Bolivia found liable for violating the FET standard and the prohibition to adopt arbitrary measures when implementing nationalization on the pension system

Banco Bilbao Vizcaya Argentaria S.A. v. Bolivia, ICSID Case No. ARB(AF)/18/5


The case concerns a dispute brought against Bolivia by Banco Bilbao Vizcaya Argentaria S.A. (“BBVA” or “claimant”), a Spanish investor, due to issues that occurred in the context of the nationalization of the pension system undergone by the claimant’s subsidiary Previsión BBVA–AFP S.A (“BBVA Previsión”).

In 1996, Bolivia remodeled its pension system under which pension funds would be managed by private companies, the AFPs (Administradoras de Fondos de Pensiones). In 1997, BBVA was awarded the bid to act as an AFP and BBVA Previsión was established for that purpose.

However, through a constitutional reform in February 2009, Bolivia nationalized the pension management services. In 2010, Bolivia and BBVA started negotiating the terms of the service transition process. During these negotiations, differences arose regarding the responsibility of AFPs vis-à-vis the debt stock. While BBVA argued that Bolivia conditioned its departure from the country via the debt stock payment, the respondent affirmed that it only demanded the regularization of processes of recovery of contribution in arrears in which BBVA acted negligently.

In the context of the transition process, the information transfer process (2017–2019) was also contentious. BBVA argued that it has been chaotic and disorderly due to the acts of the Bolivian government. The respondent stated that it performed the process in accordance with best practices and that any complication was due to the complex nature of this process, and the claimant intentionally and continuously hindered it.

BBVA further argued that the “exodus of personnel” caused by the government seriously compromised its ability to continue operating. Finally, the claimant raised complaints concerning Bolivia’s increased supervision of BBVA through inspection processes and sanctions. This series of events led BBVA to submit the present arbitration.

The dispute

BBVA claimed that (i) due to Bolivia’s actions, there were irregularities in the transition process; (ii) there was legal uncertainty surrounding the transfer of the service; and (iii) it was a victim of a harassment campaign by Bolivia. Accordingly, BBVA contended that Bolivia breached the FET standard and the prohibition of adopting arbitrary measures.

Bolivia, on the other hand, first objected to the tribunal’s jurisdiction. The respondent argued that the Contract for the Provision of Services (“Services Contract”), signed by the parties in the context of the pensions system activities, had a forum-selection clause. This clause would allegedly forbid the parties from submitting to arbitration issues connected to peremptory norms and powers of supervision, regulation, and control of the local authority in matters of pensions.

The tribunal rejected Bolivia’s objection on jurisdiction and, on the merits, found that Bolivia had breached the FET standard and the prohibition to adopt arbitrary measures. BBVA was awarded USD 94.8 million in damages.

The arbitration was conducted under the Agreement for the Reciprocal Promotion and Protection of Investments between the Kingdom of Spain and the Republic of Bolivia (“Bolivia–Spain BIT” or “BIT”), which entered into force on July 9, 2002, and the ICSID Additional Facility Rules and Regulations (“ICSID Facility Rules”).

Tribunal’s analysis


The tribunal rejected Bolivia’s objection to its jurisdiction. Bolivia argued that, in Article 30 of the Services Contract, there was a contractual waiver to arbitrate issues under discussion in this arbitration. However, the tribunal found that (i) the requirements for an express waiver to arbitrate under the BIT were not fulfilled and (ii) the claim was based fundamentally on the BIT and not on the Services Contract.

According to the tribunal, the choice-of-forum clauses in contracts between host states and investors must be formulated in clear and specific terms. Only then do they represent a valid waiver to the jurisdiction granted under the BIT.

Clause 30 of the Services Contract accordingly did not expressly refer to the BIT or to the rights conferred to the investor in the BIT. The tribunal also considered that it was not possible to infer an implicit reference to the BIT because the Services Contract was signed 6 years before the BIT entered into force. Additionally, a comprehensive interpretation of Clause 30 led the tribunal to the conclusion that the provision constituted a waiver of domestic arbitration only.

Furthermore, since it was undisputed that BBVA’s claims arose from the BIT and not the Services Contract, the tribunal considered the contractual forum-selection clause irrelevant to determine their jurisdiction.

Interpretation of the FET standard

When interpreting Article 3(1)(2) of the BIT, the tribunal noted that the FET standard did not refer to customary international law. Therefore, the tribunal agreed with the claimant that the FET was an autonomous standard, different from the minimum standard of treatment.

The FET standard was considered to impose on Bolivia the duty to behave “in a reasonable, consistent and unambiguous manner,” “guaranteed by a certain and predictable legal framework for the investor,” “without arbitrariness” or “harassment.”

As for the prohibition of arbitrary or discriminatory measures, the tribunal’s analysis was limited to the arbitrariness of the conduct, and they adopted the ICJ’s definition of arbitrary: “a willful disregard of due process of law, an act which shocks, or at least surprises, a sense of juridical propriety.”[1]

Application of the FET standard

The tribunal analyzed the three actions of Bolivia that BBVA considered to be a violation of FET standards, namely: (a) the postponements in the implementation of the nationalization of the pension management service; (b) the “chaotic” execution of the process of transferring the service to the manager; and (c) the creation of economic contingencies to neutralize the payment of compensation due to the investor because of the nationalization.

