italaw170916.pdf

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[Page 1616]

BEFORE THE INTERNATIONAL CENTRE FOR SETTLEMENT OF
INVESTMENT DISPUTES

ICSID Case No. ARB/19/6

------------------------------------------x

In the Matter of Arbitration Between:	:
	:
ANGEL SAMUEL SEDA AND OTHERS,	:
	:
Claimants,	:
	:
and	:
	:
REPUBLIC OF COLOMBIA,	:
	:
Respondent.	:

------------------------------------------x Volume 6

VIDEOCONFERENCE: HEARING ON JURISDICTION AND MERITS

Saturday, May 7, 2022

The World Bank Group
1225 Connecticut Avenue, N.W.
Conference Room C 3-100
Washington, D.C.

The Hearing in the above-entitled matter

came on at 9:00 a.m. before:

PROF. DR. KLAUS SACHS
President of the Tribunal

PROF. HUGO PEREZCANO DÍAZ
Co-Arbitrator

DR. CHARLES PONCET,
Co-Arbitrator

[Page 1617]

ALSO PRESENT:

MS. SARA MARZAL YETANO
Secretary to the Tribunal

Realtime Stenographers:

MR. DAVID A. KASDAN
Registered Merit Reporter (RMR)
Certified Realtime Reporter (CRR)
B&B Reporting/Worldwide Reporting, LLP
529 14th Street, S.E.
Washington, D.C. 20003
United States of America

MR. LEANDRO IEZZI
MR. RODOLFO VALERIO RINALDI
D.R. Esteno
Colombres 566
Buenos Aires 1218ABE
Argentina

Interpreters:

MR. CHARLES H. ROBERTS

MS. SILVIA COLLA

MR. DANIEL GIGLIO

[Page 1618]

APPEARANCES:

On behalf of the Claimants:

MR. RAHIM MOLOO
MS. ANNE CHAMPION
MS. MARRYUM KAHLOON
MR. BEN HARRIS
MS. NIKA MADYOON
Gibson, Dunn & Crutcher, LLP
200 Park Avenue
New York, New York 10166-0193
United States of America

MR. PEDRO G. SOTO
MS. ANKITA RITWIK
Gibson, Dunn & Crutcher, LLP
1050 Connecticut Ave N.W.
Washington, D.C. 20036
United States of America

MR. ALEJANDRO MEJÍA
MR. JUAN PABLO PANTOJA RUIZ
Cáez Muñoz Mejía Abogados
Cra. 17 ##89-31
Bogotá, Colombia

Party Representatives:

MR. ANGEL SEDA
MR. JUSTIN ENBODY
MR. STEPHEN BOBECK
MR. JUSTIN CARUSO
MR. MONTE ADCOCK
MR. PIERRE AMARILGLIO

[Page 1619]

APPEARANCES: (Continued)

Attending on behalf of the Respondent:

MR. CAMILO GÓMEZ ALZATE
MS. ANA MARÍA ORDÓÑEZ PUENTES
MR. GIOVANNY VEGA-BARBOSA
MR. CÉSAR RODRÍGUEZ
MS. ELIZABETH PRADO LÓPEZ
MS. YADIRA CASTILLO MENESES
MR. ANDRES FELIPE REINA ARANGO
MS. MARCELA MARÍA SILVA ZAMBRANO
Agencia Nacional de Defensa
Jurídica del Estado
Carrera 7 No. 75-66 - 2do y 3er piso
Bogotá
Colombia

MS. LAURA MARÍA MARÍN MORENO
Fiscalía General de la Nación

MR. CARLOS SABOYÁ
Director de Asuntos Jurídicos, Fiscalía
General de la Nación

MS. SANDRA MARTÍNEZ
Asesora de la Dirección de Asuntos
Jurídicos, Fiscalía General de la Nación

MS. SANDRA MONTEZUMA
Asesora en el Despacho del Vicefiscal,
Fiscalía General de la Nación

MS. TATIANA GARCÍA
Directora de Asuntos Internacionales,
Fiscalía General de la Nación

MS. LILIA ROSA MENDOZA
Asesora de la Directora de Asuntos
Internacionales, Fiscalía General de la
Nación

[Page 1620]

APPEARANCES: (Continued)

MR. ANDRES FELIPE TINOCO
Asesor en el Despacho del Vicefiscal,
Fiscalía General de la Nación

DR. YAS BANIFATEMI
MS. YAEL RIBCO BORMAN
MS. PILAR ALVAREZ
MS. CAROLINA BARROS
MR. YOUSSEF DAOUD
Gaillard Banifatemi Shelbaya Disputes
22 rue de Londres, 75009 Paris
France

MS. XIMENA HERRERA BERNAL
Gaillard Banifatemi Shelbaya Disputes
165 Fleet Street
London EC4A 2AE
United Kingdom

[Page 1621]

C O N T E N T S

WITNESSES:

PAGE

RICHARD HERN

Direct presentation...........................1622
Cross-examination by Mr. Moloo.................1654
Redirect examination by Mr. Daoud..............1736

[Page 1622]

P R O C E E D I N G S

RICHARD HERN, RESPONDENT'S WITNESS, CALLED

PRESIDENT SACHS: Good morning, Dr. Hern.

Good morning. Would you kindly read for the

record the Declaration that is before you.

THE WITNESS: I solemnly declare upon my

honor and conscience that my statements will be in

accordance with my sincere belief.

PRESIDENT SACHS: Thank you very much. We

will now invite you to deliver your presentation.

MS. BANIFATEMI: Mr. President, may I--I get

the impression that the screen is blocking the view

for Mr. Hern. You do see him? I just wanted to

mention. Thank you.

PRESIDENT SACHS: Not in full, but--

MS. BANIFATEMI: Not in full? Well, then

maybe we could push it away.

(Pause.)

DIRECT PRESENTATION

THE WITNESS: Good morning, everybody.

Thank you for inviting me to be present today.

I have a set of slides that in essence

[Page 1623]

1 summarize the two reports that I've submitted to the

Tribunal on this case and, to the extent possible, I

will also use this presentation to comment on some

issues that came up yesterday in the context of BRG's

presentation, but also the JLL and CBRE presentation

on the previous day.

I start with just a summary of background

and experience. I'm a Managing Director at NERA

Economic Consulting. My focus is on valuation in the

context of large infrastructure assets. I've

11 testified on more than 20 international arbitration

cases, also authored a number of articles on valuation

techniques.

Apologies.

(Pause.)

THE WITNESS: Sorry, I just lost the slide

numbers, but I hope that's helpful by way of

background.

In terms of my first slide, I thought it was

useful just to summarize my conclusions on this

matter. I was asked to estimate damages in the

context of this case. My calculations were based,

[Page 1624]

like BRG, premised on the Fair Market Value concept.

Damages are never straightforward in these types of

cases, but in a sense I reached the conclusion that it

was fairly straightforward in this case that if there

were to be any damages, that the right approach to

quantify those damages was what I called the "Cost

Approach" or the "Asset-Based Approach." And, in

essence, that approach is based on an analysis of how

much expenditure had been undertaken on the projects

at the time of the valuation. And to the extent

11 possible, that approach also takes account of what

that expenditure is worth at the time of the Valuation

Date. So it's an analysis of historic expenditure, we

valued essentially to the Valuation Date.

Now, I don't reach that conclusion lightly,

that that's the right approach. I considered other

possible approaches to quantify damages, and we heard

yesterday about the discounted-cash-flow methods.

19 There's also another method that is used in these

types of cases called the "Market-Based Approach."

But for reasons that I explain in my report and I will

elaborate on today, I don't think that they're the

[Page 1625]

right approaches for this case. I think they're too

speculative. I don't think we have the right data to

be able to quantify damages using those approaches.

And I revert back to using an Asset-Based

Approach, which I think has a lot of precedent in the

context of these types of cases in the international

arbitration space, too.

So, in summary, my estimate, if there are to

be damages in this case, of course, I don't opine on

liability, but if damages were to be awarded, then in

the context of the Meritage Project, my estimates of

those damages is in the region of USD 1 million plus

pre-award interest of 67,000.

Now, I was also asked--for completeness, I

understand it's the Respondent's case that it's only

the Meritage that has been affected by the Measures,

but I was asked for the purpose of completeness to

also assess damages should it be found that other

projects were affected by the Measures.

So, in the context of the other projects

that had been put forward by the Claimants as

potentially affected by the Measures--the Luxé

[Page 1626]

1 development, the Tierra Bomba development, 450

Heights, Santa Fé--I've also examined damages using

the same Asset-Based Approach or Cost Approach. And

in the context of those projects and the overall set

of projects that the Claimants are referring to, my

estimate of damages would be in the region of

7.6 million plus 472,000 Pre-Award Interest.

Now, just to--I thought it would be useful

just to take you through the steps that are involved

in this Cost-Based Approach. Step 1 is, as I say, to

look at the historical expenditure on the Projects.

So, in the context of Meritage, the historical

accounts over the period from 2012 to 2016 show

expenditure of COP 69 billion, although the vast

majority of that expenditure was in 2015 and '16.

The next step in this approach is to deduct

how much of that expenditure has been funded by debt,

and/or pre-sales, and that amount in the context of

19 Meritage is 63 billion; that, therefore, results in

net costs, if you like, excluding debts of 6 billion.

I then allocate those net costs to the Shareholders

that are involved in this claim, so 40 percent of the

[Page 1627]

1 historical shares, according to the register, are held

by the Claimants, so 6 billion is then allocated by

40 percent to the Claimants. That leads to 2.5.

I then--as I say, I then take account of

inflation and risk over the period in which the

expenditure has been made, so I roll forward that

expenditure using a Risk-Free Rate, a nominal

Risk-Free Rate of 5.3 percent to the Valuation Date.

And the final step I take into account is

that I understand additional debt was provided by

Royal Realty to the project as additional damages to

be compensated. I don't believe BRG take that into

account, but I do, and I increase the amount of

damages by COP .4 billion, and I then convert the

total amount then into U.S. dollars at the Exchange

Rate at the Valuation Date.

And those series of steps then leads

effectively to my calculation of damages to be COP

3 billion converted at the Exchange Rate of COP

3,000 to U.S. dollars leads to damages of 1.1 million.

And that's the step that I take for each of

the projects. I've talked you through the numbers

[Page 1628]

there for Meritage because that's what I focused on,

but, in my report, I take essentially the same steps

for each of the projects to calculate what I call the

"Asset-Based Approach" for valuation of damages for

each of those projects.

Now, I understand that my approach is not

one that's agreed--agree with by the Claimants. I've

noted a number of comments by BRG and also the counsel

for the Claimants that comment on the Cost Approach,

and I thought it might be useful just to respond to

these comments today.

In essence, my understanding is they refer

the Cost Approach as backward-looking, an approach

that ignores the future and growth potential of the

company and ignores intangible assets.

I acknowledge that there are comments made

generally in the damage literature along these lines,

and, of course, there is no single one right way to

assess damages in all types of cases. So, you know,

yes, I would say it's true that some of these comments

have been made in the context of this approach. But I

wanted to emphasize the reasons why I still think this

[Page 1629]

approach is the right one.

First of all, as I say, it's one of three

approaches that is almost always referred to as one of

the approaches to estimate Fair Market Value. I think

when we look at the precedent--and again this is

slightly legal context, but when I look at the

precedent legally for which approaches are used in

which circumstances, I think there's a lot of

precedent to use a Cost Approach for assets that are

not yet going concerns, that are not profitable, that

are not generating cash flows. And, of course the

reasons why that's true is because, in the context of

those types of case, it's actually very difficult to

apply any different approach. If you haven't got

assets that are generating cash flows, that are

generating profits, how do you populate an approach

like the DCF Model? And I'll come on to that in a

minute.

But the criticism of the approach as being

backward-looking is not really a fair criticism

because when we think about competitive markets and

underpinning an awful lot of competition policy is the

[Page 1630]

premise that, in competitive markets, prices are

driven down to costs. That's what happens in

competitive markets. We end up with prices being

driven down to costs. And what that means is when

we're looking at industries that are, you know,

generally quite competitive, we would expect to see

the same outcome, prices being driven down to costs.

So, in that context, the future cash flows

of those projects end up being driven down to the

costs, to the investment costs that are put into those

projects over time to generate those cash flows. So,

you know, it's not strictly correct to say just

because we look at historical data that means it's a

backward-looking approach. No, that's not right. In

15 competitive markets, what we expect to see is the

future cash flows from those projects being driven

down to the invested costs to generate those projects.

And I think in, you know, in the context

that we're looking at here, the hotel and real estate

market, it's a competitive market. There aren't huge

21 barriers to entry, to buy land, to develop that land

for real estate or hotels. It's generally regarded to

[Page 1631]

be a competitive market. So, the merits of this

particular approach, I think, are quite strong in the

context of this case.

