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INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT DISPUTES

In the arbitration proceeding between

GLENCORE INTERNATIONAL A.G. AND
C.I. PRODECO S.A.

(Claimants)

and

REPUBLIC OF COLOMBIA

(Respondent)

ICSID Case No. ARB/16/6

AWARD

Members of the Tribunal
Juan Fernández-Armesto, President of the Tribunal
Oscar M. Garibaldi, Arbitrator
J. Christopher Thomas QC, Arbitrator

Secretary of the Tribunal
Alicia Martín Blanco

Assistant to the Tribunal
Krystle M. Baptista

Date of dispatch to the Parties: 27 August 2019

[Page 1]

REPRESENTATION OF THE PARTIES

[Page 2]

1. This case concerns a dispute submitted to the International Centre for Settlement of Investment Disputes [“ICSID” or the “Centre”] on the basis of (i) the Agreement between the Swiss Confederation and the Republic of Colombia on the Promotion and Reciprocal Protection of Investments, signed on 17 May 2006, which entered into force on 6 October 2009 [the “Treaty”or the “BIT”], and (ii) the Convention on the Settlement of Investment Disputes between States and Nationals of Other States, dated 14 October 1966 [the “ICSID Convention”], which entered into force for Switzerland and for Colombia on 6 October 2009.

(1) THE PARTIES

A. Claimants – Glencore International A.G. and C.I. Prodeco S.A.

2. The Claimants are (i) Glencore International A.G. [“Glencore”], a company constituted under the laws of and having its seat in the Swiss Confederation, and (ii) C.I. Prodeco S.A. [“Prodeco"], a wholly-owned subsidiary of Glencore, incorporated under the laws of the Republic of Colombia. Glencore and Prodeco are jointly referred to as “Claimants”. Glencore is one of the largest global diversified natural resource companies, engaged in the trade and mining of commodities.¹

3. Claimants are represented in this arbitration by:

Mr. Nigel Blackaby
Ms. Caroline Richard
Mr. Alex Wilbraham
Mr. Gustavo Topalian
Ms. Ankita Ritwik
Ms. Jessica Moscoso
Ms. Amy Cattle
Mr. Diego Rueda
FRESHFIELDS BRUCKHAUS DERINGER US LLP
700 13th Street, NW
10th Floor
Washington, D.C. 20005-3960
United States of America
Tel.: +1 202 777 4500
Fax: +1 202 777 4555
E-mail: [email protected]
[email protected]
[email protected]
[email protected]
[email protected]

¹ C I, para. 22. ↩

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[email protected]
[email protected]
[email protected]

Mr. Jose Manuel Alvarez Zárate
ALVAREZ ZÁRATE & ASOCIADOS
Calle 82 No. 11-37, Oficina 501
Bogotá D.C.
Colombia
Tel.: +57 1 691 5110
Fax: +57 1 1617 0299
E-mail: [email protected]

B. Respondent – The Republic of Colombia

4. The Respondent is the Republic of Colombia [“Colombia”, the “Republic" or "Respondent"].

5. Respondent is represented in this arbitration by:

Mr. Nicolás Palau Van Hissenhoven
DIRECCIÓN DE INVERSIÓN EXTRANJERA, SERVICIOS,
MINISTERIO DE COMERCIO, INDUSTRIA Y TURISMO
Calle 28 No.13A-15, piso 5
Bogota D.C.
Colombia
Tel.: +57 1 606 7676
Fax: +57 1 606 7676 / ext. 1323
E-mail: [email protected]

Ms. Ana María Ordóñez Puentes
Mr. César Augusto Méndez Becerra
AGENCIA NACIONAL DE DEFENSA
JURÍDICA DEL ESTADO
Carrera 7 No. 75-66, pisos 2 y 3
Bogota D.C.
Colombia
Tel.: +57 1 255 8955 / ext. 777
Fax: +57 1 255 8933
E-mail: [email protected]
[email protected]

Prof. Eduardo Silva Romero
Mr. José Manuel García Represa
DECHERT (PARIS) LLP
32 rue de Monceau
Paris, 75008
France

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Tel.: +33 1 5757 8014
Fax: +33 1 5757 8081
E-mail: [email protected]
[email protected]

Mr. Álvaro Galindo Cardona
Mr. Juan Felipe Merizalde
DECHERT LLP
1900 K Street, NW
Washington, D.C. 20006-1110
United States of America
Tel.: +1 202 261 3396
Fax: +1 202 261 3333
E-mail: [email protected]
[email protected]

Prof. Pierre Mayer
20 rue des Pyramides
Paris, 75001
France
Tel.: +33 1 8509 0158
Fax: +33 1 0871 5178
E-mail: [email protected]

6. The Claimants and the Respondent shall be jointly referred to as the “Parties”.

(2) THE TREATY

7. Art. 11 of the Treaty regulates the settlement of disputes between a Party and an investor of the other Party to the Treaty:²

"(1) If an investor of a Party considers that a measure applied by the other Party is inconsistent with an obligation of this Agreement, thus causing loss or damage to him or his investment, he may request consultations with a view to resolving the matter amicably.

(2) Any such matter which has not been settled within a period of six months from the date of the written request for consultations may be referred to the courts or administrative tribunals of the Party concerned or to international arbitration. In the latter event the investor has the choice between either of the following:

(a) the International Centre for Settlement of Investment Disputes (ICSID) provided for by the Convention on the Settlement of Investment Disputes between States and Nationals of other States, opened for signature at Washington on March 18, 1965; and

² Doc. C-6. ↩

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(b) an ad-hoc arbitral tribunal which, unless otherwise agreed upon by the parties to the dispute, shall be established under the arbitration rules of the United Nations Commission on International Trade Law (UNCITRAL).

(3) Each Party hereby gives its unconditional and irrevocable consent to the submission of an investment dispute to international arbitration in accordance with paragraph 2 above, except for disputes with regard to Article 10 paragraph 2 of this Agreement.

(4) Once the investor has referred the dispute to either a national tribunal or any of the international arbitration mechanisms provided for in paragraph 2 above, the choice of the procedure shall be final.

(5) An investor may not submit a dispute for resolution according to this Article if more than five years have elapsed from the date the investor first acquired or should have acquired knowledge of the events giving rise to the dispute.

(6) The Party which is party to the dispute shall at no time whatsoever during the process assert as a defence its immunity or the fact that the investor has received, by virtue of an insurance contract, a compensation covering the whole or part of the incurred damage.

(7) Neither Party shall pursue through diplomatic channels a dispute submitted to international arbitration unless the other Party does not abide by and comply with the arbitral award.

(8) The arbitral award shall be final and binding for the parties to the dispute and shall be executed without delay according to the law of the Party concerned."

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II. PROCEDURAL HISTORY

8. This proceeding has been riddled with procedural incidents. In order to present a proper account of the history of this arbitration the Tribunal will first present a chronology of the procedure (1.) and will then recount in detail the main procedural incidents (2.).

(1) CHRONOLOGY OF THE PROCEDURE

9. On 4 March 2016, ICSID received a request for arbitration of the same date from Glencore International A.G. and C.I. Prodeco S.A. against the Republic of Colombia, together with Exhibits C-1 through C-66 [“Request"].

10. On 16 March 2016, the Secretary-General of ICSID registered the Request in accordance with Art. 36(3) of the ICSID Convention and notified the Parties of the registration. In the Notice of Registration, the Secretary-General invited the Parties to proceed to constitute an arbitral tribunal as soon as possible in accordance with Rule 7(d) of ICSID's Rules of Procedure for the Institution of Conciliation and Arbitration Proceedings.

11. The Parties agreed to constitute the Tribunal in accordance with Art. 37(2)(a) of the ICSID Convention as follows: the Tribunal would consist of three arbitrators, one to be appointed by each Party and the third, presiding arbitrator to be appointed by agreement of the Parties.

12. On 4 May 2016, Claimants appointed Mr. Oscar M. Garibaldi, a national of the United States of America as well as a national of the Argentine Republic, as arbitrator in this case. Mr. Garibaldi accepted his appointment on 6 May 2016.

13. On 3 June 2016, Respondent appointed Mr. Christopher Thomas, a national of Canada, as arbitrator in this case. Mr. Thomas accepted his appointment on 7 June 2016.

14. On 29 July 2016, the Parties appointed Prof. Juan Fernández-Armesto, a national of the Kingdom of Spain, as President of the Tribunal. Prof. Fernández-Armesto accepted his appointment on 3 August 2016.

15. On 4 August 2016, the Secretary-General, in accordance with Rule 6(1) of the ICSID Rules of Procedure for Arbitration Proceedings [“Arbitration Rules"], notified the Parties that all three arbitrators had accepted their appointments and that the Tribunal was therefore deemed to have been constituted on that date. Ms. Alicia Martín Blanco, ICSID Legal Counsel, was designated to serve as Secretary of the Tribunal.

16. On 28 September 2016, in accordance with ICSID Arbitration Rule 13(1), the Tribunal held a first session and preliminary procedural consultation with the Parties by teleconference [“First Session"].

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17. On 4 November 2016, following the First Session, the Tribunal issued Procedural Order No. 1 recording the agreement of the Parties on procedural matters and the decisions of the Tribunal on disputed issues. Procedural Order No. 1 provides, inter alia, that the applicable Arbitration Rules would be those in effect from 10 April 2006, that the procedural languages would be English and Spanish, that the place of proceeding would be Washington, D.C., and that Mrs. Krystle M. Baptista would act as Assistant to the Tribunal. Procedural Order No. 1 also sets out three procedural calendars envisaging three different scenarios for the written phase.

18. On 16 December 2016, Claimants filed their Memorial on the Merits, together with:

• Witness Statements of:
  • Mr. Gary Nagle
  • Mr. Mark McManus
• Expert Report of Compass Lexecon
• Exhibits C-67 through C-184
• Legal Authorities CL-1 through CL-95

19. The submission was transmitted to Respondent and the Tribunal on 2 January 2017, in accordance with paragraph 15.2 of Procedural Order No. 1.

20. On 2 February 2017, Respondent filed its Request for Bifurcation, together with Exhibits R-1 through R-25, and Legal Authorities RL-1 through RL-34.

21. On 2 March 2017, Claimants filed their Response to Respondent's Request for Bifurcation, together with Exhibits C-185 through C-194, and Legal Authorities CL-96 through CL-127.

22. On 3 April 2017, the Tribunal issued its decision on Respondent's Request for Bifurcation. The Tribunal decided not to bifurcate the proceedings, and to address the jurisdictional objections raised by Respondent together with the merits, following the procedural calendar established as Scenario 3 in Procedural Order No. 1.

23. On 17 July 2017, Respondent filed its Objections to Jurisdiction and Admissibility and Counter-Memorial, together with:

• Witness Statements of:
  • Mr. Oscar Paredes
  • Ms. Soraya Vargas
• Expert Report of Messrs. Frank Graves and John Dean of the Brattle Group, together with Exhibits BR-1 through BR-124

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• Exhibits R-26 through R-203
• Legal Authorities RL-35 through RL-114

24. By letter of 26 July 2017, Claimants noted that 41 of the exhibits accompanying Respondent's Counter-Memorial were private and internal email chains exchanged internally between Claimants' management and their in-house and external counsel ["Disputed Documents”]. Claimants requested inter alia that the Tribunal order Colombia to provide information regarding the time and manner in which these documents had been obtained, as well as a full log of Prodeco's private communications, documents and data in possession of Colombia, its internal and external counsel, and its witnesses and experts, indicating the chain of custody as well as the dates of access. Claimants further requested an order “declaring inadmissible all documents irregularly obtained or produced by Colombia in breach of its duty of good faith and rules of privilege, and an order striking out any statements in Colombia's Counter-Memorial and/or witness statements and expert report that rely on such documents.”

25. On 3 August 2017, Respondent submitted its response, together with Exhibits R-204 through R-214, and Legal Authorities RL-115 through RL-120. Respondent(i) explained that the Disputed Documents had been legally obtained by the Superintendencia de Industria y Comercio [“SIC”] in the context of a preliminary investigation into unfair practices by Prodeco and its affiliates and (ii) requested that the Tribunal declare the Disputed Documents admissible.

26. By letter of 22 August 2017, Claimants' submitted their reply to Respondent's letter, together with Exhibits C-195 through C-228, and slightly amended their request for relief [“Claimants' First Application”]. On 11 September 2017, Respondent filed a rejoinder letter, reiterating its initial request.

27. On 20 September 2017, Claimants submitted a new letter [“Claimants' Second Application"] addressing the following issues:

• the filing on 11 September 2017 of a criminal complaint by the Agencia Nacional de Defensa Jurídica del Estado [“ANDJE”] with the office of the Fiscalía General de la Nación requesting inter alia de deposition of two of Claimants' employees;
• the apparent leaking of the Disputed Documents to the Colombian press; and
• Colombia's intention to seek orders from the Tribunal for the production of communications between Prodeco and its former external counsel as well as an order compelling the latter to appear as a witness at the hearing.

Pending the Tribunal's consideration of their first application, in Claimants' Second Application, they requested an urgent measure to protect the status quo.

28. On 2 October 2017, Respondent submitted its response to Claimants' Second Application, together with Exhibits R-214 through R-230, and Legal Authorities RL-121 through RL-143, requesting that the Tribunal reject it.

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29. On 26 September 2017, following exchanges between the Parties, the Centre transmitted the Parties' respective requests for production of documents. On 11 October 2017, the Tribunal postponed its decision on the disputed document production requests, pending the full review and deliberations on Claimants' applications.

30. On 4 November 2017, the Tribunal issued Procedural Order No. 2, deciding inter alia that the Disputed Documents should be excluded from the record of this arbitration, directing Respondent to re-submit its Objections to Jurisdiction and Admissibility and Counter-Memorial without attaching or referring to the Disputed Documents, giving the Parties an opportunity to file new requests for document production that would supersede and replace the original requests still pending before the Tribunal, and proposing a new procedural calendar. The new procedural calendar was agreed to by the Parties on 10 November 2017.

31. By letter of 14 November 2017, Respondent filed observations on Procedural Order No. 2, together with Exhibits R-231 through R-235, and Legal Authorities RL-145 through RL-147. The Tribunal invited Claimants to comment on Respondent's letter in their Reply Memorial.

32. On 16 November 2017, Respondent filed its Amended Counter-Memorial on the Merits and Memorial on Jurisdiction, together with:

• Amended Witness Statement of Mr. Oscar Paredes
• Amended Expert Report of Messrs. Frank Graves and John Dean of the Brattle Group, together with Amended Exhibit BR-118
• New Exhibits R-236 and R-237

33. In accordance with the revised procedural calendar, on 14 December 2017, the Parties submitted their respective requests for production of documents for decision by the Tribunal, including the corresponding responses and replies thereto.

34. On 4 January 2018, the Tribunal issued Procedural Order No. 3 concerning its decision on the Parties' request for production of documents in their respective Redfern Schedules. On 11 January 2018, following a request by Claimants and Respondent's comments, the Tribunal granted Claimants an extension of time to submit the documents subject to a production order under Procedural Order No. 3.

35. On 30 January 2018, Claimants filed their Reply on the Merits, together with:

• Second Witness Statements of:
  • Mr. Gary Nagle
  • Mr. Mark McManus

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• Second Expert Report of Compass Lexecon
• Exhibits C-229 through C-294, and resubmitted Exhibits C-50, C-56, and C-103
• Legal Authorities CL-127.1 through CL-149

36. On 23 February 2018, Respondent submitted a letter, together with Exhibits R-238 through R-240, asking the Tribunal inter alia:

• to order Claimants to produce unredacted copies of the documents that had been produced in redacted form,
• to produce the documents included in the privilege log submitted by Claimants with redactions only in the documents exchanged with external counsel in the relevant portions where legal advice had been sought or given,
• to complete their production of documents in accordance with Procedural Order No. 3 and to confirm as much.

37. On 2 March 2018, Claimants submitted their response to Respondent's letter, in which they requested that the Tribunal dismiss Respondent's request of 23 February 2018, and confirmed that they had produced and/or logged all the documents in their possession, custody or control responsive to the Tribunal's orders and that they would produce any other documents that might subsequently come into their possession, custody or control.

38. On 6 March 2018, the Tribunal replied to the Parties' communications of 23 February and 2 March 2018, stating that the challenge to the relevant documents had to be done on a document-by-document basis and that the Tribunal could not entertain Colombia's general request for relief. In order to solve this incident in the most efficient manner, the Tribunal suggested that the Parties confer and try to reach an agreement on any disputed document. If an agreement could not be reached, the Tribunal would resolve any requests on a document-by-document basis.

39. By letter of 9 March 2018, Respondent submitted comments on the Tribunal's decision and requested the Tribunal's instructions to gather and marshal into the record evidence collected from the SIC by the General Prosecutor in the context of a domestic criminal investigation into the illegalities surrounding the Eighth Amendment. By letter of 12 March 2018, Claimants submitted observations on the Respondent's letter, and asked the Tribunal to decline Respondent's proposed procedure to address its request.

40. On 17 March 2018, the Tribunal wrote to the Parties instructing Respondent on the steps to follow in order to gather the evidence collected by the General Prosecutor and marshal it into the record, and recommending that the Parties try to reach an agreement on the marshalling of all or a part of the documents before any application was presented to the Tribunal.

[Page 27]

41. On 26 March 2018, following communications from the Parties, the Tribunal notified them of its decision to grant a 4-day extension to Respondent to submit its Reply on Preliminary Objections and Rejoinder on the Merits, and stated that Claimants would also be granted a 4-day extension of their deadline to present their Rejoinder on Preliminary Objections.

42. By letter of 27 March 2018, Respondent informed the Tribunal of the Parties' inability to reach an agreement with regard to the production of the unredacted documents and privilege log documents and, according to the Tribunal's communications of 6 and 17 March 2018, requested that the Tribunal order Claimants to produce the documents included in its document-by-document request, sent to Claimants on 12 March 2018.

43. On 2 April 2018, Respondent submitted its Rejoinder on the Merits and Reply on Jurisdiction, together with:

• Second Witness Statements of:
  • Mr. Oscar Paredes
  • Ms. Soraya Vargas
• Second Expert Report of Messrs. Frank Graves of The Brattle Group, John Dean of JD Energy and Landy Stinnet of FGM Consulting Group, Inc., together with Exhibits BR-125 through BR-190
• Exhibits R-241 through R-348
• Legal Authorities RL-148 through RL-186

44. By letter of 3 April 2018, Claimants submitted their observations on Respondent's letter of 27 March 2018 asking the Tribunal to reject Respondent's request.

45. By letter of 20 April 2018, Claimants requested the Tribunal's intervention regarding a notice that Prodeco had received from the National Mining Agency [“ANM"] stating that a commission composed of Colombia's international external counsel in this arbitration, Colombia's economic experts, Colombia's internal counsel for this arbitration (ANDJE) and several ANM officers would visit the Calenturitas mine between 30 April and 2 May 2018. Claimants alleged that the visit had no bona fide regulatory purpose but was rather aimed at gathering additional information for this arbitration, and requested that the Tribunal order Colombia to refrain from imposing a unilateral site visit for the purposes of this arbitration and to refrain from visiting the mine site without the Tribunal's authorization.

46. On 24 April 2018, the Tribunal issued Procedural Order No. 4 concerning the production of the redacted documents and the privilege log documents initially requested by Respondent in its communication of 23 February 2018. The Tribunal determined inter alia that while Claimants had not strictly complied with the

[Page 28]

Tribunal's instructions in Procedural Order No. 2 concerning privilege-based objections, this departure from the established procedure had not caused Respondent irreparable harm. As a consequence, the Tribunal decided not to dismiss Claimants' objections based on privilege in limine. As to the merits of the objections, the Tribunal found that legal privilege extends not only to outside counsel, but also to in-house lawyers and found no evidence suggesting that Claimants had waived legal or, to the extent relevant, settlement privilege. The Tribunal also directed Claimants' lead counsel to submit an affidavit confirming that each of the relevant documents met all of the privilege requirements identified by the Tribunal in the order and to produce all the relevant documents that did not. In light of the proximity of the hearing, the Tribunal also took the opportunity to call a number of persons to testify as witnesses at the hearing.

47. On 25 April 2018, Respondent submitted its comments on Claimants' letter regarding the site visit and requested that the Tribunal reject Claimants' allegations and not to intervene in any way in relation to the visit planned to the Calenturitas mine.

48. On 27 April 2018, the Tribunal issued its decision regarding the site visit. The Tribunal found no reason to deny the visit, so long as the precise dates were properly agreed between the Parties in order to facilitate Respondent's access and minimize the inconvenience to Claimants.

49. On 30 April 2018, and further to the Tribunal having called certain persons to testify as witnesses at the hearing [“Tribunal Witnesses”] in Procedural Order No. 4, the Parties submitted an agreed proposal concerning those witnesses.

50. On 30 April 2018, Claimants' lead counsel submitted a certification and affidavit in accordance with Procedural Order No. 4 and produced, in unredacted form, the documents that did not meet the privilege requirements established by the Tribunal in the order. On 1 May 2018, the Parties agreed that Mr. Blackaby's affidavit of 30 April 2018 should be submitted to the Tribunal without its annexes, pursuant to Procedural Order No. 2.

51. On 4 May 2018, Claimants submitted their Rejoinder on Jurisdiction, together with:

• Third Witness Statement of Mr. Gary Nagle
• Exhibits C-295 through C-327, and resubmitted Exhibits C-90 and C-260
• Legal Authority CL-150

52. On 9 and 10 May 2018, respectively, the Parties confirmed the witnesses and experts that they wished to cross-examine at the hearing.

53. On 11 May 2018, Claimants sought leave to include a technical report as a new document into the record.

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54. On 11 May 2018, Respondent requested that the documents that had been gathered from the Fiscalía General de la Nación [“FGN”] and filtered by Mr. Camilo Enciso in accordance with the Tribunal's directions be admitted into the record ["FGN Documents"]. Respondent further referred to a list of documents in Annex A to said communication [“Annex A Documents"] as responsive to Colombia's document production requests and not protected by either legal or settlement privilege, and asked that the Tribunal review these documents, order Claimants to produce them and admit them into the record. In the alternative, Respondent indicated that it would not object to the Tribunal appointing a conflicts counsel to analyse said documents.

55. On 14 May 2018, Claimants filed its response to Respondent's 11 May request and asked the Tribunal to deny the application to admit the FGN Documents as they did not amount to evidence garnered by the Colombian criminal courts and/or because Colombia had failed to demonstrate their relevance and materiality to the outcome of the dispute. Claimants further requested that the Tribunal reject Colombia's request to admit the Annex A Documents as they were not responsive to its document requests or were subject to legal or settlement privilege.

56. On 15 May 2018, Respondent wrote to the Tribunal elaborating on its 11 May request concerning the FGN Documents and Annex A Documents and requesting that the Tribunal reject Claimants' 11 May application to include a new document into the record. Claimants responded to this communication on 18 May 2018. On the same day, Respondent submitted the memorandum sent to Mr. Enciso on 5 April 2018 in connection with the FGN Documents as well as Colombia's communication to Mr. Enciso of 3 May 2018.

57. On 14 May 2018, the Tribunal held a pre-hearing organizational meeting with the Parties by telephone conference.

58. On 17 May 2018, the Tribunal issued Procedural Order No. 5 concerning the organization of the hearing.

59. On 18 May 2018, the Tribunal notified the Parties regarding its decision not to admit into the record any of the documents requested by the Parties and indicated that a full decision would follow. In particular, the Tribunal declined to admit the following documents: (i) the technical report identified by Claimants in their email of 11 May 2018; (ii) the FGN Documents; and (iii) the Annex A Documents.

60. A hearing on jurisdiction and the merits was held in Washington, D.C. from 28 May to 2 June 2018 [the “Hearing"]. The following persons were present at the Hearing:

Tribunal:
Prof. Juan Fernández-Armesto President
Mr. Oscar M. Garibaldi Arbitrator
Mr. J. Christopher Thomas QC Arbitrator

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61. During the Hearing, the following persons were examined:

62. On 8 June 2018, the Tribunal circulated a number of questions to the Parties and invited them to indicate any agreements that they might have reached concerning the submission of the post-hearing briefs. The Parties informed the Tribunal of their agreements concerning post-hearing briefs and costs submissions on 26 June 2018. In the same communication, the Parties further agreed that "the Award may be issued only in English, provided that an official Spanish translation is delivered to the parties a few months later."

[Page 32]

63. On 31 July 2018, the Tribunal issued Procedural Order No. 6 containing its full decision and reasoning on the admissibility of (i) the technical report identified by Claimants in their email of 11 May 2018; (ii) the FGN Documents and (iii) the Annex A Documents, as advanced in the Tribunal's communication to the Parties of 18 May 2018.

64. On 8 August 2018, the Parties filed a single round of simultaneous post-hearing briefs together with their respective Legal Authorities RL-187 through RL-236 and CL-151 through CL-173.

65. Further to the Tribunal's confirmation of its costs instructions, the Parties submitted a new agreement on the parameters of the costs submissions on 18 and 19 September 2018, and filed their respective costs submissions on 24 September 2018.

66. On 7 March 2019, the Tribunal asked Claimants to provide further information in the interest of completeness and indicated when Respondent should file any comments it might have to the data provided by Claimants. Claimants filed the requested information on 14 March 2019.

67. Further to the Parties' agreement of 26 June 2018 concerning, inter alia, the language of the Award and to the Parties' respective communications of 16 July 2019 noting their diverging interpretations thereof, on 30 July 2019, the Tribunal decided that the Parties' agreement of 26 June 2018 had superseded the relevant provision in Procedural Order No. 1, such that the Award would be rendered in English only and the Tribunal would request that the Centre prepare and deliver to the Parties an official Spanish translation. The Tribunal clarified that "[f]or all intents and purposes under the ICSID Convention and Rules, the date of dispatch of the certified copies of the Award in English shall be the date when the Award is deemed to have been rendered." On 15 August 2019, the Tribunal declared the proceeding closed pursuant to ICSID Arbitration Rule 38(1).

(2) CERTAIN PROCEDURAL INCIDENTS

68. The following sections of the award summarize and provide context to certain procedural incidents:

• PO No. 2 (2.1);
• PO No. 3 (2.2);
• PO No. 4 (2.3);
• PO No. 6 (2.4).

(2.1) PROCEDURAL ORDER NO. 2

69. In order to understand the context of PO No. 2, the Tribunal will first recount the procedural and factual history that led to its issuance (A.), will then briefly

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summarize the decision (B.) and will explain its consequences (C.). The Tribunal will add a final section on the Parties' comments to PO No. 2 (D.).

A. The Road to PO No. 2

70. The road to PO No. 2 began with Respondent's request for an extension of the deadline for filing its Counter-Memorial. Respondent's Counter-Memorial was scheduled to be filed not later than 3 July 2017.

71. On 7 June 2017, Respondent requested a one-month extension of the time limit to submit the Counter-Memorial on account of:

• an administrative reorganization of Colombia's State Attorney Office (ANDJE), and
• health issues affecting counsel for Colombia.

72. After hearing Claimants, on 12 June 2017 the Arbitral Tribunal granted Respondent a two-week extension to file its Counter-Memorial.

73. One day thereafter, on 13 June 2017, Colombia's Antitrust Agency (SIC), the administrative agency that enforces antitrust law in Colombia³ and ANDJE, the public agency in charge of the legal defense of the State and its agencies, signed an agreement to exchange information [the “Cooperation Agreement"]:⁴

"PRIMERA. OBJETO DEL CONVENIO: Aunar esfuerzos técnicos, administrativos y de apoyo logístico entre la Agencia Nacional de Defensa Jurídica del Estado y la Superintendencia de Industria y Comercio para contribuir de manera eficaz y oportuna en el intercambio de información relacionada con la defensa jurídica de Colombia, de conformidad con las competencias de cada entidad”. [Emphasis added]

74. In compliance with the Cooperation Agreement, at some unspecified date in June or July 2017 the SIC delivered to ANDJE certain documents it had seized from Prodeco three years earlier, in August 2014. At that time the SIC had raided Prodeco's premises in the context of a preliminary antitrust investigation relating to Puerto Nuevo. Using its regulatory powers, the SIC seized certain documents and downloaded in bulk all the emails lodged in the computers of certain Prodeco managers [the “Seized Emails"].⁵

75. After delivery of the Seized Emails, ANDJE and/or counsel to the Republic reviewed such documents, and identified certain documents unrelated to antitrust matters, but allegedly relevant to the adjudication of the present dispute.

³ Doc. C-216, Art. 6. ↩
⁴ Doc. R-221. ↩
⁵ Doc. R-205, pp. 2-3. ↩

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Submission of Respondent's Counter-Memorial

76. On 17 July 2017, Respondent filed its Counter-Memorial. Included amongst the attached exhibits were some of the Seized Emails.

77. Ten days thereafter, on 26 July 2017, Claimants filed a submission in which they averred that 41 of the exhibits were private and internal email chains exchanged internally between Claimants' management and their in-house and external counsel [previously defined as the “Disputed Documents”]. In that submission, Claimants requested inter alia that the Tribunal:

• Order Colombia to provide:
  • information regarding the time and manner in which these documents had been obtained,
  • a full log of Prodeco's private communications, documents and data in possession of Colombia, its internal and external counsel, and its witnesses and experts, indicating the chain of custody as well as the dates of access.
• Issue an order declaring inadmissible all documents irregularly obtained or produced by Colombia in breach of its duty of good faith and rules of privilege, and striking out any statements in Colombia's Counter-Memorial and/or witness statements and expert reports that rely on such documents.

78. On 3 August 2017, Respondent submitted its response. Respondent explained that the Disputed Documents had been legally obtained by SIC in the context of a preliminary investigation into unfair practices by Prodeco and its affiliates and requested that the Tribunal declare the Disputed Documents admissible.

79. By letter of 22 August 2017, Claimants submitted their reply to Respondent's response and slightly amended their request for relief [previously defined as “Claimants' First Application”].

Criminal Complaint

80. On Sunday, 10 September 2017, ANDJE filed a criminal complaint with the office of the Fiscalía General de la Nación, based on the Disputed Documents [the "Criminal Complaint"].

81. The Criminal Complaint, which was registered by the Fiscalía the following day, reported that certain named persons related to the execution of the Eighth Amendment may have committed the following crimes:

• bribery,
• conclusion of a contract lacking legal requirements,

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• conspiracy to commit a crime, and
• undue interest of a public servant in the conclusion of contracts.⁶

82. The Criminal Complaint included a request that the Fiscal depose (inter alia):

• Mr. Nagle, Prodeco's CEO from 2008 to 2013, and Claimants' witness in this arbitration, and
• Ms. Anaya, one of Claimants' in-house counsel.

B. The Decisions in PO No. 2

83. On 4 November 2017, the Tribunal issued Procedural Order No. 2, in which it made the following decisions:

84. First, that the Disputed Documents should be excluded from the record of this arbitration.⁷ Consequently, the Tribunal directed Respondent to re-submit its Counter-Memorial without attaching or referring to the Disputed Documents.⁸

85. Second, the Tribunal gave the Parties the opportunity to file new requests for document production that would supersede and replace the original requests still pending before the Tribunal.⁹

86. Third, as regards the filing of the Criminal Complaint by ANDJE, the Tribunal refused to take any actions, but:

• Clarified that decisions adopted by Colombian criminal courts, which could potentially have an impact on the present procedure, could be freely marshalled by the Parties, subject to the rule established in para. 17(3) of Procedural Order No. 1;¹⁰
• On the issue of marshalling of criminal evidence, the Tribunal found that it had not been sufficiently briefed but, as a precautionary measure, instructed the Parties to ask permission from the Tribunal before submitting any evidence gathered in a criminal procedure in Colombia;¹¹ and
• Instructed Colombia to implement appropriate measures to guarantee that Colombia's counsel in this arbitration (including ANDJE's officials) did not

⁶ Annex A to Claimants' Second Application, 20 September 2017, pp. 23-24. ↩
⁷ PO No. 2, para. 70. ↩
⁸ PO No. 2, para. 109. ↩
⁹ PO No. 2, para. 113. ↩
¹⁰ PO No. 2, para. 89. ↩
¹¹ PO No. 2, para. 89. ↩

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have access to confidential attorney communications emanating from the criminal investigations.¹²

87. Finally, the Tribunal proposed a new procedural calendar, which was agreed by the Parties on 10 November 2017.

The Tribunal's Rationale for Excluding the Disputed Documents

88. The Arbitral Tribunal decided the incident based on international law, and only turned to municipal law to confirm its findings.¹³ This is consistent with the Parties' arguments,¹⁴ the BIT and the ICSID Convention.¹⁵

89. The Tribunal found that the obligation to arbitrate fairly and in good faith and the principle of equality of arms precluded Respondent from coercing evidence from Claimants through its administrative powers, and to marshal it thereafter in an investment arbitration.¹⁶ The Tribunal made reference to the general imbalance between claimants, which are normally private companies, and respondent States and explained that if States were allowed to use their wide powers to coerce evidence from claimants, it would create a perverse incentive: States would initiate all types of administrative proceedings against potential claimants in order to improve their litigation positions.¹⁷

90. Under Colombian law, the Tribunal confirmed that SIC was authorized to seize the Disputed Documents for the sole purpose of an antitrust/unfair competition investigation – but not for any other purpose, including the use of the Disputed Documents as evidence in these proceedings. The Tribunal found that SIC had failed to prove that the delivery of the Disputed Documents to ANDJE was done for the sole purpose for which they had been obtained: to ensure compliance with antitrust or unfair competition law:¹⁸ by handing over the Disputed Documents to ANDJE, even if in compliance with the Cooperation Agreement, the SIC could have incurred in an administrative irregularity known as desviación de poder.¹⁹

C. The Consequences of PO No. 2

91. PO No. 2 had two major consequences for the procedure.

92. The first consequence was that on 16 November 2017, Respondent filed its Amended Counter-Memorial, eliminating all references to the Disputed Documents. It also resubmitted all its evidence and eliminated the Disputed Documents from the record.

¹² PO No. 2, para. 92. ↩
¹³ PO No. 2, para. 52. ↩
¹⁴ PO No. 2, para. 50. ↩
¹⁵ PO No. 2, para. 51. ↩
¹⁶ PO No. 2, paras. 66-70. ↩
¹⁷ PO No. 2, para. 69. ↩
¹⁸ PO No. 2, paras. 70-73. ↩
¹⁹ PO No. 2, paras. 73-74. ↩

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93. The second consequence of PO No. 2 was that the Parties were provided with a new opportunity to obtain and submit evidence through a new document production process. In particular, Respondent was allowed to request that Claimants deliver the Disputed Documents in a context which preserved the equality of arms.

94. The Parties exercised this right extensively: Respondent made 39 requests for production of documents and Claimants seven.

D. Parties' Observations on PO No. 2

95. By letter of 14 November 2017, Respondent made observations on PO No. 2 and submitted that the Tribunal was:

• Exceeding its powers;²⁰
• Failing to state the reasons for its decisions;²¹
• Seriously departing from a fundamental rule of procedure, by infringing Colombia's due process rights.²²

96. Claimants answered Respondent's letter in their Reply Memorial. Claimants disagreed with Respondent's allegations and submitted the following main arguments:

• First, that in issuing PO No. 2 the Tribunal acted fully within its powers under Arts. 44 and 46 of the ICSID Convention and 19 and 34(1) of the Rules to protect the integrity of the proceedings;²³
• Second, that even if the Tribunal's decision was flawed as a matter of Colombian law (quod non), Respondent did not and could not argue that the Tribunal's reasoning based on the international principles of fairness and equality of arms was erroneous;²⁴
• Finally, that the exclusion of documents obtained in violation of international law by Colombia could not violate the rights of the party which had acted unlawfully; and, in any case, PO No. 2 provided Respondent with the means to obtain and present evidence in accordance with international law through the document production exercise.²⁵

²⁰ Respondent's letter of 14 November 2017, p. 2. ↩
²¹ Respondent's letter of 14 November 2017, p. 3. ↩
²² Respondent's letter of 14 November 2017, p. 3. ↩
²³ C II, para. 363. ↩
²⁴ C II, paras. 364-367. ↩
²⁵ C II, paras. 368-370. ↩

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(2.2) PROCEDURAL ORDER NO. 3

97. In PO No. 3, the Arbitral Tribunal decided on the Parties' contested document production requests.

98. The Tribunal analysed each of the requests:²⁶

• The Tribunal first analysed whether each request complied with the ordinary requirements of:
  • identification of each document or description of a narrow and specific category of documents;
  • relevance and materiality; and
  • not in possession of the requesting party;
• The Tribunal then reviewed whether each request was affected by one of the following objections, if raised by the Parties:
  • legal or settlement privilege;
  • production results in unreasonable burden;
  • loss or destruction;
  • technical or commercial confidentiality;
  • political or institutional sensitivity;
  • production would affect the fairness and equality of the procedure.

99. The Tribunal accepted (wholly or partially)²⁷ 23 out of Respondent's 39 requests and four out of Claimants' seven requests.

(2.3) PROCEDURAL ORDER NO. 4

100. PO No. 4 was prompted by Respondent's failure to obtain through document production all of the Disputed Documents. The Tribunal will first explain the road that led to the decision (A.), will briefly summarize it (B.), and finally explain its consequences (C.).

A. The Road to PO No. 4

101. A few days after the issuance of PO No. 3, which ruled on the Parties' document production requests, Claimants requested that the Tribunal extend the deadline for production of documents responsive to Colombia's requests. The Tribunal granted

²⁶ PO No. 2, paras. 110-138. ↩
²⁷ PO No. 3, Annex B. ↩

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the extension, ordering that delivery be performed as the documents became available and, in any case, no later than 5 February 2018.

102. On 5 February 2018, Claimants produced to Respondent:

• 366 documents, comprising more than 1GB of information in response to Colombia's document requests; and
• a letter accompanied by a privilege log [the “Privilege Log”], identifying documents responsive to Respondent's requests which were subject to legal or settlement privilege [“Privilege Log Documents”], as well as
• redacted documents [“Redacted Documents”],
• [the Privilege Log Documents and the Redacted Documents will be jointly referred to as the “Privileged Documents”].

