ICSID tribunal rejects Spanish power company claims – no legitimate expectations of market framework improvement

Orazul International España Holdings S.L. v Argentine Republic, ICSID Case No. ARB/19/25, Award, 14 December 2023

The ICSID tribunal issued its award in the Orazul case. The tribunal rejected all jurisdictional objections and, with the dissent of Haigh, dismissed all claims on the merits. The tribunal showed willingness to accord the state a broad margin of appreciation in enacting emergency market measures.

The dispute

Orazul, the claimant, is a Spanish-incorporated subsidiary of Duke Energy International, a daughter of the major U.S. energy corporation Duke Energy. Orazul indirectly holds a majority interest in the Argentinian company Cerros Colorados, which is the concessionary of the Planicie Banderita hydroelectric power plant.

The dispute concerns energy market measures taken by Argentina since 2003. The claimant alleged that these measures radically reduced power generation revenues, rendered the pricing regime discriminatory, and prevented revenue collection by the generators. The claimant also stated that these measures should have been temporary, whereas they have not yet been reversed.

The respondent contended that the claim is untimely and contrary to general principles of law, the pre-arbitration requirements have not been fulfilled, the claim is an abuse of right because the investment was acquired by the claimant after 2003, and the tribunal lacks subject matter jurisdiction since the claimant had consented to the measures. On the merits, the respondent argued that the claimant had failed to show a breach of international law.

Delay in bringing the claim and the defence of extinctive prescription

The respondent asserted the claims’ inadmissibility because of tardiness since the claims are based on measures adopted between 2003 and 2013, and proceedings were initiated in 2019. Absent a specific BIT delay provision, the respondent refers to BIT Article X(5), which provides for the application of general principles of law. The respondent grounds its position in the principles of extinctive prescription, repose, estoppel, acquiescence, and good faith and refers to ICJ Nauru v Australia, where it was found that, even absent a specific treaty provision, delay on the part of a claimant may lead to inadmissibility.

The claimant argued that the breach is ongoing—it did not end years ago but was, in fact, worsened as recently as May 2021. The claimant attributed the delay in filing to respondent’s frequent moving of the goalpost by repeated assurances that measures would be removed.

The tribunal found that claims did not become time-barred absent a fixed time limit or prescription period, confirming the line of jurisprudence of SGS v Paraguay and (DS)2 v Madagascar. It then turned to the specific remedies invoked by Argentina.

Firstly, the tribunal discussed the applicability of acquiescence, relying on Christian Tams’ expert opinion. It deduced three elements: the claimant must have failed to make the claim, the failure must have extended for a certain time, and the circumstances must have required the claimant to raise its objections. Applying this standard and equating it with that advanced by the respondent, it found that the claimant had not acquiesced.

Secondly, the tribunal found that for extinctive prescription, prejudice is the decisive factor. Since the respondent has not shown any disadvantage caused by the passing of time, the tribunal rejected the defence.

Thirdly, recalling Mamidoil v Albania, the tribunal established that estoppel requires that “a party demonstrates by its conduct that it will not exercise a right and a counter-party legitimately relies on this conduct” (para 349). The tribunal found that the claimant had not demonstrated it would not resort to ICSID arbitration and thus rejected the defence.

Along the same line, the tribunal rejected the arguments based on good faith and equitable repose. The claimant’s repeated protest against the measures precluded a finding of abandonment of the claim or lack of diligence. The claim was not time-barred.

Local litigation requirement

The BIT’s Article X contains a local litigation requirement, which the claimant wished to eliminate by recurring to the BIT’s MFN clause to import a provision from the Australia–Argentina or U.S.–Argentina BIT and by arguing futility.

The respondent relied on ICS v Argentina, where it was held that effet utile mandates rejecting the use of the MFN clause to import dispute settlement provisions. Additionally, referring to Maffezini, it argued that MFN clauses concern only substantive provisions. Lastly, the respondent argued that the fork-in-the-road provision of the Australia–Argentina BIT was not more favourable.