Now, I also noted in the--in counsel for the

Claimants' opening that they also argued that historic

costs don't account for changes in valuations over

time. They gave an example of the used car markets.

The prices of cars bought in historic years are not

the same in future years. Well, of course, that's

true, but we're not dealing with a used-car market

11 here. We're dealing with an infrastructure investment

12 with historic costs that have been made around bricks

and mortar and land, and we wouldn't expect those

costs to substantially change over time.

So, you know, I think that analogy is not

really applicable to the case that we're looking at

here, but I also think, in the context of this case

you know, we are looking at invested costs, as I say,

from Meritage that had been largely made in 2015 and

'16, very close to the Valuation Date, so we're not

21 looking at historic costs that had been spent many

years ago and asking what would they be worth many

[Page 1632]

years later. We're looking at costs that have been

spent on land, on leases, on bricks and mortar, and

we're looking at valuing those costs at a relatively

recent date to when they'd been invested.

So, I think that analogy is not really

relevant; and, as I say, I think this approach has a

clear method of taking account of changes in valuation

over time through inflation. That's how I take them

into account of a change in valuation over time.

So, as I say, I think the merits of the Cost

Approach in this case are actually very strong. I

also considered a DCF Approach, and I think you would

have seen my Second Report where I populated a DCF

Model to see how that reconciles with the outcome of

my Cost Approach. And, of course, you heard the

evidence yesterday from BRG that also used a DCF

17 Approach. But I think, you know, fundamentally, in

the context of this case, a DCF Approach is really

very difficult to apply.

We're talking about a claim that's based on

five different developments--Meritage, the Luxé,

Tierra Bomba, Santa Fé, and 450 Heights. In the

[Page 1633]

context of the Claim, 80 percent of the damages come

from the hotel components of those developments, but

yet no hotel has been completed and is up and running

so--but none of these developments do we have any

history of cash flows associated with the hotel

business, but yet 80 percent of the Claim for damages

comes from the hotel operations, so we don't have any

8 historic record of cash flows associated with the

hotel operations for these activities.

Many of the projects are really in very

early pre-development stage with even real estate not

yet developed or sold; and, in the context of the

13 Meritage, which is the focus of my Report in many

ways, that project was supposedly phased over eight

phases. Only Phase I has been--has reached

equilibrium, so that was the sale of units in Phase I.

But when I look at the cash flows that have been

generated from Phase I, Phase I appears to be

loss-making. So, even for the Meritage, where there

has been some development of Phase I, we still don't

have any history of positive cash flows being

generated from that project.

[Page 1634]

So, I think, you know, it's very difficult

to populate a DCF model in that context, and it's

notable that when we look at BRG's--when I reviewed

BRG's damages model, it's massively complex with

literally thousands and thousands of data entries

attempting to present forecasts of economic variables

associated with all of these projects, but yet we

really have very, almost zero operational history of

these projects against which to validate those

forecasts. So, in essence, the whole DCF exercise

becomes highly speculative.

Notwithstanding that, I did think it was

useful for the Tribunal to see what I thought a DCF

approach would produce. So, in my Second Report I

went further than my First Report and attempted to

populate a DCF approach. I present the result on this

Slide 10. In the context of Meritage, I think the DCF

data suggests to me something in the region of 0 to

2 million. In the context of all the projects

20 overall, something in the region 3 to 7 million. So

the outcomes, in my view, from the most reasonable

assumptions I could make for a DCF approach are

[Page 1635]

actually pretty consistent with the Cost Approach, but

I still don't think it's the right approach to be

using. I think it's far too speculative, far too many

assumptions need to be made, and we really have very

little basis to validate those assumptions.

I think, just moving on a little bit to

commenting on BRG's assumptions, on Slide 12, I've

broken down BRG's overall claim of damages of

200 million into the different components that that

claim is based on, and hopefully this is helpful

because it shows you, I think, just how many different

parts of this case, how many number of different

projects are associated with it. You've got the hotel

operations. You've got five different developments

for the hotel operations. You have five different

developments for the real estate operations. You have

fees associated with the hotel, fees associated with

the real estate. And all of these developments are

also phased over time, so they have a number of

different phases.

And, therefore, what that means is, you

know, when coming up with a DCF calculation, there is

[Page 1636]

1 effectively a DCF calculation for each of these

individual projects and for each of these individual

phases sitting below these projects. And all of that

needs to be populated, assumptions need to be made

about the valuation drivers for all of these myriad of

projects and forecasts; and, as I say, you know, we

really have very little operational history against

which to validate those assumptions.

One exercise I did in my Report was to

crosscheck BRG's calculation of the DCF Approach

against the prices that have been paid by the

Investors in these projects into the Project

13 Companies. In a sense, you could think of this as a

Market Approach because it says, you know, what did

15 investors pay to establish equity into the projects?

And for Meritage, we see the date of the share

purchases, the date of the original equity investments

in May 2013, the implied value--a hundred percent of

the shares were purchased at that point in time, the

20 implied valuation of the project at that point in time

was therefore 2.25 billion, but yet BRG's DCF claim

for valuations in the region of 2.5 years later is

[Page 1637]

163 billion.

So, I mean, that doesn't take into account

additional capital contributions that might have been

made over that period, but it does say when the

project was started, relatively recent to the

Valuation Date, we are being led to--if BRG's DCF

calculation is right, then the valuation of that

project has increased by 72 times over that period,

and that, to me, doesn't make sense economically

because over the period from May 2013 to the end of

2016, very little has actually happened in the context

of the Meritage Project. We have Phase I, yes, where

there has been sales of the units, but Phase I is

still only 20 percent or so constructed. We have no

operational history, no sales of units for the hotel.

We have a very limited number of sales for some of the

other phases. But yet, if BRG's calculation is right,

the valuation of the Project has increased by 72

times, so economically that doesn't really make sense,

in my mind.

We asked for additional data on share

purchases or acquisition of equity after that period.

[Page 1638]

I believe it's perhaps an issue of dispute as to how

much of this data is on the record, but there was

discussion last night of a transaction by Haystack

Holdings, of a stake in the Luxé Royal Realty. My

understanding is that the price that was paid for that

purchase is 35.2 billion. Again, if that's right,

there's a clear mismatch in the valuation that's been

put forward by BRG of 155 billion against the implied

valuation of the assets in 2015 of 35 billion. So,

you know, again, the clear mismatch between the DCF

Model that BRG are putting forward and the implied

valuation in 2015.

And by the way, you know, the implied

valuation of these stakes is broadly consistent with

my Cost Approach, so it's very different from BRG's

DCF approach. It's broadly consistent with my Cost

Approach.

So, just moving on to a few comments, then,

on BRG's issues of detail. Overall, as I say, I think

there are exaggerated or optimistic assumptions of

most of the key value drivers in the BRG model. I'm

going to pick out a few, but, in essence, the

[Page 1639]

1 valuation of these projects is driven by the profit

margin. It's the EBITDA or the profit margin of the

Project that really drives the valuation in the DCF

Model. You know, we can dispute individual items on

revenues and costs, but overall valuation is about

profits; and therefore, the key assumption in their

model is the profit margin, and that's what I focused

on in my analysis.

When I look at the profit margin of the BRG

assumptions on the various hotels and I compare that

to benchmarks in Colombia but also other Emerging

12 Markets, you know, my conclusion generally is that the

profit margin appears to be in the region of two times

higher than we see for relevant benchmarks. And I

note that The Charlee has been discussed a number of

times in the case so far; but, even if we compare

these projects to The Charlee, it appears as though

that these projects are around two times more

profitable than The Charlee Hotel has been. So, that,

in my view, is a key assumption in the BRG model

that's leading to inflated estimates of damages using

that approach.

[Page 1640]

The other key assumption in the model is the

Cost of Capital because it's the Cost of Capital

that's discounting the profits that leads to the net

present value. I think, again, this is an

unreasonable assumption by BRG. They appear to be

assuming a Cost of Capital in the region of 8 percent

nominal post-tax. I don't think that makes sense in

the context of projects that haven't been yet

developed, constructed, there is still a significant

failure risk, construction risk associated with it.

They're in Colombia, which is by no means a country of

low-country risk. I think their Cost of Capital--and

I've done a lot of work on Cost of Capital over many

decades--is more appropriate to a Cost of Capital that

we might see in a market like the U.S. A Cost of

Capital around about 8 percent nominal is a typical

Cost of Capital that we observe for setting rates of

return for U.S. utilities, not for Colombian real

estate.

I've done my own analysis. I think a more

reasonable Cost of Capital is in the region of 12 to

18, but I think there's other evidence that tells us

[Page 1641]

that this Cost of Capital can't be right because the

projects, themselves, have taken out debt at the rates

of 10 to 11 percent, and it's impossible for the Cost

of Capital, which is a weighted average of equity and

debt, it's impossible for that number to be below the

cost of debt of the projects because the Cost of

Equity is always higher than the Cost of Debt. So,

the weighted average, therefore, must be higher than

the Cost of Debt.

So I think that there's clear evidence on

the record that Cost of Capital can't be right. I've

also noted that the Claimants, themselves, appear to

have offered these projects to investors at Internal

Rates of Return of 25 to 28. That doesn't make sense

if they think the Cost of Capital is 8 percent.

Effectively, they would be giving away free money

associated with these projects if they thought the

true Cost of Capital was 8 percent but they're willing

to offer investments at a promised or expected rates

of return of 25 to 28.

So, that, in my view, is a key number that's

wrong in the BRG model. But, of course, you know, all

[Page 1642]

of this data also shows that actually, you know, it's

quite difficult to estimate a precise Cost of Capital

for this type of project in this country, and that's a

key assumption in a DCF Model; and if we can't be very

certain about that assumption, we can't be very

certain about the outcome from a DCF Model.

I think another key issue with BRG's DCF

Approach is how they take or don't take into account

potential failure risk associated with the projects.

This was discussed yesterday. My views on this are

that, given the early stage nature of these projects,

and I've talked about Meritage, only Phase I being

started, being pre-sold, Phase I was not yet even

fully constructed. Phase II, which is the big hotel

complex was not constructed, had no pre-sales.

Phases III to VIII or IV to VIII are very limited

pre-sales, not yet constructed. Financing for all of

the projects had not been raised. There was no clear

evidence that the project was profitable. Phase I was

actually loss-making.

Just intuitively as an economist, is it

reasonable in that context to assume 0 percent failure

[Page 1643]

risk. That's BRG's assumption--0 percent failure

risk--but yet, you know, such a limited amount of the

project has so far been undertaken. Yes, we can look

at Charlee, and we can say Charlee--we can see that

Charlee has been profitable, but Charlee is a very

different business from what these projects are.

These--many of these projects are multiple times

bigger than Charlee. The Charlee is a hotel complex.

These projects are combinations of real estate and

hotels. They have many, many more units than The

Charlee Hotel. They're in a very different location

12 from The Charlee Hotel. They're outside of Medellín,

sometimes in quite rural areas. It just doesn't make

sense to be assuming that these projects have

0 percent failure risks.

You know, what is the right failure risk?

That's the question I ask myself because I also

attempted to populate a DCF Model, but the reality is,

you know, we, as economists or valuation people, we

have very little data to tell us what is the right

21 failure risks for these types of investments. You

know, we're looking at, you know, quite unique

[Page 1644]

development plans in quite unique areas of Colombia.

You know, we don't have a dataset that we can go to

and say, "Oh, well there has been X number of previous

attempts to develop projects in similar areas of a

similar scale." That type of data just doesn't exist,

and as a result of that, inevitably, if we're trying

to estimate failure risk, we have to be--to

essentially speculate on that, and that's very

difficult to do, of course. All that makes the

damages calculation inherently speculative as a

result.

Moving on quickly to real estate. Real

estate is a much smaller component of the damages

claim. It's only 20 percent, whereas hotels are

80 percent, but I have the same concerns with BRG's

assumption on real estate. At the profit margins that

they appear to be assuming for key stages of the

Projects at the Meritage and Tierra Bomba Project in

particular, are significantly above the profit margins

for other Colombian real estate developers. They're

also above profit margins for other datasets that

we've looked at. And I note CBRE themselves, the real

[Page 1645]

estate experts, did a survey and estimated profit

margins in the region of 16 to 19--sorry, 12 to

15 percent, so even lower than the 16 to 19 percent.

So, you know, BRG's assumption of 47 percent or

42 percent is essentially driving their calculation of

damages for real estate, but that assumption is way

higher than we see in the observed data for real

estate comparators.

We have the same issues with the Cost of

Capital, they're actually assuming an even lower Cost

of Capital for real estate of 7.7 percent nominal.