103. On 23 February 2018, Respondent requested [“Respondent's Privilege Log Request"] that the Tribunal order Claimants to produce the Privileged Documents in the following terms:

“To order Claimants to produce, within 48 hours, un-redacted copies of the Redacted Documents;

To order Claimants to produce, within 48 hours, the Privilege Log Documents, redacting only in those documents exchanged with external counsel the relevant portions where legal advice was sought or given;

Should any of the Documents be available in a native format (such as .msg for email communications), to order production in such format;

To complete their production of documents in accordance with Procedural Order No. 3 and to confirm that they have completed production of all documents responsive to Colombia's requests; and

To order Claimants to reimburse Colombia for the costs and expenses incurred because of this incident (as quantified when this incident is resolved)."

104. On 2 March 2018, Claimants answered Respondent's Privilege Log Request:

• explaining that they had produced 366 documents, comprising more than 1GB of information in response to Colombia's document requests, and
• confirming that they had “produced and/or logged all documents responsive to the Tribunal's orders in Claimant's possession, custody and control".²⁸

²⁸ Claimants' letter dated 2 March 2018, p. 2. ↩

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Claimants requested that the Tribunal dismiss Respondent's Privilege Log Request.²⁹

105. On 6 March 2018, the Arbitral Tribunal provided guidance as to how to proceed:

"[...] The challenge to any Redacted Document or to any Privilege Log Documents must be done on a document-by-document basis. Thus, the Tribunal cannot entertain Colombia's general Request for Relief either for all the Redacted Documents or for all the Privilege Log Documents.

In order to solve this incident in the quickest and most efficient way possible, the Tribunal suggests that the Parties confer and try to reach an agreement on any disputed document. If, having made the appropriate good faith efforts to find a solution, it cannot be reached, the Tribunal will gladly solve any requests on a document-by-document basis. [...]."

106. On 9 March 2018, Respondent submitted a letter to the Arbitral Tribunal noting that at least two of Colombia's arguments in its communication of 2 March 2018 did not require the Tribunal to rule on a “document-by-document basis”. In particular, according to Colombia, a decision on a document-by-document basis was not required in order to rule that:

• Claimants openly disregarded the Tribunal's directions in PO No. 2, and
• Documents sent or received by in-house counsel are not privileged.

107. Colombia reserved all of its rights.³⁰ It stated that, notwithstanding the foregoing, it undertook to comply with the Tribunal's directions and confer, in good faith, with Claimants in regard to their Privilege Log. Nevertheless, on the basis that it was likely that it would not obtain the Privileged Documents before the submission of its Rejoinder, Colombia reserved its rights to submit the evidence as soon as it came into its possession, custody or control.³¹

108. Claimants presented a letter on 12 March 2018 inter alia denouncing:

• Respondent's new attempt to reintroduce in the record the Disputed Documents through Respondent's Privilege Log Request;
• Respondent's mischaracterization of the Tribunal's email of 6 March 2018.

109. In its communication of 17 March 2018, the Tribunal thanked the Parties for their efforts in trying to reach an agreement and clarified that it had not taken any decision with regard to the admissibility of the Privileged Documents:

"The Arbitral Tribunal appreciates the Parties' good faith efforts to reach an agreement on the production of the Documents (as defined in Respondent's letter dated March 9, 2018). Should the Parties prove unable to reach an

²⁹ Claimants' letter dated 2 March 2018, p. 12. ↩
³⁰ Colombia's letter of 9 March 2018, p. 1. ↩
³¹ Colombia's letter of 9 March 2018, p. 4. ↩

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agreement with regard to the production of some (or the totality) of such Documents, the Tribunal repeats its willingness to adjudicate the issue on a document-by-document basis. For the avoidance of doubt, the Tribunal reiterates that it has not taken any decision with regard to the admissibility of such Documents."

110. After approximately two weeks, on 27 March 2018, Respondent presented a new letter to the Tribunal explaining the steps taken to comply with the Tribunal's guidance. Colombia requested that the Tribunal order Claimants to produce the Privileged Documents without delay, and in any event, by 2 April 2018.³²

111. On 2 April 2018, Claimants responded, arguing that Colombia's comments simply reiterated the same two allegations already set forth in its letter of 23 February 2018, namely that:

• Claimants' assertions of privilege were belated, and
• Privilege does not attach to communications sent or received by Prodeco's in-house counsel.

B. The Decision in PO No. 4

112. On 24 April 2018, the Tribunal issued PO No. 4.

113. There were three main issues before the Tribunal:

• Whether Claimants had failed to follow the appropriate proceedings for filing their Privilege Log;
• Whether the attorney-client privilege extended to in-house counsel; and
• Whether Claimants properly asserted settlement privilege over the Privileged Documents.

114. To decide such issues, the Arbitral Tribunal applied international law and, alternatively municipal law, as pleaded by the Parties.³³

115. The Tribunal adopted the following decisions:

116. First, it decided that while Claimants had not strictly complied with the Tribunal's instructions in PO No. 2 concerning privilege-based objections, this departure from the established procedure had not caused Respondent irreparable harm.³⁴ The Tribunal found that Respondent had been given ample opportunity to contest Claimants' objections by submitting comments on Claimants' Privilege Log, which

³² Colombia's letter of 27 March 2018, p. 2. ↩
³³ PO No. 4, paras. 37-41. ↩
³⁴ PO No. 4, paras. 42-46. ↩

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the Tribunal had analysed in order to reach its decision.³⁵ As a consequence, the Tribunal decided not to dismiss in limine Claimants' objections based on privilege.³⁶

117. Second, as to the merits of the objections, the Tribunal found that legal privilege extended not only to communications with outside counsel, but also to communications with in-house lawyers and found no evidence suggesting that Claimants had waived legal or, to the extent relevant, settlement privilege.³⁷

118. Third, the Tribunal directed Claimants' lead counsel (i) to submit an affidavit confirming that each of the Privileged Documents met all of the privilege requirements identified by the Tribunal and (ii) immediately to produce all the relevant documents that did not.³⁸

C. The Consequences of PO No. 4

119. On 30 April 2018, Claimants' lead counsel submitted an affidavit declaring that:

• He had reviewed all of the documents over which Claimants had asserted privilege, as identified in the Privilege Log;
• He confirmed that all of the documents over which Claimants had asserted privilege fulfilled the requirements provided for in para. 54 of PO No. 4, except for two;
• He attached the two documents that did not comply with the requirements.

120. Summing up, Claimants delivered to Respondent all documents identified in Respondent's requests, except for certain documents which met the requirements for claiming privilege as set forth in para. 54 of PO No. 4. Compliance with these requirements was proven by an affidavit signed, under his personal responsibility, by Claimants' lead counsel.

(2.4) PROCEDURAL ORDER NO. 6

121. Respondent made further attempts to marshal certain Disputed Documents and certain Seized Emails attached to the Criminal Complaint.

122. The Tribunal will first explain the road that led to PO No. 6 (A.), will briefly summarize it (B.), and finally explain its consequences (C.).

³⁵ PO No. 4, para. 46. ↩
³⁶ PO No. 4, para. 47. ↩
³⁷ PO No. 4, paras. 48-76 and 92-94. ↩
³⁸ PO No. 4, para. 95. ↩

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A. The Road to PO No. 6

123. In PO No. 4, the Arbitral Tribunal established a cut-off date for introducing further evidence or filing further submissions in this proceeding:

"98. After May 11, 2018 no new submissions and no additional evidence shall be admitted into the file, except as provided in the following paragraph.

99. If in exceptional circumstances and for unexpected reasons any of the Parties considers that it is of paramount importance that an exception to the rule be made, it shall file a motion, asking for authorization, stating the grounds therefor, and without attaching the new submission or evidence. After hearing the other Party the Tribunal will decide. Any submission made or evidence marshalled in breach of this provision will be disregarded."

124. On 11 May 2018, Claimants requested that a new document be introduced in the record: NI 43-101 Technical Report on the Jerritt Canyon Mine prepared for Queenstake Resources Ltd., dated 20 April 2007 [the "Report"].

125. On the same day, Respondent presented a letter requesting that the following documents be included in the file:

• Two sets of documents specified in Annex A of the letter: (i) Documents which Colombia claimed to be responsive to its requests for production ordered in PO No. 3 and (ii) Documents which Colombia alleged do not meet the cumulative requirements set forth in PO No. 4 for legal privilege, and are not protected by settlement privilege [the “Annex A Documents"]³⁹; both sets of documents (i) and (ii) were part of the documents excluded by PO No. 2, i.e. the Disputed Documents;
• Certain documents [the “FGN Documents”], specified in Annex C of the letter, which had been gathered by the Fiscalía General de la Nación (and filtered by Mr. Camilo Enciso, Colombia's designated special counsel, in accordance with the Tribunal's directions).

126. On 14 May 2018, Claimants submitted a letter to the Arbitral Tribunal requesting that the Tribunal reject Respondent's request, and in the alternative order Colombia to provide Claimants with copies of the FGN Documents for Claimants properly to comment on Respondent's request.

127. On the same day, the Tribunal and the Parties held the pre-hearing conference call, in which Respondent agreed to provide Claimants with the FGN Documents. The Tribunal and the Parties further agreed that:

³⁹ The Parties referred to these documents as the Disputed Documents, however, both Parties agreed that all of the documents comprised within such category had been excluded by the Tribunal in PO No. 2 (Letter from Colombia to the Tribunal of May 11, 2018, p. 1; Letter from Claimants to the Tribunal of 14 May 2018, p. 1). ↩

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• Respondent would submit its comments on Claimants' request by 15 May 2018;
• Claimants would submit their comments on Respondent's request to include the FGN Documents by 17 May 2018;
• Given the time sensitive nature of the Parties' requests, the Tribunal would issue a decision by Friday, 18 May, and communicate the full decision and reasoning to the Parties afterwards.

128. Hence, on 15 May 2018, Respondent submitted a letter [“Respondent's FGN Request"]:

• Reiterating its request of 11 May 2018; and
• Requesting that the Tribunal dismiss Claimants' request.

129. On 17 May 2018, Claimants submitted a letter to the Tribunal requesting that the Tribunal reject Respondent's FGN Request.

B. The Decision in PO No. 6

130. The Tribunal deliberated and decided to reject the Parties' applications to introduce further documents into the file. This decision was communicated by letter dated 18 May 2018:

"The Arbitral Tribunal has decided not to admit into the record any of the documents requested by the Parties for the following reasons:

1. Claimants' petition to admit the technical report identified in its email of May 11, 2018 is belated since Claimants were the last to file a main submission.

2. Respondent's petition to admit the FGN Documents: the FGN Documents did not make it into the record through Document Production and are not part of a formal acusación in a Colombian criminal court proceeding. Thus, the Tribunal sees no reason to admit them into the record.

3. Respondent's petition to admit Annex A Documents: there are two types of documents that Respondent wishes the Tribunal to admit into the record:

a. documents that Claimants' counsel has confirmed are subject to privilege and

b. documents which – according to Claimants' counsel – are not responsive to the Tribunal's decisions in PO3.

It falls within the responsibility of Claimants' counsel to determine which documents are responsive to Respondent's petitions (as narrowed down by the Tribunal) and which are subject to privilege. The Tribunal has no reason to second guess these decisions.

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A full decision will follow in the next days".

131. On 31 July 2018, the Tribunal issued PO No. 6 containing its full decision and reasoning.

C. The Consequences of PO No. 6

132. In PO No. 6, the Arbitral Tribunal directed the Parties to make allegations if they wished the Tribunal to draw adverse inferences based on the counterparty's decisions regarding responsiveness and privilege of ordered documents.

133. In its Rejoinder,⁴⁰ Respondent asked the Arbitral Tribunal to draw adverse inferences from Claimants' failure to produce responsive evidence. In particular, Respondent requested that the Tribunal draw eight specific adverse inferences from Claimants' conduct. To the extent that such requests are relevant, the Tribunal will address them in later sections of this Award.

134. In the course of the Hearing, Respondent made one further request to marshal certain Disputed Documents into the record. That request led to the filing of Doc. R-100. The procedural incident is analysed in detail in section V.1.(3.3).C infra.

⁴⁰ R II, paras. 983-1002. The request was reiterated in the RPHB, paras. 163-177. ↩

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III. CHRONOLOGY OF FACTS

135. The dispute between the Parties stems from the execution of the eighth amendment to the Mining Contract [the “Eighth Amendment”] and the facts that surrounded such execution.

136. The Tribunal will start by describing the execution of the Mining Contract and the ensuing period, during which the parties made seven amendments to the Mining Contract (1).

137. The Tribunal will then turn to the negotiations that surrounded the Eighth and most relevant amendment to the Mining Contract ((2), (4) and (5)). The Tribunal will also describe the facts concerning Prodeco's acquisition of a mining concession, which, according to Respondent's version of the facts, served as a bribe for the State's execution of the Eighth Amendment (3).

138. Finally, the Tribunal will examine the events that occurred after the execution of the Eighth Amendment, namely the parties' performance of the Eighth Amendment ((6) and (11)) and the proceedings which form the basis of Claimants' claims in this arbitration:

• The investigation by the Contraloría General de la República [“Contraloría"] into whether the Eighth Amendment was detrimental to the Colombian State, which led to a decision holding Prodeco liable for damages to the State's finances [the “Fiscal Liability Proceeding”] (7); and
• The claim filed by the mining agency responsible for the Mining Contract before the Colombian administrative courts seeking to have the Eighth Amendment declared null and void [the “Procedure for Contractual Annulment”] (8).

139. After the failure of amicable consultations, Claimants started the present arbitration against Colombia (9). The Tribunal will also briefly address the criminal complaint filed by Colombia after the start of this arbitration (10).

(1) THE MINING CONTRACT: EXECUTION, PERFORMANCE AND AMENDMENTS

140. Colombia is one of the world's largest coal producers. As Colombia's second largest export, coal is a major source of revenues and employment for the country.⁴¹

141. In the late 1970s, Colombia's Ministry of Mines and Energy granted Carbones de Colombia, S.A. [“Carbocol”], a state-owned company,⁴² mineral rights over a large

⁴¹ Nagle I, para. 13. See also HT, Day 1, p. 62, 6-9. ↩
⁴² Carbocol was an Empresa Industrial y Comercial del Estado. As Respondent explains, the State agency in charge of coal mining contracts underwent several reorganizations and name changes throughout the years: Carbocol was replaced by the Empresa Colombiana de Carbón, Ltda., which was replaced by the Empresa Nacional Minera Ltda., Minercol Ltda., which was replaced by the Instituto Colombiano de ↩

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area,⁴³ which comprised an open-pit mine of over 6,600 hectares known as Calenturitas,⁴⁴ located in the municipalities of La Jagua de Ibirico, El Paso, and Becerril⁴⁵ [the “Calenturitas Mine” or the “Mine”].

142. At present, the Mine is one of the largest thermal coal mines in Colombia. It is traversed by the Calenturitas River and is divided into four sectors, A to D:⁴⁶

[Map showing four sectors labeled SECTOR A, SECTOR B, SECTOR C, and SECTOR D, with surrounding place names including SABANAS DE BAUTISTA and SABANA EL TOPACIO.]

A. 1989: Execution of the Mining Contract

143. In 1988, Colombia adopted Decree 2655 by which it enacted the Código de Minas [“1988 Mining Code"].⁴⁷ Pursuant to Art. 3 of said Code, and in accordance with Colombia's Constitución Política, all non-renewable natural resources belong, inalienably and indefeasibly, to the Colombian Nation; in the exercise of its property right, Colombia may explore and exploit these resources through decentralized agencies, or grant private individuals or entities the right to do so.⁴⁸

Geología y Minería – Ingeominas. The latter was eventually liquidated and transformed into the Servicio Geológico Colombiano and the Agencia Nacional de Minería (R I, fn. 15).
⁴³ Doc. C-2, Clause 2: “[...] el Área Contratada descrita en la Cláusula Tercera de este contrato, la cual hace parte de un área mayor otorgada a CARBOCOL por el Ministerio de Minas y Energía, a título de Aporte, mediante la Resolución No. 002857 de fecha 10 de octubre de 1977, Aporte No. 871". ↩
⁴⁴ Doc. C-2, Clauses 2 and 3. ↩
⁴⁵ Nagle I, para. 14; R I, para. 19. ↩
⁴⁶ Doc. R-55. See also Nagle I, paras. 14-15; HT, Day 1, p. 62, 1. 10 – p. 63, 1. 5. ↩
⁴⁷ Doc. C-1; Doc. R-16. ↩
⁴⁸ Doc. C-1, Art. 3: “Propiedad de los recursos naturales no renovables. De conformidad con la Constitución Política, todos los recursos naturales no renovables del suelo y del subsuelo pertenecen a la Nación en forma inalienable e imprescriptible. En ejercicio de esa propiedad, podrá explorarlos y explotarlos directamente a través de organismos descentralizados, o conferir a los particulares el derecho ↩

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144. In accordance with Art. 3 of the 1988 Mining Code, the Respondent, through Carbocol, chose to explore and exploit the resources in the Calenturitas area by means of a contract with a private entity. Prodeco, a Colombian mining company incorporated in 1974,⁴⁹ was chosen for that purpose.

145. To this effect, on 21 February 1989, Prodeco and Carbocol executed a contract for the exploration, construction, and exploitation of a coal project in the Calenturitas Mine [defined as the “Mining Contract"].⁵⁰

146. The Mining Contract was initially entered into for a period of 30 years⁵¹ comprising three stages: exploration, construction, and exploitation of the Calenturitas Mine.

147. In the exploration phase, Prodeco had to produce geological and engineering studies, at its own cost and risk, to evaluate the potential of the Calenturitas Mine, and submit a feasibility study for a coal-mining project.⁵² Once Carbocol approved this feasibility study, Prodeco could start construction⁵³ and, subsequently, operation of the Mine.⁵⁴

148. From the beginning of the production phase and until the expiration of the Mining Contract, Prodeco had the right to carry out activities of extraction, processing, transport, and commercialization of the coal from the Mine.⁵⁵ Prodeco could produce up to three million tonnes [“MT”] of coal per year ["MTA”], which would become its exclusive property. Prodeco could dispose of such coal as it deemed fit, subject to the Colombian laws and regulations on the commercialization and transformation of minerals.⁵⁶

149. As consideration for the granting of production and commercialization rights, Prodeco had to pay a defined compensation to Carbocol. The terms agreed in 1989 were as follows:

• A 5% base royalty for each tonne of coal sold, which progressively increased up to 7.6% for the fifth year of production and beyond⁵⁷ ["Base Royalty"];
• A supplementary compensation⁵⁸ amounting to a percentage of revenue and a fixed amount per tonne of coal sold, if the price of coal rose above USD 40 per

de hacerlo, o reservarlos temporalmente por razones de interés público, todo de acuerdo con las disposiciones de este Código".
⁴⁹ Doc. CLEX-15, p. 9 of the Estados Financieros for 2015-2014. ↩
⁵⁰ Doc. C-2, Clause 1. The Mining Contract is numbered 044/89. ↩
⁵¹ Doc. C-2, Clause 24. ↩
⁵² Doc. C-2, Clauses 5.1, 5.2, and Annex 3. ↩
⁵³ Doc. C-2, Clauses 5.3, 8 and 9.1. ↩
⁵⁴ Doc. C-2, Clause 13. ↩
⁵⁵ Doc. C-2, Clause 11. ↩
⁵⁶ Doc. C-2, Clauses 18 and 19. ↩
⁵⁷ Doc. C-2, Clause 21.1: “Regalía Básica”. ↩
⁵⁸ This suplementary compensation will later become the Gross Income Compensation or GIC. See para. 164 infra. ↩

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tonne.⁵⁹ At that time, the price of Colombian thermal coal was approximately USD 25 per tonne;⁶⁰ if this price rose above USD 40 per tonne, Prodeco would receive extraordinary profits, and would have to pay the supplementary compensation.⁶¹

150. Other considerations included Prodeco's obligation to contribute to the social-economic development of the region of the Calenturitas Mine⁶² and to grant Carbocol access to Prodeco's port facilities [“Prodeco's Port”]⁶³ for the export of coal.⁶⁴

151. Between 1991 and 2007, the parties to the Mining Contract executed seven “Otrosíes”, or amendments, to the Mining Contract, which altered the initial basis of this agreement.

Β. 1991-2002: First, Second, Third and Fourth Amendment

First Amendment

152. In July 1989, Prodeco began to explore the Mine and to work on the preparation of a feasibility study.⁶⁵

153. Two years later, in 1991, Prodeco and Carbocol executed the First Amendment to the Mining Contract, which increased the size of the area of the Calenturitas Mine and defined the rules for trial production.⁶⁶

154. In 1992, Carbocol approved the feasibility study prepared by Prodeco. That same year Prodeco started construction at the Mine.⁶⁷

Second Amendment

155. In 1993, Carbocol became the Empresa Colombiana de Carbón Ltda. – Ecocarbón [“Ecocarbón”]. On 6 December 1995, Ecocarbón and Prodeco executed the Second

⁵⁹ Doc. C-2, Clause 22.1: “Regalía Adicional”. ↩
⁶⁰ Doc. C-183. See also HT, Day 1, p. 21, 11. 11-14. ↩
⁶¹ Art. 84(b) of the 1988 Mining Code provided that the compensation paid by producers could include a share of the producer's extraordinary profits due to rising mineral prices (Doc. C-1, Art. 84(b)). ↩
⁶² Doc. C-2, Clause 23.1. ↩
⁶³ Prodeco's Port was located at approximately 200 kilometres north of the Calenturitas Mine, in Santa Marta, on the Atlantic coast of Colombia, and was used to export coal (Nagle I, para. 19). Prodeco originally obtained the Port concession in 1979, for a term lasting until 2013 (Doc. CLEX-15, pp. 10-11 of the Estados Financieros for 2012). In 2010 Prodeco began building a new port, which it now operates, known as Puerto Nuevo. Puerto Nuevo's concession belongs to the Sociedad Portuaria Puerto Nuevo S.A., in which Prodeco has a 94.9% share (Doc. CLEX-15, pp. 10-11 of the Estados Financieros for 2014; Doc. CLEX-11, p. 17). ↩
⁶⁴ Doc. C-2, Clause 23.2. ↩
⁶⁵ Doc. R-63, p. 1. ↩
⁶⁶ Doc. C-67. ↩
⁶⁷ Doc. R-63, p. 1; RfA, para. 13; Nagle I, para. 18. ↩

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Amendment to the Mining Contract,⁶⁸ which established new rules regarding Prodeco's right to hire subcontractors.⁶⁹

156. The exploitation phase of the Mine officially started in October 1995, but in reality, the mining activities were halted for several years,⁷⁰ in part because of a lack of sufficient infrastructure to transport coal from the Mine to Prodeco's Port, in part because of low coal prices in the international market.⁷¹

Third Amendment

157. In 1995, Prodeco was acquired by Glencore,⁷² a multinational commodity trading and mining company.⁷³

158. Three years later Prodeco submitted to Ecocarbón a revised feasibility study, which envisioned a production of 5 MTA, and a new timeline for the project. Ecocarbón found that the revised feasibility study did not comply with the terms of the Mining Contract, and gave Prodeco two alternatives: either to comply with the Contract and the already approved feasibility study, or to negotiate a further amendment.⁷⁴

159. Accordingly, in 1999, the parties started negotiations,⁷⁵ which led to the third amendment to the Mining Contract [“Third Amendment”]"⁷⁶ being executed two years later, on 6 March 2001. The Third Amendment was signed by the new Empresa Nacional Minera Ltda., Minercol Ltda. [“Minercol”], which in the meantime had succeeded Ecocarbón.⁷⁷

160. Importantly, the Third Amendment:

• Created new obligations for Prodeco regarding the production phase (i), and
• Modified the existing compensation regime (ii).

161. (i) Within a term of six months, Prodeco was required to submit to Minercol's approval a final report on exploration (Informe Final de Exploración [“IFE”]).⁷⁸ Following Minercol's approval of the IFE, Prodeco had to prepare and deliver a long-term work and investment plan (Programa de Trabajos e Inversiones [“PTI”]), concerning exploitation of the Mine.⁷⁹ In addition, Prodeco agreed to submit a PTI for each year of the production phase [“Annual PTI”]. Each Annual

⁶⁸ Doc. C-70. ↩
⁶⁹ Doc. C-70, pp. 1-2. ↩
⁷⁰ Doc. R-63, p. 1; Doc. R-64, p. 2. ↩
⁷¹ Doc. C-5, p. 1, point 2. See also Doc. C-74, p. 18. ↩
⁷² Doc. CLEX-11, p. 12. See also RfA, para. 14; C I, para. 28; Nagle I, para. 19; Doc. H-1, p. 39; R I, fn. 16. ↩
⁷³ C I, para. 22. ↩
⁷⁴ Doc. R-57. ↩
⁷⁵ Docs. R-58, R-59, R-60 and R-61. ↩
⁷⁶ Doc. C-5. ↩
⁷⁷ Doc. C-5, p. 1. Minercol was constituted in December 1998. ↩
⁷⁸ Doc. C-5, Clause 7. ↩
⁷⁹ Doc. C-5, Clause 8. ↩

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PTI had to follow the exploitation sequence defined in the main PTI and contain a production forecast for the next 10 years.⁸⁰

162. (ii) The Third Amendment envisaged a production of between “5 or 6 MTA” of coal per year.⁸¹ This expansion led to changes in the compensation regime.

163. The Base Royalty continued to apply, as defined in the original Mining Contract, as long as production did not exceed 3 MTA. Once production exceeded that threshold, a newly defined “Additional Royalty” became applicable: the royalty rate would increase by 1% for every 1 MTA increase in production. In effect, this implied that after the fifth year of production – which was when the Base Royalty attained 7.6% – if annual production was, for instance, 4, 5, or 6 MTA, Prodeco would pay Royalties at a rate of 8.6%, 9.6%, and 10.6% on the entire price of the coal sold.⁸² For each 1 MTA of additional coal production, the rate of Royalties would increase by 1%.⁸³

164. The Third Amendment also created a Compensación por Ingresos Brutos (Gross Income Compensation [“GIC”]), derived from the Supplementary Compensation initially provided for in Clause 22.1 of the Mining Contract. The GIC was an additional compensation, based on a sliding scale according to coal prices, which became applicable if the coal price exceeded USD 40 per tonne.⁸⁴

165. Thus, after the execution of the Third Amendment, Prodeco had to pay three types of compensation depending upon the amount of production of the Mine and the price of coal:

• A Base Royalty of 7.6%, which applied irrespectively of the amount of coal produced;
• An Additional Royalty, when coal production exceeded 3 MTA, calculated applying an increasing percentage scale;
• A GIC, which applied when the price of coal exceeded USD 40 per tonne.

166. The Third Amendment also defined the reference price which should be used to calculate the amount of Royalties and GIC, as the higher of:⁸⁵

• The weighted average free on board [“FOB”] Colombian port price for the current quarter for coal exported from the Calenturitas Mine, as published in the “Coal Week International” magazine; and

⁸⁰ Doc. C-5, Clause 8.9. ↩
⁸¹ Doc. C-5, recital 4 and Clause 14. ↩
⁸² Doc. C-5, Clause 14. ↩
⁸³ See Doc. C-5, recital 4. ↩
⁸⁴ Doc. C-5, Clause 15.1. See also C I, para. 32; R I, para. 31. ↩
⁸⁵ Doc. C-5, Clauses 14.3 and 15.1.1. ↩

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• The weighted average FOB Colombian port price for Colombian steam coal exported during the same quarter, proportionally adjusted by calorific value, as published in “Coal Week International” magazine.

Fourth Amendment

167. Later that same year (2001), Prodeco and Minercol executed the Fourth Amendment to the Mining Contract,⁸⁶ which clarified certain aspects of the Third Amendment, namely:⁸⁷

• The duration of each of the stages of the Mining Contract;
• The terms for Prodeco's social-economic investments in the Calenturitas region; and
• The start date for the 30-year duration of the Mining Contract, which was set at 3 July 1990.

C. 2002-2004: The 2003 PTI and start of production

168. On 16 December 2002, Minercol approved Prodeco's IFE.⁸⁸ One year later,⁸⁹ Prodeco submitted to Minercol a long-term PTI, in which it laid out its plan to produce up to 4 MTA, for a total life-of-mine production of approximately 55 MT of coal [“2003 PTI”]. According to Prodeco, maximum production was capped by transport restrictions: coal had to be trucked to the Port and Prodeco stated that this was the maximum quantity which could be transported given the poor condition of roads and the limited availability of trucks.⁹⁰

169. In January 2004, the Colombian Ministry of Mines and Energy designated the Instituto Colombiano de Geología y Minería, INGEOMINAS [“Ingeominas”], an institute created in 1916 for geoscientific research,⁹¹ as Minercol's successor, and delegated the functions of mining authority to this agency.⁹²

170. It was Ingeominas that on 6 April 2004 approved the 2003 PTI.⁹³

⁸⁶ Doc. C-73. ↩
⁸⁷ Doc. C-73, Clause First and Clause Fourth. ↩
⁸⁸ Doc. C-74, p. 21. ↩
⁸⁹ Prodeco submitted a first version of the PTI on 9 September 2003 (Doc. R-65) and a revised version in December 2003 (Doc. C-74), at the request of Minercol (Doc. R-66, p. 2). ↩
⁹⁰ Doc. C-74, p. 18. ↩
⁹¹ Paredes I, para. 20. By a Decree of 28 January 2004, the Instituto de Investigación e Información Geocientífica, Minero Ambiental y Nuclear was restructured and its name was changed to Instituto Colombiano de Geología y Minería (Doc. R-10, p. 1). ↩
⁹² Doc. R-56. ↩
⁹³ Doc. R-66; Nagle I, para. 24. ↩

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171. In July 2004, the Calenturitas Mine finally entered into production.⁹⁴ By the end of that year the Mine had produced 0.6 MT of coal; production increased to 1.5 ΜΤΑ in the following year, 2005.⁹⁵

D. 2004: Fifth Amendment

The Contracting Committee

172. In June 2004, Ingeominas created by internal resolution a Comité de Contratación Minera [“Contracting Committee”], comprising Ingeominas' Secretario General, the Director del Servicio Minero, the Subdirectores de Contratación y Titulación Minera and Fiscalización y Ordenamiento Minero, and an Asesor de la Dirección General.

173. This Committee was responsible for advising the Director del Servicio Minero inter alia on contracts of gran minería for areas historically granted to Ecocarbón. In particular, the Contracting Committee had the following function:⁹⁶

“Recomendar al Director del Servicio Minero la aprobación o desaprobación de las solicitudes presentadas por los concesionarios relacionadas con modificación, prórroga, cesión, subcontratación, suspensión y renuncia de los contratos".

174. The Contracting Committee thus became responsible for evaluating and making any recommendation to the Director del Servicio Minero regarding Prodeco's requests to modify the Mining Contract.

175. In September 2004, the scope of the Contracting Committee's functions was slightly altered by another resolution of Ingeominas:⁹⁷

"Recomendar a la Dirección del Servicio Minero o a las Subdirecciones de Contratación y Titulación Minera y Fiscalización y Ordenamiento Minero la aprobación o rechazo de las peticiones presentadas por los beneficiarios de los títulos mineros, relacionadas entre otros, con la modificación, prórroga, suspensión, integración de operaciones mineras y renuncia de los contratos de concesión y demás títulos mineros”.

Fifth Amendment

176. On 15 December 2004, following the recommendation of the Contracting Committee,⁹⁸ Prodeco and Ingeominas executed a fifth amendment to the Mining

⁹⁴ Doc. CLEX-11, p. 14; Doc. CLEX-15, p. 8. ↩
⁹⁵ Doc. CLEX-15, “Informe de Gestión 2006", p. 348 of the PDF; Nagle I, para. 24; Doc. H-1, p. 50. ↩
⁹⁶ Doc. R-10, Arts. 1 and 3. ↩
⁹⁷ Doc. R-11, Art. 4(2). ↩
⁹⁸ Doc. C-76, recital 16. See also Doc. R-68; Doc. R-69. ↩

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Contract,⁹⁹ which clarified the calculation of the Base and Additional Royalties ["Fifth Amendment"].

Ε. 2005: Sixth Amendment

177. It will be recalled that, in 1995, through the acquisition of Prodeco,¹⁰⁰ Glencore became the indirect owner of concession rights over the Calenturitas Mine and Prodeco's Port.¹⁰¹

Acquisition of Carbones de la Jagua S.A.

178. In 2005, Glencore acquired Carbones de la Jagua S.A. [“CDJ”], a company that held rights over some mining properties within the La Jagua coal mining project, located approximately 20 kilometres east of the Calenturitas Mine. Glencore was later able to consolidate ownership of the La Jagua coal project by acquiring Consorcio Minero Unido S.A. [“CMU”] in 2006 and Carbones El Tesoro [“CET"] in 2007.¹⁰² The Tribunal shall refer to CDJ, CMU, and CET jointly as the “Prodeco Affiliates".

Sixth Amendment

179. One of the advantages of this acquisition was the blending of coal from the Calenturitas and La Jagua Mines-¹⁰³ a procedure which called for an amendment of the Mining Contract.¹⁰⁴ Accordingly, on 15 December 2005, Prodeco and Ingeominas executed the sixth amendment to the Mining Contract ["Sixth Amendment"]. This Amendment clarified how the Royalties and GIC payments should be calculated when the coal volume exported consisted of coal from the Calenturitas Mine blended with coal from other mines [“Blended Coal”].¹⁰⁵

180. The Sixth Amendment also changed the reference price for calculating Royalties and GIC, from the “Coal Week International" price to the price of Colombian thermal coal published by the Platts “International Coal Report” [“ICR”], adjusted for calorific value. The Amendment specified that:¹⁰⁶

• If the coal exported by Prodeco came exclusively from the Mine, the reference price would be the higher of (i) the FOB Colombian port price for Colombian steam coal for the respective week as published in the ICR, adjusted for calorific value, and (ii) the shipment price estimated by Prodeco;

⁹⁹ Doc. C-76. ↩
¹⁰⁰ Doc. CLEX-11, p. 12. See also RfA, para. 14; C I, para. 28; Nagle I, para. 19; Doc. H-1, p. 39; R I, fn. 16. ↩
¹⁰¹ Doc. CLEX-11, p. 12; Doc. CLEX-11, p. 249 of the PDF. ↩
¹⁰² Doc. CLEX-11, pp. 12-13; RfA, para. 5. ↩
¹⁰³ Nagle I, paras. 25-26. ↩
¹⁰⁴ Doc. R-75. ↩
¹⁰⁵ Doc. C-77, recital 6, Clause 1 and Annex 9A. ↩
¹⁰⁶ Doc. C-77, Annex 9A. ↩

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• If the coal exported by Prodeco was Blended Coal, the reference price would simply be the FOB Colombian port price for Colombian steam coal, for the respective week as published in the ICR, adjusted for calorific value.

Railway

181. In March 2006, Prodeco, CDJ and CMU, the two mining companies recently acquired by Glencore, entered into an association contract with other coal producers, with the aim of sharing the use of a railway under concession to Ferrocarriles del Norte de Colombia S.A. ["Fenoco"]. Prodeco eventually indirectly acquired a 39.76% ownership interest in Fenoco.¹⁰⁷

182. This railway linked the Mine region with ports situated in the Atlantic coast, specifically with Prodeco's Port, and solved Prodeco's transport difficulties: rail transport permitted the shipping of higher quantities of coal, at lower costs, and an increase in the capacity of the Calenturitas Mine.

F. 2006: The 2006 PTI

183. Production at the Calenturitas Mine continued to grow in 2006. In that year the Mine produced 2.9 MTA, almost twice the 2005 production.¹⁰⁸

184. In addition, in 2006, Prodeco realized that it was possible to divert a section of the Calenturitas River that ran through the Mine, thereby increasing the amount of exploitable resources.¹⁰⁹

185. Consequently, in November 2006, Prodeco submitted a revised long-term PTI to Ingeominas, with new coal production objectives [“2006 PTI”]. Prodeco proposed to expand total coal production from the Mine to 116 MT between 2007 to 2019 (more than doubling the 55 MT envisioned in the 2003 PTI), initially at a rate of 4.4 MTA starting in 2007, and gradually increasing to 10 MTA from 2010 onwards:¹¹⁰

Tabla No 3-10 Resumen de Cantidades. Secuencia Minera

¹⁰⁷ Doc. CLEX-15, “Nota a los Estados Financieros” for 2007, p. 11; Doc. CLEX-11, p. 12; Doc. CLEX-13, p. 15. See also Compass Lexecon I, para. 25. ↩
¹⁰⁸ Doc. CLEX-15, “Informe de gestión 2006", p. 348 of the PDF. ↩
¹⁰⁹ Doc. C-78, pp. 17-19 and 42. ↩
¹¹⁰ Doc. C-78, pp. 17-19, 51 and 55. ↩

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186. The 2006 PTI also foresaw an investment of USD 500.1 million [“M"] being made in the years 2007-2010 (broken down as USD 196.4 M for equipment, USD 114.6 M for railway, USD 85.2 M for infrastructure, and USD 103.9 M for port and sundry investments), and an additional investment of USD 684.4 M for the remaining life of the project.¹¹¹

187. The net present value of the project was estimated at USD 98 M (applying a discount rate of 15%), assuming costs of USD 24.79 per tonne of coal¹¹² and a coal sales price of USD 42.58 per tonne.¹¹³

188. Mine-life Royalties to be paid to Ingeominas were estimated at USD 671 M.¹¹⁴

189. The 2006 PTI also provided for additional exploratory drilling in Sectors B and D of the Mine.¹¹⁵

190. On 7 February 2007, Ingeominas approved the 2006 PTI, finding that this plan was more favourable than the original PTI, taking into account that it would generate a significantly higher compensation for the State. Ingeominas demanded, however, that in 2009 Prodeco submit an updated PTI, incorporating the results of the additional exploratory drilling in Sectors B and D.¹¹⁶

G. 2007: Seventh Amendment

191. While Prodeco awaited the approval of the 2006 PTI, it consulted Ingeominas regarding the potential execution of a seventh amendment to the Mining Contract, with the goal of increasing the duration of the Contract and changing the existing Royalties regime, in particular for sales of coal in the Colombian domestic market. Prodeco explained that in order to be able to extract the maximum amount of coal resources and to profit from the significant investments it would make in the Calenturitas project – estimated at USD 1,184 M – the exploitation phase would need to be extended for a period of 20 years.¹¹⁷

192. After lengthy negotiations and upon the Contracting Committee's recommendation, on 15 February 2007, Prodeco and Ingeominas executed the Seventh Amendment to the Mining Contract [“Seventh Amendment"].¹¹⁸

193. The main thrust of the Seventh Amendment was to extend the duration of the Mining Contract by 15 years, until 3 July 2035.¹¹⁹ The justification given was that the 2006 PTI provided for the mining of an additional 60 MT of coal, and an

¹¹¹ Doc. C-78, pp. 170 and 173. ↩
¹¹² Doc. C-78, p. 175. ↩
¹¹³ Doc. C-78, p. 170. ↩
¹¹⁴ Doc. C-78, p. 177. ↩
¹¹⁵ Doc. C-78, pp. 35-36. ↩
¹¹⁶ Doc. C-80. ↩
¹¹⁷ Doc. C-79. ↩
¹¹⁸ Doc. C-9. ↩
¹¹⁹ Doc. C-9, Clause 1. ↩

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increase of the capacity of the Mine to 10 MTA. The Considerando 6 of the Seventh Amendment concludes:¹²⁰

"En consecuencia los recursos que generará el proyecto por contraprestaciones económicas a favor del Estado se incrementan sustancialmente frente a lo previsto en el PTI original [...]”.