The tribunal found that the MFN clause applies to procedural aspects as well. It considered that other sections of the BIT include explicit carveouts, whereas the MFN clause lacks one. It stated that the third-state treaty provisions are more favourable than those of the basic treaty since they allow direct access to ICSID arbitration.

The tribunal considered that the requirements of the dispute resolution clauses of both the U.S.–Argentina and Australia–Argentina BIT have been fulfilled. The imported fork-in-the-road provision is irrelevant, since the claimant has not commenced other proceedings. The local litigation requirement was thus removed by applying the MFN clause.

Other jurisdictional objections

The tribunal did not uphold the ratione personae, ratione materiae, and ratione temporis objections, deciding that the claimant is a Spanish company that holds an investment under the BIT which was acquired before the measures in dispute were adopted.


With the other objections to jurisdiction also failing, the tribunal analyzed the merits of the case. Firstly, it analyzed the claimant’s position that the measures constitute a breach of FET.

Interpreting the provision with reference to the VCLT, the tribunal decided that the FET standard should be interpreted autonomously absent an explicit reference to the customary minimum standard of treatment in the BIT.

Legitimate expectations

The arbitrators agreed with the tribunal in Duke Energy v Ecuador and applied its three-pronged test to determine whether the respondent breached the claimant’s legitimate expectations; i.e., whether the respondent created legitimate expectations, whether the claimant relied on them, and whether they were breached. The tribunal found the claimant’s expectation that the energy market would be restored in 2006 to be baseless since the claimant’s witnesses and Duke Energy documents show that the company had anticipated a less favourable outcome.

Furthermore, even if there were a legitimate expectation that the Electricity Law would be applied, the claim would still be unfounded since the law did not guarantee stability—the law’s goal of creating a favourable investment regime leaves the state substantial discretionary powers.

The arbitrator appointed by the claimant, David R. Haigh KC, disagreed with the majority’s view on legitimate expectations. He opined that the question should not be whether the claimant had a legitimate expectation that the regulatory regime would change, but rather whether it had a legitimate expectation that it would honour its promise to terminate the measures. Haigh stated he would answer that question in the positive, emphasizing Argentina had set clear end dates. Furthermore, he argued that since resolutions (in which the measures were adopted) were subordinate to the law, the claimant could rely on the Electricity Law. He contended that if a restoration of the status quo ante was not the aim of the state, it should not have continuously referred to the temporary character of the measure and that if the variation intended was temporary, the Electricity Law should have been amended through the regular legislative process.

Transparency and due process

The tribunal shared the view of the Frontier Petroleum v Czech Republic tribunal in holding that the FET standard encompasses a transparency obligation. The state must make available the rules applicable to the investor and act with candour.

Here, the tribunal found that the respondent had made available the requirements applicable to claimant’s investment, based on the fact that the government communicated changes in the regulatory framework as often as 25 times in one year.

As to the due process, the tribunal applied the Waste Management II standard: “a failure to accord due process must lead to an outcome which offends judicial propriety” to result in an FET breach. Respondent’s failure to reply to some of Cerros Colorado’s petitions did not amount to such a breach. Equally, the fact that the claimant was not consulted before the enactment of the measures does not meet the threshold for such a breach.


The tribunal noted that the parties agreed on the ICJ ELSI standard of arbitrariness, and that “a measure may be considered arbitrary if it has not been taken through a rational decision-making process” (paras 750, 828). It is irrelevant whether the measure was effective or whether there were better alternatives. Finding that the objective of the measures is to “normalize” the electricity market, the tribunal concludes that the measures were not arbitrary. “Normalization” does not mean a return to historical circumstances but rather adapting the electricity framework to the current circumstances. Thus, all the measures bore a reasonable relationship with the goal of normalization and were not arbitrary.


