IN THE ARBITRATION UNDER THE 2013 RULES OF THE UNITED NATIONS
COMMISSION ON INTERNATIONAL TRADE LAW AND THE UNITED STATES –
PERU TRADE PROMOTION AGREEMENT
PCA Case No. 2023-22
BACILIO AMORRORTU
CLAIMANT,
V.
THE REPUBLIC OF PERU
RESPONDENT.
Reed Smith LLP
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Reed Smith LLP
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Counsel for Claimant
August 21, 2023
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Corruption is an international evil; it is contrary to good morals and to an international public policy common to the community of nations. ICC Award 1110 of 1963 at ¶ 201
1. This principle, chiseled in one of the first arbitral awards denouncing the evil of corruption, echoes throughout this arbitration. This dispute is about corruption, the antithesis of fair and equitable treatment.
2. Bacilio Amorrortu (Amorrortu or Claimant) is the victim of a reprehensible Corruption Scheme concocted at the highest spheres of the Peruvian Government (Peru or Respondent), a mere few years after Peru had committed to fight corruption and to afford U.S. investors, like Amorrortu, fair and equitable treatment under the United States-Peru Trade Promotion Agreement (the USPTPA). The USPTPA, explicitly states as one of its objectives “to promote transparency and prevent and combat corruption, including bribery, in international trade and investment,”2 and has a full chapter devoted to anti-corruption measures and transparency.3 But Peru never took this commitment seriously. Instead, Peru set up a scheme to award government contracts through public bidding processes that had the facial appearance of transparency, but had actually been designed and manipulated to ensure that Graña y Montero (Graña y Montero) — a company that in conjunction with the Brazilian emporium Norberto Odebrecht (Odebrecht), had paid millions of dollars in unlawful bribes — was the only company “qualified” for the
1 108ICC Award No. 1110 of 1963 by Gunnar Lagergren, YCA 1996, 47 et seq (published in full in: Arb Int’l 1994,
282 et seq), ¶ 20 (CLA-60). ↩
2 The United States-Peru Trade Promotion Agreement, signed 12 April 2006, entered into force on 1 February 2009
(hereinafter, USPTPA or Treaty or Agreement), Preamble (CLA-2); Bacilio Amorrortu’s Statement of Claim
(Claimant’s Statement of Claim) is submitted pursuant to the Tribunal’s Procedural Order No. 1, 27 June 27 2023,
and pursuant to Art. 20 of the 2013 Arbitration Rules of the United Nations Commission on International Trade Law
(the 2013 UNCITRAL Arbitration Rules). In accordance with Procedural Order No. 1 (¶¶ 6.5-6.7), all of Amorrortu’s
Exhibits and Legal Authorities are numbered using the format provided in Procedural Order No. 1 (e.g., C-1 and CLA-
1, respectively). ↩
3 USPTPA, Ch. 19 (CLA-42). ↩
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international public bidding process (the International Public Bidding Process) for block III (Block III) and block IV (Block IV) of the Talara Basin (together, the Blocks).
3. This was not a victimless crime. Legitimate proposals that could benefit the local communities in Peru and generate more revenue for the government were arbitrarily disqualified or simply “lost” in the vast abyss of the corrupt government bureaucracy, causing significant losses to any company that dared to compete with Graña y Montero. The local community was harmed. The competitors of Graña y Montero were harmed. This is hardly surprising. Corruption hurts honest investors and affected citizens alike: The former through competitive disadvantages, e.g., in tendering procedures, and the latter through the frustration of good-governance efforts and higher prices.4 That was the case here.
4. As part of one of the largest corruption schemes in the history of Latin America, Peru and Graña y Montero snatched the contract to operate Blocks III and IV in the Talara Basin from Amorrortu and his company Baspetrol. This deprived Amorrortu of his valuable rights under Peruvian law which entitled him to a Direct Negotiation Process to resume the operations in Blocks III and IV.
5. Since 1976, Amorrortu had been involved in drilling and extraction operations in the Talara Basin. Indeed, Block III of the Talara Basin is popularly known in the industry as the “Amorrortu block” because it was successfully serviced and operated by the Amorrortu family company for more than twenty years.
6. In 1995, Amorrortu’s company was forced to surrender the license to operate Block III because of the fierce political persecution launched by the dictatorial government of President Alberto Fujimori. This political persecution led Amorrortu to seek asylum in the United States, which he obtained from the United States Department of Justice on April 26, 2000.5
4 See S. Mbiyavanga, Combating Corruption Through International Investment Treaty Law, 1(2) JACL. 132, p. 133
(CLA-43). ↩
5 See Letter from the U.S. Department of Justice, Immigration and Naturalization Service, 29 January 2001 (C-1). ↩
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7. In the United States, Amorrortu embraced his adopted country and became a citizen of the United States in 2010.
8. In 2012, after the return of democracy in Peru and the execution of the USPTPA with its anti-corruption promises, Amorrortu formed Baspetrol S.A.C. (Baspetrol) with the expectation to operate oil fields in Peru and recover the contractual rights to operate Block III of the Talara Basin. Amorrortu assembled a team of experts in the region, all of whom had unmatched experience servicing the oil wells in the Talara Basin. Armed with this wealth of experience, unique know-how, and willingness to waive any pending claim he had against Peru for the expropriation of his former company and the abuse of human rights that led to his asylum, Amorrortu commenced a process known as “direct negotiation” (the Direct Negotiation Process) under Peruvian law with PeruPetro, S.A. (PeruPetro) — the government entity responsible for the administration of oil blocks — for the operation of Blocks III and IV. The commencement of this Direct Negotiation Process gave Amorrortu a bundle of rights under Peruvian law, including the substantive right to have a good faith exclusive consideration of the Baspetrol Proposal, through a number of well-defined phases established in PeruPetro’s Rules and Procedures for the Direct Negotiation of Contracts.6
9. In the absence of corruption, Amorrortu would have secured the contract to operate Blocks III and IV. The commencement of a Direct Negotiation Process in essence, guarantees the execution of a contract, particularly when the oil company has a successful track record operating the blocks.7 Indeed, there is no record of any Direct Negotiation Process that had not culminated in the execution of a contract after the completion of the required phases.8 This is why
6 See, e.g., PeruPetro Procedure GFCN-008, Contracting Through Direct Negotiation, 13 August 2012 (CLA-44)
(PeruPetro’s Rules and Procedures for the Direct Negotiation of Contracts). ↩
7 See Bacilio Amorrortu First Witness Statement, 18 August 2023, ¶ 86 (CWS – 1 [Amorrortu]). ↩
8 Ibid. ↩
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the Direct Negotiation rights are so valuable to oil companies. Further, the Baspetrol Proposal had an attractive component which guaranteed 5% of the expected revenues to the local communities.
10. But Graña y Montero had set its eyes on Blocks III and IV and had paid bribes in advance to the highest Peruvian authorities to obtain any government contract it desired during the administration of President Ollanta Humala in coordination with Nadine Heredia. As part of this Corruption Scheme, PeruPetro, instead of commencing the Direct Negotiation Process and honoring Amorrortu’s acquired rights, as it was required to do under PeruPetro’s own rules and procedures and which it had done with other similarly situated companies, shelved the Baspetrol Proposal, and arbitrarily commenced a public bidding process in which, unsurprisingly, the only purportedly qualified company was Graña y Montero. As fully discussed below, this was the same pattern of corruption in the Southern Gas Pipeline Project from which Odebrecht and its partner, Graña y Montero, benefitted. It is also the same corrupt process through which numerous other government projects were awarded to Graña y Montero through phony public biddings.