194. The Seventh Amendment also allowed Prodeco to allocate up to 15% of its annual coal production to local sales; in such a case, Royalties would be calculated pursuant to the base price defined by the Unidad de Planeación Minero Energética.¹²¹

195. The basic system for quantifying Royalties and GIC was not changed, but a few clarifications and amendments were added. The Seventh Amendment provided:

• That if the coal exported by Prodeco came exclusively from the Mine, the reference price for payment of Royalties and GIC would be the higher of (i) the FOB Colombian port price for Colombian steam coal for the respective week as published in the ICR, adjusted for calorific value [“FOB Price”], and (ii) the actual sale price;¹²²
• That Royalties and GIC would be calculated and paid within ten days of the shipment of coal, but would be subject to a quarterly readjustment “based on the definitive prices”¹²³ (as will be explained later, the interpretation of this provision would become the subject of a debate between the Parties).

196. Finally, the Seventh Amendment required Prodeco to submit a revised long-term PTI in January 2009, detailing its plans to exploit the Mine until 2035 and incorporating the results of the additional exploration conducted in Sectors B and D.¹²⁴

(2) THE EIGHTH AMENDMENT: PRELIMINARY STEPS

197. Claimants argue that by signing the Eighth Amendment:

• Ingeominas agreed to amend the Mining Contract and to change the system for calculating the Royalties and the GIC, and
• In exchange, Prodeco undertook a massive additional program of investment, increasing the productive capacity of the Mine.

198. The result was a ‘win-win' situation: Ingeominas would earn a higher remuneration (albeit by applying lower Royalties and GIC to a much higher production) and

¹²⁰ Doc. C-9, Considerando 6, p. 2. ↩
¹²¹ Doc. C-9, Clause 2. ↩
¹²² Doc. C-9, Annex 9A. ↩
¹²³ In fact, a similar provision already existed in the Sixth Amendment, with a different wording (see Doc. C-77, Annex 9A, paras. A)(4) and B)(5)). ↩
¹²⁴ Doc. C-9, Clause 1. ↩

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Prodeco would be able to make the necessary investments and develop the Mine to its full capacity.

199. Respondent contests Claimants' version of the facts and argues that Claimants concealed and misrepresented crucial information in order to mislead the State into accepting an unjustifiable renegotiation of the Mining Contract, to the sole benefit of Claimants and to the detriment of the State. According to Respondent, Claimants made wilful misrepresentations, colluded with public servants, and engaged in corrupt practices, all in order to execute the Eighth Amendment.¹²⁵

200. The Tribunal will carefully analyse the evidence and establish the proven facts, starting with the preliminary steps which eventually led to the execution of the Eighth Amendment.

A. May 2008: Prodeco's First Approach

201. In February 2007, Prodeco and Ingeominas executed the Seventh Amendment, and in October 2007 Prodeco delivered an Annual PTI for the year 2008. This PTI detailed the operations planned for 2008 and envisioned a production of 5 MTA.¹²⁶

202. The Seventh Agreement did not change the basic structure of the remuneration which Prodeco had to pay to Ingeominas:

• On the one side, progressive Royalties were calculated on the basis of an increasing scale, which added a 1% for every additional MTA produced by the Mine above; if the estimated production of 10 MTA was reached, the applicable Royalties rate would amount to 14.6%, to be applied to the totality of the coal sold; should production reach 11 MTA, the rate would rise to 15.6%, again to be applied to the totality of production;
• On the other side, the GIC reference price of USD 40 per tonne had not been changed since 1989; and as a result of inflationary increases in Prodeco's mining costs, Prodeco had to pay Colombia a share of its gross revenues at price levels that barely covered its production costs.

203. Six months after executing the Seventh Amendment, Prodeco decided to approach Ingeominas regarding a potential new amendment to the Mining Contract.¹²⁷

204. On 23 May 2008, Prodeco's representatives met with Ingeominas' Director General, Mr. Mario Ballesteros [“Mr. Ballesteros"], and made a presentation, based on an extensive PowerPoint, suggesting a revision of the economic conditions of the Mining Contract.¹²⁸ A few days thereafter, on 28 May, Prodeco submitted a 9-page formal request.¹²⁹ Prodeco argued that the existing compensation

¹²⁵ R I, paras. 5, 9. See also HT, Day 2, p. 305, 1. 22 – p. 307, 1. 6. ↩
¹²⁶ Doc. BR-2, p. 13. ↩
¹²⁷ Doc. C-82. ↩
¹²⁸ Doc. C-82. ↩
¹²⁹ Doc. C-83. ↩

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arrangement compromised the potential expansion and even the viability of the Calenturitas mining project.¹³⁰

205. Accordingly, Prodeco proposed that, in order to guarantee the sustainability of Colombia's returns and the viability of the mining project, certain conditions agreed upon in the Mining Contract should be amended:¹³¹

• Replacing the ICR index by the API2-BCI7 indexes;¹³²
• Calculating Royalties and GIC based on the value of coal at the pithead of the Mine;
• Capping Royalties at 10%;
• Updating the value of the GIC and introducing a formula for indexation.

206. Prodeco proposed the creation of a committee to analyse these potential modifications and, in the meantime, the execution of a memorandum of understanding.¹³³

Ingeominas' reaction

207. A few days thereafter,¹³⁴ Ingeominas' Subdirector de Fiscalización y Ordenamiento Minero, Mr. Edward Franco, prepared an extensive legal and economic report, analysing Prodeco's proposal. The report was delivered to Mr. Ballesteros, for submission to Ingeominas' Consejo Directivo.¹³⁵ Mr. Franco's proposal to the Consejo Directivo was the following:¹³⁶

“En cuanto a la modificación propuesta se recomienda no acceder a la misma por ser poco favorable para los intereses de la Nación”.

208. Despite this initial analysis, Prodeco and Ingeominas held further meetings to discuss the changes proposed by Prodeco.¹³⁷

B. July 2008: Prodeco's second approach

209. On 15 July 2008, Prodeco sent to Ingeominas a second formal request for the revision of the economic conditions of the Mining Contract and the reduction of Royalties and GIC. That extensive request further developed Prodeco's original

¹³⁰ Doc. C-83. See also Doc. C-82 and Nagle I, paras. 41-45. ↩
¹³¹ Doc. C-82; Doc. C-83. ↩
¹³² Monthly arithmetic average of the export prices CIF ARA published by Argus/McCloskey in the index known as API2, minus the monthly average price of the maritime freight costs between Puerto Bolivar and Rotterdam published by SSY in the index known as BCI7 (see Doc. C-96, pp. 1-2). ↩
¹³³ Doc. C-82, p. 25; Doc. C-83, p. 10. ↩
¹³⁴ The precise date is difficult to establish, because the copy in the file is undated (Doc. R-79; Doc. R-80). ↩
¹³⁵ Doc. R-80. See also Doc. R-79. ↩
¹³⁶ Doc. R-80, p. 13. ↩
¹³⁷ Doc. C-86, p. 1. ↩

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proposal and added a new supporting argument: if Ingeominas were prepared to reduce the compensation, Prodeco would increase its investments and increase the capacity of the Mine.¹³⁸

210. Prodeco submitted a precise calculation of two scenarios – one, if the Mining Contract was not amended, and the other, if Prodeco's proposals were accepted.¹³⁹

211. In essence, Prodeco was proposing to Ingeominas what Prodeco considered to be a 'win-win' deal: if Ingeominas agreed to a reduction of its Royalties, Prodeco would commit to making additional investments, production of the Mine would increase, costs would be cut, sales would be higher, and at the end of the life of the Mine, Prodeco would have earned higher profits and Colombia would have received significantly higher Royalties and taxes.

C. July 2008 – April 2009: The Dispute over the Definitive Price

212. In its letter dated 15 July 2008, Prodeco also raised for the first time an interpretative issue regarding the definition of the so-called “Definitive Price” provision in the Seventh Amendment to the Mining Contract.¹⁴⁰

213. Pro memoria, the Seventh Amendment had established that the reference price for payment of Royalties and GIC would be the higher of (i) the FOB Price¹⁴¹ and (ii) the actual sale price. Royalties and GIC would initially be calculated and paid within ten days of the shipment of coal, but they would be subject to a quarterly readjustment – upward or downward – “based on the definitive prices.”¹⁴²

214. In the letter Prodeco asserted that there were two possible interpretations of the term "Definitive Price:"¹⁴³

• The first interpretation would equal Definitive Price with the actual sale price received by Prodeco, evidenced in the invoices issued to the buyers;
• Under an alternative interpretation, Definitive Price would be the higher of (i) the FOB Price in the week when the coal was shipped and (ii) the actual sale price obtained by Prodeco.

215. Prodeco acknowledged that hitherto it had calculated the Definitive Price on the basis of the second alternative; but Prodeco now submitted that this interpretation failed to take into account that the market situation had drastically changed.

¹³⁸ Doc. C-84, p. 19. See also p. 20. ↩
¹³⁹ Doc. C-84, Annex 8. ↩
¹⁴⁰ C I, para. 51; R I, paras. 61-62. See also Doc. C-84, paras. 1.3-1.15. The Tribunal notes that a similar provision already existed in the Sixth Amendment (see Doc. C-77, Annex 9A, paras. A)(4) and B)(5)). ↩
¹⁴¹ Defined as the FOB Colombian port price for Colombian steam coal for the respective week as published in the ICR, adjusted for calorific value. ↩
¹⁴² Doc. C-9, Annex 9A. ↩
¹⁴³ Doc. C-84, para. 1.4. ↩

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216. Prodeco proposed to Ingeominas that the Mining Contract be modified, so that Royalties and GIC be calculated on the basis of Prodeco's actual sale price.¹⁴⁴

217. In late August and early September 2008, Prodeco held meetings with the Ministro de Minas y Energía, Mr. Hernán Martínez Torres, and with Mr. Ballesteros to discuss the revision of the Mining Contract.¹⁴⁵ The evidence shows that the Minister agreed that it would be fair and reasonable for the Royalties to be calculated using the actual price received by Prodeco.¹⁴⁶

No negative inference

218. Respondent says that given Claimants' failure to produce documents responsive to Colombia's request, the Tribunal must conclude that Prodeco actively sought to fabricate a dispute over payment of royalties to force Ingeominas into negotiating what would become the Eighth Amendment.¹⁴⁷

219. The Tribunal disagrees.

220. There is no evidence that Prodeco "fabricated" a dispute, i.e. that it pursued a request knowing that it was not entitled to the rights claimed. To the contrary: the Minister of Mines agreed with the reasonableness of Prodeco's position, which proves that Prodeco at least had a prima facie case.

Prodeco unilaterally construes the Mining Contract

221. On 8 September 2008, Prodeco sent a letter to Ingeominas, stating that as of 30 September 2008 it would start readjusting the amount of Royalties and GIC based on a Definitive Price equal to that paid by the end consumer.¹⁴⁸

222. One month later, Prodeco did as it had anticipated: it paid the adjustment amount corresponding to the Royalties and GIC of the third quarter of 2008, applying the new interpretation of Definitive Prices. This led to an underpayment of USD 6 M in favour of Prodeco.

223. This interpretation, and consequent adjustment, was not accepted by Ingeominas. On 17 October 2008, Ingeominas replied to Prodeco saying that it was still evaluating the viability of the proposed contractual modification. According to Ingeominas, the reference price for the calculation of Royalties and GIC was the one published by the ICR, and any unilateral modification was without effect.

¹⁴⁴ Doc. C-84, para. 1.5-1.15. ↩
¹⁴⁵ Doc. R-83; Doc. R-85, p. 2. ↩
¹⁴⁶ Doc. C-86, p. 1 and Nagle I, para. 51. See also the Versión Libre y Espontánea rendered by Minister Martínez Torres in Doc. R-81, pp. 1-2: “Les recordé que el precio que debían incluir en el acuerdo para liquidar las regalías debía ser el precio del consumidor final y no el precio con que normalmente se registraba como de exportación”. ↩
¹⁴⁷ R II, para. 988. ↩
¹⁴⁸ Doc. C-86. ↩

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Hence, Ingeominas demanded that Prodeco comply with the terms of the Mining Contract.¹⁴⁹

224. Prodeco responded ten days later, stating that it was aware that any modification of the Mining Contract had to be bilaterally agreed, but that it was not seeking an amendment of the Definitive Price clause, given that its meaning was clear.¹⁵⁰

Ingeominas' Requerimiento bajo apremio de caducidad

225. On 23 January 2009, Ingeominas formally demanded payment of the amount in dispute through a Requerimiento bajo apremio de caducidad. Ingeominas asserted that Prodeco's unilateral interpretation of the Mining Contract amounted to a contractual breach. Through the Requerimiento, Ingeominas threatened Prodeco with a declaration of caducidad of the Contract if payment was not effected or an appropriate justification provided within one month.¹⁵¹

226. Prodeco replied to the Requerimiento on 13 February 2009, restating the reasons for its interpretation of the Definitive Price term used in the Contract, and pointing out that Ingeominas had not explained why it disagreed with such interpretation.¹⁵²

227. In April 2009, Prodeco approached Ingeominas regarding the outstanding royalty payments and proposed paying all the disputed amounts into an escrow account, until the dispute on the proper interpretation of the term Definitive Price had been settled.¹⁵³ Ingeominas ultimately rejected this proposal, insisting that Prodeco pay the disputed amounts directly to Ingeominas in cash, before negotiations could progress.¹⁵⁴

D. November 2008: Annual PTI for 2009

228. In November 2008, Prodeco delivered to Ingeominas the Annual PTI for the year 2009, which envisaged a production of almost 7.2 MTA, and the start of the works for diverting the Calenturitas River, which would lead to an increase in the total Mine production of 80 MT of coal.¹⁵⁵

229. Pursuant to the Seventh Amendment, in January 2009, Prodeco was due to submit its revised long-term PTI, detailing its plans to exploit the Mine until 2035 and accounting for the results of the additional exploration in Sectors B and D.¹⁵⁶ Nevertheless, since Prodeco had not completed its exploration program, it requested

¹⁴⁹ Doc. R-84. ↩
¹⁵⁰ Doc. R-85. ↩
¹⁵¹ Doc. C-88 / C-243. ↩
¹⁵² Doc. C-244. ↩
¹⁵³ Doc. C-90. ↩
¹⁵⁴ Doc. R-101, p. 3. See also Nagle I, para. 56; Nagle II, para. 25; HT, Day 3, p. 658, 11. 7-11 and p. 661, 11. 10-22. ↩
¹⁵⁵ Doc. BR-3, pp. 1-1 to 1-3. ↩
¹⁵⁶ Doc. C-9. ↩

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that the time to submit the PTI be extended until 30 May 2009,¹⁵⁷ a request which Ingeominas granted.¹⁵⁸ In fact, because of the parties' parallel negotiations, Prodeco would not submit such PTI until June 2010.¹⁵⁹

Ε. March 2009: Sale of Prodeco to Xstrata

230. In March 2009, Glencore sold Prodeco to the Australian mining company Xstrata, for a net consideration of USD 2 Bn; Glencore, however, retained a call option to repurchase Prodeco – which it eventually exercised.¹⁶⁰

(3) THE 3HA CONTRACT

231. Before continuing with its description of the negotiation and execution of the Eighth Amendment, the Tribunal must address a highly relevant averment of Colombia: namely, that Claimants obtained the Eighth Amendment through corruption. This is the factual predicate of Colombia's argument that the Tribunal lacks jurisdiction to decide this case.

232. Respondent alleges that Claimants bribed Mr. Ballesteros, Ingeominas' Director General, in order to secure his support for the execution of the Eighth Amendment, and that it paid the bribe through a complex scheme: Prodeco bought for a price of USD 1.75 M a concession contract [the “3ha Contract”] for the exploration and production of coal in a parcel of three hectares located in the middle of the La Jagua mine from a former employee of the Ministry of Mines and his partner.¹⁶¹ Respondent says that these individuals were strawmen of Mr. Ballesteros, who ultimately benefitted from the consideration paid by Prodeco, and the payment was the quid pro quo for the execution of the Eighth Amendment.

233. The Tribunal will establish the proven facts, and in order to do so it will recount the full story of the 3ha Contract, starting in 2006.

A. November 2006: A Coveted Concession Contract

234. On 29 November 2006, Mr. Jorge Maldonado [“Mr. Maldonado"] – a former employee of the Ministry of Mines and of Ingeominas' predecessors – and his partner, Mr. César García, filed a request with Ingeominas to obtain a concession contract for the exploration and production of coal in a parcel of 3 hectares.¹⁶²

235. These 3 hectares were located in the middle of several concessions which formed part of the La Jagua project and were exploited by Glencore through the Prodeco

¹⁵⁷ Doc. R-104. ↩
¹⁵⁸ Doc. R-105. ↩
¹⁵⁹ Doc. CLEX-28. ↩
¹⁶⁰ Doc. R-77, p. 62; Doc. R-78, p. 2; Doc. R-278. ↩
¹⁶¹ R I, paras. 67-69. ↩
¹⁶² Doc. C-197; Doc. R-93. See also R I, para. 71 and C II, para. 38(b). ↩

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Affiliates (at the time only CDJ and CMU, since CET would be acquired in 2007).¹⁶³

236. Four months after Mr. Maldonado's application, Ingeominas issued on 2 March 2007 a technical report concluding that the 3ha Contract would partially overlap with other nearby concessions and that it was too small for a stand-alone mining operation.¹⁶⁴ A week thereafter, on 17 March 2007, Ingeominas formally rejected Mr. Maldonado's application for the 3ha Contract.¹⁶⁵

237. In January 2008, after Glencore's acquisition of CET, the Prodeco Affiliates submitted an agreement for the integrated use of mining infrastructure (Acuerdo de Uso Integrado de Infraestructura Minera) to Ingeominas, in order to conduct joint operations in the mining areas of the La Jagua project ["Integrated Use Agreement”].¹⁶⁶ Ingeominas approved this Agreement on 28 January 2008.¹⁶⁷

238. On 10 March 2008, the Prodeco Affiliates submitted to Ingeominas a formal opposition to the 3ha Contract, requesting that Ingeominas:¹⁶⁸

• Correct the errors in the coordinates of the titles granted to the Prodeco Affiliates, which had created the three-hectare gap; or
• Alternatively, reject the request for the 3ha Contract, because it would be technically impractical to exploit such a small area.

Ingeominas backtracks and awards the 3ha Contract

239. In June 2008, Ingeominas backtracked on its original decision, finding that the 3ha Contract area did not overlap with other mining concessions, and rejecting the objections of the Prodeco Affiliates.¹⁶⁹ In July 2008, the Prodeco Affiliates filed a request for reconsideration,¹⁷⁰ which Ingeominas rejected on 19 August 2008.¹⁷¹

B. August 2008 - November 2008: Prodeco Complains to Authorities

240. Prodeco was now faced with the situation that Ingeominas was about to grant the 3ha Contract to Mr. Maldonado and his partner – a concession which threatened to disrupt the development of the La Jagua mine. In this situation, Prodeco decided to complain in writing to various Colombian authorities – including the Ministro de Presidencia.

¹⁶³ Doc. R-90, p. 6. See also R I, para. 69 and C II, para. 38(b). ↩
¹⁶⁴ Doc. C-199, pp. 1-2. See also R I, para. 72 and C II, para. 38(c). ↩
¹⁶⁵ Doc. C-200. See also R I, para. 72 and C II, para. 38(c). ↩
¹⁶⁶ Doc. C-234. ↩
¹⁶⁷ Doc. C-202, p. 2, para. 11. ↩
¹⁶⁸ Doc. C-202, pp. 3-4. ↩
¹⁶⁹ Doc. C-206. See also R I, para. 73 and C II, para. 38(j). ↩
¹⁷⁰ Doc. C-207. ↩
¹⁷¹ Doc. C-208. ↩

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241. First, on 26 August 2008, Ms. Margarita Zuleta, a lawyer acting on behalf of the Prodeco Affiliates, filed a formal complaint regarding the anomalies surrounding the 3ha Contract with Colombia's Procurador General de la Nación.¹⁷² Ms. Zuleta also forwarded this complaint to the Ministro de Minas y Energía, to the Ministro de la Presidencia, to Mr. Ballesteros (Ingeominas' General Director), and to the Contraloría,¹⁷³ the Republic's supervisory agency.

242. Second, on 22 September 2008, Ms. Zuleta approached the Procurador General again, saying that Ingeominas' rejection of the Prodeco Affiliates' request for reconsideration constituted a violation of due process and of the applicable mining provisions. Ms. Zuleta emphasised that the Procurador General should investigate the fact that the 3ha Contract had been awarded to an ex-employee of the agency, since there had been clear irregularities and an undue use of insider information.¹⁷⁴ This letter was, once again, forwarded to the Ministro de Minas y Energía, to the Ministro de la Presidencia, and to the Contraloría.¹⁷⁵

243. Third, on 6 October 2008, the Prodeco Affiliates sent a complaint to Mr. Ballesteros and Mr. Edward Franco (with a copy to the Procurador General, the Ministro de Minas y Energía, the Ministro de la Presidencia and the Contraloría), asking Ingeominas to review the 3ha Contract and to refrain from granting, or at least from registering, the 3ha Contract.¹⁷⁶

244. Fourth, on 10 October 2008, the Prodeco Affiliates asked the Jefe del Registro Minero Nacional (with a copy to the Procurador General, the Contraloría, the Ministro de Minas y Energía and the Ministro de la Presidencia) to refrain from registering the 3ha Contract, claiming that he had a duty to the defend the national interest.¹⁷⁷

Execution of the 3ha Contract

245. Notwithstanding the Prodeco Affiliates' appeals and complaints, on 16 October 2008, Ingeominas (represented by Mr. Franco Gamboa) and Mr. Maldonado and his partner executed the 3ha Contract, and the latter thus became owners of the 3ha mining concession.¹⁷⁸

246. Prodeco quickly reacted: on 21 November 2008, Ms. Zuleta asked Ingeominas' Coordinador del Grupo de Control Interno Disciplinario to open a disciplinary investigation against the employees involved in awarding the 3ha Contract (with a copy to the Procurador General, the Ministro de Minas y Energía, the Ministro de Presidencia, the Director del Programa Presidencial de Lucha contra la

¹⁷² Doc. C-209. ↩
¹⁷³ Doc. C-210. ↩
¹⁷⁴ Doc. C-211. ↩
¹⁷⁵ Doc. C-211, “C.c. Doctor Julio Cesar Turbay Quintero – Contralor General de la República; Doctor Hernán Martínez – Ministro de Minas y Energía; Doctora Cecilia Álvarez – Ministro de la Presidencia”. ↩
¹⁷⁶ Doc. C-212, pp. 1 and 5. ↩
¹⁷⁷ Doc. C-213. ↩
¹⁷⁸ Doc. C-214. ↩

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Corrupción, and the Contraloría).¹⁷⁹ And in February 2009 Prodeco's external counsel filed a citizen's suit (acción popular) against Ingeominas and Messrs. Maldonado and García based on the irregularities surrounding the 3ha Contract.¹⁸⁰

C. May 2009: CDJ Buys the 3ha Contract

247. In the meantime, in December 2008, Messrs. Maldonado and García approached Prodeco through an intermediary, offering to sell the 3ha Contract for USD 11 M.¹⁸¹

248. At the end of March 2009,¹⁸² the Prodeco Affiliates made a last complaint to the Ministro de Presidencia about the irregularities surrounding the 3ha Contract. Prodeco warned that the lack of a solution to the 3ha Contract situation would leave Prodeco with no option other than to engage in direct negotiations with Messrs. Maldonado and García.¹⁸³

249. Once again faced with the silence and inaction of the Colombian authorities, Prodeco decided to pursue the option of buying the 3ha Contract from Messrs. Maldonado and García.

250. The transaction took place on 4 May 2009:¹⁸⁴ Ms. Elsa Aragón Barrera, acting on behalf and in representation of Mr. Maldonado, and Mr. García signed an agreement assigning the 3ha Contract to CDJ, one of the Prodeco Affiliates, which paid USD 1.75 M as consideration [the “Assignment Contract"].¹⁸⁵

Approval by Ingeominas

251. Prodeco and Messrs. Maldonado and García submitted the Assignment Contract to Ingeominas for approval.¹⁸⁶ In that version of the Contract, the price paid was unspecified:¹⁸⁷

3. Precio y Forma de Pago. El CESIONARIO deberá pagar al CEDENTE la suma de US$xxxx pagaderos en pesos colombianos a la tasa representativa del mercado vigente el día del pago. Este pago deberá hacerse el día hábil siguiente a aquel en el cual la cesión del CONTRATO sea inscrita en el Registro Minero y en consecuencia haya constancia de que el CONTRATO está en cabeza del CESIONARIO.

¹⁷⁹ Doc. C-239. See also Doc. C-222, p. 14. ↩
¹⁸⁰ Doc. C-215. ↩
¹⁸¹ Doc. R-280, pp. 1 and 2: “He told me that the US $10 for ton was a starting point, but that price could be negotiated" and "Gary, total coal tones are 1'114.000 aprox.". The value of multiplying 1.14 MT by USD 10/tonne, would amount to approximately USD 11 million (See Nagle III, para. 6). ↩
¹⁸² The letter erroneously reads 31 March 2008. There is no doubt that it is from 2009, since it describes facts which are posterior to 31 March 2008 (Doc. C-300). ↩
¹⁸³ Doc. C-300, p. 4. ↩
¹⁸⁴ The assignment contract is erroneously dated 4 May 2008 (Doc. C-301). There is no doubt that it is actually dated May 2009, as also proved by the draft submitted to Ingeominas for approval (Doc. R-95). ↩
¹⁸⁵ Doc. C-301. See also Nagle II, para. 22; Paredes I, para. 17. ↩
¹⁸⁶ Doc. R-94. ↩
¹⁸⁷ Doc. R-95. ↩

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252. Ingeominas approved the Assignment Contract on 8 May 2009, and the transaction was registered on 27 May 2009.¹⁸⁸

Payment of the purchase price

253. The Assignment Contract provided that CDJ should make the payments due in Colombian Pesos, in two designated accounts opened in two Colombian banks (Banco Davivienda and Banco Occidente):¹⁸⁹

3.1 La suma de cien mil dólares de los Estados Unidos (US$100.000) pagadera en pesos colombianos liquidados a la tasa representativa del mercado del día del pago, el día hábil siguiente a aquel en el cual el Anexo 2 sea entregado y debidamente radicado en INGEOMINAS. Esta valor será depositado de la siguiente manera (i) la suma de cincuenta mil dólares (US$50.000) será depositado en la cuenta de ahorros 006301113939 del Banco Davivienda cuyo titular es Elsa Marina Aragón y (ii) la suma de cincuenta mil dólares (US$50.000) será depositado en la cuenta de ahorros del Banco de Occidente 235-828118 cuyo titular es Germán Vargas Navarrete

3.2 La suma de un millón seiscientos cincuenta mil dólares de los Estados Unidos (US$1.650.000), pagadera en pesos colombianos liquidados a la tasa representativa del mercado del día del pago, el día hábil siguiente a aquel en el cual la cesión del CONTRATO sea inscrita en el Registro Minero y en consecuencia haya constancia de que el CONTRATO está en cabeza del CESIONARIO, Este valor será depositado de la siguiente manera (i) la suma de ochocientos veinticinco mil dólares de los Estados Unidos (US$825.000) será depositado en la cuenta de ahorros 006301113939 del Banco Davivienda cuyo titular es Elsa Marina Aragón y (ii) la suma de ochocientos veinticinco mil dólares de los Estados Unidos (US$825.000) será depositado en la cuenta de ahorros del Banco de Occidente 235-828118 cuyo titular es Germán Vargas Navarrete.

254. CDJ made the payments by transferring funds to the accounts located in Colombia and identified in the Contract, as evidenced by these transfer receipts:¹⁹⁰

[Image of a bank transaction form from DAVIVIENDA, No. 28575727, dated 05 MAYO 2009, showing a transaction of $113,627,500.]

¹⁸⁸ Doc. R-97. See also R I, para. 80 and C II, para. 38(p). ↩
¹⁸⁹ Doc. C-301, pp. 1-2. ↩
¹⁹⁰ Docs. C-303, C-307 and C-308. See also Doc. R-281; Doc. R-322. ↩

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[Image of a bank transaction form from DAVIVIENDA, No. 52779453, dated 28 MAYO 2009, showing a transaction of $1,754,575,589.]

[Image of a bank deposit slip for "CONSIGNACIÓN DE EFECTIVO Y/O CHEQUES LOCALES ÚNICAMENTE", dated 05/05/2009, to account 235828118 for German Vargas Navarrete, showing a total deposit of $113,627,500.]

[Image of a bank deposit slip for "CONSIGNACIÓN DE EFECTIVO Y/O CHEQUES LOCALES ÚNICAMENTE", dated 28/05/2009, to account 235828118 for German Vargas Navarrete, showing a total deposit of $1,754,575,589.]

255. There is also evidence in the file that, once payment had been made, CDJ made the appropriate tax withholding required under Colombian tax law:¹⁹¹

CERTIFICADO ANUAL DE RETENCION EN LA FUENTE
CARBONES DE LA JAGUA S.A.
NIT. 802.024.439-2
CARRERA 54 No. 72 80 PISO 4. BARRANQUILLA

CERTIFICAMOS

Que durante el ano gravable de 2009 practicamos retencion en la fuente a:

GARCIA VARGAS CESAR AUGUSTO con C.C. O N.I.T. 79,797,802

¹⁹¹ Doc. C-315, p. 2; Doc. C-316, p. 2. ↩

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CERTIFICADO ANUAL DE RETENCION EN LA FUENTE
CARBONES DE LA JAGUA S.A.
NIT. 802.024.439-2
CARRERA 54 No. 72 - 80 PISO 4. BARRANQUILLA

CERTIFICAMOS

Que durante el ano gravable de 2009 practicamos retencion en la fuente a:

MALDONADO MESTRE JORGE ISAAC con C.C. O N.I.T. 19,205,602

256. The transaction was also reflected in CDJ's audited financial statements of February 2010.¹⁹² On 1 February 2010, CDJ informed Ingeominas that it had acquired the 3ha Contract from Messrs. Maldonado and García, this time disclosing the consideration of USD 1.75 M:¹⁹³

D. May 2011: Further Developments

257. There is evidence that even after the Assignment Contract had been executed, Prodeco continued to complain about the irregular character of the grant of the three-hectare concession to Messrs. Maldonado and García.

258. Mr. Paredes, Respondent's witness in this arbitration, who replaced Mr. Ballesteros as Director General of Ingeominas, recalls that Dra. Zuleta personally raised the issue with him.¹⁹⁴

259. In a press conference of May 2011, the newly, appointed Ministro de Minas y Energía, Mr. Carlos Rodado, acknowledged the irregularities behind the 3ha Contract.¹⁹⁵ In June 2011, Mr. Rodado asked the Procuraduría General de la Nación, the Contraloría, and the Fiscalía General de la Nación to start formal investigations into irregularities within Ingeominas.¹⁹⁶

(4) THE EIGHTH AMENDMENT: NEGOTIATIONS

260. Pro memoria: while the facts concerning the 3ha Contract were developing, Prodeco was involved in a dispute with Ingeominas, regarding the proper interpretation of the term “Definitive Price” as used in the Mining Contract.

261. The dispute, which had arisen in 2008, had escalated because Prodeco had unilaterally applied its own interpretation, and had failed to pay to Ingeominas an amount of more than USD 6 M. Ingeominas had reacted by requiring Prodeco to

¹⁹² Doc. C-313, pp. 5-6. ↩
¹⁹³ Doc. C-312, p. 2. The stated amount in USD (899,067.36) is slightly higher than USD 875,000 (i.e. USD 1.75 m divided by two) due to exchange rates. ↩
¹⁹⁴ Paredes I, para. 17. ↩
¹⁹⁵ Doc. R-237, video of the press conference, min. 00:00-02:42. ↩
¹⁹⁶ Doc. R-245, Doc. R-246; Doc. R-247. ↩

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pay within one month bajo apremio de caducidad, and had rejected Prodeco's conciliatory proposal of depositing the disputed amounts in an escrow account.

A. May 2009: The Commitment to Negotiate

262. The negotiations between Prodeco and Ingeominas continued, and on 21 May 2009 (a few days after CDJ's purchase of the 3ha Contract from Mr. Maldonado), both parties finally executed an Acuerdo de Compromiso [“Commitment to Negotiate"], in an attempt to solve their dispute.

B. June – November 2009: Negotiations

263. Once the Commitment to Negotiate was signed, Ingeominas and Prodeco started formal negotiations. The negotiation period was extended three times, in September, October, and November 2009, before finally expiring on 9 December 2009.¹⁹⁷

264. The negotiations revolved around two main issues:

• The general compensation scheme that would be applied under the Mining Contract ["Compensation Scheme"];
• The coal price to be used for calculating the compensation [“Coal Reference Price"].

a. The Meeting of the Consejo Directivo of 1 June 2009

265. On 1 June 2009, Mr. Ballesteros, Ingeominas' Director General, informed its Consejo Directivo of the latest developments in the Prodeco negotiation: he explained that Ingeominas had notified Prodeco that it was in contractual breach, and that Prodeco had offered to pay USD 6 M into an escrow account while discussions were pending. He added that Ingeominas had rejected this proposal, and in order to move forward, Ingeominas and Prodeco had executed a document, in which Prodeco agreed to pay the disputed sum by 4 June 2009. The Ministro de Minas, Mr. Hernán Martínez Torres, then stated that holders of mining titles must comply with the terms of their concession agreements, and that it was Ingeominas' task to guarantee that this happened.¹⁹⁸

b. Negotiations Start

266. On 3 June 2009, Prodeco made the agreed payment of more than USD 6 M, and consequently the 90-day negotiation period started to run.¹⁹⁹ Ingeominas scheduled

¹⁹⁷ Doc. C-99; Doc. C-105; Doc. C-109. ↩
¹⁹⁸ Doc. R-101, p. 3. ↩
¹⁹⁹ Doc. R-109. ↩

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a kick-off meeting for 12 June 2009 and sent a letter to Prodeco in preparation for that meeting.²⁰⁰

267. The kick-off meeting took place on 12 June 2009. Prodeco submitted an extensive PowerPoint presentation explaining its position.²⁰¹ Claimants proposed to replace the existing Compensation Scheme (Royalties and GIC) with a single flat royalty rate based on Prodeco's actual sale prices. According to Prodeco, this modification would ultimately generate higher revenues for the State, without impairing the net present value ["NPV”] of the project for Claimants.²⁰²

268. In response, on 23 June 2009, Ingeominas requested that Prodeco provide a numerical, detailed and concrete proposal of the requested changes to the Compensation Scheme, and the analyses, valuations and commitments with respect to future investments, expansion, and production.²⁰³

269. Prodeco presented its proposal at a meeting scheduled for 2 July 2009.²⁰⁴ Prodeco used a PowerPoint presentation,²⁰⁵ in which it offered a single compensation payment of 10% based on the higher of:

• the actual coal sales price, and
• USD 42.43 per tonne (which was the base price of the 2006 PTI).

270. According to Prodeco, the proposal, by guaranteeing a minimum price per tonne, shielded Ingeominas from the risk of potential decreases in coal prices. In a letter sent two days thereafter, Prodeco again represented to Ingeominas that the proposal would permit a further expansion of the Mine and would also be advantageous for Ingeominas and for the Nation.²⁰⁶

271. On 13 July 2009, Ingeominas acknowledged receipt and declared that it was evaluating Prodeco's proposal “bajo la salva guarda [sic] de los intereses de la Nación y por ende de todos los Colombianos”.²⁰⁷

с. The Meeting of the Consejo Directivo of 27 July 2009

272. On 27 July 2009, Adolfo Enrique Alvarez González, Technical Director of Ingeominas briefly informed its Consejo Directivo that it was studying a review of the remuneration owed under the Prodeco Mining Contract.²⁰⁸

²⁰⁰ Doc. R-110. ↩
²⁰¹ Doc. C-93; Doc. R-111 (contains a full resolution version of the PowerPoint presentation, in which it is possible to read on the first page "Junio 12, 2009"). ↩
²⁰² Doc. C-93, pp. 26-29. ↩
²⁰³ Doc. R-112 / BR-5, p. 1. ↩
²⁰⁴ Doc. R-114. ↩
²⁰⁵ Doc. C-95. ↩
²⁰⁶ Doc. R-115. ↩
²⁰⁷ Doc. R-116. ↩
²⁰⁸ Doc. C-252, p. 4. ↩

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273. It is noteworthy that the minutes of the meeting do not properly reflect the scope of the negotiations. The Tribunal considers it established that in fact Prodeco and Ingeominas were discussing not only the Coal Reference Price, but a much wider range of topics affecting the Compensation Scheme.

d. Continuation of the Negotiations

274. The next meeting took place on 31 July 2009.²⁰⁹ Mr. Gary Nagle [“Mr. Nagle”], Prodeco's Chief Executive Officer at the time,²¹⁰ has testified as his recollection of the topics that were discussed at that meeting: Ingeominas had in the meantime analysed the proposal submitted by Prodeco, and accepted the application of a flat rate, albeit at a higher rate of 13%, with the possibility of increasing it to 15% if prices rose and Prodeco made windfall profits.²¹¹

275. Since Mr. Nagle's “main takeaway" from the meeting was that Ingeominas expected an improved offer, on 10 August 2009, Prodeco submitted a revised proposal.