– The postponements

The requirement for BBVA to continue providing the service under a transition regime was considered reasonable by the tribunal, as long as it had been done within a clear, predictable, and transparent legal framework. However, the tribunal held that these criteria were not met because it would not be reasonable or proportional to submit the investor to a transition period as lengthy as the investment period itself. The main element of any transitional regime—transitoriness—was absent. According to the tribunal, the adverse effects suffered by the investor were evident. They even agreed that the claimant had been made “hostage” by Bolivia. The tribunal concluded that, by failing to implement the nationalization process in a timely manner, Bolivia failed to meet the FET standard.

– The process of transferring the service

BBVA contended that the transfer process was arbitrary, inconsistent, and not very transparent. The tribunal held that Bolivia violated the FET standard only within the information-migration process. They understood that, by issuing contradictory resolutions in 2019, Bolivia did not provide a stable legal framework within that process. Bolivia thus subjected the investor to the “rollercoaster effect” referred to by the tribunal in PSEG v Turkey.[2] As for the increase in inspections, the tribunal held that it was not for them to determine the degree of appropriate supervision and inspection of the host state, nor whether these powers were exercised respecting due process. In their reasoning, it was taken into account that Bolivia’s supervisory power had existed since the inception of the investment and that BBVA never questioned the legality of the decrees which established the increase in inspections before the Bolivian Jurisdiction. The tribunal held that BBVA did not demonstrate the adverse effects in the AFP activities caused by the appointment of a representative on the Investment Committee and the hiring of key personnel by Bolivia. The latter was even considered to be a natural consequence of the nationalization process.

– The economic contingencies

Regarding the debt stock, the tribunal agreed with BBVA that conditioning the investor’s exit by taking charge of it was arbitrary, thus violating the prohibition of arbitrary measures. Concerning the sanctions imposed due to the strip bonds, the tribunal understood that there were clear incentives justifying the decision of BBVA Previsión to pay a higher price for them. Nevertheless, the tribunal held that the claim was premature because the sanction was not yet final.

Tribunal’s discussion on compensation and valuation

The tribunal established the reparation due to BBVA by (a) establishing the modality of reparation that was due; (b) determining the valuation date; (c) determining the valuation method; (d) analyzing the experts’ controverted points; (e) valuating BBVA’s investment; (f) addressing the issue of interest payments.

Modality of reparation

The tribunal found that compensation was the most appropriate and effective modality of reparation. The compensation standard adopted by the tribunal was the fair market value, which was understood to exclude prices that do not reflect the willing seller principle, as well as forced sales, as per the Iran–US Claims tribunal’s decision in the Vease Starrett Housing v Iran case.[3]

Valuation date

The tribunal adopted the claimant’s proposed valuation date, September 30, 2020. The fair market value of BBVA’s participation in BBVA Previsión was calculated taking as the counterfactual scenario the issuance of the nationalization law with its regulatory changes but assuming that the state would effectively take charge of the service. For the tribunal, it was indisputable that the value of BBVA Previsión had increased significantly since the Nationalisation Law was issued. Therefore, the tribunal agreed with taking a date close to the award as the valuation date.

Valuation method

The tribunal adopted the discounted cash flow as the valuation method to calculate the fair market value.

Controverted points by experts

Bolivia had three classes of objections to the claimant’s experts’ analyses: (i) the assumption that there would be no competition in the pension management market; (ii) assumptions of the discounted cash flow model; and (iii) the valuation that did not consider the impact of contingent liabilities faced by BBVA Previsión.

First objection: The tribunal considered that Bolivia’s analysis was speculative and without a modelled impact and consequently adopted BBVA’s model, which projected a future operation with a single competitor.

Second objection: The tribunal adopted Bolivia’s projection of contributors, which was based on population growth. They also agreed with the respondent regarding the discount rate. On the other hand, the tribunal adopted BBVA’s exchange rate forecast, their proposed projection period, as well as their proposed growth rate of BBVA Previsión’s terminal value.

Third objection: The tribunal decided that BBVA’s compensation shall not be impacted by these contingencies, since the demand for the debt stock was a breach of the BIT and the remaining sanction was a contingent liability.

Valuation of the investment

Applying the free cash flow to equity method, the tribunal concluded that BBVA Previsión’s fair market value was USD 118.6 million, which means that the compensation owed to the claimant (80% of the shares) corresponded to USD 94.8 million. The tribunal further decided that a compound rate shall be added to the compensation to guarantee full reparation. Consequently, Bolivia was ordered to pay interest to BBVA as of October 1, 2020, at a rate of 6.36%, which would be capitalized annually until the date of effective payment. Finally, compensation shall be free of all Bolivian tax.


The BBVA case showcases that tribunals’ interpretations of the FET standard may lead to searching review of the exercise of regulatory powers in complex areas of regulation such as financial services. In addition, it represents another case in which the use of the discounted cash flow method led to the awarding of a significant amount of damages.

Note: The tribunal included Stanimir A. Alexandrov, a national of Bulgaria, as the president, Valeria Galíndez, a national of Argentina and Brazil, as the investor’s appointee, and Yves Derains, a national of France, as Bolivia’s appointee.


Marina Montero Frasson holds an LLM in international trade and investment law from the University of Amsterdam and works as a sustainability legislation specialist at a transnational corporation.


[1] Elettronica Sicula S.P.A. (ELSI), Judgment, I.C.J. Reports 1989, p. 15, §128.

[2] PSEG Global Inc. and Konya Ilgin Elektrik Üretim ve Ticaret Limited Sirketi v. Republic of Turkey, ICSID Case No. ARB/02/5.

[3] Starrett Housing Corporation, Starrett Systems, Inc. and others v. The Government of the Islamic Republic of Iran, Bank Markazi Iran and others, IUSCT Case No. 24, §§18, 277.