11. The evidence of corruption is overwhelming, and more evidence continues to surface in the ongoing corruption investigation conducted by Peru’s prosecutors. On August 31, 2020, media reports of the investigation indicated that Graña y Montero’s records confirmed that executives met with the First Lady of Peru in April 2014, October 2014, and February 2015 to discuss “businesses” and “Blocks III and IV” of the Talara Basin.9 Why are the executives of Graña y Montero meeting with the First Lady, the person in charge of doling out the corrupt government contracts during the Humala administration, to talk “business” the month before the Baspetrol Proposal is shelved in favor of opening a public bidding in which Graña y Montero was
9 See G. Castañeda Palomino, Gasoducto del Sur case: the prosecutor's office has an agenda with the meetings of José Graña, Jorge Barata and Nadine Heredia, El Comercio, 31 August 2020 (C-34). ↩
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the only qualified company?10 And why were they meeting to talk about Blocks III and IV right before the execution of the contracts? The answer is clear considering the undisputed evidence of corruption and irregularities in this case: the contracts for Blocks III and IV were part of the Corruption Scheme. This conclusion cannot be seriously disputed:
i. It is undisputed that the former president of Peru, together with his advisers, concocted a plan to award government contracts to Graña y Montero through a rigged public bidding processes in which Graña y Montero was the only qualified bidder;
ii. It is undisputed that Graña y Montero paid millions of dollars in bribes to obtain any government contract it requested;
iii. It is undisputed that the vast majority of contracts awarded during this period to Graña y Montero were awarded consistent with this Corruption Scheme: (1) a facially legitimate public bidding process where (2) all competitors of Graña y Montero failed to qualify and (3) Graña y Montero was the only qualified bidder;
iv. It is undisputed that Amorrortu, through Baspetrol, commenced the Direct Negotiation Process before the public bidding had been announced or decided;
v. It is undisputed that PeruPetro, contrary to its own practices and procedures, decided to open Blocks III and IV for the International Public Bidding Process without evaluating the Baspetrol Proposal;
vi. It is undisputed that the two other companies interested in participating in the International Public Bidding Process for Blocks III and IV were disqualified;
vii. It is undisputed that Graña y Montero did not comply with the qualification requirements for the International Public Bidding Process;
viii. It is undisputed that the qualification requirements were amended to allow Graña y Montero to qualify;
ix. It is undisputed that PeruPetro, acting against its own interest, relinquished its 25 % ownership interest in the Blocks in favor of Graña y Montero after its selection; and
10 Despite not being a civil servant or holding any formal appointment, First Lady Heredia wielded significant power and influence in Peru. Her sway over the President of the Republic extended to all public officials in Peru, including those appointed in PeruPetro. ↩
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x. It is undisputed that Graña y Montero failed to comply with its contractual commitments, and that PeruPetro has ignored these violations.
12. Not surprisingly, a number of relevant government documents have been “lost.”11 The same is true of most of the files of the government contracts that Graña y Montero won as the sole qualified bidder during the Humala administration.12
13. For years, Peru — and Graña y Montero — denied this corruption and blocked any effort to investigate its unlawful practices. Indeed, as late as February 24, 2017, Graña y Montero issued a press release denying any involvement in any Corruption Scheme with Peru.13
14. But that defense is no longer sustainable. After years of denials, Graña y Montero has now admitted that it paid bribes to the Humala administration in exchange for the government contracts it selected, and new details have emerged from the International Public Bidding Process for Blocks III and IV confirming that Blocks III and IV were part of the package of government contracts awarded to Graña y Montero as a result of these bribes.14 Numerous government officers involved in this Corruption Scheme are now being prosecuted in Peru, Brazil, and the United States.15
15. Peru’s corrupt practices are in breach of its fair and equitable treatment obligations under the USPTPA, in that a government that exercises its discretion to contract based on corruption to the detriment of a foreign investor: (i) violates established customary principles of
11 See Monica Yaya First Expert Report, 18 August 2023, ¶¶ 155-166 (CER – 1 [Yaya]). ↩
12 See CER – 1 [Yaya], ¶¶ 159-170. ↩
13 See T. Céspedes et. al, Constructora peruana Graña y Montero habría participado en sobornos de Odebrecht:
medio, 24 February 2017 (C-79). ↩
14 See Castañeda Palomino, Gasoducto del Sur case: the prosecutor's office has an agenda with the meetings of José
Graña, Jorge Barata and Nadine Heredia, 31 August 2020 (C-34). ↩
15 See BBC News, Odebrecht case: Politicians worldwide suspected in bribery scandal, 17 April 2019 (C-80). ↩
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international law; (ii) betrays the investor’s reasonable expectations; (iii) engages in arbitrary, grossly unfair, unjust, and discriminatory conduct; and (iv) violates its transparency obligations.
16. Peru cannot seriously deny that it has violated the USPTPA’s fair and equitable treatment obligations. This Tribunal has the power to remedy the harm suffered by Amorrortu because the Corruption Scheme frustrated Amorrortu’s investment at its inception before Amorrortu had completed the Direct Negotiation Process.
17. The USPTPA clearly requires Peru to compensate protected investors for the harm caused by violations to the USPTPA, irrespective of when the violation occurs. Amorrortu is a U.S. investor with a protected investment that was frustrated by Peru’s breach of its Treaty obligations.
18. Amorrortu is a U.S. national. While it is true that Amorrortu was born in Peru, Amorrortu has renounced his Peruvian citizenship and does not have the citizenship of any other country, other than the United States.
19. Amorrortu has a protected investment. He formed the enterprise Baspetrol and invested more than three years of his time and effort to recruit a top tier team of professionals with the expertise to service the oil industry in Talara. Amorrortu also contributed his multi-million dollar claim against Peru for the abuses committed during the Fujimori dictatorship. He leveraged this investment to commence a Direct Negotiation Process through Baspetrol and acquired a bundle of substantive rights, including the right to negotiate directly with PeruPetro with mutual good faith. This investment, and the bundle of rights created by virtue of this investment, fall under the broad definition of investment of the USPTPA, which explicitly includes an investment in “an enterprise.”16 The USPTPA also protects as an investment any rights acquired by Amorrortu
16 USPTPA Investment Chapter, Art. 10.28 (CLA-1). ↩
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under Peruvian law, to wit: the right to a good faith Direct Negotiation Process.17 Furthermore, the USPTPA protects attempts through “concrete actions” to make an investment.18
20. Several arbitral tribunals have recognized that a party who has acquired rights under the applicable state law to negotiate in good faith a government contract has a protected investment. The awards in the case of Lemire v. Ukraine19 and Bosca v. Lithuania20 are illustrative on this point. Lemire and Bosca make clear that an investor who has acquired the exclusive legal right to negotiate a contract with a government entity has a protected investment.21 The tribunal in EDF v. Romania assumed, as an established principle of law, that a party that had been selected by a government agency to commence a contract preparation and negotiation process had acquired rights protected as an investment under the applicable trade agreement.22 The reasoning behind these decisions is that an investor who makes an initial investment in an enterprise and then acquires the right to exclusively negotiate a contract to expand that enterprise, has a protected investment. That protected investment is entitled to the fair and equitable treatment by the host state.
21. Indeed, Amorrortu has a protected investment under the USPTPA and acquired the right to expand his investment through the Direct Negotiation Process for the license contract to operate, maintain, and exploit Blocks III and IV. Amorrortu’s investment in Baspetrol and his legal rights in the Direct Negotiation Process are protected under the USPTPA and entitled to fair and equitable treatment.
17 USPTPA, Ch. 1, Art. 1.3 (CLA-6); see also Anibal Quiroga First Expert Report, 18 August 2023, ¶¶ 153-178 (CER
– 1 [Quiroga]). ↩
18 USPTPA Investment Chapter, Art. 10.28 (CLA-1). ↩
19 See Joseph Charles Lemire v. Ukraine, ICSID Case No. ARB/06/18, Award, 28 March 2011, ¶¶ 84-98 (CLA-34). ↩
20 See Luigiterzo Bosca v. The Republic of Lithuania, PCA Case No. 2011-05, Award, 17 May 2013, ¶¶ 164-178
(CLA-46). ↩
21 See Lemire v. Ukraine, ¶¶ 84-98 (CLA-34); see also Bosca v. Lithuania, ¶¶ 164-178 (CLA-46). ↩
22 See EDF (Services) Limited v. Romania, ICSID Case No. ARB/05/13, Award, 8 October 2009, ¶ 221 et seq. (CLA-
4). ↩
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22. If Peru had complied with its obligation to protect Amorrortu’s investment, Baspetrol would be operating Blocks III and IV, contributing its expertise and know-how to the development of the Talara community, and contributing its proposed 5% of the revenues generated to the development of the local community. There is simply no doubt that the exclusive Direct Negotiation Process to which Amorrortu was entitled, would have culminated with the execution of the contracts to operate Blocks III and IV in favor of Baspetrol.
23. The quantification of damages here is facilitated by the fact that Graña y Montero has received the benefits of the operation of the Blocks for approximately eight years. This performance, which Amorrortu had achieved during his tenure as operator of Block III and, without a doubt, would have achieved again, provides the Tribunal with a concrete basis to quantify the value of the contract that was snatched from Baspetrol and the harm that Amorrortu has suffered.
