The former German public bank WestLB is the latest entity to file a lawsuit against the Kingdom of Spain before the ICSID (International Centre for the Settlement of Investment Disputes) in relation to the reduction in remuneration for renewable energies imposed by the Government of the Popular Party (PP). This arbitration is added to a series of similar conflicts that, in total, have already exceeded thirty international claims, due to the uncertainty generated by the changes in Spain's energy policies.
With this case, there are now more than 30 arbitrations against our country in different international organizations. Of these, one has been submitted to Uncitral (United Nations Commission on International Trade Law), three to the Arbitration Institute of the Stockholm Chamber of Commerce, and 28 to ICSID itself, under the auspices of the World Bank. These cases reflect a growing legal tension between international investors and the Spanish State, following the drastic reforms in the electricity sector carried out mainly in 2012 and 2013.
Since the first lawsuit against the energy sector reforms launched by the Rodríguez Zapatero government – six years ago – until today, Spain has managed to resolve only three arbitrations. Of these, two were resolved in Stockholm, with a favourable outcome for the State. However, the most recent ICSID award was favourable to the investors of the British fund Eiser, a significant blow to the Spanish public coffers, which were ordered to pay 128 million euros in compensation.
This particular case sets a key precedent in international arbitration jurisprudence, as, according to the ICSID tribunal, the cuts made by Spain seriously harmed the profitability of Eiser's investments in several solar thermal plants located in the south of the country.
A sector in crisis: cuts without any compensation
Miguel Ángel Martínez-Aroca, president of Anpier (National Association of Photovoltaic Energy Producers), has repeatedly stressed that there is a significant difference between the Stockholm awards and the ICSID award. While the Stockholm cases concerned reforms approved by the Zapatero government, the ICSID arbitration focused on the Popular Party's energy reform.
This distinction is important because, according to Martínez-Aroca, the Zapatero government compensated investors with five additional years of remuneration, which generated compensation even greater than the cuts applied. However, Mariano Rajoy's administration did not offer any compensation, despite the drastic reductions in the premiums granted to investments in renewables, which generated an avalanche of complaints from these investors.
This discontent reflects a larger problem: Spain has become one of the three countries in the world with the most claims from international investors, mostly related to cuts in renewable energy. According to estimates, the economic weight of these claims could amount to more than 7.000 billion euros if the investors are ultimately successful in the remaining pending arbitrations.
For his part, Álvaro Nadal, the then Minister of Energy, Tourism and Digital Agenda, has downplayed the importance of these claims, stating that the compensations will always be less than the savings generated by the controversial reform of the electrical system, which has been the source of this entire conflict.
Following the ICSID ruling in favour of Eiser, the government approved a law allowing the surplus of the electricity system, which had accumulated 1.130 billion euros since 2014, to be used to pay fines resulting from arbitrations, including future ones. This decision has generated new unrest within the renewable sector, which sees how this surplus, which was supposed to be used to improve the sustainability of the system, is now used to pay compensation to foreign investors.
Spanish investors unprotected
One of the most striking paradoxes of this situation is the lack of protection faced by national investors. While international investors have been able to resort to arbitration courts, Spanish investors have been limited to resorting to the Constitutional Court and the Supreme Court, both of which are in favour of the government with regard to the cuts. This has created a feeling of double standards, as foreign investors, through access to courts such as ICSID, have obtained compensation that Spanish investors cannot obtain.
In this context, a group of Spanish investors brought their case to the Ombudsman, who recommended that the Government take measures to ensure that national investors are not treated worse than foreign ones under the Energy Charter Treaty, which has been the regulatory framework used by international investors to make their claims.
The Ombudsman not only called for equal treatment, but also urged the Government to establish mechanisms to compensate for the "unique" sacrifice that the change in remuneration has caused to national investors. However, so far, no measures have been implemented to alleviate this situation.
International arbitration: long and costly processes
International arbitrations regarding renewable energy cuts are not only complex processes, but also extremely slow. For cases involving Spain, ICSID has assigned tribunals for 27 of the 28 arbitrations filed, each composed of a president and two arbitrators chosen by both parties. These processes are not only lengthy in time, but also costly for the defendant country. For example, the arbitration that ruled against Spain in favour of Eiser cost close to 900.000 euros.
These costs are not limited to the compensation that Spain will have to pay if it loses the cases, but also include the fees of the arbitrators and related personnel, which increases the total cost of each arbitration process. With more than 20 arbitrations still to be resolved, the financial impact of these disputes can be devastating if the majority turns out to be unfavourable to the State.
In short, Spain is facing a critical situation in the field of international arbitration. With more than €7.000 billion at stake and with more and more awards against it, the State will have to reconsider its approach to renewable energy and compensation. International pressure and the lack of adequate mechanisms to protect national investors create a handicap that could have a significant economic impact in the medium and long term.