276. On 27 August 2009, Ingeominas replied to Prodeco's revised proposal. Ingeominas explained that its officials were assessing Prodeco's revised proposal and hoped to come back with a response at the following meeting.²¹²

277. Prodeco answered on 1 September 2009, explaining that its improved offer was simply aimed at reflecting the parties' latest discussions. Prodeco declared that it was open to discussing Ingeominas' proposals at the following meeting, which should also address the fact that the Commitment to Negotiate was about to expire.²¹³

278. As foreseen by Prodeco, the 90-day agreed period for negotiations expired, and on 3 September 2009, Ingeominas officially notified Prodeco that it would resort to mediation, as envisaged in the Commitment to Negotiate.²¹⁴ But on that same day Prodeco and Ingeominas reached an agreement to extend the negotiation period until 30 October 2009, and no mediation was initiated.²¹⁵

279. On 1 October 2009, the Consejo Directivo met again. The minutes show that the Prodeco negotiation was discussed in detail, and that Ingeominas' letter dated 23 September 2009 had in fact been issued at the suggestion of the Consejeros.²¹⁶

²⁰⁹ Doc. R-118. This meeting was initially programmed for 22 July 2009, but it was postponed by Ingeominas (Doc. R-117). ↩
²¹⁰ Mr. Nagle served as Prodeco's CEO from January 2008 to April 2013 (Nagle I, para. 3), after which he was replaced by Mr. Mark McManus ["Mr. McManus"] (McManus I, para. 5). ↩
²¹¹ Nagle I, para. 60. ↩
²¹² Doc. C-97, p. 3. ↩
²¹³ Doc. R-124. ↩
²¹⁴ Doc. C-98. ↩
²¹⁵ Doc. C-99. ↩
²¹⁶ Doc. R-129, p. 3. ↩

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e. Prodeco Submits an NPV Model

280. Ingeominas and Prodeco held a further meeting on 5 October 2009,²¹⁷ and a few days thereafter, on 9 October, Prodeco submitted a new letter, with additional explanations.²¹⁸

281. Prodeco started by justifying why, under the existing Compensation Scheme, it was not economically feasible to expand the Mine, in terms of NPV. Applying the then current system, the maximum NPV was achieved at 8 MTA, and for higher production, the NPV started to decrease, as a result of the progressive Compensation Scheme agreed upon in the Mining Contract.²¹⁹ Prodeco thus averred that beyond 8 MTA it would be uneconomical further to increase the capacity of the Mine.

282. In the letter, Prodeco then submitted its alternative proposal, which it said had been discussed at the meeting with Ingeominas held on 5 October.

283. Under this proposal, the then current Compensation Scheme would be retained for production up to 8 MTA; but for higher production a unified compensation rate of 13% would be applied.

284. In that case an annual production of 15 MTA would become economical, even if the increase in production required a capital investment of USD 1.6 Bn. Prodeco would be prepared to assume such investment, since the NPV of the project increased to slightly more than USD 200 M. And Ingeominas would also benefit: the NPV of its take would increase to USD 600 M (again at 12% discount rate).²²⁰

Analysis by Ingeominas

285. Ingeominas asked two of its officers – Mr. Giovanny Balcero and Ms. Luz Mireya Gómez, to analyse Prodeco's latest proposal.

286. Mr. Balcero and Ms. Gómez prepared a three-page memorandum, dated 20 October 2009, which reached the following conclusions:²²¹

• NPV was a proper financial tool to evaluate long term investment projects; if the NPV was higher than the required investment, the investment was feasible;
• The model submitted by Prodeco had a positive NPV for annual production between 8 and 15 MTA and consequently a project foreseeing production in that range would be financially viable;
• Certain aspects of Prodeco's model required further clarification;

²¹⁷ Doc. R-130, p. 3. See also Nagle I, para. 66. ↩
²¹⁸ Doc. C-102. ↩
²¹⁹ Doc. C-102, p. 1. ↩
²²⁰ Doc. C-102, p. 2. ↩
²²¹ Doc. R-134; Doc. R-135. ↩

[Page 74]

• Prodeco should submit a sensitivity analysis to confirm the financial viability of the project.

287. The report did not address Prodeco's argument that the NPV of the project was maximized at a production of 8 MTA, and that for higher production (which required higher investments) the NPV decreased – and that for Prodeco the best alternative, with the existing Compensation Scheme, was to limit production at 8 ΜΤΑ.

288. On 26 October 2009, Ms. Gómez met with Mr. Johnny Campo, Prodeco's Projects Financial Analyst, to discuss her memorandum. On that same day, as requested, Mr. Campo sent to Mr. Balcero of Ingeominas a sensitivity analysis,²²² reflecting the impact of the variation of certain factors (discount rate, coal prices, labour costs, fuel costs, explosive costs) on the NPV of the project at different production levels,²²³ supporting the conclusion that “a partir de 8Mtpy la expansión es inviable ya que el VPN del proyecto se reduce a partir de este nivel de producción”.

289. Thereafter, officers from Prodeco and Ingeominas met several times and jointly ran different sensitivity models.²²⁴

f. The Meeting of the Consejo Directivo of 26 October 2009

290. On 26 October 2009, Ingeominas' Consejo Directivo held a meeting, at which Prodeco's proposal was discussed. Ms. Luz Aristizábal, an officer of Ingeominas, who would later be involved in the Contraloría proceeding, submitted a report and gave a detailed explanation of the ongoing negotiations between Prodeco and Ingeominas. In essence,²²⁵

• She acknowledged that under the existing Compensation Scheme an expansion of the mine beyond 8 MTA was not viable, because if production was geared up to (say) 12 MTA the Base Royalty of 7.6% would increase by an Additional Royalty of 9%, making the expansion not feasible;
• She proposed a new deal, whereby the percentage of Royalties should progressively increase, until the Mine reached its optimum production level; if production exceeded that level, the percentage of Royalties should remain fixed;
• She added that if this amendment were not accepted, the Nation would lose the additional royalties deriving from the expansion of the Mine;
• Finally, she discussed various alternative methods of calculating the Coal Reference Price on which the Royalties were to be applied.

²²² Doc. R-134; Doc. C-103. ↩
²²³ Doc. C-103. See also Nagle II, para. 58; Brattle I, para. 39. ↩
²²⁴ Doc. C-103; Doc. C-134, pp. 5-6. ↩
²²⁵ Doc. R-138. ↩

[Page 75]

291. The Ministro de Minas y Energía, who was present at the meeting, suggested using the price of sale to the final consumer, instead of indexes, as the Coal Reference Price for the calculation of royalties. He further questioned why some projects applied a royalty rate based on FOB Prices, while others used pithead prices. The Minister concluded that there was a need to conduct a comparative analysis of prices and levels of production for each contract of Gran Minería.²²⁶

g. Second Extension of the Commitment to Negotiate

292. On 29 October 2009, Prodeco and Ingeominas agreed to a new extension of the Commitment to Negotiate until 30 November 2009.²²⁷

Additional NPV Information

293. On that same day, Prodeco's Mr. Campo sent further information to Ingeominas' official Mr. Balcero, at the latter's request. The information took the form of a graph indicating the impact of an expansion of the project on its NPV.²²⁸ The graph confirms that the NPV is maximized at a production of 8 MTA, and that at higher production rates expenses rise faster than income, resulting in lower NPVs.

Prodeco's Revised Proposal

294. On 4 November 2009, Prodeco presented yet another revised proposal to Ingeominas, on the basis of the information and projections reviewed jointly by Ingeominas and Prodeco.²²⁹

295. On 11 November 2009, Prodeco submitted two proposed formulae to calculate the GIC payments. Prodeco also drew Ingeominas' attention to the fact that it had been almost six months since the execution of the Commitment to Negotiate, and that despite Prodeco's repeated proposals, Ingeominas had not yet presented any counter-proposals.²³⁰

The Meeting of 17 November 2009

296. Prodeco and Ingeominas representatives met again on 17 November 2009 and Ingeominas provided Prodeco with some feedback:²³¹

• Ingeominas recognised the need to update the GIC threshold;
• But insisted on using the ICR index as the Coal Reference Price to calculate Royalties and GIC – a point which Prodeco accepted;

²²⁶ Doc. C-104, pp. 3-4. See also Doc. R-138, with Ingeominas' presentation to the Consejo Directivo. ↩
²²⁷ Doc. C-105. ↩
²²⁸ Doc. C-255. ↩
²²⁹ Doc. C-106. See also Nagle I, para. 70 and Brattle I, para. 40. ↩
²³⁰ Doc. C-107. ↩
²³¹ Doc. R-145. See also Nagle I, para. 71. ↩

[Page 76]

• It proposed that a flat 12.6% royalty rate apply to all production when production exceeded 8 MTA.

Further Analyses

297. On 25 November 2009, Prodeco's Mr. Campo sent Ingeominas two charts showing the impact of Ingeominas' proposals on NPV.

h. The Meeting of the Consejo Directivo of 23 November 2009

298. Ingeominas held a further meeting of its Consejo Directivo on 23 November 2009. Ms. Aristizábal again made a presentation to the Consejo²³² and summarized the status of the negotiations with Prodeco:

• Ingeominas was proposing to keep the present Compensation Scheme for production of up to 8 MTA and to apply a fixed rate of 12.6% for production above that threshold;
• Ingeominas acknowledged that the costs on which the GIC was based had to be updated, to take into account inflation; there was however no agreement on the identification of the proper indexes.²³³

299. The Directors did not express any opposition to these proposals; they simply asked to be kept informed of the progress in the negotiations.²³⁴

i. Third Extension of the Commitment to Negotiate

300. On 27 November 2009, Prodeco and Ingeominas executed a third, and last, extension of the Commitment to Negotiate, until 9 December 2009.²³⁵

(5) THE EIGHTH AMENDMENT: EXECUTION

A. December 2009: Execution of the Initial Version

301. The negotiations continued at a meeting held on 3 December 2009. In the course of that meeting, agreement seemed within reach. Prodeco accepted Ingeominas' proposals:²³⁶

• A 12.6% flat royalty rate would apply on all production in excess of 8 MTA;
• The ICR reference prices should be weighted to determine a Coal Reference Price to calculate Royalties and GIC;

²³² Doc. R-145. ↩
²³³ Doc. R-146, p. 3. ↩
²³⁴ Doc. R-146, p. 3. ↩
²³⁵ Doc. C-109. ↩
²³⁶ Nagle I, para. 74. ↩

[Page 77]

• The GIC tables should be indexed to the Colombian consumer price index and not to international indexes;
• Prodeco's proposal that GIC payments be due only where production costs exceed 75% of sales prices was rejected.

302. Having apparently reached an accord, on 9 December 2009 – the last day of validity of the Commitment to Negotiate – Prodeco and Ingeominas met and executed an eighth amendment to the Mining Contract ["Initial Version of the Eighth Amendment"], which:²³⁷

• Maintained the existing Compensation Scheme for production volumes up to 8 ΜΤΑ;
• Established a 12.6% flat royalty rate on all coal produced in excess of 8 ΜΤΑ, applied on the FOB reference price at the Colombian port;
• Determined that the FOB reference price was to be calculated applying a formula which consisted of the weighted average of ICR prices in force 3, 6, 9, 12, 15, and 18 months before the date of each shipment (the so-called lags), adjusted by calorific power;
• Set a table with updated thresholds to calculate GIC payments based on the FOB reference prices; these thresholds would be updated according to Colombian inflation.

303. The Initial Version of the Eighth Amendment also provided that Prodeco had to pay approximately USD 20.8 M to Ingeominas, to settle outstanding payments derived from the Definitive Price provision, but that such payment should not be understood as Prodeco's acknowledgement of Ingeominas' interpretation.²³⁸

304. The Initial Version would enter into force upon its registration at the National Mining Registry, and would be deemed to take effect on 1 January 2010.²³⁹

305. Prodeco and Ingeominas initialled and signed three copies of the Initial Version of the Eighth Amendment.²⁴⁰ Mr. Ballesteros requested, however, that Prodeco leave its signed copy with Ingeominas, so that, as a courtesy, he could explain the contents of the agreement at the Consejo Directivo meeting scheduled for the following day, and Prodeco complied with that request.²⁴¹

²³⁷ Doc. C-111. ↩
²³⁸ Doc. C-111, Clause Seventh. ↩
²³⁹ Doc. C-111, Clauses Ninth and Tenth. ↩
²⁴⁰ Doc. C-111 shows the initials and signatures; the document shows a stamp saying “Sin vigencia por falta de inscripción en el Registro Minero al considerarse lesivo para el Estado". ↩
²⁴¹ Doc. C-112. See also Nagle I, para. 78. ↩

[Page 78]

B. The Meeting of the Consejo Directivo of 10 December 2009

306. On 10 December 2009, Ingeominas held a meeting of its Consejo Directivo,²⁴² and Ms. Aristizábal again appeared and submitted a report summarizing the terms of the Initial Version of the Eighth Amendment.²⁴³ She attached a chart, which compared the level of Royalties in an 8 MTA and in an expansion scenario, assuming a USD 70 coal price:²⁴⁴

Regalias Recaudadas con escenario de U$70
6 años para alcanzar Capacidad Instalada

[Bar chart showing two series of data ("Hasta 8MT" and "Expansión") for the years 2009 through 2015. The Y-axis is labeled in increments of 20.00 from 0.00 to 140.00.]

307. In accordance with this chart, in the 8 MTA scenario the Royalties collected by Ingeominas would remain stable at USD 80 M per year between 2009 and 2015. In the alternative expansion scenario, applying the new Royalties foreseen in the Initial Version of the Eighth Amendment, Ingeominas' income would dip in 2009 (to approximately USD 70 M) and in 2010 (to approximately USD 75 M), but would then rise to USD 105 M in 2011 and to more than USD 120 M in 2012-2015.

308. It is unclear what exactly happened next at the meeting of the Consejo Directivo.

309. Minister Hernán Martínez Torres has testified in the Contraloría proceeding that he disagreed with the signed Initial Version of the Eighth Amendment, that he asked that his disagreement be included in the minutes of the meeting, and that it was agreed to create a task force to analyse whether the changes were in the interest of the Nation.²⁴⁵ The official minutes simply say that the Minister and the remaining members requested that the issue be re-examined with more detail taking into account the national interest.²⁴⁶

310. Summing up, what seems to have happened is that, although legally speaking the authorization of the Consejo Directivo was not necessary for the execution of an amendment to the Mining Contract, Director Ballesteros did not feel comfortable going forward without the support of his Board, and consequently agreed to review

²⁴² Doc. R-150. ↩
²⁴³ Doc. R-149. ↩
²⁴⁴ Doc. R-149, p. 5. ↩
²⁴⁵ Doc. C-157; Doc. R-81, p. 1. ↩
²⁴⁶ Doc. R-150, p. 3. ↩

[Page 79]

the Initial Version of the Eighth Amendment, to satisfy the Board that the amendment was in the best interest of the Nation.

C. December 2009: Ingeominas Denies Registration at the Mining Registry

311. Faced with Ingeominas' silence for a week, on 16 December 2009 Prodeco sent a letter demanding that Ingeominas return Prodeco's signed copy of the Initial Version of the Eighth Amendment.²⁴⁷

312. Ingeominas replied to Prodeco on 21 December 2009, saying that, in coordination with the Ministro de Minas y Energía, Ingeominas was making a final review of the Initial Version of the Eighth Amendment. Ingeominas noted that the Consejo Directivo was the entity in charge of running and managing Ingeominas, and of defining its policies, plans and programs, together with the Director General. Hence, Ingeominas informed that it would communicate its decision regarding the Initial Version of the Eighth Amendment in the second half of January 2010.²⁴⁸

313. On 30 December 2009, Prodeco paid Ingeominas USD 20.8 M, as required under the Initial Version of the Eighth Amendment.²⁴⁹ A few days later, Prodeco once again requested its signed copy of the Initial Version of the Eighth Amendment.²⁵⁰

314. On 18 January 2010, Ingeominas finally delivered to Prodeco a signed copy of the Initial Version of the Eighth Amendment, but with multiple stamps stating:²⁵¹

“SIN VIGENCIA POR FALTA DE INSCRIPCIÓN EN EL REGISTRO MINERO NACIONAL AL CONSIDERARSE LESIVO PARA EL ESTADO".

315. In the cover letter, Ingeominas explained that the Initial Version of the Eighth Amendment was contrary to the interests of the Nation and that registration at the Mining Registry had been denied.²⁵²

316. Ingeominas added that it would promptly reimburse Prodeco the USD 20.8 M already paid.

317. Finally, Ingeominas invited Prodeco to an immediate and joint review of the pending aspects of the negotiations.²⁵³

²⁴⁷ Doc. C-112. ↩
²⁴⁸ Doc. C-113. ↩
²⁴⁹ Doc. R-15. ↩
²⁵⁰ Doc. R-18; Doc. R-19. ↩
²⁵¹ Doc. C-115. See also Doc. R-17, with an internal memorandum of Ingeominas dated 14 January 2010. ↩
²⁵² Doc. C-115, p. 1. ↩
²⁵³ Doc. C-115, p. 2. ↩

[Page 80]

D. January 2010: Execution of the Eighth Amendment

318. Upon receipt of Ingeominas' letter dated 18 January 2010, negotiations between the parties resumed.

319. Ingeominas suggested minor adjustments to the royalty scheme. Namely, Ingeominas proposed maintaining the existing Royalty rate up to 8 MTA (i.e., a maximum flat 12.6% rate at 8 MTA), but that each additional MTA be subject to an additional 1% rate (i.e. the 9^th MTA only would be subject to a 13.6% royalty rate, the 10^th MTA only to a 14.6% royalty rate, and so on).²⁵⁴

320. Prodeco acquiesced to Ingeominas' proposed modifications.²⁵⁵

321. Hence, four days later, on 22 January 2010, Prodeco and Ingeominas executed the final version of the Eighth Amendment,²⁵⁶ which was registered with the National Mining Registry three days later.

322. The Parties agree that, save for the change to the new Royalty schedule suggested by Ingeominas, the Initial and final versions of the Eighth Amendment are practically identical.²⁵⁷

Ε. Content of the Eighth Amendment

323. The Eighth Amendment changed the Compensation Scheme and the Coal Reference Price.

Considerandos

324. The Eighth Amendment starts with six extensive Considerandos.

325. Considerando 3 explains that on 21 May 2009 Prodeco and Ingeominas signed the Commitment to Negotiate regarding the Definitive Price dispute and “otros temas mencionados en dicho acuerdo de compromiso”.

326. Considerando 5 then describes the negotiations which took place and itemises the five areas where agreement had been reached:²⁵⁸

• The first agreement was the decision not to change the Compensation Scheme in the Mining Contract for production, up to 8 MTA;
• The second was to establish a limit on the percentage of Royalties to be applied for production above 8 MTA “de manera que sea factible la expansión del proyecto”;

²⁵⁴ Nagle I, para. 81. ↩
²⁵⁵ Nagle I, para. 81. ↩
²⁵⁶ Doc. C-15. ↩
²⁵⁷ Nagle I, para. 82; Brattle I, para. 43. ↩
²⁵⁸ Doc. C-15, p. 1. ↩

[Page 81]

• The third was to update the values used to calculate GIC payments;
• The fourth was to clarify the formula used in the determination of the Additional Royalty;
• And the fifth was to determine the Coal Reference Price using ICR, with a formula to introduce time lags reflecting Prodeco's actual sales price.

327. The final Considerando sets out the goals of the Eighth Amendment:²⁵⁹

“6. Que con el presente acuerdo se garantizan los intereses del Estado y la viabilidad de la expansión del proyecto minero, lo cual ha sido el fundamento de la negociación entre las partes”.

Clauses²⁶⁰

328. Clause 1 of the Eighth Amendment modifies clause 14.1 of the Mining Contract regarding the calculation of Royalties.

329. Under the Eighth Amendment, Prodeco undertakes to pay a Base Royalty of 7.6% for production up to 3 MTA, and an Additional Royalty of 1% for every 1 MTA increase in production, up to 8 MTA (i.e. 12.6%), on the totality of the coal sold.²⁶¹ This was the scheme originally agreed upon in the Mining Contract.

330. Once production exceeds 8 MTA, the Additional Royalty ceases to be levied on all the annual production. Instead, the 1% incremental royalty is applied only to the incremental MTA of production:

• an additional 1% for production between 8 and 9 MTA,
• an additional 2% for production between 9 and 10 MTA,
• an additional 3% for production between 10 and 11 MTA, and so on.

331. This means that if total production is 9 MTA, a 12.6% royalty rate applies to the first 8 MTA and a 13.6% royalty rate applies to the 9^th MTA only.

332. Although the parties did not establish a limit on production, no production beyond 15 MTA was envisaged.

333. In addition, the Eighth Amendment also slightly modifies the provision of clause 14.1 related to the royalties applicable to the coal sold in the Colombian national market.

334. Clause 2 of the Eighth Amendment modifies clause 14.2 of the Mining Contract. It provides that the Base Royalty shall be paid monthly, within ten days of the end of

²⁵⁹ Doc. C-15, p. 2. ↩
²⁶⁰ Doc. C-15, pp. 2-9. ↩
²⁶¹ Doc. C-15, new Clause 14.1. ↩

[Page 82]

the month, at the applicable exchange rate. As to the Additional Royalty, applicable when production exceeds both 3 MTA and 8 MTA, it shall be paid annually, within one month of the end of each year.

335. Clause 3 modifies clause 14.3 of the Mining Contract, which relates to the Coal Reference Price for the payment of royalties.

336. Pro memoria: The Seventh Amendment had established that if the coal exported by Prodeco came exclusively from the Mine, the Coal Reference Price for payment of Royalties and GIC would be the higher of (i) the FOB Colombian port price for Colombian steam coal for the respective week as published in the ICR, adjusted for calorific value [defined as the “FOB Price”], and (ii) the actual sale price.²⁶²

337. The Eighth Amendment introduces two relevant changes:

• First, it does away with the “higher of”; consequently the Coal Reference Price is based only on the FOB Price in Colombian Port;
• Second, it creates a new formula, which introduces a time lag; in essence the formula takes into account the FOB Prices in the 18 months preceding the calculation date, weighted by Prodeco's sales in the respective periods, on the basis of annual weighing coefficients, established ex ante (before 15 January of each year) by an independent auditor appointed by Ingeominas on 31 October of each year; these same coefficients are then also used to correct the compensation paid in the year in question.

Transition Period

338. Under the new pricing formula, on each given date the Coal Reference Price is established by taking in consideration not only the FOB Price on such date, but also the FOB Prices which were applicable in the previous 18 months. This system of calculation creates a difficulty: how to calculate the weighing coefficient for the first year of application of the Eighth Amendment? Indeed, no independent auditor had yet been appointed who could have established the coefficients ex ante.

339. Just as in the Initial Version, the Eighth Amendment came up with a solution called the período de transición [“Transition Period”]: during the first year of application of the Eighth Amendment, the weighing coefficients were already set by Prodeco and Ingeominas at 0.333. These coefficients were to be applied to the FOB Price which was applicable three, six, and nine months before each determination date.

340. This transitory regime was to be applied in the period between 1 January 2010 and 31 December 2010; for this reason, this period was defined as the Transition Period.

²⁶² Doc. C-9, Annex 9A. ↩

[Page 83]

341. As will be explained below, the Transition Period would become highly relevant, because in the Contraloría's Fiscal Liability Proceeding the damage caused to the State is calculated using the Transition Period as the yardstick.

342. Clause 4 modifies clause 14.4 of the Mining Contract and defines the information regarding the payment of royalties that Prodeco has to provide to Ingeominas on a monthly basis.

343. Clause 5 modifies clause 43 of the Third Amendment to the Mining Contract, and eliminates Annexes 9 and 9A, which had been included in the Mining Contract by virtue of the Sixth Amendment.

344. Clause 6 modifies clauses 15.1.1 of the Mining Contract:

• Clause 15.1.1 establishes new FOB price thresholds to calculate the GIC payments, as follows:

  A	B	C	D
  Precio FOB US$/t	Precio Base US$/t	% Aplicable a diferencia	Monto Fijo US$/t
  59.94 ≤ FOB < 67.43	59.94	1.0%	$0.00
  67.43 ≤ FOB < 74.93	67.43	1.5%	$0.10
  74.93 ≤ FOB < 82.42	74.93	7.5%	$0.25
  82.42 ≤ FOB < 89.91	82.42	11.0%	$0.55
  FOB ≥ 89.91	89.91	12.5%	$1.05

• Clause 15.1.2 provides that Prodeco and Ingeominas agree that these thresholds shall be adjusted quarterly by indexing to the Colombian consumer price index, as published by the DANE, the Colombian State entity in charge of statistics-²⁶³ even though the GIC thresholds are expressed in USD;²⁶⁴
• Clause 15.1.3 establishes that the GIC shall be paid quarterly, within ten days of the end of the quarter;
• Clause 15.4 determines that the GIC shall be paid on the basis of the Coal Reference Price set out in the new clause 14.3.

345. Pursuant to Clause 7, Prodeco agrees to pay approximately USD 20.8 M²⁶⁵ to Ingeominas to settle the outstanding amounts resulting from Ingeominas' interpretation of the Definitive Price term – without agreeing to such interpretation.

346. In turn, in Clause 8, Ingeominas declares that:²⁶⁶

“Habida cuenta que con los acuerdos consagrados en los numerales anteriores se soluciona y por ende deja de existir la controversia que dio origen a la suscripción del Acuerdo de Compromiso y del presente otrosí, y

²⁶³ Doc. C-15, new Clause 15.1.2. ↩
²⁶⁴ It seems that Prodeco and Ingeominas were not able to find another suitable index (see Doc. C-132, p. 6; Doc. C-133, p. 2). ↩
²⁶⁵ USD 9,713,947.49 and USD 11,085,718.06. ↩
²⁶⁶ Doc. C-15, p. 9. ↩

[Page 84]

teniendo en cuenta que EL CONTRATISTA pagará las sumas indicadas en la cláusula anterior, la AUTORIDAD MINERA declara subsanada cualquier causal de aplicación de multas, caducidad o cualquier otra medida sobre la liquidación de contraprestaciones económicas por razón de dicha controversia”. [Emphasis added]

347. Clause 9 provides that the Eighth Amendment shall be deemed to have entered into effect on 1 January 2010.

348. In Clause 10, Prodeco and Ingeominas undertake to review the Coal Reference Price formula within a year, to consider applying the API2-BC17 indexes.

349. Finally, Clause 11 determines that the Eighth Amendment shall enter into force upon its registration at the National Mining Registry.

350. The Eighth Amendment was duly registered in the Mining Registry on 25 January 2010,²⁶⁷ and consequently entered into force on that date, with retroactive effects as of 1 January.

F. The Meeting of the Consejo Directivo of 26 January 2010

351. On 26 January 2010, Ingeominas again held a meeting of its Consejo Directivo. This time it was Mr. Ballesteros himself who informed the board members that the Eighth Amendment had been signed “teniendo en cuenta las sugerencias emitidas por ellos en consejos anteriores”. He then provided detailed information on the agreed changes.²⁶⁸

G. January 2010: The Viability Study

352. At some point in January 2010, Ingeominas prepared a study of the “Viabilidad para la suscripción del Otrosí No. 8 modificatorio del Contrato 044-89” [the “Viability Study”], which summarized the arguments which Ingeominas had taken into consideration when negotiating with Prodeco.²⁶⁹

353. The 8-page document was signed by Ms. Luz Aristizábal, Ms. Luz Mireya Goméz, Ms. Melida Cabezas and Mr. Giovanny Balcero and was dated “el mes de enero de 2010”.²⁷⁰ It is likely that the Viability Study was signed after the execution of the Eighth Amendment.

²⁶⁷ Nagle I, para. 83. ↩
²⁶⁸ Doc. C-257, pp. 4-5. ↩
²⁶⁹ Doc. R-13. ↩
²⁷⁰ Doc. R-13, p. 8. ↩

[Page 85]

354. The main conclusion of the Viability Study is the following:²⁷¹

“Con la suscripción del otrosí descrito, se garantizan los intereses del Estado y la viabilidad de la expansión del proyecto minero, lo cual ha sido el fundamento de la negociación entre las partes”. [Emphasis added]

355. And this conclusion is explained thus:²⁷²

“La razón de ser de la negociación dentro del Contrato 044-89 con PRODECO S.A, en términos prácticos radica en que de no negociar con el titular minero, la interpretación de algunas de las cláusulas contractuales que se relacionan con las modificaciones por ellos solicitadas, se asumiría un alto riesgo en donde la Nación podría perder cuantiosas sumas de dinero, frente a posibles litigios que se adelantaran ante la justicia contenciosa administrativa, por la falta de toma de decisiones en el presente caso, con lo cual de no llegarse a un acuerdo, además se impediría el desarrollo probable de una expansión minera que traería consigo desarrollo económico y social para el país y sus diferentes regiones, sin dejar de lado las obras de infraestructura que sin ella se dejarían de realizar”. [Emphasis added]

356. The Viability Study explained that Prodeco had asked to review, inter alia, the following elements of the Mining Contract:

• the price index for compensation,
• FOB price vs. pithead prices,
• the Additional Royalty, and
• GIC.

The Viability Study acknowledged that Prodeco had presented several proposals and summarized these proposals in broad terms. The Viability Study also noted that the clauses of mining contracts could be freely negotiated between the mining authority and the contractor.²⁷³

357. The Viability Study found that the negotiations with Prodeco had the following benefits for the State:²⁷⁴

• The clause regarding the Additional Royalty, which could give rise to a legal dispute, was no longer ambiguous: it was now clear that from 3 to 8 MTA, the Additional Royalty was applicable to all the coal sold and that the Coal Reference Price for the calculation of the Additional Royalty was not the price of the invoices;

²⁷¹ Doc. R-13, p. 2. ↩
²⁷² Doc. R-13, p. 3. ↩
²⁷³ Doc. R-13, pp. 2-4. ↩
²⁷⁴ Doc. R-13, pp. 4-5. ↩

[Page 86]

• For production in excess of 8 MTA, the increase in Royalties was capped, but such limitation was necessary to guarantee the expansion of the Calenturitas Mine and, consequently, the economic development of the region;
• The GIC thresholds had to be updated to take into consideration inflation, since production costs exceeded USD 42 per tonne of coal, surpassing the GIC threshold; the threshold had to be indexed towards the future, and for this purpose, after extensive analysis, the Colombian consumer price index was selected;
• Any doubts regarding the Coal Reference Price for the payment of Royalties and GIC were cleared up; the new Coal Reference Price was now based on the ICR index.

358. The Viability Study also explained that Ingeominas had compared all the mining projects with production exceeding 8 MTA in the past 22 months and had found that Prodeco would always generate more revenues for the State than other projects. The Study contained the following chart in support of this finding:²⁷⁵

(6) PERFORMANCE OF THE EIGHTH AMENDMENT

A. February 2010: Payment Under the Eighth Amendment

359. On 16 February 2010, Prodeco for the second time paid to Ingeominas USD 20.8 M, as required by the Eighth Amendment (the first payment due under the Initial Version of the Eighth Amendment had in the meantime been returned by Ingeominas).²⁷⁶

B. March 2010: Glencore Repurchases Prodeco

360. In March 2010, Glencore exercised its call option and repurchased Prodeco from Xstrata.²⁷⁷

²⁷⁵ Doc. R-13, p. 7. ↩
²⁷⁶ Doc. C-116. ↩
²⁷⁷ Doc. R-77, p. 62; Doc. R-78. ↩

[Page 87]

C. June 2010: The 2010 PTI

361. In the meantime, Prodeco was preparing an updated long-term PTI, which was due in May 2009,²⁷⁸ but had been delayed due to the negotiations between the Parties.²⁷⁹

The 2006 PTI

362. Pro memoria: The 2006 PTI had been prepared before execution of the Seventh Amendment (which extended the life of the Mining Contract until 2035)²⁸⁰ and of the Eighth Amendment (which changed the Compensation Scheme). The exploration in Sectors B and D of the Mine and the diversion of the Calenturitas River also took place after 2006.²⁸¹

363. In the 2006 PTI Prodeco had planned to expand the Mine's total coal production to 116 MT. Annual production would gradually increase from 4.4 MTA in 2007 to 10 MTA from 2010 through 2019.²⁸²

364. The 2006 PTI also foresaw an investment of USD 500.1 M in the period 2007-2010 (broken down as USD 196.4 M for equipment, USD 114.6 M for railway, USD 85.2 M for infrastructure and USD 103.9 M for port and sundry investments).

365. By 2010, these investments had mostly been carried out: the stock of investment had increased between 2006 and 2010 from USD 162.5 M²⁸³ to USD 644.2 M,²⁸⁴ i.e. by USD 481.7 M.

The 2010 PTI

366. In June 2010, Prodeco delivered to Ingeominas an updated long-term PTI [the “2010 PTI”],²⁸⁵ pursuant to which it expected to achieve the following objectives:

367. Annual production: Annual production would reach 6.4 MTA in 2010, rise to 7.6 MTA in 2011 (2006 PTI: 4.4 MTA), and progressively increase until reaching a maximum of 14.2 MTA in 2019 (2006 PTI: 10 MTA), and then progressively decrease until 2032 (2006 PTI: no production after 2019).²⁸⁶

368. Mine-life production: Prodeco expected to produce approximately 254 MT of coal from 2010 through 2032²⁸⁷ (more than doubling the 2006 PTI estimation of 116 MT between 2007 and 2019).

²⁷⁸ See section III.(2).D supra. ↩
²⁷⁹ Doc. R-25, p. 3. ↩
²⁸⁰ See sections III.(1).F and III.(1).G supra. ↩
²⁸¹ Doc. C-117 / CLEX-28, pp. 52-53. ↩
²⁸² See section III.(1).F supra. ↩
²⁸³ Doc. C-78, p. 174. ↩
²⁸⁴ Doc. C-117, p. 195. ↩
²⁸⁵ Doc. C-117. ↩
²⁸⁶ Doc. C-117, pp. 59, 61 and 199. ↩
²⁸⁷ Doc. C-117, p. 61. ↩

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369. Investment 2010-2015: USD 654 M was to be invested in the development of the Mine, including in railway and port infrastructure, in the five-year period²⁸⁸ between 2011 and 2015²⁸⁹ (2006 PTI: USD 684.4 M spread-out over the 13-year period 2007-2020).²⁹⁰

370. Mine-life investment: USD 1,477 M²⁹¹ (2006 PTI: USD 1,184 M).²⁹²

371. Net present value: the Mine offered a NPV of USD 116 M (2006 PTI: USD 98 M) (both at a 15% discount rate), assuming costs of USD 47.26 per tonne (2006 PTI: USD 24.79) and a coal price of USD 55 per tonne²⁹³ (2006 PTI: USD 42.58).

372. Mine-life Royalties: estimated at USD 1,782 M²⁹⁴ (2006 PTI: 671 M).

373. The 2010 PTI was approved by Ingeominas on 6 December 2010, after asking Prodeco to make minor modifications.²⁹⁵

D. 2010-2015: Promised Investments

374. As enshrined in its preamble, the Eighth Amendment had two main goals:

• To guarantee that the Mine expansion was viable, and
• To maximize the income for the State.

375. The Preamble expresses this idea with the following words:²⁹⁶

“[...] con el presente acuerdo se garantizan los intereses del Estado y la viabilidad de la expansión del proyecto minero, lo cual ha sido el fundamento de la negociación entre las partes”. [Emphasis added]

376. In other words: under the Eighth Amendment, Prodeco accepted the commitment to carry out significant investments in the Mine and to expand its production capabilities; the increased production would generate additional Royalties, with the end result that Colombia would receive a higher revenue.

377. As Mr. Nagle said in his testimony, the investments and production levels projected in the 2010 PTI were “negotiation commitment(s)” that “led to them [Ingeominas]

²⁸⁸ The 2010 PTI is not very clear as to the initial date of the five-year period; the PTI, proposed in June 2010 and approved in December 2010, simply says that the amounts are to be invested “en los próximos 5 años” (p. 191). The Tribunal assumes this to mean in the period 2011 through 2015. ↩
²⁸⁹ Doc. C-117, pp. 173 and 176. ↩
²⁹⁰ Doc. C-78, p. 173. ↩
²⁹¹ Doc. C-117, p. 191. ↩
²⁹² Doc. C-78, p. 173. ↩
²⁹³ Doc. C-117, pp. 191 and 204. ↩
²⁹⁴ Doc. C-117, p. 200. ↩
²⁹⁵ Doc. C-122. ↩
²⁹⁶ Doc. C-15, Considerando 6. ↩

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agreeing and us [Prodeco] agreeing to this Otrosí”.²⁹⁷ And Minister Martínez Torres confirmed that through the Eighth Amendment, Prodeco committed to increase production beyond 8 MTA.²⁹⁸

378. What were the concrete levels of investment and production promised by Prodeco?

379. The quantified objectives were not set forth in the Eighth Amendment, but rather in the 2010 PTI – a semi-contractual document proposed by Prodeco and approved by Ingeominas in June 2010.

380. According to the 2010 PTI, Prodeco undertook to invest USD 654 M in the five-year period 2011 through 2015, broken down in:²⁹⁹

• USD 243 M for mining equipment,
• USD 7.6 M for railways,
• USD 40 M for infrastructure,
• USD 301 M for port, and
• USD 62.4 for sundry investments.

