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International Arbitration Forum

IC Power Ltd and Kenon Holdings Ltd v. Republic of Peru

Case summary

At a glance

Parties
IC Power Ltd and Kenon Holdings Ltd (Singapore) v. Republic of Peru
Case no.
ICSID Case No. ARB/19/19
Forum and rules
ICSID Convention arbitration; ICSID Arbitration Rules in force as of 10 April 2006; place of proceeding Washington, D.C.
Treaty
Free Trade Agreement between Singapore and Peru, signed 29 May 2008, in force 1 August 2009 (Article 10.5)
Tribunal
Prof. Luca G. Radicati di Brozolo (President), Mr. David R. Haigh KC, Mr. Eduardo Siqueiros T.
Sector
Electricity generation; secondary frequency regulation; transmission cost allocation
Outcome
Jurisdiction upheld. Peru breached Article 10.5 by issuing Resolution No. 141, which was seriously arbitrary. The claim on Resolution No. 164 was dismissed (Award of 3 October 2023, rectified on 3 May 2024).
Amount
Claimed: USD 195.3 million (USD 110.7 million for the SFR Service Claim and USD 84.6 million for the New Methodology Claim). Awarded: USD 110.7 million, plus pre- and post-award interest at Peru's cost of debt at the date of the Award, compounded annually. Costs: USD 4,931,993.58 towards the claimants' costs. Peru bears 70% of the Tribunal's and ICSID's costs of USD 915,263.19; the payment due to the claimants was rectified from USD 640,684.23 to USD 183,052.64 to account for advances already paid.

The dispute

IC Power and Kenon, two Singapore holding companies, indirectly controlled the Peruvian generators Kallpa GSA, Cerro del Águila SA and Samay I S.A. until they sold them to Nautilus Inkia on 24 November 2017. In April 2016 Kallpa GSA won a tender to act as Firm Base Provider of the secondary frequency regulation (SFR) service, bidding a price of zero, on the understanding that its Kallpa and Las Flores plants would be dispatched continuously. Two days before generators had to file their declared gas costs, the regulator OSINERGMIN issued Resolution No. 141 of 13 June 2016. The resolution 'clarified' that the Firm Base Provider would provide SFR only when it qualified in the economic merit order. By Resolution No. 164 of 2016 OSINERGMIN also changed how the costs of secondary transmission lines are shared among generators. The claimants alleged breaches of fair and equitable treatment and full protection and security under Article 10.5 of the FTA; Peru objected under the denial of benefits clause (Article 10.15) and to Kenon's standing, and argued that both resolutions were legitimate regulation.

Key holdings

  1. The Tribunal has jurisdiction over both claims. Peru's denial of benefits objection and its objection to Kenon's standing were rejected. The Commitment Act concluded by Kallpa GSA is also a protected investment under Article 10.1.6. Award ¶¶ 183, 624(i)
  2. Read with Technical Note 1 and the drafting history, PR-22 and the bid terms guaranteed the tender winner continuous dispatch to provide the SFR service, regardless of the merit order. This guarantee is compatible with the economic dispatch principle in Article 12.1 of Law 28832. Peru had consciously accepted higher costs in exchange for system safety. Award ¶¶ 411–436
  3. Resolution No. 141 was seriously arbitrary and breached the MST/FET standard of Article 10.5, for three reasons. It was an 'unexpected and shocking repudiation' of the tender framework while still holding Kallpa GSA to its zero-price obligation. Its true motive was to avoid the cost of dispatching Kallpa GSA's plants. It was retroactive and adopted without consulting COES or publishing a draft. The Tribunal did not need to decide the legitimate expectations claim. Award ¶¶ 448–455
  4. The MST/FET and FPS standards in the Treaty include no obligation to keep a stable and predictable legal framework. Resolution No. 164 was neither seriously arbitrary nor discriminatory: it was a bona fide, properly adopted correction of the previous methodology. It affected public and private generators in similar proportions, and there was no evidence that it was meant to subsidise Electroperú. Award ¶¶ 458, 495–513
  5. Damages are USD 110.7 million, as calculated by BRG. Under Section 11.8 of PR-22, the operating costs compensation of PR-33 would have applied to dispatch outside the merit order. The sale price of the subsidiaries and the buyer's later conduct are irrelevant. A WACC of 5.56% applies both to bring forward the historic losses and to discount the future lost cash flows to the valuation date of 24 November 2017. Award ¶¶ 572–601
  6. Pre- and post-award interest runs at Peru's cost of debt, under a forced-loan rationale. The Decision on Rectification confirms that the rate is assessed at the date of the Award. It is the sum of the one-month average yield of five-year US Treasury bonds and Professor Damodaran's latest country risk premium for Peru, compounded annually. Award ¶¶ 603–606; Decision on Rectification ¶¶ 33–50, 67
  7. Costs follow the event, adjusted. The Tribunal excluded USD 1,147,229.84 of pre-arbitration advice and funding costs from the claimants' costs. It allowed USD 700,000 for jurisdiction plus 57% of the rest, and awarded 70% of that sum: USD 4,931,993.58. In the rectification proceedings each party bears its own costs and half of the Tribunal's and ICSID's costs. Award ¶¶ 617–623; Decision on Rectification ¶¶ 54, 65

Procedural history

  1. 12 June 2019Request for Arbitration filed. ICSID registered it on 27 June 2019.
  2. 30 October 2019Tribunal constituted.
  3. 27 February 2020Procedural Order No. 1 on the procedural rules: English and Spanish, Washington, D.C., ICSID Rules 2006.
  4. 6 May 2020Procedural Order No. 2 rejects Peru's request for disclosure of the identity of the funder's investors and of the funding agreement's terms.
  5. 25 October 2021Procedural Order No. 3 strikes the PSR Report and parts of the Tabors Report from the record as belated.
  6. 15 November 2021Procedural Order No. 4 largely rejects Peru's request for reconsideration (paragraph 15 of the Tabors Report is readmitted) and allows Peru to cross-examine SIDEC.
  7. 13–20 December 2021Hearing held by videoconference.
  8. 3 October 2023Award: the SFR Service Claim is upheld and USD 110.7 million awarded; the New Methodology Claim is dismissed.
  9. 14 November 2023The claimants file a complaint in the US District Court for the District of Columbia to recognise and enforce the Award.
  10. 3 May 2024Decision on the Requests for Rectification and Clarification: the interest and costs provisions are rectified; Peru's clarification request is rejected.

Tribunal, counsel and experts

Decided by
For the claimant
Freshfields Bruckhaus Deringer · De Trazegnies Thorne Abogados S.A.C. · Philippi Prietocarrizosa Ferrero DU & Uría · DLA Piper LLP (US)
For the respondent
Comisión Especial que Representa al Estado en Controversias Internacionales de Inversión, Ministerio de Economía y Finanzas · Sidley Austin LLP · Stanimir A. Alexandrov PLLC · Estudio Navarro & Pazos Abogados · Baker Botts LLP
Experts
Santiago Dellepiane (claimant) · Daniela Bambaci (claimant) · Luis Espinoza (claimant) · Luis Torres (claimant) · Boaz Moselle (respondent) · Ruxandra Ciupagea (respondent) · Richard Tabors (respondent) · César Gutiérrez (respondent) · Ricardo Leyva (respondent)

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Keywords

Summary generated with AI from the published documents — refer to the award for the authoritative text.

Case ID
ICSID Case No. ARB/19/19
Country
Treaty
Peru - Singapore FTA (2008)
Documents
Section