002, the GOA implemented
measures that fix the price of certain pension fund assets
(Argentine Government bonds) at above-market prices. Because
reinsurance contract benefits are linked to the value of
these assets, this regulatory measure has allegedly increased
Claimant L's financial obligations by 45 percent. The
Claimant contends that it is entitled to compensation for the
substantial losses suffered because of the manipulation of
asset values and has filed a request for ICSID arbitration.
After holding a hearing on witnesses in September 2005, the
ICSID held its first session on November 22, 2005. In March
2006, Claimant presented a letter of discontinuance to ICSID
because it had mitigated damages through negotiations with
local insurance companies.
18. (a) Claimants M
(b) 2004
(c) Claimants M are US citizens who own real property in
Bucharest, Romania. The communist government of Romania had
confiscated the property from Claimants M,s family but
returned it to the family in June 2003. According to
Claimants M, however, Argentine diplomatic personnel in
Romania occupied the property as a residence. Claimants M
notified the GOA that the Romanian government had returned
the property to them, and that they wanted to re-negotiate
the lease on the property. In response, the GOA allegedly
asserted that it would continue to occupy the property and
pay a rent of its choosing that was below market rates. On
April 1, 2004, Claimants notified the GOA of the pendency of
an investment dispute under the US-Argentina BIT, claiming
that the continued occupation of the property constituted an
expropriation. The GOA subsequently agreed to leave the
BUENOS AIR 00001362 006 OF 007
property, and Claimants now have recovered occupancy of their
property. Post therefore recommends that this case be
removed from the report.
19. (a) Claimant N
(b) 2003
(c) Claimant N owned an interest in electrical generating
plants and in an oil and gas company operating in Argentina.
In January 2002, Argentina pesified dollar-denominated oil
and gas supply contracts, imposed an oil export tax in
alleged violation of decrees from 1992 that guaranteed export
tax stability, and changed the electrical generation
regulatory and legal framework based on which the company
invested. Claimant filed for ICSID arbitration in June 2003.
On April 27, 2006, the panel issued a decision on
jurisdiction in favor of Claimant N. The arbitration process
continues on the merits of the claim.
20. (a) Claimant O
(b) 2003
(c) Claimant O is a provider of leasing services in
Argentina. Claimant O's claim was registered with ICSID on
February 27, 2004. The claim asserts that that various
actions by the Government of Argentina effectively
expropriated the value of its investment. On October 13,
2005, Claimant filed a memorial on the merits of the case.
On December 28, 2005, the GOA filed its objections to
jurisdiction. Claimant O was expected to file a
counter-memorial on jurisdiction on March 2, 2006. A hearing
is expected to take place later this year.
21. (a) Claimant P
(b) 2003
(c) Claimant is an insurance company with operations in
Argentina. ICSID registered Claimant P's complaint on May
22, 2003. Post has not been able to obtain details about the
substance of Claimant's dispute. An arbitration panel has
been selected, and the Claimant filed its Memorial on the
Merits on April 28, 2004. According to the ICSID website,
the panel held a hearing on jurisdiction in February 2005 and
that it had jurisdiction over the claim. Argentina has filed
a counter-memorial, and a hearing is expected to be held in
late 2006.
22. (a) Claimant Q
(b) 2003
(c) Claimants Q are two companies with very similar
shareholders who owned an interest in both electrical
generating plants and an oil and gas company doing business
in Argentina. In January 2002, Argentina pesified
dollar-denominated oil and gas supply contracts, imposed an
oil export tax in violation of decrees from 1992 that
guaranteed export tax stability, and changed the electrical
generation regulatory and legal framework on which the
company was induced to invest by pesifying dollar-denominated
capacity payments and regulating the previously unregulated
electrical generation industry in a way that does not allow
it to be profitable. Claimants filed their claim with ICSID
in June 2003, and the two claims are being heard jointly by
one arbitration panel. The panel held a hearing on
jurisdiction in March 2005, and a decision is expected in
July 2006.
23. (a) Claimant R
(b) 2004
(c) Claimant R is an oil and gas exploration and
development company. Claimant R contends that its investment
was effectively expropriated following the 2002 pesification
of its dollar-denominated oil and gas supply contracts.
BUENOS AIR 00001362 007 OF 007
Claimant R also complains that the imposition of export taxes
in 2002 violated the decrees that were in force at the time
of its investment. Claimant R's claim was formally
registered August 5, 2004. A panel has not yet been
constituted; both sides have named an arbitrator, but a
president has not yet been chosen.
24. (a) Claimant S
(b) 2005
(c) Claimant S is an Argentina-based company with US and
German investors. It formally registered its claim on June
23, 2005. Claimant has sought $20 million from the GOA,
claiming that a local bank illegally canceled a contract in
2003 and expropriated its funds. An arbitral panel was
constituted on March 27, 2006, and the case is still pending.
25. Identification of claimants
Claimant A = Sempra
Claimant B = PSEG
Claimant C = Chubb insurance
Claimant D = Enron-TGS
Claimant E = CMS - TGN
Claimant F = Louisville Gas and Electricity
Claimant G = Enron Azurix
Claimant H = Capital Z Partners
Claimant I = AES
Claimant J = Pioneer
Claimant K = Unisys
Claimant L = RGA Reinsurance
Claimants M = Steven and Robert Ausnit
Claimant N = El Paso Energy
Claimant O = CIT Group
Claimant P = Continental Casualty Company
Claimant Q = Pan American Energy/BP America
Claimant R = Mobil Oil Company
Claimant S = Asset Recovery Trust
26. To see more Buenos Aires reporting visit our classified
website at: http://www.state.sgov.gov/p/wha/buenosaires
GUTIERREZ