24. The tribunals in Lemire, EDF, and Bosca had to wrestle with the speculation surrounding the possibility that the State may decide not to conclude the negotiation process. That speculation is not present here. PeruPetro had a mandate to award the contracts to operate Blocks III and IV, and the Direct Negotiation Process, with its well-established exclusive phases and decision tree, all but guaranteed the contracts to a company like Baspetrol, which commenced the Direct Negotiation Process, and which was supported by the experience Amorrortu has of operating the Blocks. In addition to Graña y Montero and Baspetrol, there was only one other bidder for Block IV, and no other bidder for Block III. Indeed, PeruPetro had struggled to attract bidders for most of its blocks, leaving PeruPetro with a binary choice between Baspetrol and the corrupt Graña y Montero. This binary choice between a co-conspirator of the Treaty violation on
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one side, and Claimant, on the other, is what distinguishes this case from Bosca and the struggle to quantify damages with a reasonable degree of certainty.
25. The inescapable truth that will remain a constant throughout this arbitration is that PeruPetro had no basis to abort its Direct Negotiation Process with Baspetrol, a company led by the same expert that had successfully serviced and operated the Blocks for more than two decades, and to deprive Amorrortu of his rights to a Direct Negotiation. The only reason that Baspetrol is not operating Blocks III and IV today is because of the Corruption Scheme of Peru and Graña y Montero, which this Tribunal must condemn with an exemplary award that punishes Peru for its flagrant and callous violation of its Treaty obligations.
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26. The Amorrortu family had been servicing the oil industry in the Talara Basin since the beginning of the twentieth century. In 1914, Amorrortu’s family moved to Talara, Peru from Piura, Peru to work in the oil refinery that the International Petroleum Company (IPC) operated in Talara. IPC was a subsidiary oil company of the Standard Oil of New Jersey, later known as Exxon.23
27. On October 7, 1953, Amorrortu was born in Talara, where his family had settled and had lived for over four decades.24 Due to his family’s deep connection with the oil industry, Amorrortu attended Exxon School number 7 (Escuela Fiscalizada) in Talara, where he excelled in his studies and received awards including an unprecedented special award for academic excellence.25 Amorrortu completed his primary education in 1965.26
28. Amorrortu then proceeded to the San Miguel de Piura School where he also excelled and eventually completed his high school studies in 1970.27 In 1971, Amorrortu was admitted to the National University of Engineering where he studied petroleum engineering earning his Bachelor’s Degree in 1975.28 He received his professional petroleum engineering degree in 1983.29
23 See CWS – 1 [Amorrortu], ¶ 5. ↩
24 Ibid. ↩
25 Id. at ¶ 6. ↩
26 Ibid. ↩
27 Id. at ¶ 7. ↩
28 Ibid. ↩
29 Ibid. ↩
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29. Amorrortu’s professional career begins in 1972, when he started working with his father — an oil professional who worked for IPC for over 35 years — who was then an offshore drilling manager at Southern Marine Drilling Co. (Southern Marine).30 Southern Marine was a subsidiary of the Marine Drilling Company-James Storm Company of Corpus Christi, Texas.31 Under the tutelage of his father, Amorrortu started gaining relevant experience in offshore drilling and in the optimization of oil wells in the Talara region.32
30. Working for Marine Drilling, at age 24, Amorrortu became the youngest rig manager in Peru. He was simultaneously a supervisor and an engineer in the seven offshore drilling and repair platforms that the company was operating in Talara – the two main types of platforms being the National 80-B and Skytop 4610.33
31. Amorrortu became one of the leaders of the oil industry in Talara when the international companies that had been operating in the region left Peru due to the nationalization policies of the Peruvian Government. The nationalization of the oil fields in Peru began in 1969, when Peru formed PetroPeru (PetroPeru) to take over the oil fields that had been operated by the private sector.34 International companies slowly began to leave Peru as a result of the nationalization process, leaving a vacuum for companies capable of servicing the wells managed by PetroPeru and the few international companies that remained. Local Peruvian professionals in the country’s oil industry were able to provide the services needed by PetroPeru.35 Amorrortu was
30 Id. at ¶ 8. ↩
31 Ibid. ↩
32 Ibid. ↩
33 Id. at ¶ 9. ↩
34 See PeruPetro S.A., History (C-85). ↩
35 Ibid. ↩
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a prominent professional among the local Peruvians that filled the vacuum left by international companies in Talara.
32. On July 5, 1977, Amorrortu created Promociones Petroleras Talara, S.A. (Propetsa). On November 8, 1978, Propetsa was declared suitable to support the Peruvian oil industry and was duly registered in the Hydrocarbons Public Registry.36
33. Propetsa’s business was initially to provide well and workover services to Occidental Peruana, Inc. (Occidental Peruana-OXY), a subsidiary of Occidental Petroleum Corporation (OXY), a U.S. oil company founded in 1920 and headquartered in Houston, Texas.37 Amorrortu was in charge of overseeing Propetsa’s operations.38 The operations included maintenance and well services, as well as evaluation, completion of wells, and logistics or operations optimization.39
34. In June 1982, Propetsa started providing regular maintenance and optimization services to PetroPeru’s operations in the Talara Basin.40 These services were specialized and required sophisticated equipment, most of which were imported at expensive rates.41 The services provided by Propetsa included the provision of backup trucks for transportation of equipment and tanker trucks for transportation of oil or water.42 Additional services included optimizing unproductive wells (or recently drilled wells), and then extracting the oil.43 To provide these services, Propetsa imported pumps, fluid tanks, rotary equipment, and monitor equipment.44
36 See Official Translation of Certified Copy of the Registration of Promociones Petroleras Talara S.A., 7 June 1996
(C-33). ↩
37 See CWS – 1 [Amorrortu], ¶ 10. ↩
38 Ibid. ↩
39 Ibid. ↩
40 Id. at ¶ 16. ↩
41 Id. at ¶ 15. ↩
42 Id. at ¶ 17. ↩
43 Ibid. ↩
44 Ibid. ↩
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35. Propetsa soon became one of the leading oil companies in the Talara Basin and, under Amorrortu’s leadership, was able to do more than just cover the void left by the international companies that had abandoned the area.
36. Amorrortu was able to leverage the success of Propetsa and his successful experience optimizing the oil wells in the Basin to obtain the contract to operate Block III, one of the oil blocks in the then recently divided Talara Basin as discussed below.
37. On May 21, 1990, the Public Hydrocarbons Registry certified Propetsa as having the capacity to undertake oil exploration and exploitation in Peru.45 This meant that Propetsa went from being only a service company to also being an operating company.46
38. In 1991, Peru embarked on the privatization of PetroPeru. As part of this privatization plan, the Talara Basin was divided into 14 oil and gas blocks, which were offered to local and foreign investors through either Direct Negotiations or public bidding. In October 1992, PetroPeru issued a request for proposal to enter a contract to conduct drilling and extraction operations in the Talara Basin, specifically in Block III.47 To take advantage of this opportunity, Propetsa presented a proposal. Another company submitted a similar proposal. Both companies decided to form a consortium with 50% ownership each. The consortium was called Propetsa- Visisa Serpet Asociados (Provisa). Amorrortu served as the leader of Provisa and was responsible for Provisa’s operations.48 Provisa submitted a proposal which was approved; the Hydrocarbon
45 See Official Translation of Certified Copy of the Registration of Promociones Petroleras Talara S.A., p. 3 (C-33). ↩
46 See CWS – 1 [Amorrortu], ¶ 17. ↩
47 See Supreme Decree No. 177-92-EF, 28 October 1992 (CLA-5). ↩
48 See CWS – 1 [Amorrortu], ¶ 21. ↩
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Exploitation Services Contract was ultimately signed on March 4, 1993.49 Under this contract, Provisa had the right to operate Block III for 20 years.50
39. Given his success and work in favor of the local communities in Talara and the Piura Region, Amorrortu became a local and regional leader that eventually led the opposition against the Fujimori regime. In retaliation, the Fujimori regime persecuted Amorrortu, expropriated all his assets, and cancelled the debt that was owed to Amorrortu’s companies.