381. Claimants say that in fact they invested much higher amounts: USD 465 M in 2011, USD 300 M in 2012, USD 75 M in 2013 and USD 45 M in 2014,³⁰⁰ totaling USD 885 M. These figures are not challenged by Respondent.³⁰¹ Prodeco consequently invested in the period 2011-2014 some USD 231 M more than anticipated in 2010.

²⁹⁷ HT, Day 3, (Mr. Nagle's deposition), p. 875, l. 22 – p. 876, l. 2. ↩
²⁹⁸ HT, Day 4, p. 1129, l. 5 – p. 1130, l. 7. ↩
²⁹⁹ Doc. C-117, p. 194. ↩
³⁰⁰ McManus I, fn. 18. ↩
³⁰¹ R II, para. 211. ↩

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382. The Tribunal concludes that Prodeco indeed complied with its investment commitments under the Eighth Amendment and the 2010 PTI.

Ε. 2010-2018: Coal Production and Royalties

383. Under the 2010 PTI the production of the Mine for the years 2010-2018 was planned to reach certain levels; in reality, production was for most of the years lower:³⁰²

Sources on the record for years 2006-2017:

[1] 2006 PTI: CLEX-23 - C.I. Prodeco S.A., Proyecto Calenturitas, Contrato No. 044-89, Programa de Trabajos e Inversiones (PTI), Version Revisada, November 2006, p. 36 (p. 54/176 of pdf)

[2] 2010 PTI: C-0117 - 2010 PTI, p. 43 (p. 61/204 of pdf)

[3] Production: CLEX-31 - Calenturitas Coal Production from 2004 to 2015.pdf (2006-2015); CLEX-79 - 2016 B1 Opex Statement.pdf (2016); CLEX-88 - 2017 Calenturitas Cost Data.pdf (2017)

[4] Royalties (COP): CLEX-40 - C.I. Prodeco S.A. Annual Financial Data (2006-2014); CLEX-100 - Updated C.I. Prodeco S.A. Annual Financial Data (2006-2014)

[5] FX rate: CLEX-57 - Spiller and Dellepiane Retroactive Royalty Model (FX Rate Tab, annual average)

[6] Royalties (USD): [5] / [4]

Figures for 2018 have been provided by C.I.Prodeco S.A. based on data submitted to the Colombian authorities. There are no sources on the record for this data. If Colombia questions any of the figures above, Claimants can, with the Tribunal's leave, provide additional supporting documents.

Coal production

384. Actual production for the period 2010-2018 was thus only 86.1 MT, while the 2010 PTI had foreseen production of more than 100 MT.

385. One reason for this decrease in production is that in 2016 Prodeco performed a geological reappraisal of the Mine, with negative results. In accordance with the

³⁰² Table of actual production and royalties paid between 2006 and 2017, sent by Claimants on 14 March 2019. ↩

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new studies, the available reserves had to be reduced from 254 MT (the amount foreseen in the 2010 PTI) to 170 MT. This reduction in available coal was reflected in the 2016 PTI, which was approved by Ingeominas.³⁰³

386. Production in 2015 and 2016 was also disincentivized by very low international prices for coal, and the years 2016 and 2017 turned out to be extremely wet, thus impairing mining activities.³⁰⁴

Royalties

387. Royalties paid in the period 2006-2018 amounted to USD 938.6 M, more than half of the total estimated in the 2010 PTI for the period 2010-2035 (USD 1.782 M)³⁰⁵ but largely surpassing the 2006 PTI estimation for the period 2006-2019 (USD 671 M).³⁰⁶

(7) THE FISCAL LIABILITY PROCEEDING

388. The Contraloría is an autonomous agency of the Colombian State, entrusted with the supervision and control of the use of public funds.³⁰⁷ The main task of the agency is to establish what the law calls “responsabilidad fiscal”, i.e. the responsibility of civil servants and private individuals for the mismanagement of public funds or assets.³⁰⁸

389. Fiscal responsibility is established through an administrative procedure, which is initiated, conducted, and decided by the Contraloría itself.

390. Ms. Soraya Vargas, who acted as Contralora Delegada Intersectorial de Regalías adscrita a la Unidad de Investigaciones Especiales contra la Corrupción from 2013 to 2016³⁰⁹ and approved the Contraloría's Decision, has provided the following diagram, explaining how a preliminary investigation and a fiscal liability proceeding unfold:³¹⁰

³⁰³ HT, Day 6, (Prof. Spiller's deposition), p. 1441, l. 17 – p. 1442, l. 21. See also Compass Lexecon II, paras. 62-63. ↩
³⁰⁴ Doc. CLEX-84, pp. 6-7; Doc. CLEX-5, pp. 7-8; Doc. CLEX-59, pp. 18-20; Doc. H 5, slide 14; Compass Lexecon II, para. 61; HT, Day 6, (Prof. Spiller's deposition), p. 1435, l. 20 – p. 1442, l. 20. ↩
³⁰⁵ Doc. C-117, p. 200. ↩
³⁰⁶ Doc. C-78, p. 177. ↩
³⁰⁷ Doc. C-68, Art. 267: “El control fiscal es una función pública que ejercerá la Contraloría General de la República, la cual vigila la gestión fiscal de la administración y de los particulares o entidades que manejen fondos o bienes de la Nación”. ↩
³⁰⁸ Doc. C-71, Art. 1. Art. 268(5) of the Constitución Política provides that the Contralor General de la República is competent to “establecer la responsabilidad que se derive de la gestión fiscal, imponer las sanciones pecuniarias que sean del caso, recaudar su monto y ejercer la jurisdicción coactiva sobre los alcances deducidos de la misma” (Doc. C-68). ↩
³⁰⁹ Doc. R-26. See also Vargas I, para. 9. ↩
³¹⁰ Vargas I, para. 21. ↩

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Actuación Contraloría
Actuación investigado/imputado
Fuente: Elaboración propia

391. This fiscal liability proceeding may be preceded by a preliminary investigation (indagación preliminar), although this is not mandatory.³¹¹ The proceedings are divided into two phases: the first one is preceded by a formal decision (“decisión de apertura”) and requires that the allegedly responsible civil servants or private persons be heard. Thereafter the Contraloría may decide to close the file, or to issue an “Auto de imputación” against certain persons. In the second phase evidence is marshalled, leadings to the fallo, either absolving or declaring the fiscal liability of those imputed and ordering those found responsible to indemnify the Republic for the damage caused to it.

Nature of the Proceso de Responsabilidad Fiscal

392. The Proceso de Responsabilidad Fiscal is a purely administrative and inquisitorial procedure, in which the Contraloría investigates the facts and then issues a decision (fallo). The Contraloría itself has described it in the following words:³¹²

“[...] el proceso de responsabilidad fiscal es un procedimiento administrativo de carácter patrimonial que persigue la reparación de un daño causado al patrimonio del Estado por un servidor público o un particular en ejercicio de gestión fiscal o con ocasión de esta como consecuencia de una conducta dolosa o gravemente culposa”.

393. An important trait of the Proceso de Responsabilidad Fiscal is that the Contraloría acts simultaneously as prosecutor and as judge vis-à-vis the civil servant or private individual who is being investigated. In one of its decisions, the Contraloría has acknowledged this fact and has provided the following description of how the Proceso develops:³¹³

³¹¹ Doc. C-71, Art. 39: “Si no existe certeza sobre la ocurrencia del hecho, la causación del daño patrimonial con ocasión de su acaecimiento, la entidad afectada y la determinación de los presuntos responsables, podrá ordenarse indagación preliminar por un término máximo de seis (6) meses, al cabo de los cuales solamente procederá el archivo de las diligencias o la apertura del proceso de responsabilidad fiscal”. ↩
³¹² Doc. C-32, p. 113. ↩
³¹³ Doc. C-26, p. 8. ↩

[Page 93]

“[...] en el proceso de responsabilidad fiscal no opera el concepto de partes que aparece cabalmente diseñado en el proceso judicial, en el cual existe un juez, que es el encargado de dirimir la controversia, y unas partes con intereses opuestos. En la actuación administrativa, la administración funge como juez y como parte frente a un administrado que es el sujeto que puede resultar afectado con la decisión que se adopte dentro de la respectiva actuación”. [Emphasis added]

394. Notwithstanding the fact that this is an administrative procedure, the law authorizes the Contraloría to order the preliminary attachment of assets belonging to the civil servant or private person under investigation (without requiring judicial approval).³¹⁴

395. The Proceso will eventually lead to a decision (fallo), in which the Contraloría (by itself, and without the participation of a judge) decides whether the indicted person is to be absolved or to be found guilty. In this latter situation, the fallo will order the person declared fiscalmente responsable immediately to pay the amount required to compensate the Republic for the damage it suffered.³¹⁵

396. It is important to bear in mind that the fallo is an administrative act, taken by a civil servant. As the Contraloría acknowledged in one of its decisions:³¹⁶

“[...] ni el Contralor General de la República, ni los contralores delegados intersectoriales administran justicia en nombre de la República de Colombia, no ejercen funciones jurisdiccionales, esto es, no son jueces, y los procesos de responsabilidad fiscal se adelantan en ejercicio de sus funciones de control [...]”.

397. After its issuance by the Contralor Delegado (and its appeal to the Contralor General)³¹⁷ the fallo becomes final. If the civil servant or particular that has been found laible disagrees with the Contraloría's findings, the fallo may then be challenged before the Colombian Courts through a procedimiento contencioso administrativo,³¹⁸ but this review of the fallo by the Colombian Courts occurs ex post.

A. The Preliminary Investigation

398. A few months after the execution of the Eighth Amendment, a scandal erupted concerning allegedly corrupt practices in Ingeominas.³¹⁹

399. In light of the scandal, but also of audits which the Contraloría had been conducting in Ingeominas,³²⁰ on 8 October 2010, the newly appointed Contralora General de

³¹⁴ Doc. C-71, Art.12. ↩
³¹⁵ Doc. C-71, Arts. 53 and 54. ↩
³¹⁶ Doc. C-35, p. 35. ↩
³¹⁷ Doc. C-71, Art. 64. ↩
³¹⁸ Doc. C-71, Art. 59. ↩
³¹⁹ Paredes I, para. 26. See also Doc. R-42; Doc. R-170. ↩
³²⁰ Doc. R-28, p. 2. ↩

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la República, Ms. Sandra Morelli, decided to constitute an Equipo Especial de Reacción Inmediata [“Immediate Reaction Team”], with the goal of:³²¹

“[...] analizar la situación que comporta un especial interés nacional y que eventualmente podría comprometer el patrimonio público del Estado en lo referente a las presuntas irregularidades en el manejo contractual que INGEOMINAS le ha dado a los contratos con la Sociedad CERRO MATOSO S.A., Sociedad DRUMMOND y Sociedad C.I PRODECO S.A.”.

400. Consequently, on 19 October 2010, the Contraloría opened an indagación preliminar into Ingeominas [“Preliminary Investigation”].³²² The Investigation would start with a visit to the offices of Ingeominas, to examine all the documents related to the contracts of Cerro Matoso and Drummond (also suspected mining companies), and of Prodeco.³²³

401. On 20 October 2010, the Immediate Reaction Team visited the offices of Ingeominas and asked for the files regarding Drummond, Cerro Matoso, and Prodeco, and particularly documents post-dating 2006.³²⁴ Ingeominas delivered a series of documents, as requested.³²⁵

402. On 27 October 2010, the Contraloría interviewed two Ingeominas officers who had been involved in the negotiations of the Eighth Amendment, Ms. Luz Aristizábal and Mr. Giovanny Balcero.³²⁶ Pro memoria, these individuals had signed the Viability Study; Ms. Aristizábal had been in charge of making presentations to Ingeominas' Consejo Directivo, and Mr. Balcero had prepared a memorandum in October 2009 regarding Prodeco's NPV.

403. Over the following months, Ingeominas replied to several requests for information from the Immediate Reaction Team.³²⁷

404. In March 2011, the Immediate Reaction Team finalized its report,³²⁸ which was divided into three sub-reports, for each of the mining projects. Ms. Johanna Tovar Silva was in charge of the report on Prodeco [the “Tovar Silva Report”].³²⁹

405. The Tovar Silva Report recounted the history of the Mining Contract and the amendments thereto. It also summarized the negotiations between Prodeco and Ingeominas regarding the Eighth Amendment.

³²¹ Doc. C-118 / R-27. See also Vargas I, paras. 34-37. ↩
³²² Doc. C-120. ↩
³²³ Doc. C-120, Second Resolution, p. 6. ↩
³²⁴ Doc. R-30, p. 1. ↩
³²⁵ Doc. R-167. ↩
³²⁶ Doc. C-121. See also C I, para. 74 and R I, para. 232. ↩
³²⁷ Doc. C-124; Doc. C-125. ↩
³²⁸ Doc. R-32. ↩
³²⁹ Doc. C-125. ↩

[Page 95]

406. The Tovar Silva Report concluded that:

• Prodeco had not marshalled evidence proving that the mining project would be unviable without the Eighth Amendment;³³⁰
• There had been no juridical, technical, or financial reasons to modify the economic conditions of the Mining Contract;
• Ingeominas had failed to properly analyse the impact of the Eighth Amendment;³³¹
• The modifications to the compensation scheme under the Eighth Amendment were detrimental for Colombia, since in 2010 Colombia had received less revenues than it would have received under the previous compensation scheme.

407. The Tovar Silva Report based its finding on the so-called Transition Period contemplated in the Eighth Amendment, which was the period between 1 January and 31 December 2010.

408. Ms. Tovar Silva's analysis draws attention to one of the main issues confronted in the Contraloría's analysis: how to calculate the damage caused in a long-term contract. As Ms. Tovar Silva explains, in this type of contract there is a possibility that losses in one year are offset by gains in succeeding years – thus making the calculation of the damage caused more uncertain. To resolve this difficulty, Ms. Tovar Silva decided to focus on the one-year “período de transición” foreseen in the Eighth Amendment, which in her opinion “se ha consolidado plenamente”, and then to calculate the damage as the loss of income suffered by the Republic in that period - disregarding all possible events in subsequent years.

409. Prodeco would not be notified of the Tovar Silva Report until August 2012³³² (more than a year later).

B. The Contraloría Initiates the Fiscal Liability Proceeding

410. On 10 May 2011, the Contraloría closed the Preliminary Investigation³³³ and decided to start Fiscal Liability Proceeding against:³³⁴

• Prodeco, and
• Mr. José Fernando Ceballos, Ingeominas' Director del Servicio Minero, who had signed the Eighth Amendment on behalf of Ingeominas.

³³⁰ Doc. C-125, p. 21. ↩
³³¹ Doc. C-125, p. 22. ↩
³³² Doc. C-146, p. 4. ↩
³³³ Doc. R-36. The Contraloría officially closed the visits to Ingeominas' facilities on 14 April 2011 (Doc. R-31). ↩
³³⁴ Doc. C-17. ↩

[Page 96]

411. The Contraloría based this decision on the conclusions of the Tovar Silva Report.³³⁵ The Contraloría found that all the audited mining contracts (including those of Drummond and Cerro Matoso) contained irregularities, but that only Prodeco's contract had actually caused damage to the State's finances and could give rise to fiscal responsibility.³³⁶

412. The Proceedings sought to collect COP 51.35 billion (approximately USD 29 M at the exchange rate of the time),³³⁷ which was calculated as the difference between the Royalties and GIC that Prodeco would have paid during the Transition Period under the old regime, and those actually paid under the Eighth Amendment.³³⁸

413. The Contraloría explained that it was pursuing Mr. Ceballos because Ingeominas was in charge of collecting royalties and compensation, which, according to the Colombian Constitución Política, are resources of the State.³³⁹

414. The Contraloría also found that it could pursue Prodeco for two reasons:³⁴⁰

• Because Prodeco was the “orientador” of the Eighth Amendment, and
• Because it provided information to Ingeominas, which Ingeominas used in its “evaluación técnica y económica”.

415. According to the Contraloría, Prodeco was not simply a third party, whose actions were limited to paying compensation to Ingeominas; on the contrary, Prodeco had a close and necessary relation with Ingeominas' fiscal management and hence should be made responsible through the Fiscal Liability Proceeding.³⁴¹

416. A few days later, Prodeco was notified of the start of the Fiscal Liability Proceeding.³⁴²

C. Depositions

417. Because the Contraloría must ensure due process rights in its Fiscal Liability Proceeding, including inter alia the right to present a defence and to be heard,³⁴³ the Contraloría called Mr. Ceballos and a representative of Prodeco to depose.

³³⁵ Doc. C-17, pp. 13 et seq. ↩
³³⁶ Doc. C-17, pp. 8 and 43. ↩
³³⁷ C I, para. 79. ↩
³³⁸ Doc. C-17, p. 41: “[...] de no haberse modificado la fórmula para el cálculo y de la compensación por ingresos brutos y la del cálculo de regalías, el Estado habría recibido –tan solo en el período de transición- la suma de $51.353.629.267,07, valor que para efectos del Proceso de Responsabilidad Fiscal, se entiende como la cuantía estimada del daño”. See also Doc. C-17, p. 38. ↩
³³⁹ Doc. C-17, p. 11. ↩
³⁴⁰ Doc. C-17, pp. 41-42. ↩
³⁴¹ Doc. C-17, pp. 42-43. ↩
³⁴² Doc. C-127. Ingeominas was also notified of the start of the Fiscal Liability Proceeding (Doc. R-51). ↩
³⁴³ Doc. C-71, Art. 2: “En el ejercicio de la acción de responsabilidad fiscal se garantizará el debido proceso y su trámite se adelantará con sujeción a los principios establecidos en los artículos 29 y 209 de ↩

[Page 97]

418. On 9 June 2011, Mr. Ceballos declared to the Contraloría that:³⁴⁴

• He had worked as Director del Servicio Minero from November 2009 to August 2010 and by the time he joined the process, Prodeco and Ingeominas had already conducted extensive negotiations (pro memoria, the Commitment to Negotiate was signed in May 2009 and the Eighth Amendment in January 2010);
• Both Mr. Ballesteros and the Consejo Directivo, including the Ministro de Minas y Energía, had always been informed about Prodeco's proposals and the analyses that were being conducted;
• The employees of the Subdirección de Fiscalización y Ordenamiento Minero³⁴⁵ in charge of the Eighth Amendment were competent to interpret the mining legislation and to conduct the necessary analysis; in January 2010, these employees had prepared a Viability Study supporting the viability of the Eighth Amendment;
• The Eighth Amendment had been the object of a detailed analysis and there had been no rushed decisions:³⁴⁶

  “[...] el otrosí No. 8 no fue un documento que apareció de un momento a otro, ni que lo hubiera firmado de manera aislada sino que fue el producto de una acción previamente analizada discutida al interior de Ingeominas, teniendo en cuenta las diferentes propuestas presentadas por Prodeco y siempre teniendo en la mira buscar condiciones más favorables para el Estado”.

• Prodeco's proposed expansion of the Calenturitas Mine and the new compensation scheme would, in the long-run, generate much higher revenues to the State, compared to the previous regime.

419. In addition, Mr. Ceballos delivered the January 2010 Viability Study and asked that the Contraloría call the four Ingeominas employees in charge of the Eighth Amendment to testify.³⁴⁷

420. Two days later, Ms. Margarita Zuleta, an officer of Prodeco, who had signed the Eighth Amendment on the company's behalf, was also called to give her statement to the Contraloría. Ms. Zuleta described the negotiations between Prodeco and

la Constitución Política y a los contenidos en el Código Contencioso Administrativo”. See also Vargas I, para. 20.
³⁴⁴ Doc. C-128, pp. 1-2. ↩
³⁴⁵ Mr. Ceballos said that these employees were Ms. Luz Marina Aristizábal (engineer), Ms. Luz Mireya Gómez Ríos (economist), Ms. Mélida Andrea Cabezas (legal counsel) and Mr. Giovanny Balcero (engineer). ↩
³⁴⁶ Doc. C-128, pp. 4-5. ↩
³⁴⁷ Doc. C-128, p. 3. ↩

[Page 98]

Ingeominas and explained the rationale behind the Eighth Amendment.³⁴⁸ Ms. Zuleta explained:³⁴⁹

“Finalmente creo que es importante tener en cuenta que el proyecto Calenturitas iba a producir Carbón solo hasta 8 millones de toneladas y que el otrosí No. 8 permitió a Prodeco expandir su operación por encima de 8 millones de toneladas, lo cual requiere de importantes inversiones en equipo y personal las cuales nunca hubieran sido efectuadas si el VPN de la expansión hubiera sido inferior a cero. En consecuencia, la Nación con el otrosí No. 8 tiene un ingreso adicional en regalía y contraprestaciones consistente en las contraprestaciones aplicables a los tonelajes superiores a 8 millones de toneladas al año. Por lo cual Prodeco considera que el otrosí No. 8 en ningún caso implica un detrimento para la Nación por el contrario implica unos ingresos adicionales derivados de la explotación adicional a 8 millones de toneladas al año. Una vez el otrosí No. 8 fue perfeccionado, Prodeco presentó a Ingeominas un plan de trabajo de inversiones para explotar hasta 15 millones de toneladas al año”. [Emphasis added]

421. Ms. Zuleta concluded that the Contraloría should employ financial advisors to study the case in detail and that Prodeco's team was available to answer any questions of the Contraloría.³⁵⁰

422. In August 2011, Prodeco sent a letter to the Contraloría, explaining in detail the negotiation process between Prodeco and Ingeominas and the motivations behind the Eighth Amendment. Prodeco argued that it had not caused damage to the State and requested that the Contraloría close the Fiscal Liability Proceeding.³⁵¹

D. Statements by Officers of Ingeominas and the Ministry of Mines

423. In light of Mr. Ceballos' request for further evidence, in late September 2011 the Contraloría summoned several officers of Ingeominas and the Ministry of Mines and Energy to testify.³⁵² The Contraloría also ordered the production of a technical report by an economics specialist with knowledge of the energy sector.³⁵³

424. Between 24 and 26 October 2011, the Contraloría deposed the Ingeominas officials who had signed the Viability Study (as explained in detail below, a. to d.) and an employee of the Ministry of Mines (e.). Before testifying, these witnesses were required to swear to tell the truth and the Contraloría informed them of the consequences of perjury.³⁵⁴ Counsel for Prodeco and Mr. Ceballos, and Mr. Ceballos himself, were present at these depositions.³⁵⁵

³⁴⁸ Doc. C-129; Doc. R-171. ↩
³⁴⁹ Doc. R-171, p. 3. ↩
³⁵⁰ Doc. R-171, p. 4. ↩
³⁵¹ Doc. C-130. ↩
³⁵² Doc. R-39 and Doc. C-131. ↩
³⁵³ Doc. R-39, p. 4. ↩
³⁵⁴ C I, para. 85; R I, para. 240. See also Docs. C-132 to C-136. ↩
³⁵⁵ Docs. C-132 to C-136. ↩

[Page 99]

425. (a) Ms. Aristizábal – who had already given a statement during the Preliminary Investigation – declared that there had been numerous meetings between Prodeco and Ingeominas, although not all were documented, to discuss an amendment to the Mining Contract. She further confirmed that Prodeco's costs had significantly increased between 2003 and 2008 and that under the previous compensation scheme it would not have been possible to expand the Mine. Ms. Aristizábal also noted that Prodeco was paying the highest royalties in comparison with other projects. Finally, she said that she had handed several documents to the Immediate Reaction Team that were not part of the file of the Fiscal Liability Proceeding.³⁵⁶

426. (b) Ms. Luz Mireya Gómez – who together with Mr. Balcero had prepared Ingeominas' memorandum of October 2009 – declared that there had been weekly meetings between Prodeco and Ingeominas to discuss Prodeco's proposals and that Mr. Ballesteros and Ingeominas' Consejo Directivo had always been kept informed of the negotiations. Ms. Gómez also confirmed that there had been a significant increase in coal production costs in the past ten years. Ms. Gómez explained that Prodeco and Ingeominas had agreed that the GIC threshold would be adjusted quarterly by reference to the Colombian consumer price index, because it resulted in lower increases in prices than other indexes. Finally, she said that:³⁵⁷

“En el momento en que se realizó la negociación del otrosí no existía un procedimiento en el Instituto para adelantar este tipo de negociaciones y con ocasión de un plan de mejoramiento (posterior a la fecha de suscripción del otrosí No. 8), se implementó el procedimiento respectivo”.

427. (c) Mr. Balcero – who also had given a statement during the Preliminary Investigation - explained that he had made a technical analysis of Prodeco's proposal; he had found that Prodeco's proposal was justified by the need to expand the Mine, and that this would ultimately benefit Colombia. Mr. Balcero stated that he had run several economic models, upon the request of Ingeominas' Consejo Directivo. Mr. Balcero confirmed, as did Ms. Aristizábal and Ms. Gómez, that Mr. Ballesteros and Ingeominas' Consejo Directivo had always been informed of the negotiation process and that production costs had increased in the past 10 years. Mr. Balcero also directed the Contraloría to the Viability Study. Finally, Mr. Balcero declared that the Eighth Amendment had prompted Prodeco to make significant investments in the Calenturitas Mine in 2010.³⁵⁸

428. (d) Ms. Melida Cabezas – who had been in charge of the legal aspects of the negotiation with Prodeco – stated that in mid-2009 Ingeominas' officials had found that Prodeco's proposal was not technically or legally viable. However, Mr. Ballesteros had asked them to come up with a counter-proposal to offer Prodeco. After conducting further studies, Ingeominas' officials found that an expansion of the Mine would benefit the Colombian State. Ms. Cabezas also

³⁵⁶ Doc. C-132. ↩
³⁵⁷ Doc. C-133, p. 2. ↩
³⁵⁸ Doc. C-134. ↩

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confirmed that Mr. Ballesteros and the Consejo Directivo had been fully informed of the negotiations.³⁵⁹

429. (e) Ms. Maria Díaz López, Chief Legal Advisor to the Ministry of Mines and Energy, declared that Ingeominas' officers had kept the Consejo Directivo informed of Prodeco's requests for an amendment to the Mining Contract. Ms. Díaz López explained that the Ministro de Minas y Energía had given several recommendations to Ingeominas and that the aim of the negotiation was to increase royalty payments for the State and to expand the Mine.³⁶⁰

Ε. The Contraloría Extends the Indictment and Attaches Assets

430. On 26 April 2012, the Contraloría ordered the production of further evidence in the Fiscal Liability Proceeding, including, inter alia, all the documents and calculations that had served as the basis for the Viability Study.³⁶¹

431. As a result of this new evidence, on 11 July 2012, the Contraloría decided to extend the indictment to additional civil servants. In addition to Mr. Ceballos and Prodeco, previously indicted, the Contraloría indicted the former Ministro de Minas y Energía, Mr. Ballesteros, and the four Ingeominas officers who had been involved in the negotiation of the Eighth Amendment, to wit:

• Mr. Hernán Martínez Torres, who was the Ministro de Minas y Energía at the relevant time; the Contraloría considered that Mr. Martínez Torres' action as member of Ingeominas' Consejo Directivo had been passive or careless, whereas it should have been active and decisive;³⁶²
• Mr. Ballesteros, Ingeominas’ Director General at the relevant time; the Contraloría found that Mr. Ballesteros had failed to comply with the appropriate controls and procedures, and to conduct the appropriate analysis;³⁶³
• Ms. Aristizábal, Ms. Cabezas, Mr. Balcero, and Ms. Gómez, as officers of Ingeominas' Subdirección de Fiscalización y Ordenamiento Minero, involved in the process of the Eighth Amendment; the Contraloría considered them suspect because they had signed the Viability Study, although they had previously declared that a modification of the Mining Contract was not warranted.³⁶⁴

Preliminary Attachment

432. On 17 July 2012 the Contraloría decided, as precautionary measures, to attach assets belonging to each of the civil servants indicted in the Fiscal Liability

³⁵⁹ Doc. C-135. ↩
³⁶⁰ Doc. C-136. ↩
³⁶¹ Doc. R-40. ↩
³⁶² Doc. C-18, pp. 5-6. ↩
³⁶³ Doc. C-18, pp. 7-9. ↩
³⁶⁴ Doc. C-18, pp. 9-12. ↩

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Proceeding.³⁶⁵ These attachments were aimed at guaranteeing the State's right to be compensated for the damage caused – which had been estimated at USD 29 M for the Transition Period.³⁶⁶

433. In addition, the Contraloría attached three of Prodeco's bank accounts,³⁶⁷ and, two months later, Prodeco's shares in Fenoco.³⁶⁸

F. New Technical Reports

434. On 24 August 2012, the Contraloría notified the Tovar Silva Report to Prodeco.³⁶⁹

435. On 5 September 2012, Prodeco challenged the Tovar Silva Report (infra, i) and once again requested that the Contraloría close the Fiscal Liability Proceeding (ii). This request was accompanied by an expert report by KPMG (iii).³⁷⁰

436. (i) In the challenge, Prodeco said that the Tovar Silva Report had made legal considerations which were beyond its scope and had ignored all the documents submitted by Prodeco to Ingeominas explaining the benefits of the Eighth Amendment for the State. Furthermore, Prodeco took issue with the fact that the Tovar Silva Report had limited its economic analysis to the Transition Period, disregarding the long-term impact of the Eighth Amendment.³⁷¹

437. (ii) Prodeco also argued that the Eighth Amendment had not caused any damage to Colombia and that Prodeco had always acted in good faith. Prodeco explained that the Eighth Amendment had to be examined as a whole, and that it would only be possible to ascertain if the State had suffered damage once the Mining Contract had expired. Prodeco also submitted that it could not be subject to the Fiscal Liability Proceeding because it did not have any public fiscal responsibility.³⁷²

438. (iii) The KPMG report analysed the economic and financial aspects underlying the Eighth Amendment and the benefit it generated for the State's finances. The report found that an expansion of the Calenturitas Mine would not have been possible

³⁶⁵ It is worth mentioning that the Contraloría did not attach any assets of Mr. Ceballos (Doc. C-19). ↩
³⁶⁶ Doc. C-19, p. 5 and Doc. C-20, p. 5: “Para hacer efectiva la función que desarrolla este órgano de vigilancia y control, cuando se examina la gestión fiscal y determina la responsabilidad fiscal del servidor público y/o particular que administra bienes o fondos del Estado, se hace imperioso practicar las medidas cautelares como instrumento eficaz, sin las cuales no se materializaría el resarcimiento del daño patrimonial al Estado Colombiano y nos encontraríamos frente a un fallo ilusorio, además de que no se estaría logrando el fin esencial del Proceso de Responsabilidad Fiscal, cual es el resarcimiento patrimonial del daño causado al erario”. ↩
³⁶⁷ Doc. C-19. ↩
³⁶⁸ Doc. C-20. ↩
³⁶⁹ Doc. C-146, p. 4. ↩
³⁷⁰ Docs. C-141 to C-143. ↩
³⁷¹ Doc. C-142. ↩
³⁷² Doc. C-143. ↩

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without the Eighth Amendment. The report also explained that the Eighth Amendment had resulted in a much higher benefit for the State than for Prodeco.³⁷³

Clarifications by Tovar Silva

439. As a consequence of Prodeco's challenge to the Tovar Silva Report, on 29 October 2012, the Contraloría asked Ms. Tovar Silva to provide clarifications.³⁷⁴ Accordingly, on 9 November 2012, Ms. Tovar Silva explained that she had examined the impact of the Eighth Amendment on the State's finances only during the Transition Period because this was the only period for which there was actual data.³⁷⁵

Valenzuela/Riveira Report

440. On 14 November 2012, Messrs. Luis Valenzuela and Felipe Riveira, who had respectively served as Minister and Vice-Minister of Mines and Energy,³⁷⁶ submitted an expert opinion, commissioned by Prodeco, analysing whether the Eighth Amendment had benefitted Colombia.³⁷⁷ The report came to the following conclusions:³⁷⁸

• Under the original compensation scheme Prodeco would not have expanded production, since this would have generated a reduction in its NPV;
• The benefits or disadvantages of the Eighth Amendment on the State's finances could only be established by examining the entire life of the Mining Contract, not just its first year in isolation;
• Colombia would only see the benefits of the Eighth Amendment once Prodeco's programmed expansion actually took place – a process that required several years; this meant that in 2010-2011 the Eighth Amendment would not yet be generating higher yields for the State;
• The Eighth Amendment did not cause a damage to Colombia; on the contrary, it would bring an additional USD 205 M in compensation payments.

³⁷³ Doc. C-141. In particular, the KPMG report found that: “La Nación obtiene un incremento de sus beneficios en casi tres veces el aumento de los beneficios que recibe Prodeco con la realización de la expansión y el Otrosí 8. Con la ejecución del Proyecto de Expansión y con la suscripción del Otrosí 8, el incremento el VPN de las regalías es de un 57% mayor al Proyecto de Producción Anterior al Otrosí 8. Sin embargo el aumento del VPN de la mina que tiene Prodeco es del 23%” (Doc. C-141, p. 11). ↩
³⁷⁴ Doc. C-146. ↩
³⁷⁵ Doc. C-147. ↩
³⁷⁶ Doc. R-173, p. 2. ↩
³⁷⁷ Doc. C-148. See also Doc. R-173, by which Prodeco submits the report into the record of the Fiscal Liability Proceeding. ↩
³⁷⁸ Doc. C-148, pp. 2-3. ↩

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441. Faced with contradictory information, on 10 April 2013, the Contraloría decided to commission a technical support team to produce a report on the Eighth Amendment:³⁷⁹

“[...] para determinar si se desvirtúan los fundamentos del presente proceso de responsabilidad y el daño causado a la Nación por la disminución en las regalías y compensaciones a su favor”.

G. New Depositions

442. Between April and May 2013, the Contraloría heard the depositions of the new defendants in the Fiscal Liability Proceeding, Mr. Ballesteros, Mr. Martínez Torres, Ms. Aristazábal, Ms. Cabezas, Ms. Gómez and Mr. Balcero (infra, a. to f.).³⁸⁰ Given that these individuals were no longer witnesses, but indicted defendants in the Fiscal Liability Proceeding, they were not required to swear to tell the truth lest they might incriminate themselves – thus they presented what in Colombian practice is known as a “versión libre y espontánea”.³⁸¹

443. (a) Mr. Ballesteros declared that the officials of the Deputy Mining Direction had performed a technical, legal and economic analysis of Prodeco's proposals. Mr. Ballesteros noted that the negotiation between Ingeominas and Prodeco had been long, and Ingeominas had never accepted Prodeco's proposals at face value. Finally, Mr. Ballesteros insisted that the Eighth Amendment would generate higher revenues for the State than the previous regime.³⁸²

444. (b) Mr. Martínez Torres testified that he had always acted to make sure that the State's interests were protected. He argued that the Eighth Amendment was beneficial to the State and that he understood that the analysis had been correctly performed.³⁸³

445. (c) Ms. Aristizábal asked that her previous sworn deposition be taken into account. She noted that she was not competent to decide whether or not the Eighth Amendment had to be signed, and that Ingeominas had chosen not to hire external experts to conduct economic analysis. Ms. Aristizábal explained that Ingeominas' officers had tried to be as diligent as possible, to avoid any future disputes regarding the Eighth Amendment.³⁸⁴

446. (d) Ms. Cabezas confirmed that there had been numerous meetings with Prodeco, with the participation of Mr. Ballesteros, who was adamant that the Eighth

³⁷⁹ Doc. C-151, p. 3. ↩
³⁸⁰ Docs. C-152, C-153, C-154 / R-23, C-155 / R-22, C-156 / R-81, C-157 / R-25. ↩
³⁸¹ Doc. C-152, p. 1: “[el] artículo 33 de la Constitución Política de Colombia [...] señala que no está obligado a declarar contra sí mismo [...]”. ↩
³⁸² Doc. C-152. ↩
³⁸³ Doc. R-81. ↩
³⁸⁴ Doc. C-153. ↩

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Amendment should be executed. She deposed that she had felt pressured by Mr. Ballesteros:³⁸⁵

“De acuerdo a las proyecciones presentadas por PRODECO se hacia [sic] el estudio económico y técnico de los mismos como la negociación no avanzaba por cuanto el análisis que de los cuadros nosotros hacíamos de las propuestas presentadas por PRODECO al Dr. Mario no le gustaban porque iban en contravía de su querer el cual era dar viabilidad a la suscripción de la modificación del contrato 0044/89 Esta circunstancia generó que el Dr. Mario Ballesteros nos exigiera la sustanciación a Luz Marina, Luz Mireya a Giovanni y a mí que teníamos que elaborarle un cuadro y un escrito en el que se viera reflejada la mejor posibilidad presentada por PRODECO para que se pudiera dar la viabilidad del otrosí. Siguiendo estas instrucciones y la furia del Dr. Ballesteros porque no hacíamos el cuadro conforme a su querer se elaboraron otros conforme a sus instrucciones porque el Dr. Mario estaba muy interesado en presentarle dicho cuadro al Ministro Hernán Martínez y a todo el Consejo Directivo en Pleno para que según él tomaran las decisiones correspondientes”.

447. Ms. Cabezas also affirmed that the Viability Study had been prepared after the execution of the Eighth Amendment:³⁸⁶

“Igualmente quiero agregar que el denominado escrito viabilidad para la suscripción del otrosí número 8 no fue lo que originó la suscripción del mismo por cuanto y reitero el otrosí numero 8 ya había sido suscrito lo que generó realmente la suscripción de este otrosí fue la determinación por parte del Dr. Mario Ballesteros Mejía y el Ministro Hernán Martínez y fueron ellos los que no se [sic] con que [sic] intereses decidieron modificar el contrato 044/89”.

448. (e) Ms. Gómez described the analysis she had performed before the execution of the Eighth Amendment:³⁸⁷

“Básicamente lo que yo hice fue las estimaciones matemáticas de lo que estaba cancelando PRODECO por concepto de regalías y cuánto pagaría si aumentaba su volumen de producción a diez millones de toneladas”.

