Investor-State Arbitration - ICSID Suggests Caution in Resting Treaty Claims on Disputes over Which Tribunals can Decline Jurisdiction - Duke Energy Electroquil Partners & Electroquil S.A. V. Republic of Ecuador. (International Centre for Settlement of Investment Disputes‪)‬

The International Centre for Settlement of Investment Disputes (ICSID) provides a forum for foreign investors and states to arbitrate disputes regarding foreign investments. (1) In Duke Energy Electroquil Partners & Electroquil S.A. v. Republic of Ecuador, (2) a U.S. energy company and the Ecuadorian energy provider in which it invested submitted claims for breaches of contracts and treaty claims against the Republic of Ecuador (Ecuador) to ICSID. (3) The ICSID Tribunal considered whether Duke Energy Electroquil Partners (Duke Energy) and Electroquil S.A. (Electroquil) were entitled to compensation, and if so, how to value these damages. (4) The Tribunal held that the appropriate method of valuing damages was based on commercial losses incurred by Electroquil and required Ecuador to pay damages to Electroquil based on breaches of its contractual obligations. (5) In 1992, as a result of a lack of rainfall, Ecuador experienced a national power shortage. (6) In response to this energy crisis, investors created Electroquil, the first private power generator in Ecuador. (7) In 1995, Ecuador and Electroquil entered into a power purchase agreement (PPA 95) for the "importation, assembly, installation and putting into service by Electroquil" of two turbine gas generators to alleviate the power supply problems. (8) To facilitate Ecuador's payments to Electroquil for the fixed energy costs, PPA 95 required that Ecuador establish and execute payments through payment trusts at the Central Bank of Ecuador. (9) By the time Electroquil had begun commercial operation of its plants, Ecuador had not established any of the payment trusts and payments were irregular and partial (late payments). (10)