40. Amorrortu began his political career in the late 1980s by forming a political party focused on the interest of the oil community. Notably, and in line with his deep interest in the Peruvian oil sector, the Party’s insignia was an oil tower.51
41. In October 1992, Amorrortu, on the platform of En Acción, collected the 230,000 signatures required for his party to participate in the general elections of the Democratic Constituent Congress.52 Soon Amorrortu was seen as a threat to the political establishment and the eventual dictatorial regime of President Alberto Fujimori.53
42. The Fujimori regime launched a plan to attack Amorrortu physically and economically. Amorrortu and his family soon became the targets of the so-called Fujimori death squads — a paramilitary group at the service of the dictatorship known for their attacks on opposition leaders. Amorrortu was the victim of multiple physical assaults, ambushes, and kidnap attempts.54
49 See Contrato de Servicios de Explotacion por Hidrocarburos celebrado por PetroPeru y PROVISA, 4 March 1993
(C-4). ↩
50 Ibid. ↩
51 See Press Conference, Main NorthWest Peru Newspaper, El Tiempo, 16 September 1992 (C-35). ↩
52 See CWS – 1 [Amorrortu], ¶ 14. ↩
53 Ibid. ↩
54 Id. at ¶¶ 27, 38. ↩
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43. Financially, the Fujimori regime forced PetroPeru to stop paying a multi-million- dollar debt owed to Amorrortu’s company Propetsa, even though the government records confirmed the existence and legitimacy of the debt.55
44. Due to the political persecution and PetroPeru’s refusal to pay the acknowledged debt, Propetsa was forced to transfer 80% of its rights in Block III to Mercantile Peru Oil & Gas, SA (Mercantile).56 Consequently, the original consortium proceeded to own 20% of the rights in Block III and, more precisely, Propetsa only owned 10%.57
45. On December 19, 1995, PeruPetro on one hand, and Mercantile, Propetsa, Visisa and Serpet on the other hand, entered into a License Agreement for the transfer of the operations of Block III.58
46. Eventually, on August 13, 1997, the totality of Provisa’s participation in Block III was ultimately transferred to Mercantile through Supreme Decree No. 015-97-EM.59 This is how Amorrortu’s first participation in the operation of Block III ended.60
55 Id. at ¶ 27. ↩
56 Id. at ¶ 24. ↩
57 Ibid. ↩
58 Id. at ¶ 25. ↩
59 Id. at ¶ 26. ↩
60 Ibid. ↩
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47. Considering the growing danger to his life, Amorrortu was forced to seek political asylum in the United States. He filed an asylum application in March 2000,61 which was approved on January 29, 2001.62
48. Subsequently, Amorrortu applied for permanent residence in the U.S. on July 23, 2001. The application was granted on August 23, 2005.63
49. During this period, in addition to working full-time on his pro-se claim against Peru in U.S. Courts, Amorrortu remained active in the oil industry by constantly participating in oil- themed conferences and enrolling in in college courses, for credit, in topics related to business innovation and project management.64
50. In December 2006, Amorrortu filed his first lawsuit against Peru in the United States District Court for the Southern District of Texas as a pro se litigant denouncing the human rights violations committed by Peru.65 In his filings, Amorrortu narrated the story of his political persecution by Peru and the government’s role in depriving him of accounts receivable from his oil business in Peru.66 However, these actions were dismissed pursuant to the Foreign Sovereign Immunities Act.67
61 See Letter from Coane & Associates to US INS, 16 March 2000 (C-30). ↩
62 See Letter from the U.S. Department of Justice, Immigration and Naturalization Service, 29 January 2001 (C-1). ↩
63 See CWS – 1 [Amorrortu], ¶ 28; see also Department of Homeland Security, Application to Adjust to Permanent
Resident Status, Approval Notice, 23 August 2005 (C-38). ↩
64 See CWS – 1 [Amorrortu], ¶ 30. ↩
65 Id. at ¶ 41. ↩
66 Ibid. ↩
67 Id. at ¶ 42. ↩
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51. In 2006, Amorrortu participated in discussions before the U.S. House Ways and Means and the Senate Finance Committees regarding the USPTPA.68 In his presentation, Amorrortu discussed the political persecution he suffered in Peru and the violation of his human rights.69 His contention was that the USPTPA should be suspended until Peru realizes the gross abuse of his rights by government officials.70
52. Nevertheless, the USPTPA was eventually ratified by both the United States and Peru. Peru ratified the Treaty in June 200671 and the United States ratified it in December 2007.72 However, Amorrortu’s participation was not in vain, as the USPTPA included a robust section addressing corruption and requiring government transparency in Peru.
53. During his exile in the U.S., Amorrortu considered the possibility of eventually investing in Peru given his familiarity with the protections offered to foreign investors by the USPTPA and his participation in the ratification process in the United States. To this end, in 2012, he formed Baspetrol. Baspetrol was incorporated under the laws of Peru, with the expectation to operate oil fields in Peru and recover the contractual rights to operate Block III of the Talara Basin. Baspetrol was funded with an initial capital of 200,000 Peruvian Nuevos Soles, equivalent of approximately US $80,000, with respective shares of 100 Soles each.73
68 Id. at ¶ 31. ↩
69 Ibid. ↩
70 Ibid. ↩
71 See USPTPA, Hearing Before the Committee on Finance, United States Senate, One Hundred Ninth Congress,
Second Session, 29 June 2006 (CLA-109). ↩
72 See Foreign Trade Information System, Organization of American States) (C-86). ↩
73 See CWS – 1 [Amorrortu], ¶ 65. ↩
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54. Considering his experience in the Talara Basin, Amorrortu understood the peculiarities of the oil Blocks within the Basin. He knew that the Blocks consisted of marginal oil fields.74 The fields are small and have limited production capacity, albeit with proven oil reserves. Amorrortu understood that daily production volumes could be increased.75 To achieve this level of efficiency, Amorrortu knew that an operation and optimization plan based on studies with advanced geology, modeling, seismic science, and specific expertise was needed.76
55. Amorrortu put together a team of oil experts and past allies in the sector and developed an elaborate plan that would ensure not only the efficiency of the exploitation process but would also promote the development of the local host communities of Talara, Negritos, and Miramar-Vichayal.77
56. In preparation for the negotiations with PeruPetro,78 Amorrortu: (i) searched and reviewed the laws in force in Peru regarding commercial entities based in Peru; (ii) reviewed and researched, based on Amorrortu’s participation on the USPTPA’s elaboration, the protections offered to U.S. investors under the USPTPA; (iii) met with the Consulate of Peru in Houston to determine the applicable business regulations; (iv) researched and reviewed available public information related to technical and operational situations of Blocks III and IV, as the contracts related thereto were about to end; (v) conducted financial analysis to determine the approximate amount of pre-operational investment required from June 2012 to the start of operations, which could have been April 2015; (vi) put together equipment, technical, operational, administrative, and executive staff who would potentially operate Blocks III and IV; (vii) scheduled an exploratory
74 Id. at ¶ 61. ↩
75 Ibid. ↩
76 Ibid. ↩
77 Ibid. ↩
78 On November 18, 1993, through Art. 6 of the Organic Hydrocarbons Legislation No. 26221, PeruPetro, S.A.
(hereinafter, PeruPetro) was created. PeruPetro became the state-entity in charge of supervising oil contracts. This
meant, in practice, that PetroPeru became a contractor for PeruPetro. ↩
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trip to Peru, including the cities of Lima, Piura, and Talara, to check on-site needs and available facilities at the pre-operating stage; (viii) scheduled meetings with all former technical employees of his former company, including those who continued to work for Interoil in Blocks III and IV; and, (ix) coordinated with lawyers and colleagues in the oil industry, both in Houston and Peru, to develop the investment.79
57. In June 2012, Amorrortu’s partners and team of professionals began their efforts, from Houston and Talara, to open the Baspetrol offices in Peru.80 In October 2012, Baspetrol opened its offices in Talara.81 Then, on July 8, 2013, Baspetrol was granted a municipal operating license by the Provincial Municipality of Talara.82
58. As with any legitimate business investment, the opening of Baspetrol offices in Talara involved several costs, including costs associated with: (i) the opening of bank accounts for Baspetrol in Talara both for U.S. Dollars and national currency; (ii) hiring the head of the office, Yhony Zavala Galvez; (iii) hiring the General Accountant of the Association of Public Accountants of Piura as the company’s accountant, Edmundo Lazo Palacios; (iv) hiring coordinators of the operational technical staff, both in Talara and Piura, Freddy Castillo and Luis Arrese, respectively; (v) registration of Baspetrol with the Peruvian tax authority, SUNAT, and with the State Procurement Supervisory Agency (OSCE); and (vi) travel, and other expenses, to register Baspetrol.83
59. Amorrortu also made contacts with various international companies in order to remain competitive for different projects in the oil and gas sector.84 These efforts also included
79 See CWS – 1 [Amorrortu], ¶ 62. ↩
80 Id. at ¶ 63. ↩
81 Id. at ¶ 62. ↩
82 See CWS – 1 [Amorrortu], ¶ 65; see also Resolucion de Gerencia 397-7-2013/GSP-MPT, Talara Municipality, 8
July 2013 (C-40). ↩
83 See CWS – 1 [Amorrortu], ¶ 62. ↩
84 Id. at ¶ 67. ↩
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meetings with senior officials of the Peruvian government such as then Minister of the Ministry of Energy and Mines (MEM), Eleodoro Mayorga (Eleodoro Mayorga), and making presentations to project managers such as the Talara Refinery Modernization Project. He was also able to enlist the support of international companies such as Fluor Corporation for these projects.85
60. The period immediately following the start of Baspetrol’s operations in Peru was extremely active for Amorrortu. He essentially dedicated himself full time to Baspetrol. For instance, from November 2012 to early 2014, Amorrortu made several trips to Talara with his team to coordinate the various projects in which Baspetrol was trying to participate.86
61. During this period, Amorrortu held several meetings in Houston, Texas, with oil executives who were available to provide support for the project.87 He also contacted multiple experienced engineers who had experience in the Talara area and were familiar with the fields.88
62. In April 2014, with the help of these experienced professionals, Amorrortu organized the structure of all the executive, operational, administrative, and logistical personnel of Baspetrol to operate in Talara.89
63. Further, between January 2013 and May 2014, Amorrortu held meetings and multiple conversations with local companies as follows:90
i. Felecin Ingenieros S.A.C.: The company specializes in maintenance and assembly services for mechanical well pumping units, mechanical, and electrical production engines, various electricity services, assembly, and transportation in general.