You know, again that--that just doesn't make sense to

me as an economist for real estate development in a

country like Colombia. There must be more risks

associated with that type of development than a Cost

of Capital of 7.7. There's the same inconsistencies

with the Cost of Debt. The Cost of Debt for these

projects is higher than that number. That number,

therefore, 7.7 can't be right. And we see the same

inconsistencies between the offered IRR for the

projects being much higher than their assumed Cost of

Capital, which again doesn't make sense.

[Page 1646]

CBRE did their own surveys of the Cost of

Capital for these types of projects and found numbers,

you know, much higher than BRG's assumption.

I have the same issue with BRG's assumptions

on failure risks for real estate. As I've talked

about, you know, just like hotels, the real estate

aspects of all of these projects were really in very

early stage.

From what I can tell, Phase 1 of Meritage,

which was a real estate phase, was the one that had

11 really reached equilibrium in terms of the Projects

the Claimants are claiming for, and as far as I can

tell, that Project was actually loss-making. So,

again, it doesn't seem to make sense to be assuming

zero percent failure risk when we have, you know, so

many potential risks associated with this Project in

terms of can the Projects raise financing, can the

Projects complete construction on time, are there

going to be other macroeconomic risks associated with

the Project that affect the profitability--you know,

we simply don't know. These are very bespoke

projects. It doesn't make sense to be assuming

[Page 1647]

zero percent failure risk, in my view.

The other component of the damages, I've

talked about hotels and real estate, the other

component of the Claim for Damages is what BRG

referred to as lost fees. So, these are fees that

would have supposedly been paid to Royal Realty, the

operator of the hotel and real estate operations.

Again, in my view, these estimates of damages

are--look exaggerated or inflated. And in a sense,

one of the reasons for that is because they are being

driven by inflated projections of revenues and profits

because the fees that are generated to Royal Realty

are based on the percentage of revenues and profits,

and if the revenues and profits are inflated, it

15 therefore follows that the fees are inflated.

But the other sort of crosscheck that I did

was, when looking at the fees that were supposedly to

be generated to Royal Realty, one would think that,

19 because the profit margins associated with those fees

were so high, in the region of 95 percent, one would

think that you might then expect to see those high

profit margins in the Royal Realty accounts because

[Page 1648]

Royal Realty's been operating up to the Valuation

Date. So, you know, if it was true that it was a very

profitable operator, we should at least expect to see

those profits generated in their accounts, but we

don't. We see over the period 2011 to 2015 negative

profits in most of those years. So, you know, no

evidence up to that point in time that the Company was

profitable and, therefore, little evidence to validate

these calculations of lost fees.

There's another component to damages

associated with future hypothetical projects in the

12 Claim. In my view, there's very little evidence to

back up what these projects would be. I have

attempted to do an almost "back of the envelope"

calculation using a DCF of what they might be, but in

essence, I think for this type of Claim of future

hypothetical projects, I think the basis for a damage

claim is very weak because it's not, in my view, been

clearly established why that project has been lost,

you know, why could the ideas for that project, if

21 those ideas existed, not be sold to another investor,

why could those ideas not be--not still be pursued. I

[Page 1649]

haven't seen anything on the record that clearly tells

me that there's a damage for these hypothetical

projects.

I know BRG say they do a market crosscheck

on their damage calculations, and this was discussed

also in the context of JLL's presentation. I don't

think what they do is the right crosscheck, and I

think it leads to very misleading conclusions. And in

essence, you know, what JLL appear to be doing is they

appear to be saying, if we look at fully constructed

hotels and the transaction prices paid for fully

constructed hotels in other markets, we can compare

that to the Transaction--the implied Market Value that

we generate through our DCF. Yes. I mean, in theory,

maybe that's, you know, something that's relevant to

look at but the problem is we're not dealing with a

fully constructed hotel here. We're dealing with a

hotel that has not yet started construction, you know,

the money hasn't been spent on any of these hotels

yet. So, there's no reason to expect that the

21 valuation of hotels that have not yet started

construction should be anything like fully developed,

[Page 1650]

fully operational hotels in other markets. You know,

clearly, there's development construction failure risk

associated with the Colombian hotels that are not

present in the other markets. That's one factor they

didn't take into account.

They also didn't take it into account when

they looked at these other hotels, what they were

looking at were, you know, very strong luxury brand

hotels--Four Seasons Hotels, Sheraton, Ritz-Carlton

Hotels--and trying to benchmark that against, you

know, the potential valuation of the Meritage hotel,

and clearly that's, you know, that's a very difficult

comparison. Those hotels have extremely strong

brands. They charge room rates five times or so

higher in some cases than are being projected for

these hotels, and therefore, you would expect their

17 valuations to be very different. So, in a sense, what

they've done as a crosscheck, in my view, actually

shows that their valuation is way higher than it

should be because it doesn't take account of any of

these factors.

Almost, finally, I think I'm down to the

[Page 1651]

1 issue of Pre-Award Interests. I think the right way

to take account of Pre-Award Interest is using an

Opportunity Cost of funds associated with the

Risk-Free Rate. I think that's the--normally the

standard approach to look at Pre-Award Interest

because effectively what we're doing is we're saying

if damages were--are calculated at a Valuation Date in

2016, how do we take account of what those damages are

worth in today's money? There's no risk associated to

the Claimants with rolling that money forward to the

Valuation Date, and therefore, it's appropriate to use

a U.S. Risk-Free Rate. Therefore, in rolling that

number forwards, particularly because the calculation

of damages in 2016 by both myself and BRG, are based

on converting Colombian pesos to U.S. dollars in 2016,

so it's a U.S. damages that's then rolled forward with

the U.S. Risk-Free Rate.

In my view, the only alternative way of

doing things is to calculate damages in Colombian

pesos and then roll that number forward at a Colombian

21 Risk-Free Rate. I did crosscheck it, my calculation

using that alternative, and that would actually lead

[Page 1652]

to a lower--a lower number to the Claimants. I didn't

think that was appropriate because my understanding is

that they're making a claim for damages in U.S.

dollars, so I think the conversion should be done,

the Valuation Date into U.S. dollars rather than at a

later point in time, but I did do that--I did do that

sensitivity.

Overall, this slide--this Slide 27 just

summarizes the differences between my approach and

BRG's, in terms of overall damages. As I say, I've

been asked to focus on the Meritage because I

understand it's the Respondent's case that only the

Meritage was potentially affected. My valuation of

damages, if there are to be damages, is in the region

of 1.16 million, including interest. That contrasts

with BRG's claim for damages of--in the region of

250 million.

I have a list of appendices in my Report on

19 other matters. I didn't think I would have time to

take you through that today but they deal with other

assumptions in BRG's model concerning ADR and

occupancy rates, the speed at which the--BRG claim

[Page 1653]

1 they could sell real estate units, other evidence on

the Royal Realty fees and why I think that's

exaggerated. I'm happy to leave them in the slide

pack for you to ask questions on them, if do you, but

I think they're probably second order compared to the

bigger assumptions about profitability margin because

most of these assumptions feed into the profitability

margin calculation, which I think I've shown you I

think is much too high in BRG's model.

Thank you for your time.

PRESIDENT SACHS: Thank you very much,

Dr. Hern. And we see that you are quite far apart,

BRG and you, but we now give the floor to the Claimant

for cross-examination.

Mr. Moloo, will you be in charge of the

16 cross-examination?

MR. MOLOO: Yes, Mr. President. I do have

one question from a timing perspective, I know we had

said that there would be some flexibility. I don't

intend to take longer than, let's say about an

hour-and-a-half, but I just don't want an objection if

we do end up taking, I think we have an hour and 19

[Page 1654]

minutes or something like that. Given all the

interpretation issues, et cetera, I just want to make

sure that we deal with that issue up front.

PRESIDENT SACHS: Yes. We may have a break

after, let's say, 45 minutes or so.

MR. MOLOO: Understood.

CROSS-EXAMINATION

BY MR. MOLOO:

Q. Good morning, Mr. Hern. It's nice to meet

you.

A. Good morning.

Q. My name is Rahim Moloo, and I'm counsel for

13 Claimants in this case. And as I'm sure you expected,

I have a few questions for you.

Now, in your First Report, if I understand

correctly, your qualifications are set out at

Appendix A, which is at Page 114; correct?

A. Yes, that's right.

Q. And you're a Managing Director in NERA UK.

You're based in the United Kingdom; is that right?

A. Correct.

Q. And you've prepared testimony on a range of

[Page 1655]

issues and I'm--I'll just wait for these to be given

to you. Don't be scared by the number of pages. As

you know, some these documents are really long, and I

don't intend to take you through all of them.

So, on Page 114 of Appendix A--and you can

put that up--of your First Report, in Paragraph 262,

you talk about your experience, and the last sentence

you talk about, you know, you've worked in the

commercial investor-State disputes encompassing a wide

range of industries, including energy, oil and gas,

telecommunications, manufacturing, distribution,

12 utilities, shipping, air travel and transport

infrastructure. I didn't see hospitality or real

estate in there. I assume that's because you have not

had much experience in those industries?

A. No, that's not--that's not really true,

actually. That list was--a sort of list of the bigger

18 industries that I've worked on. I actually recent--I

19 testified last year on a large real estate case in

Serbia, which I think is listed in my detailed CV

21 experience. Just let me try to find that.

Q. That's fine. I'll take your word for it.

[Page 1656]

A. But it's--yeah, that's right. On Page-116, it refers to a case in--it's actually in Serbia regarding a large agricultural and real estate business.

I think also, you know, fundamentally, most of the cases I testify on, they're large infrastructure investments because those are typically the types of cases that end up in investor-State disputes. Many of them have, as part of the, you know, Investment, land associated or real estate associated with those investments, so the--you know, the whole issue of the valuation of that land and real estate is often, you know, an issue that I deal with, you know, just regardless of the industry actually.

Q. So, you consider yourself a real estate expert?

A. No, I wouldn't say that. I'm an economist and valuation, you know, person. I don't specialize in one particular industry. I sp--you know, I deal typically with infrastructure generally, you know, across a wide range of industries.

Q. Do you consider yourself an expert in the

[Page 1657]

hospitality industry?

A. I mean, again, it's an industry I've had quite a bit of experience on, you know, in my work.

Q. You can say "yes," that's fine. You can say--

(Overlapping speakers.)

A. I wouldn't characterize myself as a hospitality expert, but it's an industry I've worked on quite a lot in the context of, you know, consulting and dispute work.

Q. The Serbia Case?

A. The Serbia Case is one, but-you know, again--

(Overlapping speakers.)

A. I'm actually working on a hotel case right now in--again, in Serbia. I've done a lot of valuation work in the context of airports, which have hotels associated, you know, with--the air sector is a big sector that I've worked on. So, you know, this issue of valuation of hotel businesses has come up in, you know, quite a few recent cases, too.

Q. Okay. That's--then, you'll be well-placed

[Page 1658]

to answer some of my questions.

You consider CBRE to be real estate experts?

A. Yes.

Q. And including Valuation Experts for real estate and hospitality assets, you consider them to be more of a specialist expert than you in that space; correct?

A. No. I think you asked, do I consider them to be real estate experts.

Q. Yes-this is a second question.

(Overlapping speakers.)

REALTIME STENOGRAPHER: I'm sorry. You're talking over each other. Try it again.

THE WITNESS: Sorry.

I thought your question was, do I consider them to be more of an expert on valuation of real estate, which I would say I don't because my understanding is that they're more experts on real estate generally, but their work is not necessarily focused on valuation, whereas my work is focused on valuation. So, I think there's a distinction there between the industry, yes, they appear to focus on

[Page 1659]

real estate but, you know, I wouldn't go so far as to say that I have any particular views on whether they're an expert on the valuation or real estate.

BY MR. MOLOO

Q. You are familiar with how big CBRE is; right? You're familiar with them in the real estate sector, given the work you've done in real estate--sector

A. Yes. Yes, generally, yes.

Q. They're a pretty big company that does a lot of work in valuation of real estate assets. That's kind of one of their main streams of business?

A. Yes, I can accept.

Q. And JLL likewise?

A. Well, I know of JLL in the same context, yes.

Q. Let's go to the CBRE First Report. If you go to Page 50--can you put that up? The CBRE Report. Sorry, I wasn't expecting to have to do this.

No, they're--oh, yeah, that's the one, Page 50 of that.

[Page 1660]

You can see Mr. Chris Maugeri is the Head of Valuation and Advisory Services for Latin America.

Do you see that?

A. Yes.

Q. And I think he said yesterday they valued well over $40 billion in assets per year.

Do you see that?

A. Yes.

Q. So, you consider yourself more of an expert in valuing hotel and hospitality industry assets than CBRE? Did I understand your testimony correctly?

A. No, I didn't say--I don't think I said that I was more of an expert, but--

Q. You said that they were not an expert; right?

A. No, I didn't.

Q. Okay. You didn't--

(Overlapping speakers.)