The claimant argued that the respondent’s conduct is discriminatory, referring to Saluka. Under this standard, conduct is discriminatory if similar cases are treated differently without reasonable justification. The tribunal, citing Metalpar, emphasized that “treating different categories of subjects differently is not unequal treatment” (para 773). It simply states that private (and foreign) and (national) state-owned power generators are different categories of subjects, and that the measures applied equally to all firms within one category. It thus concluded that the measures were not discriminatory.

Abuse of authority

The claimant argued that Argentina abused its authority by withholding payment of its receivables. The claimant also submitted that its participation in the reinvestment schemes (FONINVEMEM) was involuntary.

The tribunal concluded that although Cerros Colorados was reluctant to accept the reinvestment schemes, it took a calculated risk and eventually adhered to the contracts without reservation. Strikingly, it found that “even if the claimant had no economically viable alternative to agreeing to the FONINVEMEM Agreements, this does not suffice to meet the threshold for harassment, coercion, abuse of power or other bad faith conduct because this economically difficult situation already existed at the time of the claimant’s investment” (para 810). The tribunal noted that the present situation was different from that in Total v Argentina, because the investment took place after the economic conditions for power generation in Argentina had already deteriorated.

In his dissent, Haigh KC stated that the conclusion of Total v Argentina should have applied here as well, stressing that the Argentine economy had, in fact, recovered prior to investment.

Referring to its reasoning in the application of FET, the tribunal also rejected the claim of violation of the non-impairment provision and full protection and security standard of the BIT.


The tribunal referenced Mobil v Argentina and stated that legitimate expectations are not an investment and cannot be expropriated. With regard to the standard for indirect expropriation, it followed the jurisprudence of Burlington v Ecuador in finding that the determinant factor is the capacity to earn a commercial return. It also recalled that there is ample case law stating that a non-discriminatory tolerable and proportionate public purpose limitation of the use of property may not lead to indirect expropriation, citing Saluka and Continental Casualty v Argentina.

Turning to the facts, the tribunal finds that there has been no direct expropriation since there was no direct transfer of title or seizure. With regard to indirect expropriation, the tribunal finds that the investments continued to generate positive earnings before interest, taxes, depreciation, and amortization (EBITDA), relying on the respondent’s expert witness. Disagreeing with the claimant’s expert submission, it finds that the internal rate of return, a measure of profitability that compares cash flow with stock capital invested, lacks relevance. In the words of the tribunal: “In a situation in which an investment continues to operate and generates significant positive annual profitability at the net income or EBITDA level, no situation equivalent to the forcible transfer of title or an overt seizure is given” (para 953). Based on this, it finds that there has been no indirect expropriation.

MFN and umbrella clause importation

Lastly, the tribunal discussed whether the MFN clause allows for the importation of an umbrella clause. Following the line of Teinver, it found that under the Argentina–Spain BIT, an umbrella clause falls outside of the scope of the “matters governed by the agreement” to which the MFN clause applies. The MFN clause cannot be imported. 


The Orazul case has shown that claimants should be hesitant in relying on assurances that the economic and regulatory environment will improve, particularly when the host state is in a prolonged situation of economic distress. The tribunal’s EBITDA benchmark for indirect expropriation, requiring that the venture be loss-making, is clear and broadly applicable. 

Investors and states should also take note of the legal consequences of Orazul’s acceptance of the FONINVEMEM reinvestment scheme. Even when there is no other alternative, state-led reinvestment in lieu of monetary payment does not constitute an abuse of authority if it is accepted by the investor. Lastly, the tribunal’s non-discrimination standard is very favourable to states—the simple distinction between state-owned and privately owned power companies is sufficient to warrant differential treatment.


The tribunal was composed of Inka Hanefeld (German national, president), David Haigh KC (Canadian national, claimant’s appointee) and Alain Pellet (French national, respondent’s appointee).



Domenico Ricciuto is an LLM candidate in international trade and investment law at the University of Amsterdam.