85 See CWS – 1 [Amorrortu], ¶ 67; see also Letter from Andrés Beran, Fluor Enterprises, to Bacilio Amorrortu, 2
January 2013 (C-41). ↩
86 See CWS – 1 [Amorrortu], ¶ 68. ↩
87 Id. at ¶ 69. ↩
88 Ibid. ↩
89 Id. at ¶ 71. ↩
90 Id. at ¶ 72. ↩
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ii. VOA S.R.L.: This is an oil well servicing and work-over company.
iii. Servicios Petroleros y Conexos S.R.L.: The company specializes in maintenance and cleaning of oil well pipes, wireline tools and equipment in oil wells and metal welding.
iv. Special Services San Antonio: The company specializes in oil well cementing works. It also offers oil well drilling and production tooling services.
v. Talara Fast Service E.I.R.L.: The company specializes in the maintenance of mobile units and trucks as well as the supply of automotive parts.
vi. Other companies: Companies that sell fuel, spare parts, hardware, catering, rental of mobile units, etc.
64. Each of these specialized local companies worked or were committed to work with Baspetrol.
65. Additionally, considering the importance of support from international companies in the Proposal to PeruPetro for the operation of Blocks III and IV, Amorrortu took the following actions:91
i. Coordination with U.S. Halliburton Oil Services Company (Halliburton) to form the Baspetrol team. Amorrortu brought together some professionals including technicians and operations managers who were previous employees of Halliburton in Talara in the 70s, 80s, and 90s.
ii. Communication with FMC Technologies (presently TechnipFMC) (FMC): Amorrortu stayed connected with a Senior Manager of FMC in Houston in order to sign a service contract with Baspetrol. FMC had an active presence for years providing oil services and sale of oil equipment, pipelines, and connections in the Talara area, and could have taken advantage of the opportunity offered by Baspetrol to potentially operate the Blocks around April 2015. In fact, this Senior Manager had invited Amorrortu, on several occasions, to participate in the Offshore Technology Conference (OTC), which takes place annually in Houston, where companies such as FMC and other important oil service companies offer their latest innovations, technologies, and equipment to the market.
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66. By engaging in the foregoing activities, Amorrortu not only prepared Baspetrol to become the best entity to operate Blocks III and IV, but also continued to maintain contact with various oil and oil service companies, which allowed him to keep abreast of advances in both onshore and offshore oil technology.92
67. Aware that in 2013 the original contract to operate Block III would end, Amorrortu contacted Luis Ortigas (Ortigas), the President of PeruPetro, and expressed his interest to take over the exploration and exploitation of Block III.93
68. On August 12, 2013, PeruPetro indicated that Block III would not be available for Direct Negotiation.94 Amorrortu also learned that PeruPetro was purportedly contemplating extending the contract to Interoil.95
69. On January 16, 2014, Amorrortu sent an email to PeruPetro expressing his disagreement with the decision to extend Interoil’s contract regarding Block III. He also reiterated his willingness and ability to operate Block III.96
70. On February 6, 2014, Amorrortu had a telephone conference with Ortigas, where he gave Ortigas more details about his plan to modernize the oil industry in the Talara Basin. And, on March 20, 2014, Amorrortu, through Baspetrol, reiterated to PeruPetro that Baspetrol was available for immediate operation of Block III.97 The MEM was copied in this communication.
92 Id. at ¶ 74. ↩
93 Letter from Bacilio Amorrortu to Luis Ortigas, 31 July 2013 (C-31). ↩
94 See Letter from Luis Ortigas to Bacilio Amorrortu, 12 August 2013 (C-6). Direct negotiation is a form of contracting
areas and lots for oil exploration and/or exploitation, recognized by Art. 11 of Law 26221, called the Organic
Hydrocarbons Law, in force since November 1993 until the present. ↩
95 Amorrortu later learned that the purported extension to Interoil was nothing more than a smoke screen to cover the
rigged public bidding process in favor of Graña y Montero. ↩
96 See Email from Bacilio Amorrortu to Maria Angelica Cobena, 16 January 2014 (C-7). ↩
97 See Email from Bacilio Amorrortu to Maria Angelica Cobena, 20 March 2014 (C-74). ↩
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71. Under very controversial circumstances, on March 20, 2014, PeruPetro approved a temporary operation contract in favor of Interoil for Blocks III and IV for an additional 12-month period.98
72. Ortigas agreed to meet with Amorrortu on May 22, 2014, shortly after PeruPetro approved the temporary operation contracts for Blocks III and IV in favor of Interoil.99 In that meeting,100 Amorrortu once again went over his professional background in the oil industry in Talara, the abuses he experienced from the government of Peru, the political persecution, and his subsequent political asylum in the U.S.101
73. During the meeting, Ortigas instructed Amorrortu to prepare a Proposal for Direct Negotiation (the Baspetrol Proposal or the Proposal) for the operation of Blocks III and IV. Ortigas further told Amorrortu that the Baspetrol Proposal would be subject to a legal-technical- economic analysis by PeruPetro’s Administration and that it would be discussed by PeruPetro’s Board, which is the process required by PeruPetro’s Rules and Procedures.102
74. Accordingly, and in compliance with Ortigas’ instructions, Amorrortu sent the Baspetrol Proposal via email to PeruPetro on May 28, 2014.103 A hard copy of the Proposal was also submitted to PeruPetro at their offices in Lima, Peru.104 The Proposal complied with all the
98 See Directory Agreement No. 034-2014, 20 March 2014 (C-3). ↩
99 See CWS – 1 [Amorrortu], ¶ 79. ↩
100 See Email exchange between Bacilio Amorrortu, Maria Angelica Cobena, and Magali Hernandez, 20 and 21 May
2014 (C-8). ↩
101 See CWS – 1 [Amorrortu], ¶ 80. ↩
102 Unbeknownst to Amorrortu and contrary to PeruPetro’s practices and guidelines, in April of 2014, PeruPetro had
already decided to open a public bidding process designed to benefit Graña y Montero. The commencement of a
public bidding process is a highly unusual decision given that Baspetrol had expressed an interest in Direct
Negotiation, and PeruPetro had a practice of commencing the Direct Negotiation Process at the request of any oil
company interested in an oil block, particularly an oil company with the experience of Amorrortu. ↩
103 See Email from Bacilio Amorrortu to Maria Angelica Cobena, 28 May 2014 (C-9). ↩
104 See Receipt of Baspetrol Proposal Stamped by PeruPetro, 28 May 2014 (C-10). ↩
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requirements as instructed by Ortigas, including the additional proposal to operate Talara’s Block IV.105
75. The Baspetrol Proposal provided, among other things, relevant technical information showcasing Amorrortu’s expertise and Baspetrol’s qualification to operate Blocks III and IV. The Proposal explained that even if Blocks III and IV were “marginal oil fields,” these fields require a significant technical process for efficient operation. The process consists of drilling new wells and extending existing ones, as well as “increasing recovery,” reconditioning, well servicing, and improvements to production facilities in wells and on the surface. According to the Proposal, this process would ensure increased and sustained daily production.106
76. The Proposal guaranteed that Baspetrol would engage a first-class international technical team consisting of international experts in the oil field, complemented by local Peruvian technicians and engineers with extensive experience in marginal oil field operations. Amorrortu further emphasized that this team had access to the latest technology to ensure sustained and growing hydrocarbon production. For example, this team had expertise in the use of advanced drilling technology, specifically horizontal and directional drilling, which would optimize the recovery of hydrocarbons in Blocks III and IV. The Proposal indicated that Amorrortu had strong professional relationships with these experts, most of whom had worked with multinational oil companies.107
105 Proposal from Baspetrol SAC to PeruPetro to operate Blocks III and IV of the Peruvian North-West, 27 May 2014
(C-11). ↩
106 See Proposal from Baspetrol SAC to PeruPetro to operate Blocks III and IV of the Peruvian North-West, 27 May
2014, Part IV, p. 9 (C-11). ↩
107 Ibid. ↩
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77. Additionally, the technology was environmentally friendly. Therefore, considering the population that lives in the area where Blocks III and IV are located, as well as the agricultural landscape, this conscious environmental control would minimize the risks to humans and the environment that is usually associated with oil and gas exploration. These protections would also ensure the safety of the personnel working in the Blocks.108
78. Further, the Proposal indicated that the technical information obtained from Blocks III and IV would be evaluated with a focus on carrying out deep analyses of the reservoirs and seismic information, and if necessary, a reinterpretation using the latest technology.109
79. The Proposal also guaranteed that all Peruvian personnel who were working in Blocks III and IV would continue in their jobs. The Proposal also emphasized Baspetrol’s plan to partner with PetroPeru in the operation of the Blocks.110
80. Most importantly, the Proposal had an economic framework that fulfilled PeruPetro’s expectations with respect to an increase in oil production in the Blocks and an increase of the financial return for PeruPetro.111 To this end, the Baspetrol Proposal contemplated significant and realistic investments in the drilling of new oil wells, in the re-activation of existing oil wells, and allocated 50% of the revenue to PeruPetro.112