A. I don't think I said that they were not expert. I think I said that I--my understanding of CBRE is that they certainly have a focus on real estate as an industry and are experts in that

[Page 1661]

industry. I don't reach a view on whether they're more experts than me or vice versa in terms of valuation because my expertise is as a valuation economist, so I think, you know, we're not--I don't want to particularly compare those two attributes.

Q. Okay. Your instructions in your Second Report--we could go to them--turn to at Paragraph 8.

"Were to review, analyze and provide my expert views on damages calculations in BRG's Second Report, respond to BRG's critiques of the damages assessment presented in my First Report, update assessment of damages arising from measures based on info--information from BRG/Claimants."

That's roughly what you were instructed to do; is that right?

A. Yes. Yes, correct.

Q. So, you were not instructed to respond to JLL's Report; is that correct?

A. Directly, that's correct, but, of course, BRG, as part of their Report, referred to JLL in terms of some of their assumptions, so indirectly I have interpreted my instructions to respond to parts of JLL

[Page 1662]

Report--parts of the JLL Reports too.

Q. Now, you understand--I think we're all on the same page on this--that the Parties agreed that if the Tribunal finds Colombia is liable, it must compensate Claimants the Fair Market Value of their Investment as of the Valuation Date; correct?

A. Well, I think that's, in some sense, a legal issue on what they must compensate, but--so I don't reach a view on that.

Q. Okay. You talked a lot about legal precedent earlier so I thought you might have a view on that.

But you can agree, at least, that Fair Market Value is at least the price that a seller's willing to accept and a buyer's willing to pay on the open market in an arm's-length transaction; correct? That's a fairly standard definition of Fair Market Value.

A. Yes. I would say it's the price that a willing buyer would pay to a willing seller in a--in the market, in a liquid market, the--hypothetical price, yes.

[Page 1663]

Q. So, the Fair Market Value requires an assessment of what an asset would sell for on the open market; correct? That's what we're assessing here.

A. Essentially. That's right, yes.

Q. And it should be an arm's-length transaction; correct?

A. Yes.

Q. And you identified the Income Approach, the Market Approach, and the Cost Approach and, in your view, the best approach is sort of, like, a sunk-costs type approach; correct?

A. Well, I didn't characterize it as "sunk costs." I call--I think I referred to it as the Cost or the Asset-Based Approach, but I think that's right in the context of this case, that that leads to the most reliable conclusions in the context of this case.

Q. And by "sunk cost," I mean--just--what was paid for the Investments, that's what your--that's your approach to valuation; correct?

A. Well, no, not quite, because I think as I explained in one of my slides, my approach is to take account of what was paid for the Investments, but also

[Page 1664]

what are those investments worth today, by--and I do that by rolling forward the historic costs of those investments with a nominal Risk-Free Rate, which includes inflation.

Q. Right.

A. Which, in my view, provides the best proxy for what those investments are worth today, so it's not just sunk costs--

(Overlapping speakers.)

Q. --sunk costs updated at a Risk-Free Rate?

A. Essentially. You know, you could think of that as a replacement--an estimate of the replacement costs of those assets, yes.

Q. So, you've taken a replacement-cost type approach?

A. Yes.

Q. And your view is that you can replace these assets by--on the--well, yes, I think you've answered that question.

And to support your approach, you appear to--you've mentioned a lot of legal precedent, and you also rely on Articles from the Global Arbitration

[Page 1665]

Review Guide on International Arbitration; correct?

A. Well, I do both, but I also--and I think I explained today--as an economist, also justify my approach based on economic principles of prices in competitive markets, generally converging to the costs of the Investments in those markets, so there's a basic economic principle that the prices that we expect to observe in markets that are competitive, that the cash flows should converge to the cost of those investments.

So, yeah, that's the basis for why I think that's the right approach. And then, I think, yes, there are legal and economic precedents to support that view as well, yes.

Q. Mr. Hern, we're the--you and I are what stand between everybody going home, so I would prefer if you can just listen the question very carefully and just answer the question, and this will proceed much more quickly.

A. Well, I thought I did, sir. I mean, you asked me why I preferred the Cost Approach--

(Overlapping speakers.)

[Page 1666]

Q. No, I did not ask that. I said, did you rely on the Global Arbitration Guide to Damages on International Arbitration--

A. But my answer to that question is no, sir. I did not rely on that, and I explained my answer because I said I start with an economic justification for using that approach, and then the precedent and the GAR Articles and the other precedent I've referred to, you know, supports, in my view, in my choice of that approach. But I, you know, I'm not just relying on the GAR--on the GAR Article.

Q. Understood. You're just not relying on them. That's completely fine, Mr. Hern.

Let's go to Hern--your First Report at Paragraph 76, which is page 34.

So in B and D, you referred to the Damodaran Guide to Damages in International Arbitration, and you referred to few articles, even in Footnote 45 from this book. I assume you're quite familiar with this book; is that fair?

A. Yes.

Q. And now, did you look at this book just for

[Page 1667]

quotes that supported your position, or did you, as an independent expert, also look for quotes that suggested another approach might be appropriate here?

A. I thought I--my interpretation of what was written in this book was that it supported my choice of approach, and I referred to paragraphs that I thought were particularly relevant to highlight that.

Q. So, you think overall the position expressed in this book supports your view?

A. Yes.

Q. I think one of the articles you cite is at Page 205 of the GAR book, which is RH-004, if you want to go to it. It's in one of your binders as well.

But we will put it up on the screen, if that's easier.

Page 205.

And at Paragraph 76(b) of your First Report, you cite this last paragraph of the page; correct?

You cite this paragraph saying: "In the case of startups, it may, therefore, not be appropriate to use the DCF method as there may not be much evidence on which an expert could conclude that any forecasts are reasonable, and there are examples of tribunals

[Page 1668]

rejecting the DCF valuation methodology based on lack of historical data."

And you quote that paragraph; correct?

A. Yes.

Q. But you don't quote the very next sentence, which says: "However, a lack of historical data does not necessarily preclude the use of a DCF method. It is necessary to assess the Company involved or project in question."

Correct?

A. Well, I don't quote that because, if you look at the next sentence on that paragraph, it then talks about industries, for example resource industries, mining, oil and gas where start-up companies may actually have quite good--quite a good basis to forecast cash flows because, the cash flows generated by those industries are essentially driven by the prices of those commodities, so that paragraph didn't seem relevant to me to quote because those are not the type of industries that we're dealing with here.

Q. So, you accept, though, that in certain

[Page 1669]

instances, in the start-up context, it is acceptable to use the DCF valuation, just not in this particular industry?

A. That's--that is my view, yes, that's right.

In some circumstances, for start-ups or newer types of industries, I think you could apply a DCF with much less speculation than this context, and a DCF could be appropriate.

Q. Okay. So, your concern is primarily with the hospitality industry and real estate sector; correct?

A. No, not just the industry--not just the industry. The nature of these projects. I mean, it's the hospitality and real estate industry in the stage of development or lack of development that we're dealing with here. The Projects haven't been constructed. They haven't--we don't have a historical set of data to tell us about the cash flows for these projects. We don't have other projects that are existing that, I think, are comparable to these projects. So, there's a myriad of factors I think why the DCF in this particular case, hospitality but also

[Page 1670]

early stage in Colombia, lack of comparators, makes it very speculative.

Q. You're aware that some of the criteria that were identified here are whether or not the forecasts are supported by other closely related entities with relevant experience. Do you see that? That's one of the criteria that you would look at?

A. Yes, absolutely, that's right.

Q. And you're aware that Mr. Maugeri yesterday said that for completely undeveloped properties, he has used the DCF method before--correct?--with the hospitality industry?

A. I'm aware--I'm aware that's CBRE'S statement, yes.

Q. But you disagree with it, that that is a reasonable approach for purposes of the hospitality industry?

A. I disagree with the use of this approach, DCF approach, in this context. I don't know what context he was talking about. I understand it to be land in California or somewhere. You know, I haven't reviewed what he's done in that particular case.

[Page 1671]

I disagree--

Q. He didn't refer to land in California, but maybe you're familiar with the study that I'm not?

A. So. Perhaps you could tell me what the study did concern.

Q. There was no study. I can take you to the testimony. It seems like you may have access to information I don't, but I can--if we go to the testimony from--I had it here--from yesterday. If we go to Page 154 of Day 5. Of Day 5, yes. Losing track of days.

REALTIME STENOGRAPHER: Page 154 you said?

BY MR. MOLOO:

Q. Yes, it's Page 154. I'll just read it into the record. The question was: "Have you ever done a DCF for an undeveloped project, Mr. Maugeri? Undeveloped, not in development."

And Mr. Maugeri's answer was: "Yes."

So do you disagree with that as an approach to valuing undeveloped real estate projects?

A. Not as a matter of principle. I don't know what he was talking about. I did have a conversation

[Page 1672]

that he had done some work in California but apologies, if that's not on the record.

As a matter of principle, would I disagree with the use of a DCF for undeveloped projects? Not necessarily because I think there are some circumstances where one could get quite comfortable with, you know, how that project would evolve, based on, for example, a history of that developer developing a number of very similar projects in similar locations.

And I think as a valuer, you could get quite comfortable, taking California as an example, that if, if a developer bought a plot of land in one part of California and had developed that plot of land in very close locations and had a very high success rate of doing that over a number of years, I think one could get quite comfortable that the DCF assumptions in that circumstance, you know, might be quite--quite reliable because you could get, you know, for example, good data on Failure Rates. That developer had done a lot of similar projects.

So, I think you have to take each case on

[Page 1673]

its own. As I said, I don't know what he was talking about, but my view is, in the context of this case, it's too much--way too much speculation about the valuation drivers for these projects, so it's in the context of this case that I reached my view.

Q. So, you would be okay with completely undeveloped Project using DCF but not in the context where you have construction underway, Construction Contracts, pre-sales of 150 units, in the Luxé context, 70 percent constructed hotel. You wouldn't be comfortable with using a DCF in that context. But undeveloped potentially yes?

A. As I say, each case has to be on its own merits. You've described a few of the features of these projects that have happened, but I think what you haven't described is that the vast majority of the valuation that is supposedly coming from these projects, 80 percent is coming from the hotel component of these projects. And the hotel has not started in any of these developments, so we don't have a track record of hotel operations in any of these developments. We don't have comparator data for

[Page 1674]

similar hotels that we can benchmark against for any of these developments. These are much bigger scale hotels than The Charlee Hotel that has been put on record as a supposed comparator.

So, in the context of this case, with the limited amount of data that we have, with the very early stage nature of all of these projects, yes, I don't think you can get comfortable with a DCF Approach. Now, that may be very different for other cases where you have better data, more reliable data on the--you know, whether that developer has successfully developed similar projects in very similar locations. A DCF could be more appropriate in those cases. I just don't think so here.

Q. Okay.

MR. DAOUD: Mr. Chairman, I'm sorry, we need to clarify something for the record. Mr. Moloo suggested that Dr. Hern has information, has access to information that is not on the record. That information is at C-434, Claimants' exhibit.

MR. MOLOO: Well that's the study. I didn't realize that was the study he was referring to.

[Page 1675]

Yeah, I believe that study relates to a project in Mexico, not in California, actually. So, I actually don't know what you're--

MR. DAOUD: Baja California in Mexico. It relates to a study in Baja California in Mexico.

MR. MOLOO: Right, it's a state in Mexico; right? Not California. Just to confirm.

MR. DAOUD: Correct.

MR. MOLOO: So, it's in Mexico, not in California. I have no idea what California study was being referred to there.

THE WITNESS: I think he said Baja California, I think, to me. I understood that as a British person as being California, so apologies.

BY MR. MOLOO:

Q. I completely understand that a British person may not be familiar with Latin American real estate or terms or other things like that. Totally understand.

Let's look at, so I think, in your view, it's your position that--actually let's go to the Mexico study since we're talking about it. Let's go

[Page 1676]

to C-434. 434.

And I can see the source of confusion here, so this is the valuation of property in Mexico, and you can see that on Page 3--it's by CBRE--and Mr. Maugeri is one of the valuation experts who valued this property. And since you've had a conversation about this with Mr. Maugeri, I assume you know this is an undeveloped piece of land?

A. I have to say I had a 10-second conversation. I haven't read this Report. I know very little about what's in this Report. This was a conversation I very briefly had yesterday, but I'm sure you will tell me what it's about.

Q. Well, let's go to Page 49. And it talks about appraisal methodology. And if you look at the last one, this is the appraisal methodology that's ultimately adopted in here, it talks about the Subdivision Development Method. Are you familiar with that method?

A. I mean, I think that's a real estate terminology, but I presume it means they've divided the land into subdivisions.

[Page 1677]

Q. So, are you familiar with this approach--

A. Generally speaking but I would have to look at how he's defined it precisely.

Q. Are you familiar with this approach to valuation?

A. As I say, generally speaking, but I would have to--I don't think it's a common term. I would have to look at exactly what he's done here.

