Azurix Corp. v The Argentine Republic

Year of the award: 2006
Forum: ICSID
Applicable investment treaty: Argentina - United States BIT (1991)

Arbitrators:
Dr Andrés Rigo Sureda, President
The Hon. Marc Lalonde
Dr Daniel H. Martins

Executive summary

During the 1999 water privatization in Argentina, Azurix, a US corporation, won - through its Argentinean subsidiary (ABA) - the tender for a 30-year concession for the distribution of potable water and the treatment of sewerage in the Province of Buenos Aires. ABA paid a "Canon" of $438.5 million for the Concession.

In the course of 1999-2001, the provincial authorities allowed political interests to interfere with the tariff regime applied by ABA to charge customers for the water services, precluding ABA from increasing its revenues. The Province also failed to fulfill obligations under the Concession agreement regarding completion of infrastructure repair works, which resulted in an algae outbreak. Following the incident, the government blamed the foreign investor and encouraged consumers to refuse to pay their water bills. At the end of2001, Azurix gave notice and subsequently terminated the Concession, but the Province rejected the termination. However, after ABA filed for bankruptcy procedures in February 2002, the Province terminated the Concession alleging ABA's failure to provide the service under the concession.

Azurix initiated ICSID arbitral proceedings under the 1991 Argentina-US BIT and claimed that Argentina's actions constituted multiple violations of the said BIT, including expropriation, fair and equitable treatment, non-discrimination and full protection and security. Azurix requested approx. US$ 665 million in damages plus interest.

The Tribunal found that the actions of the Province were arbitrary and constituted violations of the fair and equitable treatment and full protection and security obligations. The claim of expropriation and remaining claims were rejected. The Tribunal awarded what it considered to be the "fair market value" of the investment, i.e. of the Concession (despite its rejection of the expropriation claim). This value was established by the Tribunal on the basis of the "actual investment" approach. However, the Tribunal adjusted the amount of the Canon paid in 1999 by the investor significantly downwards (it awarded $60 million as opposed to $438.5 million paid by Azurix) on the grounds that Azurix had overpaid for the Concession and would not have been be able to recoup its investment; therefore the loss was partly due to Azurix's own ill-informed business decision.

The Tribunal also awarded compensation for additional investments ($105 million) plus interest at the average rate applicable to US six-month certificates of deposit, compounded semi-annually. The Tribunal rejected the "unjust enrichment" approach as a basis of determining the amount of compensation.