449. Ms. Gómez did not mention any pressure exercised by Mr. Ballesteros.

450. She explained that Mr. Ceballos had asked her and other colleagues to prepare the Viability Study after the Eighth Amendment had been signed. The report was meant to serve as an “aide-mémoire” which described all the parameters which Ingeominas had taken into account when deciding to execute the Eighth Amendment.³⁸⁸

³⁸⁵ Doc. R-22, p. 2. ↩
³⁸⁶ Doc. R-22, p. 4. ↩
³⁸⁷ Doc. R-23, p. 3. ↩
³⁸⁸ Doc. R-23. ↩

[Page 105]

451. (f) Mr. Giovanny Balcero also confirmed that there had been a number of meetings between Ingeominas and Prodeco. He recalled that Prodeco had offered to increase the capacity of the mine to 14 MTA, but that the restriction which made such expansion unviable was the compensation provided for in the Mining Contract. His task consisted in preparing financial models of the production of the Mine.³⁸⁹

452. Mr. Balcero also confirmed that the Viability Study had been prepared after the execution of the Eighth Amendment, and was meant to be a sort of aide-mémoire, compiling all the information reviewed and all the analyses performed by the Deputy Mining Direction. Finally, Mr. Balcero stated that Mr. Ballesteros showed an interest in the execution of the Eighth Amendment, that no external experts were hired, and that he breached internal procedures by not consulting the Subdirectora de Fiscalización, Ms. Gloria del Socorro Arias.³⁹⁰

H. The Technical Support Report

453. On 20 May 2013, the Contraloría's technical support team delivered a report with its findings [“Technical Support Report”]. The Report mainly commented on KPMG's report of September 2012.³⁹¹

454. As in the case of the Tovar Silva Report, the Technical Support Report focused exclusively on the year 2010, and found that the Eighth Amendment had resulted in a reduction of Royalties and GIC paid to the State in an amount of COP 52.21 billion (equivalent to USD 27.28 M):³⁹²

En el cuadro a continuación se presentan las diferencias encontradas en la cuantificación de los ítems de regalía básica, regalía adicional y compensación por ingresos brutos, para el año 2010 (considerado como período de transición dentro del otrosí 8), antes y después de implementar los cambios consagrados mediante el otrosi 8.

REGALIAS Y COMPENSACIONES	ANTES DE OTROSI 8	CON OTROSI 8	DIFERENCIA
REGALIA BASICA	$ 66.998.703.286,21	$ 53.710.098.396,69	$ 13.288.604.889,53
REGALIA ADICIONAL	$ 28.144.639.205,52	$ 23.434.944.406,00	$ 4.709.694.799,52
COMPENSACION INGRESOS	$ 34.369.147.636,72	$ 153.053.343,60	$ 34.216.094.293,12
TOTAL	$ 129.512.490.128,46	$ 77.298.096.146,28	$ 52.214.393.982,17

455. The Technical Support Report said that the KPMG report of September 2012 had been based on projections, instead of taking into account the actual data available after the execution of the Eighth Amendment for the years 2010 and 2011.³⁹³

³⁸⁹ Doc. R-25, p. 3. ↩
³⁹⁰ Doc. R-25, p. 5. ↩
³⁹¹ Doc. C-159. This report is sometimes referred to in correspondence as the “García Alarcón - García Olaya Report”. ↩
³⁹² Doc. C-159, p. 14. ↩
³⁹³ Doc. C-159, p. 14. ↩

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Finally, the Technical Support Report recommended that the calculation performed for the Transition Period should be repeated for 2011 and 2012.³⁹⁴

Further Reports

456. In June 2013, Prodeco presented a challenge to the Technical Support Report,³⁹⁵ which was accompanied by a new expert report by KPMG.³⁹⁶

457. And in July 2013, the technical support team issued yet another report, challenging KPMG's methodology of projecting future production scenarios and insisting that any analysis of the damage suffered by the State should only take into account the year 2010.³⁹⁷

Prodeco's Request for Closure of the Proceedings

458. On 28 August 2013, Prodeco once again requested that the Contraloría close the Fiscal Liability Proceeding. Prodeco argued that the facts did not lead to the conclusion that the State had suffered damage, or that Prodeco had acted deceitfully or with gross negligence.³⁹⁸

I. The Contraloría Issues the Auto de Imputación

459. Despite Prodeco's submissions and requests, on 30 August 2013, the Contraloría issued an Auto de imputación de responsabilidad fiscal, [“Auto de Imputación”] formally charging Prodeco, Mr. Ceballos, Mr. Ballesteros, Mr. Martínez Torres, and Ms. Aristizábal. Prodeco, Mr. Ceballos and Mr. Ballesteros were accused of acting with dolo, whereas Mr. Martínez Torres and Ms. Aristizábal were accused of acting with culpa grave.³⁹⁹

460. The Auto de Imputación is a lengthy document, totalling more than 200 pages.

461. The Auto first analyses whether the State has suffered damages.⁴⁰⁰ Its general thrust is that the Eighth Amendment has resulted in damage to the Colombian State, due to a reduction in the Royalties to be paid by Prodeco.⁴⁰¹

462. The Contraloría dismisses Prodeco's argument that the fiscal analysis of the Mining Contract could be made only upon its expiration in 2035:⁴⁰²

“[...] en el ejercicio de sus funciones las contralorías tienen conferida la atribución de verificar la existencia cierta y actual de un daño fiscal, con

³⁹⁴ Doc. C-159, p. 17. ↩
³⁹⁵ Doc. R-174. ↩
³⁹⁶ Doc. C-161. ↩
³⁹⁷ Doc. C-163. ↩
³⁹⁸ Doc. C-164. ↩
³⁹⁹ Doc. C-24. ↩
⁴⁰⁰ Doc. C-24, p. 111. ↩
⁴⁰¹ Doc. C-24, p. 112. ↩
⁴⁰² Doc. C-24, p. 119. ↩

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ocasión de la ejecución de un contrato, y de adelantar la acción dirigida a su resarcimiento, sin esperar a su liquidación, ni menos a la extinción de las acciones contencioso administrativas”.

463. As regards the quantum of the damage suffered by the State, the Auto de Imputación draws from the Tovar Silva Report and the Technical Support Report, and concludes that the damage amounts to COP 51 billion, which is the reduction in earnings suffered during the year 2011.⁴⁰³

464. The Contraloría also declares that although Prodeco was a private entity, it had assumed responsibility towards the assets of the State when it executed the Mining Contract, because it gave direction to the negotiations:⁴⁰⁴

“Así las cosas, es evidente que C.I. PRODECO participó activamente en el resultado objeto de reproche fiscal, como quiera que la Firma, tal como lo señaló el auto de apertura orientó la cuestionada modificación y cada uno [sic] de las propuestas presentadas a INGEOMINAS”. [Emphasis added; spelling errors in the original]

465. The Contraloría also concludes that Prodeco has wilfully caused damage to the State:⁴⁰⁵

“A lo largo de todo el material probatorio obrante en el proceso, se evidencia una clara intención por parte de Prodeco de modificar el contrato 044-89 a sabiendas de que con esta modificación se disminuirían los ingresos para el [sic] Nación Colombiana, por lo cual se califica su conducta como DOLOSA”. [Emphasis added and capitalisation in the original]

466. In the same Auto de Imputación, the Contraloría decided to dismiss the indictment and close the Fiscal Liability Proceeding with respect to Ms. Cabezas, Mr. Balcero, and Ms. Gómez, on the ground that their functions within Ingeominas did not involve any decision-making powers.⁴⁰⁶

J. Prodeco's Defence and Requests for Submission of New Evidence

467. Pursuant to Art. 50 of the Law 610 of 2000, regarding Fiscal Liability Proceeding:⁴⁰⁷

“Los presuntos responsables fiscales dispondrán de un término de diez (10) días contados a partir del día siguiente a la notificación personal del auto de imputación o de la desfijación del edicto para presentar los argumentos de

⁴⁰³ Doc. C-24, p. 135. ↩
⁴⁰⁴ Doc. C-24, p. 184. ↩
⁴⁰⁵ Doc. C-24, pp. 176-187. ↩
⁴⁰⁶ Doc. C-24, pp. 206-221: “las funciones asignadas al profesional especializado [Mr. Balcero], otorgan ninguna [sic] tipo de decisión o disposición” (p. 211); “La doctora Gómez según las funciones a su cargo, no tenía ningún poder de decisión en el asunto” (p. 216); “De igual forma es claro que las obligaciones contratadas [por la Dra. Cabezas] no comportaban ningún poder decisorio [...]” (p. 221). See also Vargas I, para. 67. ↩
⁴⁰⁷ Doc. C-71, Art. 50. ↩

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defensa frente a las imputaciones efectuadas en el auto y solicitar y aportar las pruebas que se pretendan hacer valer [...]”. [Emphasis added]

468. Accordingly, in October 2013, Prodeco and the remaining defendants in the Fiscal Liability Proceeding submitted their arguments of defence against the Auto de Imputación.⁴⁰⁸

469. Prodeco's defence submitted that the Auto de Imputación was groundless for several reasons:

• Colombia had not suffered a certain and actual damage: Prodeco recognized that the Contraloría could exercise a fiscal control at all times; however, it took issue with the fact that the Contraloría had chosen to disregard the overall economy of the Mining Contract and had based its analysis on the Transition Period.⁴⁰⁹
• The evidence on the record did not lead to the conclusion that Prodeco had acted with the intent of causing damage to the State's financial interests; the Contraloría seemed to mistake Prodeco's legitimate intention of executing the Eighth Amendment with an alleged intent of causing a damage to the State;⁴¹⁰
• The Contraloría seemed to confuse Ingeominas' irregular conduct with that of Prodeco; the Contraloría failed to consider that Ingeominas was a specialized State agency and that Prodeco could not have influenced its decision-making process;⁴¹¹
• Prodeco could not be held fiscally liable because it was not responsible for the management of public resources.⁴¹²

470. Prodeco also marshalled additional evidence: an expert report produced by Inverlink⁴¹³ and a request that the Contraloría call several witnesses to testify.⁴¹⁴

471. In their defences, Mr. Ballesteros, Mr. Martínez Torres, and Ms. Aristizábal also asked to introduce more evidence in the record.⁴¹⁵

⁴⁰⁸ Doc. C-166 (Ms. Aristizábal), Doc. C-167 (Mr. Ballesteros), Doc. C-169 (Mr. Martínez Torres), Doc. C-171 (Mr. Ceballos), Doc. C-173 (Prodeco). ↩
⁴⁰⁹ Doc. C-173, pp. 7-10. ↩
⁴¹⁰ Doc. C-173, pp. 11-17 and 35. ↩
⁴¹¹ Doc. C-173, pp. 18-19. ↩
⁴¹² Doc. C-173, pp. 35-37. ↩
⁴¹³ Doc. C-165. ↩
⁴¹⁴ Doc. C-173, pp. 37-40. Prodeco asked that the Contraloría hear the testimonies of: Ms. Margarita Zuleta; Mr. Ballesteros; two of Prodeco's employees who had participated in the negotiation process; several officials of the Contraloría, including Ms. Tovar Silva; and the experts who had produced reports in the course of the Fiscal Liability Proceeding. ↩
⁴¹⁵ Doc. C-166, pp. 30-31 (Ms. Aristizábal); Doc. C-167, p. 22 (Mr. Ballesteros); Doc. C-169, p. 6 (Mr. Martínez Torres). ↩

[Page 109]

472. On 14 January 2014, the Contraloría rejected most of Prodeco's requests to submit new evidence,⁴¹⁶ on the ground that the majority of the new evidence was either superfluous or useless:⁴¹⁷

• The Inverlink report did not bring a new perspective on the negotiations between Ingeominas and Prodeco compared with the KPMG reports;
• Ms. Margarita Zuleta, as legal representative of Prodeco; had already given her statement on the facts in question;
• Mr. Ballesteros was a defendant in the Fiscal Liability Proceeding and as such it would not be appropriate to have his testimony; in addition, he had already given a statement;
• The testimonies of two of Prodeco's employees who had participated in the negotiation process were superfluous, because the events on which they would testify were already covered in the record;
• The experts who had produced reports were not witnesses, but rather independent experts, who had already submitted their views in the course of the investigation.

473. The Contraloría decided to hear only Ms. Natalia Anaya, an officer of Prodeco who had taken part in the negotiation of the Eighth Amendment.⁴¹⁸

474. It is worth noting that the Contraloría also accepted the request by Ms. Aristizábal (an officer of Ingeominas who was among the defendants) to give a new statement,⁴¹⁹ although she had already been heard three times before, whereas it denied Prodeco's request that Ms. Margarita Zuleta be heard again.

475. On 23 January 2014, Prodeco challenged the Contraloría's decision. According to Prodeco:⁴²⁰

• An in limine rejection of evidence could only take place when the evidence was manifestly and flagrantly irrelevant, useless, or inopportune;
• All the evidence it had requested to submit was necessary to establish the economic rationale behind the Eighth Amendment and the negotiation process, which were at the heart of the Fiscal Liability Proceeding;
• If the Contraloría found itself “judge and party”, there was no guarantee of impartiality;

⁴¹⁶ Doc. C-26. ↩
⁴¹⁷ Doc. C-26, pp. 8-11. ↩
⁴¹⁸ Doc. C-26, p. 13. ↩
⁴¹⁹ Doc. C-26, p. 18. ↩
⁴²⁰ Doc. C-174. ↩

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• The Contraloría had disregarded Prodeco's due process rights.

476. On 13 February 2014, the Contralora Delegada confirmed its initial decision and denied Prodeco's challenge.⁴²¹ Prodeco appealed the Contralora Delegada's decision. On 17 March 2014, the Contralora General confirmed the first instance decision.⁴²²

Further Appeals

477. On 6 May 2014, Prodeco presented a request for annulment of the Contraloría's decision that had barred Prodeco from producing additional evidence, and all subsequent procedural decisions. According to Prodeco, the Proceedings had violated Prodeco's due process rights, in particular Prodeco's right to defend itself.⁴²³

478. This led Prodeco to file a constitutional injunction (acción de tutela) with the Tribunal Superior del Distrito Judicial de Bogotá.⁴²⁴ This court dismissed Prodeco's action, whereupon Prodeco lodged an appeal with the Corte Suprema de Justicia.⁴²⁵

479. On 22 October 2014, the Corte Suprema dismissed Prodeco's request.⁴²⁶ The Corte Suprema noted that an acción de tutela was not applicable to a Fiscal Liability Proceeding, which had their own mechanisms for challenging a decision and were subject to the jurisdiction of administrative courts.⁴²⁷ In addition, the Corte found that the Contraloría had not acted arbitrarily and had properly justified its decisions.⁴²⁸ The Corte Suprema concluded that:⁴²⁹

“[...] dentro del proceso de responsabilidad fiscal no se ha vulnerado el derecho al debido proceso y a la defensa de la accionante; máxime que la actuación aún se encuentra en curso y, como anteriormente se expresó, contra la decisión administrativa que ponga fin al proceso, en caso de que le sea desfavorable, tiene la posibilidad de impetrar la acción de nulidad y restablecimiento del derecho”.

480. On 18 December 2014, the Colombian Corte Constitucional decided not to review the decision of the Corte Suprema.⁴³⁰

⁴²¹ Doc. C-27. ↩
⁴²² Doc. C-28, p. 20. ↩
⁴²³ Doc. C-176. ↩
⁴²⁴ Doc. R-250, pp. 8348-8356. See also Doc. C-31, p. 1 and Doc. C-32, p. 10. ↩
⁴²⁵ Doc. C-31. ↩
⁴²⁶ Doc. C-31. ↩
⁴²⁷ Doc. C-31, p. 6. ↩
⁴²⁸ Doc. C-31, p. 7. ↩
⁴²⁹ Doc. C-31, p. 9. ↩
⁴³⁰ Doc. C-32, p. 10. ↩

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K. Ms. Aristizábal's Third Statement

481. On 24 April 2014, the Contraloría heard Ms. Aristizábal's new statement.⁴³¹ Ms. Aristizábal explained in more detail her mission in Ingeominas and her participation in the negotiation of the Eighth Amendment.

482. Departing from her three earlier statements, Ms. Aristizábal declared that Mr. Ballesteros had exercised undue pressure over her and that the other Ingeominas officers who were working on the Eighth Amendment had violated the applicable internal procedures. Ms. Aristizábal made clear that she was not responsible for the execution of the Eighth Amendment:⁴³²

“Con lo anterior quiero reiterar que frente a acuerdos e imposiciones, previamente establecidas, primó la subordinación y el temor al desobedecimiento de unas órdenes que en forma directa venían siendo dadas por el mismo Director General”.

L. Public Interview by the Contralora General

483. In December 2013, the Contralora General, Ms. Morelli Rico, gave an interview to the newspaper Semana Sostenible. In that interview she stated her opinion that Prodeco was not properly paying the royalties due under the Mining Contract, in an amount of almost COP 50 billion, adding that there was “un principio de prueba”, to be properly defined in the procedure. She also expressed surprise that Prodeco was threatening a claim under the BIT.⁴³³

M. The Procuraduría Closes the Investigation into Mr. Ceballos

484. In November 2013, the Procuraduría had initiated a disciplinary investigation against Mr. Ceballos, the Ingeominas' officer who had actually signed the Eighth Amendment.

485. Six months thereafter, on 13 May 2014, the Procuraduría decided to close the file, without finding any responsibility.

486. After reviewing the documentation surrounding the negotiation of the Eighth Amendment, the Procuraduría found that the the Eighth Amendment was approved by Ingeominas applying reasonable technical and financial criteria:⁴³⁴

“Al estudiar los antecedentes descritos y las explicaciones contenidas en los distintos documentos aportados por la Agencia Nacional de Minería, a petición de este despacho, es dable colegir que no existe conducta constitutiva de falta disciplinaria atribuible a JOSÉ FERNANDO CEBALLOS ARROYAVE”. [Emphasis added]

⁴³¹ Doc. C-175 / R-9. ↩
⁴³² Doc. R-9, p. 5. ↩
⁴³³ Doc. C-266. ↩
⁴³⁴ Doc. R-250, p. 8783. ↩

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N. The Contraloría's Decision

487. On 30 April 2015, the Contralora Delegada, Ms. Vargas, issued the Contraloría's Decision, a 234-page-long fallo closing the Procedimiento de Responsabilidad Fiscal. The main finding was that, by executing the Eighth Amendment,

• Prodeco,
• Mr. Ballesteros (the Director of Ingeominas),
• Mr. Martínez Torres (the Minister of Mining), and
• Mr. Ceballos (the Ingeominas officer who signed the Eighth Amendment, and who had been acquitted in the disciplinary proceedings),

had incurred in fiscal liability. The fallo sentenced the convicted defendants to pay to the State, jointly and severally, compensation for the damage caused which amounted to COP 60 Bn.⁴³⁵

488. The Contraloría's Decision, however, absolved Ms. Aristizábal of liability, after finding that there was no causal link between her conduct and the damage to the State's finances.⁴³⁶

Summary

489. The Tribunal will highlight some aspects of the Contraloría's Decision.⁴³⁷ In general terms, the Decision accepted the same line of reasoning as the Auto de Imputación, and its principal thrust is to reinforce the arguments already announced in the Auto.⁴³⁸

490. The Contraloría first found that, contrary to Prodeco's argument, although the Mining Contract is a long-term contract, the Contraloría was entitled to evaluate its fiscal effects at any time, without having to wait for its termination.⁴³⁹

491. The Contraloría's main conclusion was that the Eighth Amendment did not properly defend the interests of Colombia: the Amendment failed to formalize Prodeco's obligation to increase production of the Mine, and how and when such increase would result in an increase in the compensation received by the State. In accordance with Prodeco's argumentation, the increase of production had been formalized in the 2010 PTI – but the Eighth Amendment lacks any reference to such document.⁴⁴⁰

⁴³⁵ Doc. C-32, p. 231. Approximately USD 25 million at the exchange rate of the time (McManus I, fn. 20). ↩
⁴³⁶ Doc. C-32, pp. 171 and 232. ↩
⁴³⁷ The decision regarding Prodeco can be found on pp. 68-115 of the Contraloría's Decision (Doc. C-32). ↩
⁴³⁸ Doc. C-32, p. 68. ↩
⁴³⁹ Doc. C-32, p. 69. ↩
⁴⁴⁰ Doc. C-32, pp. 78-79. ↩

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Dolo

492. The Contraloría explained that Prodeco had wilfully permitted damage to the State's financial interests, in order to obtain greater benefits, thereby acting with dolo.⁴⁴¹ Although the Contraloría recognised that any private contractor had the right to receive benefits from its economic activity, it found that it was improper for a contractor to try to receive higher benefits to the detriment of the State's interests.⁴⁴²

493. The Contraloría found that Prodeco had put in place a series of manoeuvres to pay a lower compensation to the State,⁴⁴³ in particular:⁴⁴⁴

“El grado de culpabilidad que se le ha endilgado a PRODECO no se basa en la intención legítima de impedir o detener pérdidas, ni en la obtención de mayores ingresos, circunstancias que por sí solas no constituyen irregularidad alguna, como bien lo ha dicho el apoderado. Se fundamenta en la serie de maniobras desplegadas por PRODECO que se materializan, en cómo rechazadas sus propuestas por INGEOMINAS, planteaba diferentes escenarios, cómo [sic] pasó entre otros, de desequilibrio económico contractual, desacuerdo en la interpretación de cláusulas contractuales, falta de competitividad en el mercado aduciéndose entonces desigualdad con otras empresas explotadoras de carbón en Colombia, hasta expansión, pero con ésta disminuyendo el porcentaje de regalías a favor del Estado con el argumento de que entre mayor producción mayores ingresos a favor del mismo. En este último escenario se sostiene que tal disminución se compensará más adelante, sin que se hubiese determinado de antemano forma y término para ello, salvo enunciados abstractos y genéricos”. [Emphasis added]

494. The Contraloría also concluded that Prodeco's conduct after receiving the Initial Version of the Eighth Amendment was contrary to good faith:⁴⁴⁵

“No obedece a los postulados de la buena fe, que después de suscrito el primer otrosí No 8, que se devuelve sin registro minero, por lesivo a los intereses de la Nación, CI PRODECO, no asumiera un comportamiento acorde con la realización y ejecución del contrato suscrito, pasara por alto la advertencia realizada y con ello desconociera el interés de la otra parte”. [Emphasis in the original]

495. The Contraloría found that Prodeco was Ingeominas' “collaborator”:⁴⁴⁶

“Pasa por alto el señor apoderado que PRODECO tiene una relación contractual sui generis, producto del contrato estatal suscrito mediante el cual se busca el cumplimiento de los fines del Estado, vínculo jurídico en el

⁴⁴¹ Doc. C-32, p. 109. ↩
⁴⁴² Doc. C-32, pp. 85, 93 and 106. ↩
⁴⁴³ Doc. C-32, p. 106. ↩
⁴⁴⁴ Doc. C-32, p. 85. ↩
⁴⁴⁵ Doc. C-32, p. 99. ↩
⁴⁴⁶ Doc. C-32, p. 87. ↩

[Page 114]

que está involucrado el interés general, y por tal razón, adquirió la calidad o condición de ‘colaborador' en el cumplimiento de tales fines”.

496. The Contraloría finally concluded that, although Ingeominas had failed to meet its responsibilities, so also had Prodeco:⁴⁴⁷

“En el caso objeto de debate, C.I. PRODECO conoció y participó en los hechos que dieron lugar a la lesión de los intereses patrimoniales del Estado. No obstante, ahora pretende que las cargas sólo reposaban en cabeza de la administración INGEOMINAS, cuando en realidad también formaban parte de su carga y responsabilidad como colaborador de aquella”.⁴⁴⁸ [Emphasis in the original]

Preliminary studies

497. In addition, the Contraloría found that Ingeominas did not prepare the preliminary studies, which would have been required in any contract of gran minería. Ingeominas had also failed formally to appoint officials to the negotiation and to seek the recommendation of the Contracting Committee.⁴⁴⁹ The Contraloría also noted that the Viability Study had not been prepared prior to the execution of the Eighth Amendment, and contained severe inconsistencies, and overall it failed to secure the State's interests.⁴⁵⁰

498. In sum, the Contraloría considered that, although Prodeco was a private person, by executing the Mining Contract it had assumed responsibility for the exploitation of a non-renewable public resource and had thus become subject to fiscal liability.⁴⁵¹

Damage

499. The Contraloría's subsequent conclusion was that during the Transition Period (i.e. during the year 2010), the Republic had suffered a reduction in the compensation received from Prodeco, and that Prodeco was responsible therefor:⁴⁵²

“La responsabilidad de C.I. PRODECO deviene de la lesión a los intereses patrimoniales del Estado Colombiano como consecuencia de la modificación al negocio y condiciones ya pactadas, conocidas y en ejecución por el inversionista PRODECO e INGEOMINAS respecto del contrato 044/89, las que fueron lesivas en el periodo de transición a los intereses de la Nación, por lo que como bien se evidencia, lo que se busca es la reparación al Estado con una indemnización equivalente al valor que debía haberse pagado por parte del inversionista al Estado Colombiano, por la explotación del suelo y subsuelo en el periodo de transición, bajo las condiciones del contrato que no

⁴⁴⁷ Doc. C-32, pp. 99 and 102. ↩
⁴⁴⁸ Doc. C-32, p. 94. ↩
⁴⁴⁹ Doc. C-32, pp. 198-199. ↩
⁴⁵⁰ Doc. C-32, pp. 200-203. ↩
⁴⁵¹ Doc. C-32, pp. 93 and 107. ↩
⁴⁵² Doc. C-32, pp. 115-116. ↩

[Page 115]

habían cambiado en dicho periodo, que conocía y había aceptado el inversionista con la suscripción del mismo”. [Emphasis added]

500. The relevant period for the calculation of the damage was exclusively the período de transición. The Decision justified this conclusion exclusively by reference to the Tovar Silva Report:⁴⁵³

“Con el otrosí No. 8, se establecieron modificaciones en relación con la liquidación de regalías y otras contraprestaciones económicas, tal como se recoge en el informe técnico del grupo de reacción inmediata, rendido por la doctora Johanna Tovar Silva, el cual obra en el expediente y que claramente determina las condiciones económicas que fueron modificadas con ocasión del otrosí No. 8 y su periodo de transición.

Por lo tanto, para la presente causa fiscal, el daño ocasionado y cuantificado es el previsto para el denominado periodo de transición, el cual se estipuló en el otrosí No. 8, tal y como lo precisan los informes técnicos obrantes como pruebas dentro del proceso, y lo señaló en su oportunidad el auto de imputación, las distintas modificaciones introducidas al contrato advierten una disminución y menoscabo en la [sic] regalías y contraprestaciones económicas, como en efecto ocurrió para dicho periodo [...]”.

501. The Contraloría's Decision calculated such damage as the difference between the income which the Republic had received under the Eighth Amendment during the Transition Period (i.e. during the year 2010) and the income which it would have received had the Eighth Amendment not been executed.⁴⁵⁴ For the precise calculations, the Contraloría's Decision referred to:⁴⁵⁵

• The Tovar Silva Report, which estimated a damage of COP 51.4 billion, and
• The Technical Support Report, which reached a slightly higher amount of COP 52.2 billion.

502. The Decision explained that the difference between both reports was due to differences in the Tasa Representativa del Mercado [“TRM”], without providing further detail,⁴⁵⁶ and eventually settled for the higher amount:⁴⁵⁷

“Para este despacho, las conclusiones del informe son contundentes en señalar que como consecuencia de los cambios realizados en el cálculo de los ítems de regalía básica, regalía adicional y compensación por ingresos brutos, para la producción del año 2010 (año considerado de transición), en la Mina Calenturitas de acuerdo con el Otrosí 8, el Estado dejó de percibir la suma de $52.214.393.982,17”.

⁴⁵³ Doc. C-32, p. 219. ↩
⁴⁵⁴ Doc. C-32, p. 217. ↩
⁴⁵⁵ Doc. C-32, pp. 221-222. ↩
⁴⁵⁶ Doc. C-32, p. 222. ↩
⁴⁵⁷ Doc. C-32, p. 228. ↩

[Page 116]

503. This amount was then indexed in accordance with the Colombian inflation rate between December 2010 and January 2015, reaching a total of COP 60,023,730,368.33.

Causal link

504. The Contraloría also held that Prodeco's conduct had been decisive for the execution of the Eighth Amendment, and consequently that there was a causal link between Prodeco's dolo and the damage suffered by the State.⁴⁵⁸

Dispositif

505. The dispositif ordered Prodeco and Messrs. Ceballos, Martínez Torres and Ballesteros, jointly and severally (“solidariamente”) to pay to the Colombian State the amount of COP 60 Bn. Ms. Aristizábal was acquitted of liability.⁴⁵⁹

506. Finally, the Contraloría decided to send a copy of the Decision to the State's mining agency, for the effects of Art. 61 of Law 610 of 2000,⁴⁶⁰ which provides for:⁴⁶¹

“CADUCIDAD DEL CONTRATO ESTATAL. Cuando en un proceso de responsabilidad fiscal un contratista sea declarado responsable, las contralorías solicitarán a la autoridad administrativa correspondiente que declare la caducidad del contrato, siempre que no haya expirado el plazo para su ejecución y no se encuentre liquidado”.

O. Prodeco's Appeals en Vía Gubernativa

507. Immediately after the enactment of the Contraloría's Decision, Prodeco started a long list of requests and appeals to have such Decision overturned.

508. On 11 May 2015, Prodeco filed:

• A recurso de reposición asking for reconsideration of the Contraloría's Decision, with the Contralora Delegada, the very authority who had issued the Decision, and
• A recurso de apelación with the Contralor General de la República, the supervisor of the Contralora Delegada.⁴⁶²

⁴⁵⁸ Doc. C-32, p. 109. ↩
⁴⁵⁹ Doc. C-32, p. 232. The Contraloría's Decision also lifted the precautionary measures which had been ordered against Ms. Aristazábal (Doc. C-32, p. 234). ↩
⁴⁶⁰ Doc. C-32, p. 234. ↩
⁴⁶¹ Doc. C-71, Art. 61. ↩
⁴⁶² Doc. C-33. ↩

[Page 117]

509. These administrative appeals were unsuccessful.

Reconsideration Decision

510. In July 2015, the Contralora Delegada rejected Prodeco's recurso de reposición. In her Reconsideration Decision, the Contraloría dismissed Prodeco's reasoning.⁴⁶³

Appeal Decision

511. On 21 August 2015, the Contralor General de la República issued the Appeal Decision in the recurso de apelación, confirming the Contraloría's Decision [“Appeal Decision”].⁴⁶⁴

512. In his Decision, the Contralor General explained the background to the Fiscal Liability Proceeding and summarized the Contraloría's Decision.⁴⁶⁵ After reviewing the facts in the file, the Contralor General fully supported the conclusions of the Contralora Delegada and dismissed the appeal.⁴⁶⁶

513. As to Prodeco's reasons to lodge an appeal, the Contralor General noted the following:

514. (i) The Contraloría is authorized to exercise its control function over contracts once the contract has been signed, there being no requirement that the contract be finalized and liquidated.⁴⁶⁷

515. (ii) The lack of planning and of preliminary studies by Ingeominas could be directly imputed to Prodeco. Prodeco, by signing a contract with the public administration, became its collaborator and entered into a special relationship.⁴⁶⁸

516. Prodeco failed to adhere to this heightened level of responsibility. It imposed its desire to obtain profits over the collective interests of the society, and it took advantage of the institutional frailty of Ingeominas:⁴⁶⁹

517. (iii) The characterization of Prodeco's conduct as dolosa in the Contraloría's Decision was accurate.⁴⁷⁰ There are two fundamental reasons why Prodecto acted with dolo:

• Its actions showed “una intención de incrementar ilegítimamente sus ganancias derivadas del negocio, sin hacer un mínimo esfuerzo por armonizarlos [sic] con

⁴⁶³ Doc. C-35. ↩
⁴⁶⁴ Doc. C-37. ↩
⁴⁶⁵ Doc. C-37, pp. 3-14. ↩
⁴⁶⁶ Doc. C-37, pp. 15-43. ↩
⁴⁶⁷ Doc. C-37, pp. 58-59. ↩
⁴⁶⁸ Doc. C-37, p. 61. ↩
⁴⁶⁹ Doc. C-37, p. 62. ↩
⁴⁷⁰ Doc. C-37, pp. 62-64. ↩

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los intereses estatales, obligación que se deriva de su condición de colaborador de la administración”;

• Additionally, dolo derives from the fact that Prodeco resorted to the argument that it would increase its investments and the volume of coal mined, but such increases did not materialize during the Transition Period (i.e. during the year 2010).⁴⁷¹

518. (iv) The Appeal Decision also confirmed that Prodeco can be subjected to a fiscal control procedure and that there had been no violation of due process.⁴⁷²

519. The Contralor General also rejected the remaining appeals by Mr. Martínez Torres, Mr. Ballesteros, and Mr. Ceballos.⁴⁷³

P. Judicial Recourse: The Annulment Procedure

520. Having exhausted the available administrative remedies (recursos en vía gubernativa), Prodeco put in motion a judicial proceso de nulidad before the Tribunal Administrativo de Cundinamarca [“Annulment Procedure”]. This was the first time that the dispute between Prodeco and the Contraloría was submitted to a Court of Justice – till then, the Fiscal Liability Proceeding had been handled and decided by the Contraloría, a non-judicial agency of the Colombian Republic.

521. After a mandatory, but eventually unsuccessful conciliation attempt, on 31 March 2016, Prodeco filed the Annulment Procedure with the Tribunal Administrativo de Cundinamarca.⁴⁷⁴ The remedies sought were:⁴⁷⁵

• Annulment of the Contraloría's Decision,
• With the consequent restitution of the amounts already paid by Prodeco in compliance with the Contraloría's Decision,
• Certain ancillary requests plus damages.

Progress

522. The progress of this court procedure has been slow.

523. The Tribunal Administrativo adopted its first measure on 31 January 2017, when it dismissed the claim on formal grounds. Two months later, on 17 March 2017,

⁴⁷¹ Doc. C-37, pp. 63-64. ↩
⁴⁷² Doc. C-37, pp. 65-67. ↩
⁴⁷³ Doc. C-37, pp. 67-87. ↩
⁴⁷⁴ Doc. R-2. See also McManus I, para. 45. ↩
⁴⁷⁵ Subsidiarily, Prodeco also claimed against Messrs. Martínez Torres, Ballesteros, and Ceballos and the insurance companies, requesting reimbursement of the amounts paid to the Contraloría. ↩

[Page 119]

Prodeco filed a submission correcting the errors. This submission was presented to the Judge (“al despacho”) on 28 March 2017.⁴⁷⁶

524. The evidence submitted by the Parties on the record shows the development of the Annulment Procedure only until June 2017.⁴⁷⁷ The Parties have however confirmed that the Tribunal has not yet issued a decision on Prodeco's claim.⁴⁷⁸

Q. Payment by Prodeco

525. On 19 January 2016, in order to avoid the forfeiture of the Mining Contract, Prodeco paid to the Colombian State the Fiscal Liability Amount of COP 63 Bn (USD 19.1M), which Prodeco had been ordered to pay as a result of the Fiscal Liability Proceeding [the “Fiscal Liability Amount”]. Prodeco did so under protest.⁴⁷⁹

526. Prodeco also asked that the Contraloría lift the attachment of Prodeco's assets, which had been ordered in 2012.⁴⁸⁰

(8) FILING OF THE PROCEDURE FOR CONTRACTUAL ANNULMENT

527. Pursuant to clause 39, the Mining Contract is subject to Colombian law and to the jurisdiction of Colombian courts.⁴⁸¹ Colombian courts are thus empowered to adjudicate all disputes arising out of the Mining Contract – including any dispute as regards the validity of the Contract or of its Amendments.

528. On 30 March 2012, the SGC (the mining agency), invoking clause 39 of the Mining Contract, and after an unsuccessful request for mandatory conciliation, filed the Procedure for Contractual Annulment with the Tribunal Administrativo de Cundinamarca [previously defined as the “Procedure for Contractual Annulment”]. The SGC requested that the court declare the nullity of the Eighth Amendment, arguing that such Amendment was detrimental to the general interest of the State: the Amendment had been executed on the assumption that it would generate benefits for the State, but this scenario had not materialized.⁴⁸²

529. Subsidiarily, the SGC requested that the Tribunal Administrativo revise the Eighth Amendment, “de tal manera que se preserve el interés general, recuperando y manteniendo a un futuro el equilibrio de la ecuación financiera del Contrato 044/89, perdido con el desarrollo del Otrosí No. 8”.