Q. Let's look at it. It says: "The Subdivision Development Method is used to value land when subdivision and development represent the highest and best use of the appraiser's parcel. In this method, an Appraiser determines the number and size of lots that can be created from the appraised land physically, legally, and economically. The value of the underlying land is then estimated through a discounted-cash-flow analysis with revenues based on the achievable sale price on the finished product and expenses based on all costs required to complete and sell the finished product."

Have you ever done this Subdivision Development Method before?

[Page 1678]

A. Yes. I have looked at this actually in other cases.

You understand what's happening here; right? The value--

Q. I understand what's happening. I'm just asking you if you've used this approach to value other assets before.

A. Yes.

Q. Okay. You have.

All right. Let's go to your Second Report.

And before we go to any particular paragraphs, my understanding--tell me if I'm correct on this--is that you believe that, in a perfectly competitive market, the Cost and the Income Approach to calculating damages converge; is that right?

A. Generally, that's right, yes.

Q. And so, in a perfectly competitive market, the NPV of any particular investment is zero.

A. Tends towards zero, correct.

Q. "Tends toward zero." So, any investment in a competitive market is zero.

A. In a perfectly competitive market, that's

[Page 1679]

right.

Q. And you've said that in this particular situation, you were reassured in your valuation because you felt that the Colombian market, hospitality market, was a competitive market where the NPV should tend towards zero; is that right?

A. Yes, as an industry, I think real estate and hospitality is generally regarded as a competitive industry. It's easy to enter. There is no particular IP associated with the activities of those industries. It's easy to buy land, it's easy to develop land. It's easily available, so we would expect, as economists, the Net Present Value of those types of projects to tend towards zero.

Q. So, any hotel in the world, NPV should be--should tend towards zero?

A. No, I didn't say that. I said as an industry you would expect to see that. Of course, there are examples in situations where you would--you know, you would also expect to see out-performance. Some hotels do better than the average, and in those situations you would expect to see those hotels have

[Page 1680]

positive NPVs. Some hotels do worse and get negative NPVs. But on average, because it's a competitive industry, on average we would expect to see NPVs, you know, around zero.

Q. All right. And I think at Page 38 of your Second Report, you say at Paragraph 74, because of that, there is therefore no reason to assume that the Claimants' project would be able to generate excess returns because you would expect the NPV to tend towards zero because you think that the hospitality industry is perfectly competitive, in Colombia is a perfectly competitive market; is that right?

A. As an industry, yes, but I also do say that I've seen no evidence why these particular projects should be expected to generate excess returns. Right? So, I haven't seen any evidence about why these particular projects should be different from what one would expect to see for that type of industry as a whole.

So, that leads me to the conclusion I have seen no evidence to suggest they should be higher than zero.

[Page 1681]

Q. And have you done any research into the competitiveness of the hospitality industry in Colombia?

A. Oh, yes. Through this project. We've looked at these appendices and tables that show the number of hotel operators, or real estate developers, operators in Colombia. That's all--that's the type of evidence that one needs to look at to see, you know, are there other operators in the market as a whole, developing real estate, developing hotels, are there other five star hotels in Colombia.

From what we've seen, from what I've seen, there is a lot of different operators in that market. By definition, that makes that market reasonably competitive.

Q. Mr. Hern--Dr. Hern, you are an economist. You understand when we're talking about competition, we're talking about a competition analysis is not I look at the market and see if there is more than one player; right? When you're talking about a perfectly competitive market, that is a term of art. That is an economic assessment. Have you made that assessment,

[Page 1682]

whether or not it's a perfectly competitive market?

A. No, I haven't made the assessment. Did you ask me whether it's perfectly competitive?

Q. Well that's when it tends toward zero; right? That's what you said.

A. No. When it's perfectly competitive, that's a hypothetical. Nothing is perfectly competitive; right?

Q. Right. Right. That's right.

A. Perfectly competitive means everyone produces the same product, and the price of the product is absolutely the marginal cost of production.

I think you asked me is the industry competitive to which my answer is yes, I think there is a lot of evidence to show the industry in Colombia is competitive because there's a lot of operators of both hotel and real estate operations.

Q. Are you aware that Mr. Seda went to Colombia because the market was far from saturated? That's in his First Witness Statement.

A. I've read his Witness Statement, yes.

Q. And it's the position of the Respondent

[Page 1683]

that, in fact, he was entering into markets where nobody else was there, and you would have no idea if it was successful, so you think those are competitive markets? Or perfect--or close to perfectly competitive markets where NPVs would tend towards zero?

A. As I say, I think in my Reports--I can take you to the tables if you would like--but there is a lot of operators of hotels, there's a lot of five star supposedly luxury hotels in Colombia. There's a lot of operators on real estate in Colombia.

But generally speaking, it's regarded to be a competitive market because the barriers to entry to do real estate, to construct infrastructure are generally regarded to be relatively low.

Q. Are you aware that you agree that The Charlee outperforms the market; correct? The Charlee Hotel?

A. Not--not necessarily. It depends on how you define "out-performance." But certainly in terms of profitability, it looks to me to be broadly in line with the profitability of luxury market, and I think

[Page 1684]

there is a slide that I present that shows that, actually. So, on Slide 17 of my presentation, I show out-performance should be measured in terms of profitability, in my view. And if we look at profitability of The Charlee Hotel--and this is over 2014 to 2016--the profitability is, you know, very similar to the Colombian luxury market which is the other five star hotels in Colombia and very similar to other emerging markets.

So, I think any statement about out-performance is, certainly in terms of profitability, it doesn't appear to be particularly strong.

Q. And you, I think, on Page 17, you accept that from a room perspective, it does out-perform the market; correct? I mean-Let's put a-let's put a-

A. No, no, that's not correct. That's not correct. If you were to look at the room, the profitability of rooms excluding F&B, you would have to compare that to the profitability of the other hotel operators excluding F&B. All this shows you here is that the Colombian luxury market as a whole

[Page 1685]

has profitability around 20 percent. The F&B would typically be lower, and the rooms would typically be higher, so that's-that's an important distinction.

Q. Would you, so is your position that The Charlee Hotel, the NPV is worth roughly zero?

A. I haven't done an NPV analysis of The Charlee Hotel, but it looks to be in line with the market as a whole.

Q. So, all of these hotels are worth roughly zero, their Net Present Value?

A. Well-

Q. Is that your position?

A. The Net Present Value of the overall investment is roughly zero. That doesn't mean that if you sell the hotel today that you would get zero, that's not what I'm saying. It's the overall investment is zero.

Q. So, the overall NPV-if The Charlee Hotel was expropriated, you would be sitting here saying the Net Present Value is zero?

A. No, of course not, because The Charlee Hotel has already been developed-right?-the costs have

[Page 1686]

already been spent.

Q. Right but it's in a competitive market.

A. Of course. So, the cash flows from The Charlee Hotel in a competitive market would expect--you would expect those cash flows to tend towards what has been spent on the hotel, so the valuation of the hotel because you have already done the expenditure.

Q. I understand that.

A. The valuation of the hotel would then be the expected cash flows generated by the hotel.

Q. So, the overall value based on the expenses, et cetera, so why would anybody invest in a hotel if the NPV--if you're not making--if the NPV is zero?

A. Well, I didn't say it was zero. I said, as an industry, you would expect the returns to tend towards competitive returns. Why would anyone invest? Possibly because they think they have got something better than the industry--right?--they think they've got a better product than the industry.

But you know, also, by definition, you don't need excess returns to do the Investment. You just

[Page 1687]

need a normal return. Right?

Q. So...

A. So, as an investor, I need my Cost of Capital. Then I will make the Investment. That still gives me a Net Present Value of zero because it's the Cost of Capital that I need. You're talking about should these hotels--

Q. I understand-I understand--

(Overlapping speakers.)

A. get excess returns-I think, you know, you don't necessarily need that as an investor.

Q. Let's look at what you do rely on. You rely on--you say that the historical cost approach is frequently used in setting fair rates of return in the context of economic regulation of natural monopolies. That's one example that you use. We look at Hern 2, Paragraph 81.

A. Yeah, absolutely, that's correct.

Q. And you say that historical costs in Paragraph 82 are often used as the best available proxy for replacement costs in a range of economic contexts. Again, you rely on the example of the

[Page 1688]

economic regulation of natural monopolies; correct?

A. Yes, correct.

Q. And the particular study you rely on in supporting the costs approach is the example of the European electricity market, I think; correct?

A. Yes.

Q. And that Report is--this Report that you cite at Footnote 66, RH-032, "Report on Regulatory Frameworks for European Energy Networks."

We're not dealing with regulated natural monopolies here, are we? The hospitality industry.

A. No, you're not. Correct.

Q. This Report doesn't talk about the real estate industry at all; does it? It talks about the electricity sector that's heavily regulated in Europe; correct?

A. That's correct, yes.

Q. And by definition, a regulated market is not a free market; correct?

A. But define, if you don't mind, what you mean by a "free market."

Q. Well, you have one electricity provider to

[Page 1689]

everybody, so it's a natural monopoly, and so it needs to be regulated and that's why you get the rates you do; right? It's not the same thing as a free market where rates are set by supply and demand?

A. No, no. That's-that's right. Obviously in a regulated market you have conditions that are not competitive, they're monopoly conditions typically, but the point of the example is still, you know, a very poignant one, because what do regulators do in those circumstances where you have a monopoly? What they do is they set returns that are equal to the Cost of Capital.

Q. That's what regulators do? Right.

A. They give, therefore, the Investors a Net Present Value of zero for those investments, and that's the context that I'm referring to--because--

Q. Understood.

A. Those companies still make those investments, the electricity companies, they still make those investments, they're getting their returns on the Cost of Capital. And I'm using that as an example here to say what they're trying to do in

[Page 1690]

regulation is to set conditions akin to competitive markets. I think we're dealing with a competitive market here, and the returns should therefore also tend towards the Cost of Capital here.

Q. So, that analogy works if we're dealing--the assumption is that this reflects a perfectly competitive market in Colombia, the hospitality industry; correct?

A. If it reflects a broadly competitive market, yes.

Q. Okay. Mr. President, I think this is an appropriate time for a break.

PRESIDENT SACHS: I was just going to suggest this, fine.

Let's say 10 minutes, 10:45? Is that ok?

MR. MOLOO: That works.

(Brief recess.)

PRESIDENT SACHS: So, we can resume.

Mr. Moloo, please proceed.

MR. MOLOO: Thank you, Mr. President.

BY MR. MOLOO:

Q. Dr. Hern, turning to some of the--little bit

[Page 1691]

of the echo maybe because that door is open.

Dr. Hern, turning to some of the inputs into the DCF, you agree that the construction costs are, in the BRG model are reasonable; correct?

A. Apologies. Generally speaking? That's the question?

Q. Yes.

A. Because there are obviously many, many thousands of construction cost assumptions.

I mean, based on the evidence that I've seen from CBRE. I have no reason to think that they are excessively different from what one would expect. But there's still, I think, a lot of subjectivity into what those numbers really are, but I see no real evidence to dispute them, that's right.

Q. Now, in talking about the Meritage in particular, you say that the occupancy rates are higher than the market, and that to you is surprising; correct?

A. Sorry, could you take me to my report where I say this?

Q. If we go to Hern 2, Page 71. Hern 2,

[Page 1692]

Page 71.

A. Yes, correct, Figure 5.3, you can see the projections in the BRG model on Meritage occupancy of 85 percent, and that looked surprising to me given the evidence for Charlee Hotel which in Medellín and the Colombian luxury market as a whole, both of them showing lower occupancy rates.

Q. You agree that The Charlee Hotel outperformed the market with respect to occupancy; correct?

A. Over this period, that's what the evidence shows, yes.

Q. And did you take into account that the Meritage had a number of apartasuites, which are long-term rentals which is less susceptible to fluctuation and occupancy? Did you take that into account in your assessment?

A. Well-ye, yes, I mean in a sense, yes, but I have seen no evidence Corrected by the Respondent, Claimants to agree. the occupancy rate for apart hotels should be 85 percent so it's still surprising to me that that occupancy rate forecast is the-is the,

[Page 1693]

you know, is the most reasonable forecast.

Q. In your Second Report, you conducted a corrected DCF valuation, I believe, and you offered an alternative WACC calculation. And in coming up with your WACC calculation--and it's at RH-035, which is a spreadsheet, so I will put it up on the screen for you. If we go to Cell H-29.

You specified that, for the low scenario, the asset's beta source is average of unlevered and total unlevered beta estimates by Professor Damodaran for emerging markets, hotel gaming and real estate development industry; correct?

A. Yes.

Q. And if we go to H-25 for the debt:equity ratio, your source is again an estimate from Professor Damodaran's "Emerging Markets, Hotel/Gaming and Real Estate (Development) Industry"; correct?