81. In sum, the Proposal was very attractive and beneficial for PeruPetro and the local community of Talara.
108 Id. pp. 9-10. ↩
109 Id. p. 10. ↩
110 Id. pp. 13-16. ↩
111 Id. p. 11. ↩
112 Id. p. 13. ↩
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82. In direct contradiction to Ortigas’ statements to Amorrortu and in violation of the Direct Negotiation Process commenced by Baspetrol, on July 14, 2014, PeruPetro commenced a public bidding process and invited oil companies interested in the exploitation of hydrocarbons to participate in International Public Bidding Process No. PERUPETRO-001-2014-LOT III and International Public Bidding Process No. PERUPETRO-002-2014-LOT IV (the International Public Bidding Process).113 Given this unusual development, Amorrortu immediately traveled to Peru to meet again with Ortigas.
83. On July 16, 2014, Amorrortu met with Ortigas in Peru. At the meeting, Ortigas informed Amorrortu for the first time that the Board of Directors of PeruPetro had rejected the Baspetrol Proposal and instead opted for a public bidding of Blocks III and IV.114 Ortigas gave no explanation as to why the Board rejected the Baspetrol Proposal. This statement turned out to be false.
84. Upon leaving the meeting with Ortigas, Amorrortu met with Isabel Tafur (Tafur), the Chief Administrator of PeruPetro, who informed Amorrortu that her office had no knowledge of the Baspetrol Proposal.115 This meant that the Baspetrol Proposal was never transmitted to the General Management of PeruPetro. Tafur then requested a copy of the Proposal, which Amorrortu sent to her a few hours later.116
85. Again, completely ignoring the law and the implications of a Direct Negotiation, on August 20, 2014, PeruPetro sent a letter to Amorrortu, inviting Baspetrol to participate in the
113 See PeruPetro S.A., Press Release, 14 July 2014 (C-12). ↩
114 See CWS – 1 [Amorrortu], ¶ 89. ↩
115 Id. at ¶ 90. ↩
116 See CWS – 1 [Amorrortu], ¶ 90; see also Letter from Bacilio Amorrortu to Isabel Tafur, 16 July 2014 (C-32). ↩
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International Public Bidding Process for Block III, “in line with the proposal that [Baspetrol] presented [to PeruPetro on May 28, 2014].”117 PeruPetro ignored that Amorrortu had commenced a Direct Negotiation Process, that Baspetrol had been qualified, and that Amorrortu was entitled to have the Baspetrol Proposal evaluated through this exclusive process.118
86. On October 31, 2014, in order to prevent PeruPetro from using the pretext of non- participation in the International Public Bidding Process to deny the Baspetrol Proposal altogether, Amorrortu presented a bid as part of the public tender.119 Notably, and consistent with international best practices regarding corporate social responsibility, the Baspetrol Proposal allocated 5% of the project’s earnings to the development of the local community.120 However, the Baspetrol Proposal as expected, and as further discussed below, had no chance to succeed because the process was rigged from the beginning in favor of Graña y Montero.
87. On November 3, 2014, PeruPetro informed Amorrortu that Baspetrol did not meet the technical requirements of the International Public Bidding Process.121 As further detailed below, the process was purposely designed to exclude Baspetrol and award the contract to Graña y Montero. On December 12, 2014, PeruPetro announced Graña y Montero as the only company to qualify for the bid for Blocks III and IV.122
88. Considering the glaring irregularities in the process, Amorrortu sent letters to PeruPetro indicating how the process was discriminatory against Baspetrol,123 and how the
117 Letter from PeruPetro, S.A. to Bacilio Amorrortu, 20 August 2014 (C-13); see also CWS – 1 [Amorrortu], ¶ 91. ↩
118 See PeruPetro’s Rules and Procedures for the Direct Negotiation of Contracts (CLA-44); see also CER – 1
[Quiroga], ¶¶ 7, 29-36, 58-62. ↩
119 See Letter from Bacilio Amorrortu to “Comisión de la Licitación Pública Internacional No. PERUPETRO-001-
2014”, 31 October 2014 (C-14); see also CWS – 1 [Amorrortu], ¶ 92. ↩
120 See Proposal from Baspetrol SAC to PeruPetro to operate Blocks III and IV of the Peruvian North-West, 27 May
2014, p. 13 (C-11). ↩
121 See Letter from Roberto Guzman to Bacilio Amorrortu, 3 November 2014 (C-15); see CWS – 1 [Amorrortu], ¶ 93. ↩
122 See PeruPetro, S.A., Press Release, 6 April 2015 (C-75). ↩
123 See Letter from Bacilio Amorrortu to Isabel Tafur, 5 February 2015 (C-16). ↩
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outcome of the bid would negatively affect the communities of Talara and the Vichayal District.124 Amorrortu also sent a compilation of these letters to the MEM, the Peruvian Congress (Piura Congressman, Leonidas Huayama), and the U.S. State Department.125 But, what Amorrortu did not know at the time was that the perceived favoritism in favor of a local company was in fact part of one of the largest corruption schemes in the history of Latin America.
124 See Letter from Bacilio Amorrortu to Isabel Tafur, 15 December 2014 (C-17) ↩
125 See CWS – 1 [Amorrortu], ¶ 97. ↩
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“ . . . no tribunal charged with upholding the rule of law should countenance the insidious practice of corruption.”126
89. The factual background set out below (and the accompanying expert reports) will assist the Tribunal in understanding the rampant corruption that ultimately resulted in the breach of Amorrortu’s rights under the USPTPA on July 14, 2014, when Peru arbitrarily decided to open the International Public Bidding Process for Blocks III and IV; a process designed to benefit Graña y Montero.