⁴⁷⁶ Doc. R-175. ↩
⁴⁷⁷ Doc. R-175, which is an official record of all the actions and decisions adopted by the Tribunal Administrativo de Cundinamarca in relation to this procedure. ↩
⁴⁷⁸ RPHB, para. 114; HT, Day 1, p. 155, l. 4. ↩
⁴⁷⁹ Doc. C-180, p. 3. See also McManus I, para. 43. ↩
⁴⁸⁰ Doc. C-180, p. 4. ↩
⁴⁸¹ Doc. C-2, clause 39, p. 38. ↩
⁴⁸² Doc. C-140, pp. 3, 34 and 35. ↩

[Page 120]

530. The SGC's claim was served on Prodeco in October 2012.⁴⁸³

531. On 15 May 2013, the ANM (which had replaced the SGC) resubmitted its claim before the Tribunal Administrativo de Cundinamarca,⁴⁸⁴ in terms which were practically identical to the initial ones. The ANM however updated the amount of the State's alleged losses resulting to USD 99 M.⁴⁸⁵

532. On 7 October 2013, Prodeco filed its response to the ANM's resubmitted claim,⁴⁸⁶ together with a report by KPMG.⁴⁸⁷

533. Prodeco said that the Eighth Amendment had been executed in accordance with Colombia's legislation and had been necessary to permit an expansion of the Mine. Prodeco also argued that the Eighth Amendment would increase Colombia's benefits in the long-term. According to Prodeco, the impact of the Eighth Amendment's on the State's finances could only be determined at the end of the life of the Mining Contract. ⁴⁸⁸

534. On 22 October 2013, the ANM filed its reply submission.⁴⁸⁹

535. It is undisputed that the Tribunal Administrativo de Cundinamarca has not issued a decision in the Procedure for Contractual Annulment.⁴⁹⁰

(9) AMICABLE CONSULTATIONS AND ARBITRATION

536. On 28 August 2015, Claimants wrote to the President of Colombia Mr. Juan Manuel Santos, formally notifying a dispute under the Treaty.⁴⁹¹ Claimants referred to their letter of September 2013, in which they had explained their investments in Colombia and expressed their concern regarding the State's actions, which Claimants considered to be in violation of the Treaty. Claimants thus put in motion the six-month amicable consultation period provided for in Art. 11 of the Treaty. ⁴⁹²

⁴⁸³ Doc. C-149, p. 1. ↩
⁴⁸⁴ Doc. C-158. ↩
⁴⁸⁵ Doc. C-158, p. 46. ↩
⁴⁸⁶ Doc. C-170. It should be noted that Prodeco had already submitted a response to the SGC's initial claim on 21 May 2013 (Doc. C-160). ↩
⁴⁸⁷ Doc. C-168. ↩
⁴⁸⁸ Doc. C-170. ↩
⁴⁸⁹ Doc. C-172. ↩
⁴⁹⁰ C I, para. 143; Compass Lexecon I, para. 58; R I, para. 261; R II, para. 383; HT, Day 1, p. 155, 1. 4. ↩
⁴⁹¹ Doc. C-38. Claimants also forwarded this letter to several Ministers of the Colombian Government (see p. 26). ↩
⁴⁹² Doc. C-38. Doc. C-6, Art. 11(1) of the Treaty provides that: “If an investor of a Party considers that a measure applied by the other Party is inconsistent with an obligation of this Agreement, thus causing loss or damage to him or his investment, he may request consultations with a view to resolving the matter amicably". ↩

[Page 121]

537. On 4 March 2016, following the expiration of such period, Claimants submitted a Request for Arbitration with ICSID,⁴⁹³ which gave rise to the present arbitration.

(10) CRIMINAL COMPLAINT AGAINST PRODECO

538. On Sunday, 10 September 2017, the Director de la Agencia Nacional de Defensa Jurídica del Estado [previously defined as “ANDJE”] filed with the Fiscalía General de la Nación a “Denuncia penal en averiguación de responsables por la presunta comisión de delitos contra la administración pública” against Prodeco and Glencore [previously defined as the "Criminal Complaint"]. ⁴⁹⁴

539. The copy of the Criminal Complaint submitted in this procedure is partially redacted, and hence relevant aspects of such denuncia remain unknown to this Tribunal. In the unredacted part, the ANDJE provides the factual background to the 3ha Contract (see section III.(3) supra), gives a summary of the facts surrounding the negotiation and execution of the Eighth Amendment, and submits a list of articles of the Colombian Criminal Code which might have been violated.

540. The Criminal Complaint does not accuse any individual persons of having committed specific illegal conduct, but simply asks the Fiscalía to investigate and to determine wheter crimes have been commited.⁴⁹⁵

541. There is no evidence in the file of any investigation carried out by the Fiscalía as a consequence of the Criminal Complaint.

Disciplinary complaint against employees and ex-employees of the mining agency

542. Only two days after the Criminal Complaint, the ANDJE submitted a new complaint, in this case a disciplinary complaint, with the Procurador General de la Nación against several ex-employees of Ingeominas and the Ministry of Mines, inter alia Mr. Martínez Torres, Mr. Ballesteros, Mr. Ceballos, and Mr. Maldonado, for alleged violations of the Código Único Disciplinario.⁴⁹⁶

543. According to the ANDJE's complaint, the concerned individuals had engaged in irregular courses of conduct between 2006 and 2010, in order to permit the execution of the Eighth Amendment. The ANDJE attached to its disciplinary complaint the Criminal Complaint filed with the Fiscalía.

544. There is no evidence in the file of any investigation carried out by the Procuraduría as a consequence of this disciplinary complaint.

⁴⁹³ RfA, dated 4 March 2016. ↩
⁴⁹⁴ Doc. C-278. ↩
⁴⁹⁵ Doc. C-278, p. 1. ↩
⁴⁹⁶ Doc. R-228. ↩

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(11) PROVISIONAL APPLICATION OF THE EIGHTH AMENDMENT

545. Despite all these disputes and procedures, it is an undisputed fact that the Parties have been abiding by the terms of the Eighth Amendment and that Prodeco has been making Royalty payments based thereon.⁴⁹⁷

⁴⁹⁷ R I, paras. 211 and 262-263; Paredes I, para. 37; R II, paras. 381-382. ↩

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IV. RELIEF SOUGHT BY THE PARTIES

546. In the present section the Arbitral Tribunal reproduces the Parties' requests for relief.

(1) CLAIMANTS' REQUEST FOR RELIEF

547. In their Post-Hearing Brief,⁴⁹⁸ Claimants declared that they reiterated the requests for relief submitted in their Reply memorial, which reads as follows:⁴⁹⁹

"374. On the basis of the foregoing, Claimants respectfully request that the Tribunal:

(a) DECLARE that Colombia has breached Articles 4(1), 4(2) and 10(2) of the Treaty;

(b) ORDER that Colombia, through the ANM or any other government agency that may in due course become the contractual counterparty of Prodeco under the Mining Contract, continue to perform and observe the Eighth Amendment and further that all organs of the Colombian State take any and all actions necessary to ensure and not interfere with such continued performance and observance;

(c) ORDER that Colombia, through the ANM, procure the immediate and unconditional cessation of the ANM Proceedings with prejudice;

(d) ORDER that Colombia provide appropriate assurances and guarantees from the GCO⁵⁰⁰ that it will refrain from initiating any new proceedings in relation to the Eighth Amendment;

(e) ORDER that Colombia, through the ANM, give appropriate assurances and guarantees that it will refrain from initiating any new proceedings in relation to the Eighth Amendment;

(f) ORDER that, by way of restitution, Colombia repay to Prodeco the Fiscal Liability Amount of US$19.1 million⁵⁰¹ paid by Prodeco to Colombia on 19 January 2016 in the context of the Fiscal Liability Proceeding, and any sums that the GCO or any other organ of the Colombian State or Colombian court may, up to the date of the Tribunal's Award, have ordered Prodeco to pay by way of royalties or GIC calculated on the purported basis that the Eighth Amendment should not apply, adjusted from the date of payment to the date of the Award at an annual rate of 9.69%, compounded semi-annually;

⁴⁹⁸ CPHB, para. 92. ↩
⁴⁹⁹ C II, para. 374. ↩
⁵⁰⁰ Claimants refer to the Contraloría as “GCO”. ↩
⁵⁰¹ C II, fn. 991: Ie 63 billion Colombian Pesos converted into US Dollars at the 19 January 2016 date of payment. See Compass Lexecon I, para. 96; Compass Lexecon II, para. 92. ↩

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(g) ORDER that if Colombia does not comply with orders requested in (b), (c), (d), (e), and (f) above within 90 days of the date of the Award, Colombia:

(A) pay Claimants the Fiscal Liability Amount of US$19.1 million plus interest to the date of the Award;

(B) pay Claimants forward-looking damages as of the date of the Award computed as the difference in expected net revenues between a scenario with and without the royalty and GIC provisions in the Eighth Amendment between the date of Award and the end of the Calenturitas mine life as assessed by Claimants' experts at US$336.1 million as of 31 December 2017; and

(C) fully indemnify and hold harmless Claimants in respect of all retroactive royalty and GIC amounts that Claimants are ordered to pay in relation to the years 2011 to the date of the Award as a consequence of a failure to apply the Eighth Amendment, assessed at US$238.6 million as of 31 December 2017.

(h) In order to avoid double recovery, in the event that subsection (g) is triggered, and solely upon Colombia's payment and Claimants' effective receipt of all of the compensation set out in (g)(A) and g(B) above (duly updated to the date of the Award), and in light of the indemnification ordered in g(C) above, ORDER Claimants to pay royalties and GIC from the date of the Award onwards based on the regime that existed prior to the Eighth Amendment.

(i) ORDER Colombia to pay post-award interest on (f), or, alternatively, (g) above, at a rate of 9.69% ⁵⁰² per annum from the date of the Award, compounded semi-annually, or at such other rate and compounding period as the Tribunal determines will ensure full reparation;

(j) DECLARE that:

(i) The award of damages and interest in (f), (g) and (h) is made net of applicable Colombian taxes; and

(ii) Colombia may not deduct taxes in respect of the payment of the award of damages and interest in (f), (g) or (h);

(k) ORDER Colombia to indemnify the Claimants in full with respect to any Colombian taxes imposed on the compensation awarded to the extent that such compensation has been calculated net of Colombian taxes;

(1) ORDER Colombia to indemnify Claimants in respect of any double taxation liability that would arise in Switzerland or elsewhere that would not have arisen but for Colombia's adverse measures;

(m) ORDER Colombia to pay all of the costs and expenses of this arbitration, including Claimants' legal and expert fees, the fees and expenses of any

⁵⁰² This figure was updated in Claimants' Reply Memorial. ↩

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experts appointed by the Tribunal, the fees and expenses of the Tribunal, and ICSID's costs; and

(n) AWARD any such other relief as the Tribunal considers appropriate."

548. As to Respondent's jurisdictional and admissibility objections, Claimants have asked that the Tribunal: ⁵⁰³

"[...] (a) REJECT Colombia's objections on jurisdiction and admissibility;

(b) ORDER Colombia to pay all of the costs and expenses of this arbitration, including Claimants' legal and expert fees, the fees and expenses of any experts appointed by the Tribunal, the fees and expenses of the Tribunal, and ICSID's costs; and

(c) AWARD any such other relief as the Tribunal considers appropriate."

(2) RESPONDENT'S REQUEST FOR RELIEF

549. Respondent sets out its request for relief in the Rejoinder: ⁵⁰⁴

"1003. In light of all the above, and reserving its right to complement, develop or modify its position at a further, appropriate stage of these proceedings (including on the basis of the documents Claimants are yet to disclose), Colombia respectfully requests the Tribunal:

8.1 On Jurisdiction And Admissibility

1004. To declare:

• That it lacks jurisdiction over all of Claimants' claims; and
• That all of Claimants' claims are, in any event, inadmissible;
• That Claimants' claims newly raised in the Reply are untimely and hence inadmissible; and

1005. To order:

• Claimants to reimburse Colombia for all the costs and expenses incurred in this arbitration, including with interest due and payable from the date Colombia incurred such costs until the date of full payment; and
• Such other relief as the Tribunal may consider appropriate.

⁵⁰³ C III, para. 148. ↩
⁵⁰⁴ R II, paras. 1003-1009. ↩

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8.2 On The Merits

1006. If, par impossible, the Tribunal finds that it has jurisdiction on Claimants' claims and that such claims are admissible, to declare:

• That Colombia complied with its international obligations under the Treaty and international law;
• That Colombia did not breach Article 4(1) of the Treaty and that all Claimants' claims grounded therein are therefore dismissed;
• That Colombia did not breach Article 4(2) of the Treaty and that all Claimants' claims grounded therein are therefore dismissed;
• That Colombia did not breach Article 10(2) of the Treaty and that all Claimants' claims grounded therein are therefore dismissed; and

1007. To order:

• Claimants to reimburse Colombia for all the costs and expenses incurred in this arbitration, including with interest due and payable from the date Colombia incurred such costs until the date of full payment; and
• Such other relief as the Tribunal may consider appropriate.

8.3 On Quantum

1008. If, par impossible, the Tribunal finds that Colombia has breached its international obligations under the Treaty and/or international law, to declare:

• That Claimants' non-monetary claims are beyond the Tribunal's jurisdiction and powers, or are inadmissible;
• That Claimants have not suffered any damages warranting compensation; and
• That, in any event, Claimants materially contributed to their alleged losses, and that any amounts the Tribunal may award to Claimants are to be reduced accordingly by, at least, 75%; and

1009. To order:

• Claimants to reimburse Colombia for all the costs and expenses incurred in this arbitration, including with interest due and payable from the date Colombia incurred such costs until the date of full payment; and
• Such other relief as the Tribunal may consider appropriate”.

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V. JURISDICTIONAL AND ADMISSIBILITY OBJECTIONS

550. Claimants argue that their investments in Colombia are protected pursuant to Arts. 1(1) and 1(2)(c) of the Treaty⁵⁰⁵ and that all requirements for access to arbitration both under the ICSID Convention and under the Treaty have been satisfied.⁵⁰⁶

551. Respondent, however, argues that Claimants' claims are not admissible and fall outside the jurisdiction of the Centre and the competence of the Tribunal.⁵⁰⁷ Respondent raises three jurisdictional and one admissibility objections:⁵⁰⁸

The Tribunal may not exercise competence over Claimants' claims because the Eighth Amendment is tainted with illegality, as it was procured through illicit means and bad faith conduct [“Illegality Objection”] (V.1);

Claimants' claim against the conduct of the Contraloría falls outside the jurisdiction of the Tribunal by virtue of the fork-in-the-road provision of the Treaty, because Claimants resorted to Colombian administrative courts to adjudicate that claim before starting the present arbitration [“Fork-in-the-Road Objection"] (V.2);

The Tribunal cannot derive competence from the umbrella clause of the Treaty, because the dispute-resolution clause of the Treaty expressly excludes disputes based on such clause; additionally, the Tribunal also lacks competence over claims against the ANM, since these claims are contractual and the Mining Contract contains its own dispute-resolution clause ["Umbrella Clause Objection"] (V.3);

Claimants' claims are not ripe for adjudication and are, therefore, inadmissible [“Inadmissibility Objection”] (V.4).

552. Claimants note that Respondent does not dispute that Claimants and their investments are protected under the Treaty, or that Claimants have fulfilled all requirements to have access to arbitration under the ICSID Convention and the Treaty. ⁵⁰⁹ As to Colombia's jurisdictional and admissibility objections, Claimants consider that they do not withstand scrutiny. ⁵¹⁰

⁵⁰⁵ C I, paras. 150-158. ↩
⁵⁰⁶ C I, paras. 159-168. ↩
⁵⁰⁷ R I, para. 264; R II, paras. 383-384. ↩
⁵⁰⁸ R I, paras. 265-268; R II, paras. 385-388. ↩
⁵⁰⁹ C II, para. 159; HT, Day 1, p. 178, 11. 5-10. ↩
⁵¹⁰ C II, para. 160; HT, Day 1, p. 178, 1. 14. ↩

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V.1. ILLEGALITY OBJECTION

553. Colombia argues that Claimants' claims are tainted by illegality, because Claimants engaged in acts of corruption and bad-faith conduct. Respondent submits that Claimants' illicit conduct deprives Claimants' investments of the protection of the Treaty and that the Centre lacks jurisdiction and the Tribunal competence over such claims (1)).⁵¹¹

554. Claimants counter that Respondent's illegality allegations are devoid of any support or substance.⁵¹² Claimants argue that Respondent has failed to satisfy the standard of proof required for corruption allegations, and that Respondent's characterization of Prodeco's actions cannot deprive the Centre of its jurisdiction and the Tribunal of its competence (2).⁵¹³

555. The Tribunal will devote separate sections to the allegation of corruption (3) and of bad faith (4), and will finally summarize its decisions (5).

(1) RESPONDENT'S POSITION

556. Respondent says that Claimants' investment made in connection with the Eighth Amendment cannot be protected by the Treaty, because such investment was secured in contravention of Colombian law, and is tainted by Claimants' illegal and disloyal behaviour, including corruption and bad-faith conduct. ⁵¹⁴

557. According to Respondent, Arts. 2 and 4(1) of the Treaty expressly exclude from protection investments made in violation of the laws and regulations of the recipient State. ⁵¹⁵ Respondent argues that if an investment was made on an illicit basis, contrary to principles of good faith, or by way of corruption, fraud or deceitful conduct, it cannot benefit from the substantive protection of the Treaty.⁵¹⁶

558. Respondent explains that it is part of the general consensus in international investment law that:

Tribunals cannot exercise jurisdiction over illegal, illicit or improperly acquired investments,⁵¹⁷ and

⁵¹¹ R II, paras. 385 and 389. ↩
⁵¹² C II, para. 175. ↩
⁵¹³ C III, paras. 11 and 49. ↩
⁵¹⁴ R I, para. 269; R II, para. 389. ↩
⁵¹⁵ R I, paras. 270-272; R II, paras. 424-431. ↩
⁵¹⁶ R I, paras. 276-278, referring to Hamester, para. 123; R II, paras. 447-449. ↩
⁵¹⁷ R I, paras. 273-274. ↩

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The purpose of the international mechanism of protection of investments through ICSID arbitration is not to defend investments which are illegal or secured through improper means, but only bona fide investments.⁵¹⁸

559. Respondent submits that if the Tribunal were to exercise jurisdiction over claims based on illegal or illicit conduct, it would be condoning and encouraging such misconduct. ⁵¹⁹

560. Respondent considers that Claimants' conduct in securing the Eighth Amendment falls within the type of illegal and improper behaviour which cannot be protected by the ICSID arbitration system, for two main reasons:⁵²⁰ in order to secure the execution of the Eighth Amendment, Claimants engaged in illicit acts (A) and in bad faith conduct (B).

A. Claimants Obtained the Eighth Amendment Through Illicit Means

561. Colombia submits that Claimants caused Ingeominas to execute the Eighth Amendment through corruption: Claimants acquired the 3ha Contract from Mr. Maldonado, thereby securing Director Ballesteros' support for the Commitment to Negotiate. According to Respondent, Claimants cannot deny that they made an outsized payment to an associate of Director Ballesteros.⁵²¹

562. Respondent argues that the Tribunal should follow the approach set out by the Metal-Tech, Spentex, and World Duty Free tribunals for evaluating evidence of corruption. ⁵²²

563. According to Respondent, the Tribunal has a duty to inquire about the reasons for the payment of a substantial sum made by Claimants to Mr. Maldonado, an associate of Director Ballesteros. In this endeavour, the Tribunal should depart from traditional rules on the burden of proof, and rather assess the evidence as whole, given that it is almost impossible to prove bribery and corruption. The Tribunal should “connect the dots” and identify “red flags” of corruption, in particular the following: ⁵²³

Prodeco paid a very high compensation of USD 1.75 M for the 3ha Contract;

The price increased exponentially between December 2008 and April 2009 and was disproportionate to the consideration received, which was a small plot of land;

Prodeco hid the documentation underlying the 3ha Contract; Prodeco did not disclose the price of the transaction to Ingeominas until two years thereafter, in

⁵¹⁸ R I, paras. 279-280, referring to Phoenix, para. 100. ↩
⁵¹⁹ R I, para. 275, referring to World Duty Free, para. 157. ↩
⁵²⁰ R I, para. 281. ↩
⁵²¹ R I, para. 283; R II, paras. 390, 422 and 434. ↩
⁵²² R II, paras. 395 and 398-407. ↩
⁵²³ R II, paras. 408-422. ↩

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the wake of the corruption scandal at Ingeominas; in addition, Prodeco has produced almost no evidence concerning the 3ha Contract in this arbitration;

Prodeco failed to produce evidence of the account to which the payment for the 3ha Contract was made;

Finally, the payment was made directly to a former employee of Ingeominas' predecessor, Mr. Maldonado, and as such, closely connected to the Director of that State agency; only ten days after CDJ's acquisition of the 3ha Contract was approved, Director Ballesteros caused Ingeominas to execute the Commitment to Negotiate.

564. Colombia contends that as a result of this undue influence, Claimants induced Ingeominas to execute the Eighth Amendment in complete disregard of the legal framework applicable to the amendment of mining contracts. Claimants caused Ingeominas to bypass the necessary authorizations and to breach the procedure for the renegotiation of the Mining Contract. ⁵²⁴ In particular: ⁵²⁵

The Consejo Directivo of Ingeominas was not kept properly informed of the negotiations;

The advice of Ingeominas' Contracting Committee and external consultants was not sought, nor were the required ministerial approvals;

No viability assessments were carried out prior to the execution of the Eighth Amendment;

The final version of the Eighth Amendment was negotiated over the span of five days only, in an informal context.

565. Colombia argues that the above leads to the conclusion that the Eighth Amendment was procured through illicit acts and in contravention of Colombian law; hence, Claimants' investment is tainted with illegality and cannot benefit from the protection of the Treaty. ⁵²⁶

Hearing

566. In the course of the Hearing, Colombia reiterated its position that an illegal investment does not deserve legal protection, since the investor does not have “clean hands”:⁵²⁷

First, because Arts. 2 and 4(1) of the Treaty restrict the jurisdiction of the Tribunal to investments “made in accordance with [the Contracting Party's] laws

⁵²⁴ R I, para. 282; R II, para. 390. ↩
⁵²⁵ R I, para. 282; R II, para. 390. ↩
⁵²⁶ R I, para. 282. ↩
⁵²⁷ HT, Day 2, p. 467, 1. 7 – p. 468, 1. 4, referring to Al Warraq. ↩

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and regulations”, and under Colombian law, corruption is illegal under Art. 411 A of the Criminal Code;

Second, Respondent says that the evidence in the present case meets the standard of proof for an illegality objection, and this follows from the application of the red-flag methodology as used by the tribunals in Metal-Tech and Spentex; ⁵²⁸

Third, tribunals confronted with illegality objections and corruption allegations have a duty to take affirmative action and inquire as to the true reasons behind suspicious payments;⁵²⁹

Fourth, if explanations are not provided by the party who made the suspicious payment, then tribunals must draw the only logical adverse inference, namely that the payments have been made with the purpose of corrupting public officials;

Fifth, tribunals must not ignore red flags on the issue of corruption, and when these red flags appear, a tribunal must connect the dots and conclude that the investment was tainted with corruption; ⁵³⁰

Sixth, tribunals should not apply strictly the actori incumbit probatio rule, or a heightened standard of proof, but instead they must look to the entirety of the evidence in the record otherwise they run the risk of making it almost impossible to prove bribery. ⁵³¹

567. Respondent also reiterated the red flags which in its submission prove corruption: ⁵³²

The payment,

The fact that Mr. Maldonado was a former employee of Minercol (the Republic's prior mining agency),

The timing of such payment,

Claimants' concealment of the transaction,

Claimants' decision to restrict knowledge of the transaction to three members of its top management,

⁵²⁸ HT, Day 2, p. 469, 11. 9-15, referring to Metal-Tech, para. 241 and Spentex (quoted by K. Betz, Proving Bribery, Fraud, and Money Laundering in International Arbitration: on Applicable Criminal Law and Evidence, 2017, Doc. RL-149). ↩
⁵²⁹ HT, Day 2, p. 469, 1. 20 – p. 470, 1. 3, referring to Metal-Tech. ↩
⁵³⁰ HT, Day 2, p. 471, ll. 12-18, referring to Spentex. ↩
⁵³¹ HT, Day 2, p. 474, 11. 1-22. ↩
⁵³² HT, Day 2, p. 476, 1. 14 – p. 477, 1. 14. ↩

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The fact that the Eighth Amendment was executed in open disregard of the applicable law and regulations.

B. Claimants Acted in Bad Faith

568. According to Colombia, Claimants provided false and misleading information to Ingeominas, while withholding other important information, so as to induce Ingeominas to execute the Eighth Amendment. Colombia finds that this bad-faith conduct in securing the Eighth Amendment is sufficient to deprive the investment of the protections of the Treaty. ⁵³³ In particular: ⁵³⁴

Claimants misrepresented the economic situation of the project, in order to persuade Ingeominas that expanding production beyond 8 MTA, under the current conditions, was not economically feasible;

Claimants presented misleading figures, aimed at showing the alleged lack of profitability of the project's expansion under the existing Compensation Scheme;

Claimants deliberately withheld geological, technical and accurate pricing information from Ingeominas;

Claimants improperly sought to justify delaying the submission of the 2010 PTI;

Claimants sought to exert undue influence over Ingeominas through questionable means.

569. Respondent rejects Claimants' argument that Colombia would be estopped from raising an illegality objection in the present case, given that the execution of the Eighth Amendment would be attributable to Colombia. Respondent argues that the responsibility for the misconduct surrounding the negotiations of the Eighth Amendment cannot be placed solely on Ingeominas. Through corruption and bad faith, Claimants willingly caused and shaped the negotiations that led to the execution of the Eighth Amendment.⁵³⁵

***

570. In sum, Respondent submits that, in securing the Eighth Amendment, Claimants did not act in good faith, but rather acted deceitfully and illegally. The Eighth Amendment was procured through acts of corruption, which is prohibited under both international and Colombian law. This means that Claimants' claims are tainted with illegality and fall outside the Tribunal's jurisdiction. ⁵³⁶

⁵³³ Referring to Plama, para. 144. ↩
⁵³⁴ R I, paras. 285-286; R II, paras. 390, 446 and 451. ↩
⁵³⁵ R I, paras. 287-288; R II, paras. 432-444. ↩
⁵³⁶ R I, para. 289; R II, paras. 445 and 453. ↩

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571. Respondent says that, alternatively, if the Tribunal were to consider that Claimants' conduct is not an obstacle to the Tribunal's jurisdiction, it should conclude that Claimants' unclean hands render their claims inadmissible.⁵³⁷

(2) CLAIMANTS' POSITION

572. Claimants contend that Respondent's allegations of illegality (A) and bad faith (B) have no merit and cannot deprive the Tribunal of jurisdiction.

A. Colombia's Allegations of Ilegality are Devoid of Substance

573. Claimants argue that Colombia's corruption allegations are false and unsubstantiated. According to Claimants, as recognised by the Metal-Tech, Spentex, and ECE tribunals, the party who raises corruption allegations has the burden of proof. ⁵³⁸

574. Case-law confirms that when confronted with such allegations, tribunals are bound to consider them, but also to safeguard those against whom corruption is alleged. As explained by the Spentex tribunal, shifting the burden of proof and demanding evidence from the accused party that it did not engage in corrupt acts would subject such party to a probatio diabolica. Hence, it is not for Claimants to prove their innocence, but for Colombia to prove its claims. ⁵³⁹

575. According to Claimants, in the present case, Colombia has failed to produce any evidence supporting its allegation that the Eighth Amendment was procured through corruption.⁵⁴⁰

576. Claimants submit that, far from engaging in corrupt practices in order to influence civil servants to negotiate a contractual amendment, Claimants were the victims of an extortion scheme, facilitated by the Colombian government's inertia in the face of Claimants' multiple challenges, complaints and requests for investigation. Claimants argue that:⁵⁴¹

Prodeco filed multiple administrative petitions and appeals to prevent the 3ha Contract from being granted to Messrs. Maldonado and García; after it had been granted, and even after it was assigned to CDJ, Prodeco still complained to the highest Colombian authorities and requested investigations;

Faced with the silence of the Colombian authorities, CDJ agreed to the assignment of the 3ha Contract; the price paid by CDJ for this assignment was not disproportionately high, given the value of the coal within the three-hectare area, and the significant losses that would have resulted for the Prodeco Affiliates from the inability to mine around that area; in addition, Messrs.

⁵³⁷ R I, para. 290; R II, para. 453. ↩
⁵³⁸ C III, para. 13. ↩
⁵³⁹ C III, paras. 14-16. ↩
⁵⁴⁰ C III, para. 17. ↩
⁵⁴¹ C II, paras. 38 and 163(b); C III, paras. 19-42. ↩

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Maldonado and García had initially requested that CDJ pay approximately USD 10 million for the assignment;

Claimants have not concealed the documentation underpinning the 3ha Contract; the vast majority of the evidence relating to this transaction was placed on the record by Claimants; in addition, Claimants have presented Mr. Nagle as a witness, whereas Colombia has not presented a single witness who was involved in the events allegedly involving corruption; Colombia also deliberately ignores information that it has in its possession, such as the repeated complaints filed by the Prodeco Affiliates or the volume of coal extracted by CDJ from the 3 hectare concession;

Claimants did not keep the price paid for the 3ha Contract secret; there was no obligation to disclose the purchase price to Ingeominas before the transaction; in any event, CDJ disclosed the purchase price to Ingeominas nine months after the transaction, it reflected the purchase price in its accounts and audited financial statements, and made the necessary Colombian tax withholdings; finally, Claimants paid the purchase price to the bank accounts identified in the assignment contract;

Colombia has not established any connection whatsoever between Mr. Maldonado and Mr. Ballesteros; moreover, Mr. Maldonado was an employee of Carbocol, Ecocarbón and Minercol between 1988 and 2002, whereas Mr. Ballesteros only began his tenure at Ingeominas in 2007.

577. As for Colombia's allegation that through corruption Claimants induced Ingeominas to execute the Eighth Amendment, Claimants reject it, and argue that there were no departures from internal Government procedures: ⁵⁴²

Ingeominas' Consejo Directivo did not have to approve contractual amendments such as the Eighth Amendment;

Ingeominas had discretion to decide whether to appoint an external advisor or to consult the Contracting Committee;

Ingeominas was not required to prepare a viability report;

The Ministro de Minas y Energía did not have to approve the Eighth Amendment prior to execution;

578. Claimants submit that even if true, these alleged departures could not deprive the Tribunal of jurisdiction because they were not known to or not attributable to Claimants and were not significant.⁵⁴³ Colombia is bound by the actions of its officers under international law and is, thus, estopped from objecting to the

⁵⁴² C II, paras. 163(c) and 168-171; C III, para. 43. ↩
⁵⁴³ C II, paras. 171-173; C III, para. 43. ↩

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Tribunal's jurisdiction on the basis that those officers did not comply with their own obligations. ⁵⁴⁴

579. Claimants submit that Colombia has also failed to explain how Mr. Ballesteros would have allegedly single-handedly forced employees or board members of Ingeominas, or even the Ministro de Minas y Energía, to engage in purported irregularities in the negotiation and execution of the Eighth Amendment.

580. In addition, the new administration of Ingeominas, led by Mr. Paredes, never raised these procedural irregularities when it sought to annul the Eighth Amendment, or investigated the concerned parties for administrative or disciplinary purposes.⁵⁴⁵

581. Thus, Claimants argue that Colombia's illegality objection must be dismissed in its entirety. ⁵⁴⁶

Hearing

582. At the Hearing, Claimants reiterated that Respondent's allegations of corruption were advanced for the first time in this arbitration, without a shred of evidence.⁵⁴⁷

583. Claimants explained that following Glencore's acquisition of the Prodeco Affiliates, these companies submitted to Ingeominas an agreement for the integrated use of mining infrastructure, to conduct joint operations in the La Jagua mine. Ingeominas authorized this integrated mining operation in April 2007. It was in this context that Mr. Maldonado and Mr. García applied for a concession over the 3 hectare area situated in the middle of the La Jagua project, likely exploiting insider knowledge. Despite CDJ's administrative challenges, Ingeominas reversed its initial decision, and resolved to give the 3 hectare concession to Messrs. Maldonado and García ⁵⁴⁸.

584. Claimants submit that, thereafter, Prodeco complained to the highest Colombian state authorities; despite this, not a single authority took any action against what was apparently highly inappropriate conduct. ⁵⁴⁹ Even after Prodeco purchased the 3ha Contract from Messrs. Maldonado and García, the company continued to complain to the highest authorities. Nevertheless, no authority with investigative power did anything. ⁵⁵⁰

585. According to Claimants, Respondent's corruption allegation only stands through a highly selective and deliberately misleading narrative of the facts.⁵⁵¹ Claimants refer to the Methanex decision, in which the tribunal found that in order properly to

⁵⁴⁴ C II, paras. 169-171; C III, para. 43. ↩
⁵⁴⁵ C III, para. 44. ↩
⁵⁴⁶ C III, para. 47. ↩
⁵⁴⁷ HT, Day 1, p. 180, 11. 3-16. ↩
⁵⁴⁸ HT, Day 1, pp. 181-186. ↩
⁵⁴⁹ HT, Day 1, p. 189, 11. 3-6. ↩
⁵⁵⁰ HT, Day 1, pp. 190-196. ↩
⁵⁵¹ HT, Day 1, p. 196, 11. 17-18. ↩

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connect the dots and make inferences, each and every relevant dot must be considered individually before trying to assert a pattern.⁵⁵² Claimants argue that Respondent's alleged "red flags” are totally without merit:⁵⁵³

The amount paid by Claimants for the 3ha Contract was not strikingly high or disproportionate, since the Prodeco Affiliates stood to lose tens of millions of dollars if they could not gain access to the 3 hectare area;

Claimants have not concealed any documents related to the 3ha Contract; in fact, Claimants have brought extensive correspondence to the record; by contrast, Respondent did not tell this Tribunal that the Prodeco Affiliates had filed multiple complaints relating to the 3ha Contract with the State's highest authorities;

Claimants did not conceal the price paid for the 3ha Contract from the Colombian authorities; there was no obligation to disclose the price paid for the 3 hectare concession to Ingeominas, and in any event CDJ did so as part of its regular disclosures of domestic suppliers of goods and services; in addition, Claimants made the appropriate tax withholdings and the price was reflected in CDJ's audited financial statements; finally, the Assignment Contract clearly identifies the price paid for the 3 hectare concession;

Respondent has not established any connection between Mr. Maldonado and Mr. Ballesteros; Mr. Maldonado worked in Ecorcarbón and Minercol in Valledupar between 1998 and 2002; Mr. Ballesteros started his tenure at Ingeominas in Bogotá in 2007;

There was no departure from internal Government procedures.

B. Claimants Did Not Act in Bad Faith

586. Claimants submit that they did not misrepresent or conceal any information from Ingeominas. Even if Colombia's mischaracterization of Claimants' conduct were correct, there would still be no ground for a jurisdictional objection. ⁵⁵⁴

587. Claimants argue that the standard for proving bad faith is a demanding one; only significant and intended violations of applicable laws by investors can serve as grounds for challenging jurisdiction. Colombia has failed to prove any violations or conduct grave enough to give rise to a jurisdictional objection.⁵⁵⁵

588. Claimants say that Colombia does not dispute that throughout the over 20 months of negotiations for the Eighth Amendment, Prodeco:⁵⁵⁶

⁵⁵² HT, Day 1, p. 196, 1. 18 – р. 197, 1. 1. ↩
⁵⁵³ HT, Day 1, pp. 198-209. ↩
⁵⁵⁴ C III, para. 49. ↩
⁵⁵⁵ C II, paras. 172-173; C III, paras. 50 and 58, referring to Invesmart, para. 430 and to Bayindir, para. 143. ↩
⁵⁵⁶ C II, para. 163(d); C III, para. 51. ↩

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Diligently responded to all of Ingeominas' requests for information;

Repeatedly invited Ingeominas to request any additional information that might facilitate its review of Prodeco's proposals;

Solicited questions from Ingeominas;

Facilitated in-depth, in-person reviews of the proposals with Ingeominas' negotiation team.

589. Claimants also deny Colombia's accusations that they presented skewed information to Ingeominas, or that they omitted to present any material information to Ingeominas in bad faith.⁵⁵⁷ Claimants argue that Colombia and its experts try to scavenge for purported errors in the estimates and analyses shared by Prodeco with Ingeominas at the relevant time. Their argument, however, is based on information that Ingeominas never requested. As held by the Mamidoil Jetoil tribunal, States cannot abuse the process by scrutinizing the investment post factum with the intention of rooting out minor or trivial illegalities as a pretext to free themselves of an obligation. ⁵⁵⁸

590. According to Claimants, Colombia is submitting for the first time in this arbitration that Claimants acted disloyally, since it never raised any complaints regarding the information provided by Prodeco at the time of the negotiations or in the context of the Procedure for Contractual Annulment. Similarly, no such accusations were made by the Contraloría in the context of the Fiscal Liability Proceeding. ⁵⁵⁹

591. Prodeco was always transparent about its assumptions and about the trade-off underpinning the Eighth Amendment: there would be a reduction in Colombia's royalty taken as a percentage of the total value of production; however, this reduction would be compensated by a higher royalty associated with higher production following expansion, and Colombia would overall receive higher revenues. ⁵⁶⁰ Claimants submit that they always discussed these assumptions with Ingeominas, which was the State agency competent to verify the information delivered by Prodeco. ⁵⁶¹

592. In sum, Claimants argue that the Tribunal should dismiss Respondent's Illegality Objection.

(3) CORRUPTION

593. Respondent's first argument is that, in order to secure the Eighth Amendment, Claimants corrupted Mr. Ballesteros, Ingeominas' Director General. The corrupt payment was allegedly disguised as the purchase price for the acquisition of the 3ha Contract. Colombia submits that Mr. Maldonado, the co-owner of the 3ha Contract,

⁵⁵⁷ C III, paras. 63-81. ↩
⁵⁵⁸ C III, paras. 54-55, referring to Mamidoil Jetoil Greek Petroleum, para. 483. ↩
⁵⁵⁹ C III, paras. 52-53. ↩
⁵⁶⁰ C II, para. 163(d); C III, para. 62. ↩
⁵⁶¹ C II, paras. 163(d) and 164; C III, paras. 62 and 65-67. ↩

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was in fact an associate of Mr. Ballesteros, and that both shared the USD 1.75 M price paid by Prodeco.

594. Claimants deny any wrongdoing. They acknowledge the purchase of the 3ha Contract in May 2009, after having reported the situation to various Colombian authorities, and having received no support or solution whatsoever. They also deny that Mr. Ballesteros was the final recipient of the funds.

595. The Tribunal will first establish the proven facts (3.1), then explain certain issues which arose regarding the marshalling of evidence regarding corruption (3.2), and finally dismiss Respondent's objection (3.3).

(3.1) PROVEN FACTS

A. The 3ha Contract

596. On 29 November 2006, Mr. Jorge Maldonado - a former employee of the Ministry of Mines and of Carbocol, Ingeominas' predecessor as mining agency of the Republic - and his partner, Mr. César García, filed a request with Ingeominas to obtain a concession contract for the exploration and production of coal in a parcel of 3 hectares located in the middle of the La Jagua coal mine, which was already being exploited by Prodeco through its Affiliates.⁵⁶² The arrow in the following map shows the tiny 3 hectares strip, surrounded by Prodeco's mining concessions:

TÍTULOS MINEROS

Reserva Forestal Los Motilones

CDJ-166-96
Area: 441,00 Ha.

CMU-100-90
Area: 100,00 Ha.