A. Correct.

Q. So, the dataset for both of these metrics includes gaming sector investments; correct?

A. That's how the data is cut, yes.

Q. And you criticize JLL's hotel comparator set

[Page 1694]

for originally including hotels with gaming segments; correct?

A. I did, yes.

Q. But you've not extracted the gaming businesses from your own analysis of WACC; correct?

A. The criticisms are different. I mean, here it's--the WACC calculation is attempting to get a measure of a risk, generally speaking.

Q. And so you say--

A. And that's the way the data is cut in that dataset. This is the best data I've got for calculating a WACC, in my view. The data is not cut in any more detail.

But I think when you're looking at comparator data for benchmarking of occupancy rates and margins, there is data that exists that allows you to cut the data in a better way because you can just simply look at comparators that are only focused on hotels or real estate, not gaming comparators. So it was really just a drawback of the way this particular data was cut on Cost of Capital. That was--that was the issue here.

[Page 1695]

Q. Right.

So, in assessing risk, you've included risk in the gaming industry in your WACC calculations; correct?

A. Implicitly, yes.

Q. You also calculate the average EBITDA margins for real estate developers at around 16 percent, and this is how you select Colombia's real estate comparators. You--you've--I think seeing--if we go to Hern 2, Paragraph 285, which is at Page 126, I think, I can show you what I'm talking about.

So, in establishing comparators for the purposes of real estate developer EBITDA margins, you first downloaded the "Superintendencia's annual 1,000 largest companies by revenue" report, and then you selected companies classified as operating in real estate or activities with owned or leased properties or construction of residential buildings. Then you calculated each of the building's total revenue for the period of 2015 to 2019, and so on and so forth; correct?

A. Correct. Yes.

[Page 1696]

Q. And I suspect you've seen JLL's presentation of this issue that these developers' portfolios consisted of anywhere from 35 to 90 percent social housing; correct? Have you seen that presentation?

A. Yes, I did. I did see that, yes.

Q. And social housing margins are much smaller than those for luxury hotels; correct? Or luxury housing--

A. No, not--I didn't see any evidence in that report to show that, which I'm happy if you want to take me to that.

2. So you think the social housing market is comparable to the projects that we're valuing here?

A. Well, I didn't say that, exactly, but I think you said that social housing would have lower margins than luxury hotels, and I haven't seen--I haven't seen any evidence in the JLL report to show that, with respect to that.

(Overlapping speakers.)

2. Well, this is--but you're relying on it, so have you presented any evidence to suggest that this is a valid comparator?

[Page 1697]

A. Well--

Q. You think--my question is--

A. Yeah.

2. --EBITDA margins, you think you can rely on EBITDA margins of social housing projects and compare that to the types of projects we're looking at here.

A. Actually, if you look at the JLL data--and I'm happy to go to that if you've got the exhibit--but the JLL data has cut these companies into the proportions that they--supposedly undertaken to private-sector investments and the proportions into social investments, and actually there is no real trend.

I mean, if your--if the assumption is right that private-sector investments have a higher return, then we would expect to see these operators that do more of their activities into the private-sector market having higher returns. And I'm happy to take you to their report--

(Overlapping speakers.)

2. Well, let's go to--

A. But we don't see that, I think.

[Page 1698]

2. Well, I'll show you the slide that I'm talking about, Slide 40 of the JLL presentation from yesterday.

(Pause.)

MR. MOLOO: No, their presentation from yesterday, if you have it.

That's fine. If we can't put it up, that's fine.

BY MR. MOLOO:

2. I think you also used a sample of real estate developers from emerging markets sourced from Professor Damodaran's database; is that correct?

A. Yes, I do.

2. And were you aware that, in the underlying dataset, only 9 out of the 776 companies are from Latin America?

A. Yes, I was aware of that, yes.

Q. And did you know that the sample includes businesses with diversified portfolios, not just in real estate?

A. Yes.

2. So, if we go to BRG-150, for example, which

[Page 1699]

is an Excel spreadsheet, so it will come up on the screen in a minute. And if we go to Row 426, this is an example of ACME Holdings.

And if we go to the description on the right-hand side.

So, if you can read it there, it says: "An investment Holding Company engages in the housing and property development business in Malaysia, Brunei, Singapore and internationally. It operates through manufacturing property development, and other segments. The company also manufactures and sells various plastic wear products."

Scroll over a little bit more.

"The Company was formally known as Supportive International Holdings," and I think you can see it's plastic wear products and it's cut off, but I think it's kitchenware and toys.

And if you go up a couple--if you just go up one actually to the Brown company, it's a real estate business in the Philippines, engages in agriculture, power and utilities, holding segments.

If you look at 429 on this page, it's

[Page 1700]

business, real estate and construction in India. It also operates cold-storage facilities that provide storing, trading, dealing in the distribution of vegetables, fruits, et cetera. So, this is your comparator database for EBITDA--correct?--assessment.

A. Well, I mean, look, this is a database that's put forward by Damodaran, who I thought--

(Overlapping speakers.)

2. But you've chosen to use it for this purpose.

My question is--I'm not asking if Damodaran is an expert--we share an alma mater--but my question is your use of this particular database to tell us that it's relevant to assess EBITDA margins in the real estate industry.

A. Yes, and--

2. Which is what you've used; right?

(Overlapping speakers.)

A. Yes, Damodaran is an expert in putting data together. First of all, he's widely sourced for this type of comparator dataset. This is a dataset that he's published as real estate developers. Of course,

[Page 1701]

you know--

(Overlapping speakers.)

2. Of companies that do real estate business--

A. Yes.

Q. --as part of many other things.

A. Of course, of course. We don't have--we're not living in a perfect world where we have thousands of companies that only do real estate in Colombia, exactly what this developer is doing. We have to look at what data exists to help us. And the reality is, of course, some of these--some of these companies that he's included in his dataset, of course, do some percentage of activities in other things. That's the real world; right?

But he's--but when they put--when he puts this dataset together, there are normally clear criteria around which a particular company would be judged to be a real estate developer such as you have more than 50 percent of profits from real estate. And what it means is that you've got a database of, you know, companies that-

(Overlapping speakers.)

[Page 1702]

Q. (Unclear.)

A. --and a majority do real estate development. Of course the data is a bit mixed because they do some other things. Some might be more risky, some might be less risky, but you've got a dataset that you can benchmark.

And I'm sorry, but BRG didn't do this; I did this, and, to me, it's a benchmark that has to be relevant for a projected EBITDA margin, even if it's not perfect, and no one is saying it's perfect, but it has to still be relevant.

2. And BRG--you're right--did not look at EBITDA multiples. They look at the actual costs, et cetera, and sales and the actual data that's in the Business Plans as opposed to looking at EBITDA multiples as you have; correct?

A. That's right. They take a business plan and they assume that that's reasonable. I take their business plan and I crosscheck the business plan margins against margins for other real estate developers in Colombia. Again that data is not perfect. Some of them do social housing, too, but it

[Page 1703]

has to be a relevant crosscheck even if the data is not relevant--not perfect. I crosscheck it against emerging markets, classified it as real estate developers. Again, there has to be a relevant crosscheck.

2. And BRG compares their valuation to JLL's data of the Colombian real estate market specifically, instead of taking this approach. That's what BRG does; correct?

A. I can't recall, actually. You have to take me to that.

2. Well, that's fine if you can't recall.

A. But I--just to be clear. I take the Colombian real estate markets in Table E-1 so that--I take the Colombian real estate markets. I don't recall that JLL did that.

2. You say that Luxé hotel is only 45 percent constructed in your First Report. Do you correct that or do you stand by that?

A. Can you take me to the paragraph?

2. In your First Report, Paragraph 18(B).

A. Yeah, I think there's evidence subsequently

[Page 1704]

on the record that suggests it's higher than that, but I can't recall the precise number. I think maybe--I'm sure you'll tell me.

2. It's about 72 percent.

A. Yeah.

Q. Do you accept that?

A. Yes.

Q. Now, you say that the Luxé hotel ADRs, the average daily rates, were higher than the Colombian luxury market. We saw that graph earlier. And you criticized the Luxé ADRs on this basis; is that correct?

A. Sorry, can you just take me to the--to where we--where I say that? Lots of--

(Overlapping speakers.)

2. Sure, page 70 of Hern 2.

A. Page 70.

Yes. You can see in Figure 5.2 that the projections for the ADR for the Luxé are 709, which is quite a bit higher than the ADRs for the Colombian luxury market as a whole.

2. And you don't take into account the room

[Page 1705]

rates for the cabañas; right? You were instructed not to consider the revenues from the cabañas; correct?

A. Sorry, in the calculation of the ADRs?

2. Yes.

A. I think that's right because the cabañas are already built, correct.

2. But the cabañas, you accept, would achieve a higher ADR than a regular hotel room; correct?

A. No, I don't--I don't know that, that that's the case, no.

2. In fact, they would achieve an ADR of about 2.6 times the ADR of a regular room. Would you think that's about reasonable?

A. Can you show me where that number comes from?

2. It's comes from BRG 2 at Paragraph 134.

Based on the operations model, the Luxé includes a conversion factor of 2.6 to account for the difference in size and value of the cabañas.

A. Well, as I think we established, I don't take that into account; but, from what you just said, that's what in the Business Plan model, so I have no

[Page 1706]

reason to think that that's the right assumption anyway, but I haven't done analysis to tell me what that assumption should be.

2. Well, let's go to C-265.

So, these are some pictures of the cabañas.

Go down. These are actually constructed.

So, would you consider that's a picture of one? Would you consider that to be--to get a higher room rate than a normal hotel in Colombia?

A. I mean--I mean, I--you know, I'm not in a position to make that judgment. It will depend on what room rate you were--what type of room you were comparing to, how close the cabañas were to other amenities at the hotel. You know, honestly, I can't make a judgment on whether that's higher or lower than something hypothetical.

2. Okay. Now, you say that the hotel comparators used by BRG are not comparable when they're doing the comparable market analysis; correct?

A. Yes. I think that's right. Can you take me to the paragraph where--where I say that?

2. Sure.

[Page 1707]

Hern 2-I thought this, you would recall this, but Page 44 to 46 of Hern 2.

A. You have to appreciate sir, there's many developments here over many stages of developments and many (unclear), I've tried to--

2. It's a--it's a--I don't deny that this is a complex business.

(Overlapping speakers.)

Q. I know you mentioned it, and you are right that this is a complex real estate development business. But the job here is still to value that business. And you say that the hotel comparators used by BRG are not comparable; correct?

A. Which paragraph? Are you referring to Paragraph 90 here?

2. I think you covered over the course--I mean it's the heading: "BRG's hotel comparators are not comparable to the Claimants' hotels in any case." That's the sentence.

A. Yeah, but the details of your question are important because what--here we're talking about what BRG do in undertaking what they call a market cross-

[Page 1708]

check.

Q. Just confirm your heading. I'm asking you if this is--do you confirm that BRG--this is your view.

A. Yes, of course I confirmed that that heading is accurate but I--

(Overlapping speakers.)

2. If we can, just wait for the question, and then you will have an opportunity, I promise you. And if you are not, you can tell me that there's further clarification or, of course, counsel for Respondent can seek clarification.

And you understand that BRG relied on JLL for hotel data; correct?

A. Correct.

2. And JLL in turn, relied on a particular industry database; correct?

A. That's my understanding, yes.

2. And you accept, of course, that JLL is a expert in the hospitality industry; correct?

A. As a company, yes.

2. So, you looked at room rates for what you

[Page 1709]

thought are comparator hotels--sorry, the comparator hotels identified by JLL, and I think that's on Page 90 of Hern-1. Table 6.2; right?

A. Yes.

2. And this is what you--these are the--you look at these hotels that are in the JLL comparator database, and to assess whether or not they're actually comparators, you looked at nightly rates for one weekday and one weekend night in the year; correct?

A. I picked one-one--it was--obviously, I had to pick one date, and I picked one weekday and one weekend, yes.

Q. Well, it's not obvious that you had to pick one date, but we can differ on that.

And so, you went--you did this on October 28th, 2020, and you went to Booking.com; is that right?

A. Yes.

Q. I also use that website.

And you forecast out, you put in the date June 16th. Why did you pick June 16th, just out of

[Page 1710]

curiosity? Did you try other dates or you just, you know, you thought June 16 is a nice date, let's pick that date?

A. Pretty much. I picked a date sig--you know, well in advance of the day that I was doing the work so that the future date wasn't distorted by, you know, capacity, last minute deals, capacity constraints at the time that I was looking at. So, it wouldn't have been appropriate, for example, to look next week, so I picked a date, you know, in advance that I thought was, you know, normalized for any of those in a particular--particular booking issues.

2. Right. So, you didn't look at dates over the year, averages, you just--okay. So, you picked June 16, one weekday of the year, and then you looked up the hotel rates on Booking.com for those hotels, and you compared those, and that's what you've presented in the table; correct?