90. Graña y Montero127 was the largest and oldest construction group in Peru and a group with the best social, political, and economic connections in Peru.128 The group was founded in 1933 by Carlos Graña, Alejandro Graña, and Carlos Montero. Graña y Montero is a family group, whose shareholders and directors are part of rich families of colonial origin who owned large estates.129
91. During the tenure of President Alberto Fujimori, Graña y Montero experienced a rapid growth.130 President Fujimori’s administration was characterized by a resurgence of corruption in the purchase and sale of arms, in the privatization of state companies, in the sale of foreign debt bonds, and in public bidding processes.131
126 J. Branson and R Manon, Why tribunals should not ignore “red flags” of corruption, Global Arbitration Review,
12 August 2020 (C-87). ↩
127 In November 2020, the General Shareholders’ Meeting of Graña y Montero S.A.A. approved, among other
things, changing the corporate name of the company to Aenza S.A.A., which means that Graña y Montero S.A.A.
continues to operate under the name of Aenza S.A.A. See Energeminas, Cambio de denominación social: Graña y
Montero es ahora Aenza, 2 November 2020 (C-158). ↩
128 See F. Durand, Los doce apóstoles de la economía peruana: Una mirada social a los grupos de poder limeños y
provincianos (2017), pp. 124-125 (CLA-110). ↩
129 Id. at pp. 124-126. ↩
130 Id. at pp 132-133. ↩
131 See Transparencia Internacional, Proetica Insta a no olvidar que Fujimori es uno de los expresidentes más
corruptos del mundo, 17 May 2006) (C-88). ↩
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92. In 1991, the government of President Fujimori began the privatization process of the Talara oil fields.132 For this purpose, PeruPetro was created within the framework of the Hydrocarbons Law of 1993.133 On October 8, 1993, Block V of the Talara Basin was awarded to Graña y Montero, and in July 1995, Graña y Montero received Block I.134 It is precisely during this time that Propetsa, as part of the Provisa Consortium, obtained the license to operate Block III. However, as previously explained, due to the political persecution suffered by Amorrortu at that time, he had no choice but to give up its rights in Block III.135
93. During the administration of President Alan Garcia and President Ollanta Humala, Graña y Montero experienced a new resurgence. This growth has been primarily supported by the company’s political connections and its association with Odebrecht.136 Graña y Montero became the darling of government projects, surprisingly winning as the sole bidder in approximately 60% of the government contracts for which it bid, including some of the most lucrative contracts.137
94. In 2016, allegations of corruption in connection with megaprojects in which Graña y Montero participated with Odebrecht began to surface and Odebrecht revealed that it had paid US $29 Million in bribes to Peruvian officials.138 However, Graña y Montero maintained that it was unaware of any Corruption Scheme and emphasized that Odebrecht had acted alone. Indeed, between January and February 2017, Graña y Montero repeatedly and emphatically denied its
132 See A. Ruiz Caro, Un proceso con luces y sombras, enero-febrero 2007 (C-89). ↩
133 See Hydrocarbons Law No. 26221, 13 August 1993 (CLA-45) (Law establishing PeruPetro in 1993). ↩
134 See El Heraldo, Danza de entrega de lotes petroleros, 10 May 2010 (C-90). ↩
135 See CWS – 1 [Amorrortu], ¶ 35. ↩
136 See F. Durand, Los doce apóstoles de la economía peruana: Una mirada social a los grupos de poder limeños y
provincianos (2017), pp. 134-135 (CLA-110); see also, CER – 1 [Yaya], ¶ 17, 20, 27, 33. ↩
137 See CER – 1 [Yaya], ¶ 86. ↩
138 See M. Taj and A Valencia, Odebrecht settlement spurs bribery inquiries across Latin America, Reuters, 22
December 2016 (C-91). ↩
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participation in corruption and claimed that the company had been surprised by Odebrecht’s wrongdoing.139
95. This defense crumbled in December 2017 when Jose Graña Miro-Quesada (Jose Graña), CEO of Graña y Montero from 1982 to 2016, and Hernando Graña (Hernando Graña), Jose Graña’s cousin, who served as Graña y Montero’s Head of Commercial since 1996,140 and several other executives from Graña y Montero, were arrested as part of the Lava Jato corruption scandal.141
96. Despite these arrests, Graña y Montero maintained its innocence until June 2019, when its executives finally admitted that Graña y Montero was one of the main co-conspirators in a Corruption Scheme that extended to the highest spheres of the government in Peru.142
97. In February 2020, Graña y Montero released a mea culpa statement asking Peruvians for forgiveness for not acting with transparency before.143
139 See M. Taj et. al, UPDATE 2-Shares of Peru's Graña y Montero drop on Odebrecht bribes report, Reuters, 24
February 2017 (C-92). ↩
140 See Apam, Graña y Montero: “No teníamos injerencia en los pagos del consorcio de la línea 1 del metro", 26
December 2016 (C-93); see also, Reuters, Fiscalía de Perú dice que investiga a constructora Graña y Montero, 13
November 2017 (C-94). ↩
141 E. Salcedo-Albaran et. al., Lava Jato Peru, 2019, pp. 12-13 (“Lava Jato is the name under which we refer to the
group of investigations, procedures, and large-scale corruption scandals recently discovered in Latin America. Lava
Jato is characterized by the participation of Brazilian companies, mainly the construction company Odebrecht. Lava
Jato was initially the name of the first legal procedure in Brazil against corruption, institutional co-opting[,] and
asset laundering of the semi- public oil company from Brazil, Petrobras. [. . .] Lava Jato Peru . . . [is] the corruption
structure that began in Brazil in the Odebrecht company, and it spread to Peru thanks to Peruvian businessmen who
agreed to finance political parties and campaigns in exchange for being favored with infrastructure contracts.”)
(CLA-47). ↩
142 See Agencia EFE, Constructora admite un soborno por 3,7 millones de dólares en el Gobierno de Humala, El
Economista América, 7 June 2019 (C-81). Peru has acknowledged its participation in the Corruption Scheme. See,
e.g., Rutas de Lima S.A.C. v. Municipalidad Metropolitana de Lima, Ad-hoc arbitration under the UNCITRAL Rules,
Arbitration Award, 11 May 2020 (CLA-64); see also Metropolitan Municipality of Lima’s Reply Brief in Further
Support of its Petition to Vacate the Arbitral Award, Metropolitan Municipality of Lima v. Rutas de Lima S.A.C., No.
1:23-cv-680 (Dist. Ct. D.C. August 11, 2023) (CLA-113) (Foley Hoag is acting as counsel for the Metropolitan
Municipality of Lima in the Petition to Vacate and serves as counsel for the Republic of Peru in the current arbitration
(Foley Hoag also served as counsel in Bacilio Amorrortu v. The Republic of Peru, PCA Case No. 2020-11)). ↩
143 See Peru21, Graña y Montero cambia de nombre y hace mea culpa: “Le pedimos perdón a todos los peruanos”, 4
February 2020) (C-96). ↩
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Graña y Montero’s executives “knew that we paid [a bribe] . . . their role had [been] decisive in obtaining results.” Testimony of Jorge Barata Director of Odebrecht in Peru144
98. There is no doubt now that Graña y Montero is — and has always been — a corrupt company. The company was Odebrecht’s preferred partner in Peru,145 and was involved with Odebrecht in several megaprojects tainted with corruption. In fact, Graña y Montero is also referred to as the “Peruvian Odebrecht.”146
99. Indeed, Graña y Montero, as a group, and Jose Graña as CEO, developed a corruption scheme (the Corruption Scheme), which was considerably dependent on Graña y Montero’s ability to exercise undue influence on the government.147
100. This Corruption Scheme involved Graña y Montero’s family, friends, and political connections, and the company’s influence over the news through El Comercio, the largest media conglomerate in Peru.148 Indeed, according to expert Monica Yaya (Expert Yaya), Jose Graña himself owns 80% of Peru’s media,149 allowing the company to substantially control what
144 J. Rapp, Arrests and raids: the latest in the Odebrecht corruption scandal, Peru Reports, 9 December 2017, (C-
97). ↩
145 See F. Durand, Odebrecht La Empresa Que Capturaba Gobiernos (1st edn, 2018), p. 107 (CLA-48). ↩
146 CER – 1 [Yaya], ¶ 83. ↩
147 See CER – 1 [Yaya], ¶¶ 17-18; see also, K. Martínez Encarnación, Dinero, poder y política: financiamiento
electoral como clave en la influencia de Odebrecht en Perú y México, Revista de Ciencia Política (2019), p. 19 (CLA-
50); Reuters, Acciones de peruana Graña y Montero se desploman por ley que impone restricciones financieras, 10
November 2017 (C-99); El Comercio, José Graña Miró Quesada pagó S/39.6 millones de reparación civil, informa