CET-132-97
Area: 100,00 Ha.

DOP-141
Area: 25,3300 Ha.

Fuente: Contratos Mineros. Atlas Temático de las Zonas de Reserva Forestal de Colombia Ley 2^a de 1959 a escala 1:500.000. Sistema de Información Geográfica de la DLPTA

597. The Prodeco Affiliates had obtained their mining rights over the La Jagua project from the mining agencies that had preceded Ingeominas, long before Glencore's involvement.⁵⁶³ It seems that the three-hectare gap was the result of clerical errors

⁵⁶² Doc. R-90, p. 6. See also R I, para. 69 and C II, para. 38(b). ↩
⁵⁶³ Doc. C-234, p. 2. ↩

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in the mapping of the concessions granted in the 1990s and 2000s.⁵⁶⁴ While it remains uncertain whether these errors were accidental or intentional, it should be noted that Mr. Maldonado worked in Carbocol and in the subsequent mining agencies from 1988 through 2002⁵⁶⁵ and was accordingly in a position to obtain insider information on the three-hectare gap.

Initial rejection by Ingeominas

598. Four months after Mr. Maldonado's application, on 2 March 2007, Ingeominas issued a technical report concluding that the 3ha Contract would partially overlap with other nearby concessions and that it was too small for a standalone mining operation.⁵⁶⁶ A week thereafter, on 17 March 2007, Ingeominas formally rejected Mr. Maldonado's application for the 3ha Contract.⁵⁶⁷

599. There is a dispute as to whether Mr. Maldonado filed a request for reconsideration of this decision on time. In the apparent absence of a request for reconsideration, on 3 May 2007, Ingeominas issued a resolution declaring that its decision to reject the application for the 3ha Contract had become final and enforceable. ⁵⁶⁸

600. On 11 May 2007, Mr. Maldonado contested this resolution, saying that he had presented a request for reconsideration at Ingeominas' offices in the city of Valledupar on 2 May 2007. Attached to his letter was a hardly legible request for reconsideration dated 2 May 2007.⁵⁶⁹ The request seemed to have some irregularities, and did not contain a notary stamp, as required by law.⁵⁷⁰ According to Mr. Maldonado, after this incident and until April 2008, he received no further information from Ingeominas, except that the case was still under analysis.⁵⁷¹

Integrated Use Agreement

601. In early 2008, the Prodeco Affiliates submitted to Ingeominas a proposed Integrated Use Agreement which would allow them to conduct joint operations in the mining areas of the La Jagua project, ⁵⁷² an agreement which Ingeominas subsequently approved.⁵⁷³ Accordingly, on 10 March 2008, the Prodeco Affiliates submitted to Ingeominas a formal opposition to the 3ha Contract, requesting that Ingeominas:⁵⁷⁴

⁵⁶⁴ Doc. C-202, pp. 1-2. See also Nagle II, para. 16. ↩
⁵⁶⁵ Doc. R-92. See also Paredes I, para. 17. ↩
⁵⁶⁶ Doc. C-199, pp. 1-2. See also R I, para. 72 and C II, para. 38(c). ↩
⁵⁶⁷ Doc. C-200. See also R I, para. 72 and C II, para. 38(c). ↩
⁵⁶⁸ Doc. C-233. ↩
⁵⁶⁹ Doc. C-201. ↩
⁵⁷⁰ Doc. C-201; Doc. C-207, p. 2. Pursuant to Art. 52 of the Código Contencioso Administrativo (Decreto 1 de 1984), a “recurso” has to be filed in person. According to the Prodeco Affiliates, there should be some sort of authentication if Mr. Maldonado had indeed filed the recurso in person (Doc. C-209, p. 9). ↩
⁵⁷¹ Doc. C-204, pp. 2-3. ↩
⁵⁷² Doc. C-234. ↩
⁵⁷³ Doc. C-202, p. 2, para. 11. ↩
⁵⁷⁴ Doc. C-202, pp. 3-4. ↩

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Correct the errors in the coordinates of the titles granted to the Prodeco Affiliates, which had created the three-hectare gap; or

Alternatively, reject the request for the 3ha Contract, because it would be technically impractical to exploit such a small area.

Ingeominas backtracks and awards the 3ha Contract

602. Prompted by Mr. Maldonado's request for reconsideration and by the Prodeco Affiliates' opposition to the 3ha Contract, Ingeominas went back to evaluate the viability of the 3ha Contract. In June 2008, Ingeominas backtracked on its original decision: it found that the 3ha Contract area did not overlap with other mining concessions and revoked its rejection of Mr. Maldonado's application. ⁵⁷⁵

603. In July 2008, the Prodeco Affiliates filed a request for reconsideration,⁵⁷⁶ which Ingeominas rejected on 19 August 2008.⁵⁷⁷

B. Prodeco Complains to Authorities

604. Prodeco was now faced with the situation that Ingeominas was about to grant the 3ha Contract to Mr. Maldonado and his partner a concession which threatened to disrupt the development of the La Jagua mine.⁵⁷⁸ In this situation Prodeco decided to complain in writing to various Colombian authorities.

605. First, on 26 August 2008, Ms. Zuleta, acting on behalf of the Prodeco Affiliates, filed a formal complaint regarding the anomalies surrounding the 3ha Contract with Colombia's Procurador General de la Nación.⁵⁷⁹ Ms. Zuleta forwarded this complaint to the Ministro de Minas y Energía, to the Ministro de la Presidencia, to Mr. Ballesteros, and to the Contraloría. ⁵⁸⁰ In particular, the Prodeco Affiliates explained that: ⁵⁸¹

“Si INGEOMINAS persiste en otorgar a los señores Maldonado Mestre y García Vargas la concesión del área solicitada como HKT-08031, incurre en un grave y serio detrimento patrimonial contra la Nación y las entidades territoriales beneficiarias de las regalías derivadas de la explotación de los recursos existentes en dicha área. [...]

El área objeto de la solicitud de concesión en controversia contiene reservas estimadas de 1'114.761 toneladas de carbón, que sólo [sic] se podrán explotar dentro de una integración con los depósitos 285-95, 109-90, 132-97 y DKP-141, por lo cual, debido a que la explotación aislada que pretenden hacer los señores Maldonado Mestre y García Vargas no será factible, se

⁵⁷⁵ Doc. C-205. See also R I, para. 73 and C II, para. 38(j). ↩
⁵⁷⁶ Doc. C-207. ↩
⁵⁷⁷ Doc. C-208. ↩
⁵⁷⁸ Doc. C-300, p. 4. See also Doc. H-1, p. 184; Doc. C-207, p. 9; Nagle III, paras. 7-9; HT, Day 1, p. 184, 1. 13 р. 185, 1. 19 and p. 190, 1. 14 – р. 191, 1. 10. ↩
⁵⁷⁹ Doc. C-209. ↩
⁵⁸⁰ Doc. C-210. ↩
⁵⁸¹ Doc. C-209, p. 8. ↩

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perderán no solo dichas reservas, sino las 10’186.766 toneladas de carbón que en el evento de pretenderse tal explotación habría que dejar de explotar dentro de la integración aprobada a CDJ, CET y CMU, por cuanto que están contenidas en las áreas contiguas que constituirían los taludes de seguridad que tendrían que dejarse entre las fronteras de los títulos mineros circundantes al área solicitada.

Por tal razón, la Nación y las entidades territoriales correspondientes dejarán de percibir una suma estimada en $106.314.873.123 [...]”. [Emphasis added]

606. Second, on 22 September 2008, Ms. Zuleta approached the Procurador General again, saying that Ingeominas' rejection of the Prodeco Affiliates' request for reconsideration constituted a violation of due process and of the applicable mining provisions. Ms. Zuleta emphasised that the Procurador General should investigate the fact that the 3ha Contract had been awarded to an ex-employee of the agency, since there had been clear irregularities and an undue use of insider information.⁵⁸² This letter was, once again, forwarded to the Ministro de Minas y Energía, the Ministro de la Presidencia and the Contraloría. ⁵⁸³

607. Third, on 6 October 2008, the Prodeco Affiliates sent a complaint to Mr. Ballesteros and Mr. Edward Franco (with copy to the Procurador General, the Ministro de Minas y Energía, the Ministro de la Presidencia and the Contraloría), asking Ingeominas to review the 3ha Contract and to refrain from granting, or at least from registering, the 3ha Contract. ⁵⁸⁴

608. Fourth, on 10 October 2008, the Prodeco Affiliates asked the Jefe del Registro Minero Nacional (with copy to the Procurador General, the Ministro de Minas y Energía, the Ministro de la Presidencia and the Contraloría) to refrain from registering the 3ha Contract, claiming that he had a duty to the defend the national interest. ⁵⁸⁵

609. Did these repeated complaints produce any effect?

610. Respondent has not provided evidence of any reaction from any of the Colombian authorities to whom Prodeco complained. There is also no written record of any of these authorities taking any action to rectify the situation.⁵⁸⁶

Execution of the 3ha Contract

611. Notwithstanding Prodeco's appeals and complaints, on 16 October 2008, Ingeominas (represented by Mr. Franco Gamboa) and Mr. Maldonado and his

⁵⁸² Doc. C-211. ↩
⁵⁸³ Doc. C-211, “C.c. Doctor Julio Cesar Turbay Quintero – Contralor General de la República; Doctor Hernán Martínez – Ministro de Minas y Energía; Doctora Cecilia Álvarez – Ministro de la Presidencia”. ↩
⁵⁸⁴ Doc. C-212, pp. 1 and 5. ↩
⁵⁸⁵ Doc. C-213. ↩
⁵⁸⁶ Doc. C-300, p. 4. The Contraloría and the Procurador General simply forwarded the complaints to the Oficina de Control Interno Disciplinario at Ingeominas (C-210; C-222). ↩

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partner finally executed the 3ha Contract, and thus became the owners of the three-hectare mining concession. ⁵⁸⁷

612. Prodeco's reaction did not take long to materialize: on 21 November 2008, Ms. Zuleta asked Ingeominas' Coordinador del Grupo de Control Interno Disciplinario to open a disciplinary investigation against the employees involved in awarding the 3ha Contract (with copy to the Procurador General, the Ministro de Minas y Energía, the Ministro de Presidencia, the Director del Programa Presidencial de Lucha contra la Corrupción, and the Contraloría).⁵⁸⁸ And in February 2009 Prodeco's external counsel filed a citizen's suit (acción popular) against Ingeominas and Messrs. Maldonado and García based on the irregularities surrounding the 3ha Contract.⁵⁸⁹

No negative inference

613. Respondent argues that Claimants' failure to deliver documents responsive to Colombia's request to produce documents exchanged or reviewed by management related to the challenge of the 3ha Contract, should lead the Tribunal to infer:

that Prodeco was aware that the challenge would end up on Mr. Ballestero's desk, and

that Prodeco "[w]anted to address the consequences of Ingeominas' decision to grant the 3ha Contract directly with [Mr.] Ballesteros”.⁵⁹⁰

614. The argument is a non sequitur. Furthermore, there is overwhelming evidence proving Prodeco's repeated complaints to the highest administrative authorities within the Republic.

C. CDJ Buys the 3ha Contract

615. In the meantime, in December 2008, Messrs. Maldonado and García had approached Prodeco through an intermediary, offering to sell the 3ha Contract for USD 11 M.⁵⁹¹ Messrs. Maldonado and García knew that the three-hectare area was fundamental for La Jagua's integrated project. Prodeco, on the other hand, initially feigned not to be interested in acquiring the area. ⁵⁹²

⁵⁸⁷ Doc. C-214. ↩
⁵⁸⁸ Doc. C-239. See also Doc. C-222, p. 14. ↩
⁵⁸⁹ Doc. C-215. ↩
⁵⁹⁰ R II para. 990. ↩
⁵⁹¹ Doc. R-280, pp. 1 and 2: “He told me that the US $10 for ton was a starting point, but that price could be negotiated" and "Gary, total coal tones are 1'114.000 aprox.". The value of multiplying 1.14 MT by USD 10/tonne, would amount to approximately USD 11 million (See Nagle III, para. 6). ↩
⁵⁹² Doc. R-280. See also Nagle II, para. 22; Nagle III, para. 8: “I believed that the best approach was to initially delay matters and 'show indifference' regarding the 3-hectare concession. In this context, I stated that we should tell the concession holders that, 'as we are not interested in buying them [out], even $ 100'000 is too high". ↩

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616. But when the mining operations in La Jagua were starting to surround the 3 hectare concession, Prodeco was left with little option: either to mine around the area, which would imply losing up to 11 million tonnes of coal, or to buy out Messrs. Maldonado and García. ⁵⁹³

Further complaint

617. At the end of March 2009,⁵⁹⁴ Prodeco made a last complaint to the Ministro de Presidencia about the irregularities surrounding the 3ha Contract. Prodeco warned that the lack of a solution to the 3ha Contract situation would leave Prodeco with no option other than to engage in direct negotiations with Messrs. Maldonado and García: ⁵⁹⁵

“A pesar de lo anterior a la fecha, seis meses después de otorgado el contrato de concesión HKT-08031 la administración no ha iniciado investigación sobre los hechos mencionados y los titulares del contrato de concesión HKT-08031 no han iniciado actividad exploratoria alguna, a pesar de que la Operación Conjunta ha permitido el acceso al área siempre que ha sido solicitado.

La Operación Conjunta se vio obligada a modificar su plan minero, lo cual significa menos toneladas de carbón explotadas, menos regalías y menos generación de empleo.

La demora en la solución de esta situación, de otra parte, obligará a la Operación Conjunta a aceptar una comunicación directa con los titulares del contrato de concesión HKT-08031, lo cual es totalmente contrario a sus intereses y a su política, pero la Operación Conjunta no puede seguir viendo cómo se afecta su operación minera sin que se adelante actuación alguna para corregir la situación creada por INGEOMINAS”. [Emphasis added]

618. Once again faced with the silence of the Colombian authorities, Prodeco eventually settled for the alternative of buying out the 3ha Contract from Messrs. Maldonado and García.

The purchase

619. The transaction took place on 4 May 2009:⁵⁹⁶ Ms. Elsa Aragón Barrera, acting on behalf of and in representation of Mr. Maldonado and Mr. García, executed the

⁵⁹³ Doc. C-300, p. 4. See also Doc. H-1, p. 184; Doc. C-207, p. 9; Nagle III, paras. 7-9; HT, Day 1, p. 184, 1. 13 - p. 185, 1. 19 and p. 190, 1. 14 – р. 191, 1. 10. ↩
⁵⁹⁴ The letter erroneously reads 31 March 2008. There is no doubt that it is of 2009, since it describes facts which are posterior to 31 March 2008 (Doc. C-300). ↩
⁵⁹⁵ Doc. C-300, p. 4, para. 9. ↩
⁵⁹⁶ The Assignment Contract is erroneously dated 4 May 2008 (Doc. C-301). There is no doubt that it is actually dated May 2009, as also proved by the draft submitted to Ingeominas for approval (Doc. R-94; Doc. R-95). ↩

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Assignment Contract, under which CDJ, one of the Prodeco Affiliates, acquired the 3ha Contract against payment of a consideration of USD 1.75 M.⁵⁹⁷

620. Prodeco submitted the Assignment Contract to Ingeominas for approval. In that version of the Contract, the price paid was redacted.⁵⁹⁸

621. Ingeominas approved the Assignment Contract on 8 May 2009, and the transaction was registered on 27 May 2009.⁵⁹⁹

Payment of the Purchase Price

622. The Assignment Contract provided that CDJ should make the payments due in Colombian Pesos, in two designated accounts opened in two Colombian banks (Banco Davivienda and Banco Occidente).⁶⁰⁰ There is evidence that CDJ, a Colombian company affiliated to Prodeco, made the payments by transferring funds to the sellers' accounts located in Colombia and identified in the Assignment Contract. ⁶⁰¹

623. There is also evidence in the file that, once payment had been made, CDJ made the appropriate tax withholding required under Colombian tax law.⁶⁰²

624. The transaction was also reflected in CDJ's audited financial statements of February 2010,⁶⁰³ and on 1 February 2010, CDJ informed Ingeominas that it had acquired the 3ha Contract from Messrs. Maldonado and García, this time disclosing the consideration of USD 1.75 M paid to both. ⁶⁰⁴

Further Complaints

625. There is also evidence that even after the Assignment Contract was executed, Prodeco continued to complain about the irregular character of the grant of the three-hectare concession to Messrs. Maldonado and García.

626. Mr. Oscar Paredes, Respondent's witness in this arbitration, who replaced Mr. Ballesteros as Director General of Ingeominas, recalls that Dra. Zuleta personally raised the issue with him:⁶⁰⁵

“Cuando fui nombrado Director General de Ingeominas en febrero de 2011, esta entidad se encontraba en una profunda crisis institucional y reputacional caracterizada por diversos cuestionamientos por la adjudicación de títulos mineros en zonas ambientales excluidas de la actividad minera, la falta de

⁵⁹⁷ Doc. C-301. See also Nagle II, para. 22; Paredes I, para. 17. ↩
⁵⁹⁸ Doc. R-95. ↩
⁵⁹⁹ Doc. R-97. See also R I, para. 80 and C II, para. 38(p). ↩
⁶⁰⁰ Doc. C-301, pp. 1-2. ↩
⁶⁰¹ Doc. C-303; Doc. C-307; Doc. C-308. ↩
⁶⁰² Doc. C-315, p. 2; Doc. C-316, p. 2. ↩
⁶⁰³ Doc. C-313, pp. 5-6. ↩
⁶⁰⁴ Doc. C-312, p. 2. The amount in USD is slightly higher than USD 875,000 corresponding to each partner due to exchange rate fluctuations. ↩
⁶⁰⁵ Paredes I, para. 17. ↩

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acciones para frenar la especulación con los derechos mineros, y varias quejas y denuncias por presuntos actos de corrupción y falta de transparencia. [...] Recuerdo, por ejemplo, una conversación con la Dra. María Margarita Zuleta, representante legal de Prodeco, en la que те comentó que su empresa había tenido que adquirir, a un precio exorbitante un contrato minero de tres hectáreas que se encontraba en el medio de otros contratos mineros que eran operados conjuntamente por Carbones de la Jagua".

D. Public Statement of New Minister

627. In August 2010, President Santos took office and Mr. Carlos Rodado became Minister of Mines and Energy. At a press conference held in May 2011, Mr. Rodado acknowledged that irregularities had occurred in the granting of mining licenses. Certain well-connected individuals had been able to register mining licenses in small strategic areas, in order to “greenmail" owners of adjacent mining exploitations: ⁶⁰⁶

"Que les permiten negociar con los dos titulares vecinos. Los titulares vecinos pueden ser uno mismo. Tienen un área aquí, y tiene otra área, pero aquí se mete un corredor. Y este señor del corredor adquiere digamos un poder de negociación y vende estos títulos a un precio alto, altísimo y los que quieren, las empresas ellas que quieren hacer una explotación que permita un aprovechamiento racional de los recursos tienen que comprarle al precio que este especulador quiere cobrar.

Y aquí quiero hacer una declaración. La gran mayoría de las empresas mineras que trabajan en Colombia son unas empresas serias [...] y ellos son los primeros interesados en que haya transparencia y que haya un manejo eficiente, y están cooperando y colaborando en que las investigaciones que se hagan den resultados. Porque este tipo de maniobras son las que impiden realmente que podamos hacer un desarrollo, primero sostenible, segundo de aprovechamiento racional de los yacimientos, y tercero, un aprovechamiento verdaderamente transparente, honesto, de la minería en Colombia. [...]

Entonces, el dueño de este título y el dueño de este, que es uno mismo, pues tiene que entrar en negociación y comprar el derecho de este título a un precio altísimo. Y si es de un ex funcionario de una de las entidades que han manejado la minería en Colombia, esto se vuelve también un caso de verdadera duda que merece ser investigado por los organismos competentes. Nosotros obviamente tenemos nombres de quienes son los titulares de todo esto, pero nosotros obviamente no somos organismo de investigación, no somos órgano de control, no somos poder judicial, pero pondremos todo esto en manos de las autoridades pertinentes”. [Emphasis added]

628. It is noteworthy that during this press conference Minister Rodado used a PowerPoint presentation in which Prodeco's three-hectare concession was clearly visible, ⁶⁰⁷ and that in his public statement there is no allegation that Prodeco had

⁶⁰⁶ Doc. R-237, video of the press conference, min. 00:00-02:49. ↩
⁶⁰⁷ Doc. R-237, min. 01:45. In the video there is a zoom in on Mr. Rodado's PowerPoint presentation, in which it is possible to read “Carbones de La Jagua S.A.". ↩

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bribed any public official or had otherwise engaged in improper conduct. To the contrary, he explicitly stated that most mining companies working in Colombia were responsible enterprises. At that time, criticism was directed at the former Ingeominas employees who had granted the irregular mining contracts.

629. Although Minister Rodado announced “pondremos todo esto en manos de las autoridades pertinentes", there is no information in the file showing that any Colombian authority commenced a formal investigation into the events surrounding the 3ha Contract (or any of the other analogous irregular situations).

E. No Reference to Corruption nor to the 3ha Contract

630. Minister Rodado never accused Prodeco or Glencore of improper behaviour – to the contrary, he portrayed mining companies in general as victims of greenmail, permitted by the unscrupulous behaviour of certain civil servants and insiders.

631. There is also no accusation of corruption in the Fiscal Liability Proceeding. In this extensive and thoroughly researched administrative file, the Contraloría never alleged that Prodeco had bribed Mr. Ballesteros; in fact, there is no reference at all to the 3ha Contract.

632. The Contaloría's Decision and the Appeal Decision found that Prodeco had acted with dolo, in essence because, when negotiating the Eighth Amendment, Prodeco was considered to have taken advantage of the frailty of Ingeominas and had advanced its own interests to the detriment of those of Colombia. But in the course of the Fiscal Liability Proceeding, there is no indication that either Prodeco or its parent Glencore had engaged in the corruption of public officials. ⁶⁰⁸

633. The same is true for the Procedure for Contractual Annulment filed by the new mining agencies that succeeded Ingeominas: in their submissions to the Tribunal Administrativo de Cundinamarca, the SGC and the ANM never raised any accusation that either Prodeco or its parent Glencore had engaged in corruption of public officials.

F. The 2017 Criminal Complaint

634. The argument that Prodeco had bribed Mr. Ballesteros was formally raised by Colombia for the first time on Sunday, 10 September 2017, when the Director of ANDJE – the agency which provides legal support to the Colombian State – filed with the Public Prosecutor a Criminal Complaint against (unnamed) officers of Prodeco and Glencore and against civil servants in Ingeominas. ⁶⁰⁹

635. Pro memoria: Claimants had commenced this investment arbitration a year and a half earlier, in March 2016. Colombia's Counter-Memorial, dated 16 November 2017 (i.e. one month after the Criminal Complaint), devoted only a few paragraphs

⁶⁰⁸ As Prodeco has established in the Annulment Procedure; see Doc. R-2, pp. 41-42. ↩
⁶⁰⁹ Doc. C-278. ↩

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to this accusation,⁶¹⁰ which was fully developed for the first time in Respondent's Reply on Preliminary Objections and Rejoinder on the Merits of April 2018.⁶¹¹

636. Since the copy of the Criminal Complaint submitted in this arbitration procedure is heavily redacted, significant portions of it remain unknown to this Tribunal. In the unredacted part, the ANDJE provides the factual background to the 3ha Contract (see section III.(3). supra), gives a summary of the facts surrounding the negotiation and execution of the Eighth Amendment, and submits a list of articles of the Colombian Criminal Code which might have been violated.

637. The Criminal Complaint does not accuse any individual persons of having committed specific forms of illegal conduct, but simply asks the Fiscalía to investigate and to determine:⁶¹²

"[...] responsables por la presunta comisión de los delitos de cohecho, celebración de contrato sin cumplimiento de requisitos legales, interés indebido en la celebración de contratos, concierto para delinquir, tráfico de influencias y tráfico de influencia de particular, por los hechos que se describen a continuación, relacionados con el desarrollo de actividades de agentes de la empresa CI Prodeco S.A. [...] subsidiaria de la multinacional suiza Glencore International AG [...], perpetrados durante los años 2009 у 2010".

638. There is no evidence in the file that, upon receipt of the Criminal Complaint, the Fiscalía carried out any investigation or indicted any individual because of such Criminal Complaint.

(3.2) THE PROCEDURAL INCIDENT

639. The allegations of corruption also provoked a relevant procedural incident.

640. On 17 July 2017, Respondent filed its Counter-Memorial together with certain exhibits.

641. Ten days thereafter, Claimants submitted a letter to the Arbitral Tribunal averring that 41 of these exhibits were private e-mail chains exchanged between Claimants' management and their in-house and external counsel [previously defined as the “Disputed Documents”]. Claimants requested that the Tribunal exclude such documents from the evidence.⁶¹³

642. On 3 August 2017, Respondent reacted to Claimants' allegations, explaining that the Disputed Documents had been legally obtained by the Superintendencia de Industria y Comercio [the “SIC”] in the context of a preliminary investigation into

⁶¹⁰ R I, paras. 82-84 and 283. ↩
⁶¹¹ R II, paras. 390-423. ↩
⁶¹² Doc. C-278, p. 1. ↩
⁶¹³ Claimants' letter dated 26 July 2017, pp. 7-8. ↩

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unfair practices by Prodeco and its affiliates at Puerto Nuevo. Respondent requested that the Tribunal declare the Disputed Documents to be admissible evidence. ⁶¹⁴

643. Both Parties reiterated their requests in their reply and rejoinder letters presented on 22 August 2017⁶¹⁵ and 11 September 2017,⁶¹⁶ respectively.

644. The Tribunal had no direct and complete knowledge of the precise content of the Disputed Documents,⁶¹⁷ other than by reading Respondent's Counter-Memorial and the Criminal Complaint which transcribed passages from some of the Disputed Documents. The Disputed Documents apparently consisted of chains of private e-mails sent or received by three of Claimants' managers. Some of the e-mails were either addressed to or sent by Claimants' (in-house and possibly external) lawyers.

Use of the Disputed Documents in the arbitration

645. It was common ground between the Parties that the SIC had lawfully obtained the Disputed Documents in the course of an antitrust investigation against Prodeco. Yet the Parties disagreed on whether such Documents could lawfully be used in these proceedings.

646. Claimants argued that the introduction of the Disputed Documents in this arbitration violated Colombian Law and undermined the integrity of the proceedings by breaching basic concepts of due process, fairness, and equality between the Parties, as guaranteed by international law. Respondent denied this allegation.

647. In PO No. 2, the Tribunal ruled for Claimants. The Arbitral Tribunal found that the introduction of the Disputed Documents into the record constituted a violation of the international law principle that parties ought to arbitrate fairly, in good faith and with equality of arms⁶¹⁸; and that under Colombian Law, their introduction would seem to amount to a desviación de poder. ⁶¹⁹

648. Accordingly, the Disputed Documents were excluded from the file and Colombia was ordered to re-submit its Counter-Memorial free of references to the Disputed Documents and without attaching them. ⁶²⁰

649. The Tribunal further clarified that the proper procedure for obtaining evidence from the counterparty was through the agreed-upon document production exercise, ⁶²¹ and gave the Parties the opportunity to re-submit their document production

⁶¹⁴ Respondent's letter dated 3 August 2017, p. 17. ↩
⁶¹⁵ Claimants' letter dated 22 August 2017, section IV.2. ↩
⁶¹⁶ Respondent's letter dated 11 September 2017, section IV. ↩
⁶¹⁷ In the communication sent by the Secretary to the Parties on 27 July 2017, the Arbitral Tribunal announced it would not review the Disputed Documents. ↩
⁶¹⁸ PO No. 2, paras. 66-70 ↩
⁶¹⁹ PO No. 2, paras. 71-74. ↩
⁶²⁰ PO No. 2, para. 109. ↩
⁶²¹ PO No. 2, para. 70. ↩

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requests. ⁶²² The Tribunal then issued certain rules and recommendations for the document production exercise. ⁶²³

Document R-100

650. Amongst the Disputed Documents was document R-100 [“Doc. R-100”], an email chain exchanged in May 2009 between Prodeco's management and its in-house counsel (i.e. between Natalia Anaya, Gary Nagle, Chris Phillips, Margarita Zuleta, and Tomás Lopez) which discussed the caducidad procedure and the negotiations with Ingeominas.

651. Pro memoria: On 23 January 2009, Ingeominas had formally put Prodeco on notice through a Requerimiento bajo apremio de caducidad. Ingeominas considered that Prodeco's unilateral interpretation of the Mining Contract amounted to a contractual breach. By means of the Requerimiento, Ingeominas threatened Prodeco with termination of the Contract through a declaration of caducidad if payment of the disputed amount was not effected or an appropriate justification provided within one month. ⁶²⁴

652. Prodeco replied to the Requerimiento on 13 February 2009, restating the reasons for its interpretation of the Definitive Price term used in the Contract, and pointing out that Ingeominas had not explained why it disagreed with such interpretation.⁶²⁵

653. In April 2009, Prodeco approached Ingeominas regarding the outstanding royalty payments and proposed paying all the disputed amounts into an escrow account, until the dispute on the proper interpretation of the term Definitive Price had been settled.⁶²⁶ Ingeominas rejected this proposal, insisting that Prodeco must pay the disputed amounts directly to Ingeominas in cash, before negotiations could proceed. ⁶²⁷

654. The email chain in Doc. R-100 covers precisely the week before Ingeominas rejected Prodeco's proposal that the payment be made to an escrow account. The email chain starts with an e-mail sent by Ms. Natalia Anaya, Prodeco's in-house counsel, to Prodeco's officers and other in-house counsel (Gary Nagle, Chris Phillips, Margarita Zuleta, and Tomás Lopez) recounting her conversation with Ms. Marcela Estrada, Ingeominas' lawyer. In the e-mail, Ms. Anaya says that Ms. Estrada confirmed her agreement with Mr. Ballesteros that Prodeco could pay the contested sum into an escrow account to end the caducidad process:⁶²⁸

"Marcela Estrada confirmed today that she agreed with Ballesteros that they will accept our proposal for the trust and with that they will end the caducity

⁶²² PO No. 2, para. 113. See also section II.(2.1) supra. ↩
⁶²³ PO No. 2, section III.2-5. ↩
⁶²⁴ Doc. C-88 / C-243. ↩
⁶²⁵ Doc. C-244. ↩
⁶²⁶ Doc. C-90. ↩
⁶²⁷ Doc. R-101, p. 3. See also Nagle I, para. 56; Nagle II, para. 25; HT, Day 3, p. 658, 11. 7-11 and p. 661, 11. 10-22. ↩
⁶²⁸ Doc. R-100, p. 5. ↩

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process. She said that Ballesteros did not put any problems to this and that Adolfo supported her a lot so that everything was accepted easily by Ballesteros.

She will draft the letter today and expects to issue it on Monday (as tomorrow will be in Medellin). I asked her if we should go and talk to Ballesteros about this and she said that it is not necessary because everything was clear for him. However, I told her that I will be following up on Monday and if by then there has been any issue to send us the letter, I will request the meeting with Ballesteros." [Emphasis added]

655. Mr. Nagle, Prodeco's Chief Executive Officer at the time, responded to Ms. Anaya's email with the following sentence:

"Of course he now supports us, we have bought the 3has."

656. The chain continues with Ms. Anaya reporting on her follow-up with Ms. Estrada, and on the status of the letter that would in fact confirm to Prodeco that the caducidad process would end if Prodeco paid the outstanding amounts into the escrow account.

657. The email chain ends with a long email by Ms. Anaya reporting on several meetings held at Ingeominas on 15 May 2009. Ms. Anaya explains that Ingeominas' director, Mr. Ballesteros, changed his mind regarding the escrow account and that the only way to avoid caducidad would be for Prodeco to pay the disputed sum directly to Ingeominas. Ms. Anaya recounts that Ms. Estrada told her she believed that it had to do with the 3 hectare issue:

"First, I met with Marcela and she told me straight away that she is very embarrassed because she assured me that everything was OK, but that Mario yesterday had a sudden change and that (off the record) she believes it has to do with the 3 hectares issue because he is very upset that we negotiated the assignment as it made him look really bad in front of Uribe.

[...]

After the meeting, Marcela told me that she strongly considers that it is even more risky for Ingeominas to receive a payment without a cause and then be exposed to having to offset the money after it [has] been delivered to the municipalities, and that she will strongly defend these arguments at their internal meetings. But she said that it is not her decision and reiterated that Mario is so crossed with the 3 hectares issue that she believes it will not be easy for him to accept the trust. [...]". [Emphasis added]

Introduction of Doc. R-100 during the Hearing

658. At the Hearing, counsel for Respondent stated that an email existed which showed that the Eighth Amendment had been executed because Mr. Ballesteros was pleased by Prodeco's purchase of the 3ha Contract.⁶²⁹ He added that the email in question,

⁶²⁹ HT, Day 2, p. 366, 11. 19-22. ↩

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Doc. R-54, was one of the Disputed Documents which the Tribunal had excluded from the file in accordance with PO No. 2.

659. The Tribunal requested that the Parties agree⁶³⁰ that the email in question, which seemed a highly relevant document, be introduced into the record. Both Parties agreed to the request, and it was further agreed to include the complete email chain in which the email was inserted as Doc. R-100.⁶³¹

660. On the following day, both Parties were granted the opportunity to make brief presentations regarding Doc. R-100 and its probative value.

661. Claimants asserted that Doc. R-100 showed “no link whatsoever anywhere of anything between Mr. Maldonado and Mr. Vargas and Mr. Ballesteros”,⁶³² while the Republic reached the opposite conclusion.⁶³³ The Tribunal will analyse Doc. R-100 extensively in section V.1.(3.3).C infra.

(3.3) DECISION OF THE ARBITRAL TRIBUNAL

662. Colombia says that Glencore procured the Eighth Amendment through corruption. The Tribunal takes the contention of the Republic very seriously.

663. Corruption is morally odious: the proper governance of public affairs and the correct assignment of public goods is substituted by favour and arbitrariness. Corruption is also economically deleterious: it restrains economic development and subdues nations into under-development and poverty, as bribes enriching well-connected civil servants or politicians are financed via inflated prices paid or reductions in income suffered by the poorest citizens. Scarce public funds are misdirected by enriching privileged individuals, at the expense of the common good.

664. The Tribunal agrees with Respondent that, provided that there are prima facie grounds for suspecting malfeasance, an international arbitration tribunal has the duty to investigate the facts, even sua sponte, and to take appropriate measures under the applicable principles of law.

665. The Tribunal further agrees with the Republic that an investment obtained through corruption is not protected by the Treaty. Arts. 2 and 4(1) of the Treaty expressly require that the investments, to be protected, have to be “made in accordance with [Colombia's] laws and regulations.”⁶³⁴ Under Colombian law, an investor who corrupts civil servants of the host State to procure the investment commits a crime. ⁶³⁵ Therefore, an investment made by corrupting the senior Colombian civil

⁶³⁰ HT, Day 2, pp. 372-378. ↩
⁶³¹ HT, Day 2, p. 378, 11. 3-15. ↩
⁶³² HT, Day 3, p.623, 11. 18-20. ↩
⁶³³ HT, Day 3, p.628, 11. 12-19. ↩
⁶³⁴ Doc. C-6. ↩
⁶³⁵ Art. 28 of the Law 1474 of 2011 (Doc. R-87) and Art. 411 of the Colombian Criminal Code, Law 599 of 2000 (Doc. R-88). ↩

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servant in charge of supervising the mining sector would not be protected by the Treaty. ⁶³⁶ In light of the clarity of this conclusion, it is unnecessary for the Tribunal to decide, as other tribunals have done, that an investment made through corruption would violate international public policy. ⁶³⁷

666. The issue to be determined is thus not a question of material law: if Claimants have bribed Mr. Ballesteros, disguising the corrupt payment as the consideration for the acquisition of the 3ha Contract, the necessary consequence will be the loss of international law protection.

667. The real question in this case is whether corruption has been proven.

Burden of Proof

668. In international law, the general principle is actori incumbit probatio: the party who alleges a certain fact has the burden to prove it. ⁶³⁸ The Tribunal sees no reason to deviate from this principle. Since Colombia is alleging that the Eighth Amendment was obtained through the corruption of Director Ballesteros, it is for Colombia to marshal the appropriate evidence.

669. As for the standard to be applied to assess the evidence, the Tribunal perceives no reason to depart from the traditional standard of preponderance of the evidence, since neither the Treaty nor the ICSID Arbitration Rules impose a different standard. Colombia argues, based on the approach followed by the tribunal in Spentex, that the Tribunal should adopt a methodology of starting from “red flags" (individual indicia of corruption) and “connecting the dots” to obtain a larger picture: ⁶³⁹

"In order to avoid making it practically impossible to prove corruption, the Spentex tribunal considered it appropriate to connect the dots in the indicia of corruption before it. It “applied a method of ‘connecting the dots', thereby assessing all individual indicia in detail and checking the plausibility of a potential picture emerging from putting them together.” As a result, the Spentex tribunal found that the most compelling explanation of the facts it had considered was that there had been corruption involving the investor and Uzbek State officials [...]." [Emphasis in the original]

670. In fact, what Respondent labels as “connecting the dots" is nothing else than the time-honoured methodology followed by tribunals in all jurisdictions to establish truth based on indicia or circumstantial evidence: if a party marshals evidence that proves the existence of certain indicia, and it is possible to infer from these indicia (using experience and reason) that a certain fact has occurred, the tribunal may take such fact as established. The Tribunal has followed this methodology.

⁶³⁶ Flughafen, para. 129 (Doc. RL-42); Phoenix, para. 100 (Doc. RL-37); Spentex (quoted in an article by K. Betz, p. 5 of Doc. RL-149). ↩
⁶³⁷ Plama, paras. 141-143 (Doc. RL-36); Spentex (quoted in an article by K. Betz, p. 5 of Doc. RL-149). ↩
⁶³⁸ Flughafen, para. 136 (Doc. RL-42); Metal-Tech, para. 237 (Doc. RL-122). ↩
⁶³⁹ R II, para. 405, footnotes omitted. ↩

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Relationship with municipal criminal investigation