A. Correct.

2. And you say that that's representative of the rates of those hotels for all weeknights of the years? That's your position?

[Page 1711]

A. Not necessarily, but it was certainly the, you know, representative of the rates that were available in the period that I looked at. It would have been a--you know, an extremely data intensive exercise. You know, I'm sure, as you've used Booking.com. You have to put in the date that you're trying to book for and get a quote for that date--

(Overlapping speakers.)

2. Yes, if you're using Booking.com, it would be.

A. Exactly. I didn't, you know, I didn't have the time to put in every single date and then average all the data, so the--but it seemed to be representative of the differences in prices charged across--a reasonable representation of the differences in prices charged by the different hotels.

2. And you didn't have access to the database that JLL--you know, JLL's proprietary database; right?

A. Correct.

2. So, we'll look at what Booking.com says.

You compared the nightly rates, and you get this table. Did you consider the school year

[Page 1712]

calendar, for example, in Mexico as compared to Colombia? They have different school year calendars.

A. Not--not--not specifically, but there's a, you know, there's a weekend night and there's a weekday night. They don't look very different between the two, so it wasn't that obvious that they were differentiating based on the particular time at that point.

2. On that day, right. You're aware that the public school calendar year in Colombia, for example, is January to November, as opposed to Mexico it's mid-August to July, so, you know--

A. Right. I mean, of course you can have--

(Overlapping speakers.)

2. Vacation dates might be different and things like that; right?

A. Of course. This could change of course a little bit as a result of seasonal factors, yes.

2. Right.

And then, on the next page, Page 91, you went to Booking.com as well. And I assume you just fill--you know, I think Booking.com has that five-star

[Page 1713]

filter. Is that the filter you used to identify these hotels?

A. I think that's right. I can't recall exactly how I--how we put it, but I think that's right.

2. Okay. So, you used the five-star--let's assume you used the five-star filter on Booking.com, and these are the hotels that showed up as five-star hotels in Medellín; is that right?

A. Yes.

2. Have you been to any of these hotels? Have you been to the Sites Hotel, for example, at the bottom. The one that is $69 a night?

A. No.

Q. Have you been to The Charlee Hotel?

A. No.

Q. Have you been to Colombia?

A. No.

2. And then, you say this is a better comparator set rather than the comparator set that JLL used. Is that your--based on your review of the Booking.com rates for June 16, 2021, and June 19,

[Page 1714]

2021?

A. That is my view, yes. I think that the JLL dataset you can see here, consists of very strong branded hotels: The Four Seasons, the Ritz-Carlton, the Hilton, the Sheraton, the Fairmont. Everybody knows that those are super strong hotel brands. The rates that are being charged are, you know, astronomically high in some cases. It's my view that this is not a good dataset to benchmark hotels that are not even constructed, but it's also my view that when I crosschecked that dataset against the dataset in Colombia, you can see that The Charlee Hotel, the number--the room rates at The Charlee Hotel, you know, are pretty much in the middle of the range of room rates for other Colombian hotels. Very different from the JLL dataset.

So, it is my view that the data--that the Colombian market is the better market.

2. Because you would say they're in different class? Is that what you're saying? These hotels--

A. Well, implicitly, but they're in a different country; right? They're in a--they're in a--they have

[Page 1715]

a different brand. So, you know, Costa Rica, Barbados, you know, these are international tourism markets.

2. And you're a hospitality expert.

A. Well, I've been to some--not--no, but I've been to some. And I think you would agree that these are some of the, you know, the strongest hotel names in the market, located in some of the most desirable countries in the world for holidays, like Barbados. But that just doesn't seem to be the right dataset to be benchmarking against Colombian hotels when you've got Colombian hotel data that tells you what that market is pricing at.

2. But in your view, comparing data from social housing construction projects is fine; right? You can compare it against social housing projects though; right?

A. No. I'm sorry, but you're misrepresenting that. The social housing developers--you're talking about real estate now. That's not--nothing to do with hotels.

2. No, I'm just trying to assess how you

[Page 1716]

determine comparators.

A. Again, I focus on Colombia because that's the market that we're foc--that we're dealing with, and I think anybody that does this type of exercise in valuation that I've seen, starts the comparator set by looking at other operators in that geographical market in Colombia, and that's what I do, both for hotels and real estate.

Yeah, it's not perfect. Some of these hotels and real estate operators do other things, maybe it's not a perfect comparison, but in my view, it must be a better starting point than going to an international dataset of branded hotels that are very different from what we're looking at here.

2. And what we're looking at here is something that you've never actually looked at because you've never been to Colombia?

A. Well, with respect, sir. What we're looking at here is hotels that are not yet constructed. So, even if I had been to Colombia--I've spent quite a bit of time in South America in Ecuador and other places, so I know that-I know the--the geography pretty well,

[Page 1717]

but these hotels that we're talking about here are not even constructed.

So, if I had been to Colombia, I wouldn't be in a better place to say, you know, whether--I wouldn't be in a very good place to appraise them anyway because they're not constructed.

2. Yeah, that's not what we're talking about. We're talking about comparators but let's move on.

Mr. Hern, you've also looked at implied value of stock sales and you've looked at two particular transactions at Paragraph 108 of Hern 2; correct?

A. Yes.

2. And these were the only two transactions that you were given data for; is that correct?

A. Well, that's been supplemented by the slide that I presented today.

2. Right. And you--|

(Overlapping speakers.)

A. The presentation where I've found more data on transactions, but yes, this--at the time of writing this Second Report--

[Page 1718]

Q. That's what you had been given.

A. I looked at data from the Royal Realty accounts that gave me prices for transactions, yes.

2. And you supplemented this Report today, it's for the first time we're seeing that information, too, because you were not given data about other transactions before yesterday; correct?

A. Yes. We asked--I asked for data on all transactions into these project companies over the period since they've existed, and I wasn't given that data. I had to find it for myself in the Royal Realty accounts, but that still didn't give me the precise Transaction Data, actually.

Q. So, let's go to the two that you were given. Let's go to RHO-033.

So, this is one of the implied value of stock sales that you have used, and it's an unsigned letter to Roger Khafif, dealing with a capital call; correct?

Are you aware of whether or not this capital call even actually happened?

A. This is--so, this is the Meritage Purchase

[Page 1719]

Option; that's right?

Q. Yes.

A. Yep.

So, that's right. So, I'm not aware of whether this happened or not. I'm aware the Mr. Seda, subsequent to my Second Report, has put another Witness Statement on record, his third Witness Statement, I think that says this didn't happen. I haven't been able to establish whether it did or didn't. The evidence that he referred to didn't clearly tell me that it didn't happen.

2. All right. And the next agreement that you reference is--you looked at the Financial Statements, and you say that they referred to two transactions of Luxé Shares in 2015. And you've also seen Mr. Seda's explanation of this, that this was not an arm's-length transaction, it was him restructuring his shareholding; correct?

A. I've seen his Witness Statement that says that, but it's actually not obvious, it's not clear to me that he has provided data that clearly shows that.

2. Right. I'm not asking whether you believe

[Page 1720]

him or not. I'm just asking, you know, that you understand now that Mr. Test--Mr. Seda's testimony is that that was not an arm's-length transaction; correct?

A. I understand that's what he says.

Q. And aside from those two, you were not provided any other information about other transactions until yesterday, and based on that analysis, I think if we look at Page 14 of your slide deck, you say--if you look at that, so you've gone from 26 times higher than applied valuation to November 27, 2015, of a four-times increase in valuation. And you haven't looked at whether or not there are other transactions that are more recent than November 2015? You haven't been provided about information on that; right?

A. Correct. I haven't been provided with any further information on transactions.

2. All right. Let's talk about lost fees.

Royal Realty had a right to fees for managing the Projects; correct?

A. That's my understanding, yes.

[Page 1721]

Q. And you say that the calculations of lost fees should also account for costs that Royal Realty would have incurred; is that right?

A. Yes.

2. Now, let's go to BRG-048. And if we go to Page 3--6--right?--if we go to the next page, Page 6--oh, no--that's the one, yeah.

At bottom, you see the managing member intends to contact Royal Realty S.A.S. for one or more of its affiliate companies in order to execute the Project and make the decision to do so without the approval of the Shareholders. And then, it talks about on the next page, a number of different things for which it might engage others--sales, project development, management, general construction, wellness center, rentals, et cetera.

Do you see that?

A. Yes.

2. And then, if you go to 3.08, which is on Page 10, it says: "Each member acknowledges it has been advised in the Deal Memo provided to Shareholders that the Company Agreement for Project Owner provides

[Page 1722]

for the payment of various fees and reimbursement of expenses to the Managing Member and its affiliates for services provided."

Do you see that?

A. Yes.

Q. And then, midway through, it says: "In addition, Royal Realty has contracted their real estate sales and brokerage services for the project sales at 4 percent, sold directly by those individuals, plus the individual sales, agent salaries who will primarily reside on-site or affiliate sale sites designated for the sale of the Project, and the 4 percent sales commission includes all commissions including for external brokers."

Do you see that?

A. Yes.

2. And then, the last sentence says. Oh, sorry, the next sentence I should say: "Each of the Shareholders consents to the payment of such fees and reimbursement of expenses and acknowledges that the Shareholders shall not be entitled to any portion of such fees and reimbursed expenses." And then, the

[Page 1723]

last sentence says: "The Shareholders also acknowledge the possibility of additional fees paid to Royal Realty or its affiliate companies in accordance with Section 3.03."

So, you can see that all of the fees and costs were going to be reimbursed.

Do you see that?

A. All of the fees and costs associated with what, though? Right? It doesn't clearly say that all of the fees--sorry, all of the costs associated with Royal Reality would be reimbursed. It's a fairly general description of reimbursed expenses. That doesn't--to me, that doesn't mean all costs associated with Royal Realty.

2. And you can see it's a pretty exhaustive list of 3.03, sales, project management, project development and management, general construction, the wellness center, rentals.

And then if you look at (f), it says: "Any other goods or services that any of the managing member's affiliates and/or subsidiary now in existence or incorporated in the future may provide to the

[Page 1724]

Company while carrying out the primary business of the Company as described in the Deal Memo." Pretty much everything; isn't it?

A. Sorry, can you take me up to--that's (f) of? Can you take me to--

2. 3.03. The relevant sentence is actually 3.08, the last sentence. It says: "The Shareholder also acknowledges the possibility of additional fees paid to Royal Realty or its affiliate companies in accordance with Section 3.03." 3.03 is what-so that's the relevant provision. But I do understand you're not a lawyer, so it's okay--

A. That's right. This is a legal document, but as an economist, what I'm asked to look at here is what damages has Royal Realty suffered from not doing these services?

2. Right.

A. It seems to me BRG has taken account of the revenues that it wouldn't get, potentially, from doing these services, but has ignored--

2. The costs?

A. --the potential costs associated with doing

[Page 1725]

those services. This agreement refers to reimbursed expenses. But expenses are often very different from the Operating Costs of running the business.

2. Right. So, that's your--your position is that there might be additional costs that are not accounted for in this Agreement that are not taken into account. That's your position?

A. Correct, yes.

2. Okay. Understood.

Now, you say you have not seen any evidence that Claimants' ability to provide hotel and real estate operations has been impacted due to the Measures; is that right?

A. Sorry, can you take me to the paragraph where I say this?

2. Paragraph 77 of Hern 2.

A. Yes.

So, you're talking here about the Royal Realty services, yes.

Q. Actually, let's go to Paragraph 220--well, let's start at 119, actually.

MS. BANIFATEMI: I do not mean to interrupt,

[Page 1726]

Mr. Moloo. I just--I'm noting that we are now at one hour-and-a-half, and with the flexibility allowed by the Tribunal, I just wanted to know whether there is still a lot more to go?

MR. MOLOO: I think I have probably about 15 minutes to go.

MS. BANIFATEMI: But that would be way beyond your time.

PRESIDENT SACHS: Try to shorten it, please.

MR. MOLOO: Okay. This is my last line.

PRESIDENT SACHS: Okay.

BY MR. MOLOO:

2. I think your general position, 119, for example, it says (reading) I understand that Claimants argue that they were unable to develop the other projects. This argument doesn't make any sense. And you talk about the fact that you don't think that they were prevented from being able to develop the other projects; is that right? That's your general position?

A. Well, as a matter of economic logic, if the other projects had, you know, such a significant

[Page 1727]

positive Net Present Value, than the loss associated with those projects is not clear because either they continue to operate those projects--

2. I know your position--

A. --or they could sell the Projects to another investor, so that's essentially my position. I haven't--I haven't been able to establish that either of those two possibilities is not an option for them.

2. And you're aware that this entire case is about doing business with someone who might be tainted and not being able to buy a property from them; correct?

A. Well, I'm aware that that's the Claimants' case, yes.

2. And, well actually I think that's Respondent's case, but you're aware of the implication and the reputational impact of being tainted with an Asset Forfeiture Proceeding, I assume?

A. Yes.

Well, broadly speaking, yes, but I'm not--I don't know the specifics of exactly what--how every investor could potentially concerns themselves with

[Page 1728]

that.

Q. And that you have to know your client when you're doing business with someone else; correct?

A. Well, I mean, not necessarily.

Q. Okay. You're saying that, in a real estate transaction, you wouldn't necessarily do a "know your client" analysis on your--on your counter-party?

A. What do you mean by that precisely?

Q. Would you Google-search them?

A. Are you talking about the sale of assets to another person?

2. Yeah.

A. So--well, I'm sure you--of course, you would do due diligence on the assets, yes, and the person.

2. What about on the counter-party?

A. Sure, yes. I would expect you to do that, yes.

2. And so, if you were looking up your counter-party, would you expect for Royal Property Group--let's go to C-42, for example, if you looked up Royal Property Group--it's in your binder, if we're having trouble pulling it up, you can get it in your

[Page 1729]

binder, C-42. Go to the next page. Page 9 and 10.

You can see that it says: "According to the investigation, that Lot, worth more than COP 60,000 million and located in one of the most valued sectors of the metroCorrected by the Respondent, Claimants to agree. politan area, would really belong to a capital of the dreaded Envigado Office, which a decade ago tried to sneak into demobilization of self-defense groups." That's what the press is reporting about the Meritage Project.

And if you look on the next page, it talks about "El Tiempo communicated this Wednesday with the sales room of the luxury project and was sent to the sales management of Royal Property Group Colombia, which sells the condominium."

So, if this is the kind of news that you're getting, you might be hesitant to do business with that counter-party; would that be fair?

A. I can't put myself in the shoes of every investor, but the news reports that you just referred to, appear to be quite specific about the Meritage land and property; right? Whereas the paragraph that

[Page 1730]

you took me to in my Report is concerned with the other projects, how investors would look at the Luxé project or the Tierra Bomba project or the 450 project. And obviously, those are very different projects.

So, I would expect--and again, you're perhaps asking me a question that's a little bit outside my scope of what would an investor do, but I would expect the Investor for those types of projects to be looking at the specifics of those projects.

2. The Royal Property Group is the one that's developing all of these projects; correct? The one that's named in this Article.

A. That's my understanding, yes.

2. And you're aware that with the Luxé Project, Colpatria informed them that they would no longer continue to finance development of the Project after the--after this Asset Forfeiture Proceeding with respect to the Meritage Project. You're aware of that; correct?

A. I'm aware that that's what the Claimants say.

[Page 1731]

2. And you're aware that there were investors like Paladin that said we can't move forward with our investment in the Meritage Project until the--sorry, in the Luxé Project until the Meritage issue is resolved. You're aware of that?

A. Again, I'm aware that that's what the Claimants say, but I haven't-

2. You haven't seen the evidence--

(Overlapping speakers.)

A. I haven't--

Q. You weren't shown the evidence?

A. I haven't looked at the evidence behind those.

2. Okay, so, you weren't shown, for example, C-379 which is the--

MS. BANIFATEMI: I'm sorry, I think the Court Reporter did not get the previous exchange.

BY MR. MOLOO:

2. You haven't been shown the evidence that underlies those statements by the Claimants?

A. Correct. Not to say whether those statements--not the evidence for me to say whether

[Page 1732]

those statements are true or not.

2. Okay. And with respect to Tierra Bomba, have you seen the Cancellation Agreements with respect to the Purchase Contract and the reason given for why they were going to cancel that project? Have you seen those underlying documents?

A. Can you refer to what documents you're--

2. For example, C-186. We can put it up, and you can tell me if you've seen it or not.

Do you recall seeing this Agreement? There are several others like it, but I won't take you to them all.

A. I can't recall, honestly, whether I have seen that particular agreement.

2. Have you seen statements from Government representatives acknowledging that Mr. Seda, his reputation, had been impacted and it would be difficult for him to borrow money, for example?

A. Again, can you take me to the statements you're referring to?

Ω. Yeah.

Let's go to C-322. Page 10.

[Page 1733]

A. I have not seen this document.

2. Okay. You haven't seen the exchanges with the government officials where Mr. Seda says every financial institution thinks we are criminals, and the Head of the Asset Forfeiture Unit says, yes, of course, of course. Those kinds of exchanges? You're not aware of that?

A. I haven't seen this document.

2. Did you ask for evidence of the impact on the other projects?

A. Yes.

2. And you weren't given any of this evidence that I've just shown you?

A. I wasn't given that document that you referred to, but as far as I can see, that's Mr. Seda's statements of how he thinks he's impacted as opposed to evidence to show that he's impacted.

2. And have you seen the documentation or exchanges with the banks that called the loan? Have you seen any of that documentation?

A. Yes, I have seen--I have seen documentation in relating--relating to the banks, yes.

[Page 1734]

Q. And it's still your position that the asset forfeiture proceeding with respect to the Meritage did not impact any of the other measures--investments; is that your position? It did not impact the Luxé?

A. No. That's not my position. That's not my position. My position in Paragraph 119 is concerning the other investments, but it clearly says, if the Claimants were unable to undertake these projects themselves (overlapping speakers)-

2. They could sell it.

A. -due to lack of financing, they should have been able to sell the projects to other investors.

So, my comment is in relation to-I'm not-I'm not in a position really to make a judgment on the facts of the case.

2. Right.

A. But I'm trying to make my judgment as an economist to take into account of, well, there's two scenarios here, really. Either he can continue to develop the Projects because he's not impacted on these projects, or if he can't do it on these projects, he should be able to economically, they're

[Page 1735]

worth the Net Present Value that the Claimants say they are, he should be able to sell the projects to another investor, and I haven't seen evidence that that's not a possibility, that either of those two scenarios are not a possibility.

2. So, your assumption, though, is that someone would be able to buy from him, that someone would transact with Mr. Seda's company?

A. Implicit in that is the assumption that, either yes, that someone--that he should have been able to sell them.

2. Yes.

And if he was prevented from being able to sell them, if nobody would buy from or transact with the Royal Property Group, then you'd take a different view; correct?

A. Yes, logically if he is impacted and he can't develop them and he can't also sell them, then I would take a different view that economically those projects must have been impacted, then.

MR. MOLOO: I have no further questions, Mr. President.

[Page 1736]

PRESIDENT SACHS: Thank you very much.

Will there be redirect?

MR. DAOUD: Short one, Mr. Chairman.

PRESIDENT SACHS: Please go ahead.

REDIRECT EXAMINATION

BY MR. DAOUD:

Q. Dr. Hern, counsel for Claimants took you to

Exhibit C-434. If we can show it on the screen.

Sorry, 434, C-434.

MS. BANIFATEMI: I want to make sure that

someone is trying to show the document on screen.

Thank you.

(Pause.)

MR. DAOUD: Perhaps, while the document is

being opened, I can take Dr. Hern to a different point

and then get back to this.

PRESIDENT SACHS: We have it now.

MR. DAOUD: Okay.

BY MR. DAOUD:

Q. So, it's Page 51, which is, I think, Page 63

of the PDF that you were shown. 51, which is Page 63

of the PDF. And it's the third paragraph. You were

[Page 1737]

shown the third paragraph.

Now, you, when answering, you were

saying--you said you understand what is happening

here, and then you were not given an opportunity to

explain. Do you wish to explain?

A. Yes. I mean, my understanding from this

paragraph is what CBRE are doing is they're trying to

value what the land is worth of--for this development,

and they're using a DCF Model to forecast the cash

flows that might come from developing this land, and

then discounting it back with a Cost of Capital to

derive the economic value of the land.

And you know I think that's exactly what

I'm doing, actually, which is I'm deriving the value

of the Investment by looking at what is invested, and

that should be equivalent to a Discounted Cash Flow of

the cash flows discounted at the Cost of Capital,

which is actually what I find.

So, CBRE's use of a DCF Model in this

context is actually pretty much what I'm doing in my

valuation.

Q. And here, CBRE, were they valuing a project

[Page 1738]

or land?

A. No, they were--they appear to be valuing the

underlying land.

Q. Yes.

Thank you.

Now, counsel for Claimants also asked you if

Royal Realty had a right for fees for managing the

Projects, and he showed you Exhibit BRG 48, which

relates to the Meritage Project.

A. Um-hmm.

Q. Are you aware of any--so that's BRG 48 is a

contract relating to the Meritage Project. Have you

seen any contracts, similar contracts for Tierra

Bomba, 450 Heights, or Sante Fé?

A. I don't recall, actually.

Q. Thank you, Dr. Hern.

MR. DAOUD: Thank you, Mr. Chairman, that

will be all.

PRESIDENT SACHS: We have no further

questions. Thank you, Dr. Hern.

THE WITNESS: Thank you, sir.

PRESIDENT SACHS: Your expert testimony is

[Page 1739]

now terminated. You're released.

(Witness steps down.)

PRESIDENT SACHS: All right. Shall we have

a five-minute break, and then discuss the further

proceedings or shall we immediately continue?

MR. MOLOO: I don't think we will take that

long because there seems to be, I think aside from the

specific dates, agreement.

PRESIDENT SACHS: Okay, good. Then you are

now released.

(Witness steps down.)

PRESIDENT SACHS: David, we do not need the

discussion on the record. Once we have agreed,

hopefully, on what is to happen, then we will go back

to the record.

(Discussion off the record.)

PRESIDENT SACHS: Okay, yes. I think we have

now identified dates for in-person closing hearing,

namely October 1 and 2, and possibly as an alternative

and preference, October 2 and 3, depending on

Mr. Poncet's availability to come to Paris on

October 2.

[Page 1740]

(Tribunal confers.)

Alright. Now, we do reverse-engineering.

What would be the deadlines for your first round, plus

the limited rebuttal if we understood correctly?

MS. BANIFATEMI: Is that all right if we

consult internally and coordinate-

PRESIDENT SACHS: Yes.

MS. BANIFATEMI: --among Parties and come

back to the Tribunal with this?

PRESIDENT SACHS: Yes.

Maybe with respect to the other items with

the deadlines that you mentioned with respect to the

closing of the record, 31 May, and also your agreement

as regards the documents which are still outstanding

and deleted documents which--on which you're still

conferring, if we could all this have in writing and

confirmed by you both, then we would put this in a

Procedural Order that would--

MS. BANIFATEMI: With pleasure.

PRESIDENT SACHS: --that would be good.

All right, on the principle we agree, namely

one round of submissions, and with the possibility of

[Page 1741]

a limited rebuttal on the security, essential security

defense only, and that is what we understood.

250 pages we understood?

MS. BANIFATEMI: 150.

PRESIDENT SACHS: Sorry, 150 pages, okay.

MS. BANIFATEMI: And one round of

consecutives.

PRESIDENT SACHS: And one round on

consecutive briefs, yes. And we may send you a list

of questions after this Hearing next week or so, and

for you to consider in particular.

All right.

Any further?

MR. MOLOO: Nothing from us, just to thank

you gentlemen for your time and attention this week.

PRESIDENT SACHS: Respondent, any?

MS. BANIFATEMI: And likewise, with our

thanks to the Tribunal for its patience and its

diligence in this matter. Thank you very much.

PRESIDENT SACHS: So it's our turn, then, to

thank counsel for an--the efficient conduct of the

proceedings. With few exceptions, this was, as it

[Page 1742]

should be--the exceptions I mean it is quite natural

that from time to time there are procedural incidents,

but we were very pleased about the quality of your

legal work and presentation of the case, and thank you

very much.

I also want, of course, to thank the

Interpreters who did a great job. Our thanks go, of

course, to Leandro and David. It was not easy,

always, and we know the usual quality of David's

Transcripts. Unfortunately, I didn't look into

Leandro's Transcripts, but I would assume that they

are of equal quality.

And last but not least, I want to thank Sara

and ICSID for having hosted us and having organized

all this so efficiently.

And, with that, I close this evidentiary

hearing, and wish you well for a safe journey back, as

the case may be, to Latin America or Paris. Thank you

very much.

(Whereupon, at 12:27 p.m., the Hearing was

concluded.)

[Page 1743]

CERTIFICATE OF REPORTER

I, David A. Kasdan, RDR-CRR, Court

Reporter, do hereby certify that the

foregoing proceedings were stenographically

recorded by me and thereafter reduced to

typewritten form by computer-assisted

transcription under my direction and

supervision; and that the foregoing

transcript is a true and accurate record of

the proceedings.

I further certify that I am neither counsel

for, related to, nor employed by any of the

parties to this action in this proceeding,

nor financially or otherwise interested in

the outcome of this litigation.

Signature

DAVID A. KASDAN