Procuraduría Ad Hoc, 25 April 2023 (C-100); Aliados/as, Ojo Público, Ex Graña y Montero alteró estados
financieros para declarar pérdidas en el marco del caso Lava Jato, 19 September 2021, (C-101); Aliados/as, Ojo
Público, Lava Jato: ex Graña y Montero confesó corrupción en 16 proyectos de infraestructura, 22 May 2021 (C-
102). ↩
148 See CER – 1 [Yaya], ¶¶ 54-56; see also, P. Maldonado, Grupo El Comercio: un pulpo de los medios de
comunicación, (C-103); OjoPúblico, Who runs the media in Peru?, 2016, (C-104); Apoyo & Asociados, Empresa
Editora El Comercio S.A. y Subsidiarias – (El Comercio), December 2014, p. 9 (C-105) (showing the Miró Quesada
family as the directors of the company). ↩
149 See CER – 1 [Yaya], ¶ 84. ↩
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the media says about Graña y Montero. In addition, Graña y Montero also benefited from the corruption model developed by Odebrecht.150
101. Further, the Corruption Scheme consisted in (i) financing political campaigns, (ii) illicit, (iii) the use of the “revolving door” — that is, the movement of personnel between roles in the government and roles in the industries affected by the legislation and regulations issued by those governmental officials — (iv) bribery, and (v) the use of the company’s network of influence.151
102. Both the financing of campaigns and the payment of bribes were organized by Odebrecht through the Department of Structured Operations. This department is now informally known as the “bribery department,” where a tally of unaccounted payments and the pseudonyms used to cover the real names of the people and officials part of the Corruption Scheme was kept.152 As analyzed by Dr. Durand, “[t]he payments are made through money transfers to offshore companies . . . and cash is delivered to politicians during political campaigns . . . at the request of the managers of each country.”153 In this sense, as we will explain below, the agreement between Graña y Montero and Odebrecht required Odebrecht to make the initial bribery payments and then Graña y Montero would repay Odebrecht back its portion.154
1. Graña y Montero is a company owned by a family that is politically, socially, and economically well-connected and has control over information dissemination
103. The Graña family is a family with great social presence. It is related to other well- known Peruvian families that belong to the privileged circle of families in Lima, Peru. According
150 See CER – I [Yaya], ¶ 17; see also, F. Durand, Odebrecht: la empresa que capturaba gobiernos (2018), pp. 36,
75-77, 107; 131 (CLA-48). ↩
151 See CER -1 [Yaya], ¶¶ 20, 27, 40; see also, F. Durand, Odebrecht: la empresa que capturaba gobiernos (2018),
pp. 75, 79-83, 133-176, 177-227 (CLA-48). ↩
152 See F. Durand, Odebrecht: la empresa que capturaba gobiernos (2018), pp. 91-99 (CLA-48). ↩
153 Ibid.; see also, CER – 1 [Yaya], ¶ 40. ↩
154 See F. Durand, Odebrecht: la empresa que capturaba gobiernos (2018), p. 157 (CLA-48); see also CER – 1 [Yaya],
¶ 40. ↩
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to Dr. Gilbert, this is one of the most powerful and influential families in Peru.155 In particular, the Graña family is related to the Miro-Quesada family. The Miro- Quesada family owns El Comercio, the oldest and most important newspaper in Peru.156
104. In 2013, Graña y Montero bought the national newspaper chain Correo and, by 2016, the group El Comercio controlled 9 of the 12 newspapers in circulation in Peru.157
105. It is evident that the involvement of Graña y Montero in El Comercio has led to the omission of unfavorable news and opinions concerning Odebrecht, their affiliation with Graña y Montero, and any conduct by Jose Graña that could potentially harm the group’s standing.158
2. Graña y Montero paid covert funds to electoral campaigns
106. The Graña y Montero-Odebrecht association strategically wielded political influence from the beginning to the end of the political cycle of each government: it began with the illegal financing of electoral campaigns of various political parties, which includes the neutralization of investigations, the concealment of payment of bribes, and the management of public opinion to avoid scandals or complaints.159
107. The illegal financing of political campaigns is a particularly important instrument when it comes to creating a “debt” that the sponsored political party or candidate will have to pay
155 See D. Gilbert, The Oligarchy and the Old Regime in Latin America 1880-1970 (2017), p. 2 (CLA-71). ↩
156 Ibid.; see also, CER – [Yaya], ¶ 59; F. Durand, Los doce apóstoles de la economía peruana: Una mirada social
a los grupos de poder limeños y provincianos (2017), p. 125 (CLA-110). ↩
157 P. Maldonado, Grupo El Comercio: un pulpo de los medios de comunicación (C-103). ↩
158 See CER -1 [Yaya], ¶ 41; F. Durand, Los doce apóstoles de la economía peruana: Una mirada social a los grupos
de poder limeños y provincianos (2017), pp. 132-134 (CLA-110). ↩
159 See CER -1 [Yaya], ¶¶ 18, 54; see also, F. Durand, Odebrecht: la empresa que capturaba gobiernos (2018), pp.
97-98 (CLA-48). ↩
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back when he or she is elected.160 Graña y Montero made important concealed donations to political parties regardless of its political ideology.
108. For example, in the general elections of 2011, Graña y Montero made concealed donations to the candidature of Keiko Fujimori Higuchi. These contributions were made together with Odebrecht.161 Furthermore, Odebrecht contributed US $200,000 to the political party of President Alan Garcia;162 US $300,000 to the political party of President Pedro Pablo Kuczynski;163 US $700,000 to the political party of President Alejandro Toledo;164 US $1,200,000 to Keiko Fujimori;165 and US $3,000,000 to President Ollanta Humala.166 All of these contributions were illegal and concealed using straw persons.167
109. Jose Graña and Hernando Graña admitted that, in 2013, Graña y Montero made payments of up to US $200,000 to ensure that Susana Villarán, the then Mayor of the Municipality of Lima, was not removed from office.168 In return, Graña y Montero obtained the contract to build the Via Expresa project (the Via Expresa Project).
160 See CER -1 [Yaya], ¶ 54; see also, F. Durand, Odebrecht: la empresa que capturaba gobiernos (2018), p. 81
(CLA-48). ↩
161 See Actualidad, Exdirectivo de Graña y Montero reconoce que entregó 25 mil dólares que terminaron en campana
de Keiko, 20 November 2019, (C-107); see also, Convoca, Caso Odebrecht: Barata ratifica aportes de campaña y
delata a Graña y Montero, 23 April 2019 (C-108). ↩
162 See Andina, Former Odebrecht representative Barata confirms contributions to Garcia’s 2006 campaign, 23 April
2019 (C-109); see also, S. Tegel and A. Taylor, Former Peruvian president dead; shot himself as police attempted to
make arrest, The Washington Post, 17 April 2019 (C-110). Former Peruvian President, Alan Garcia, shockingly
killed himself on April 17, 2019, after officers had been dispatched to and arrived at his home to arrest him in
connection with the allegations of taking bribes from Brazilian construction company, Odebrecht. ↩
163 See R. Mella and G. Gorriti, A quién y con cuánto, IDL Reporteros, 28 February 2018 (C-111). ↩
164 Id.; see also, N. Casey et. al, Former Peru President Arrested in U.S. as Part of Vast Bribery Scandal, The New
York Times, 16 July 2019 (C-112). Former Peruvian President was arrested on July 14, 2019, by U.S. marshals after
the Peruvian government requested his extradition. He was wanted in Peru on suspicion of taking USD $20 Million
American Dollars in bribes from Brazilian construction company, Odebrecht. ↩
165 See Mella and Gorriti, A quién y con cuánto. ↩
166 See Andean Air Mail and Peruvian Times, Top Graña y Montero Executives Resign to Save Company, 28 February
2017 (C-113). ↩
167 See La República, Odebrecht usó a socios en el Perú como intermediarios, 23 January 2018 (C-114). ↩
168 See CER – 1 [Yaya], ¶ 112; see also, La Mula Perú, Graña y Montero también aportó a la campaña por el NO de
Susana Villarán, 14 July 2020 (C-115). ↩
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110. At first, Graña y Montero categorically rejected, in various instances, that the company or its employees were involved in any sort of bribery or Corruption Scheme carried out by Odebrecht. However, in February 2018, Marcelo Odebrecht (Marcelo Odebrecht), Odebrecht’s former CEO, testified before the Peruvian prosecutors, and he confirmed that Graña y Montero knew about the Odebrecht bribes. During his testimony, Marcelo Odebrecht testified, in relevant part, that:
“An important point. It was not Odebrecht who invented the bribes. If we had a political relationship of grade 10, our partners reached 40, 50, 60. . .. It is very likely that in the case of bribes related to specific projects they were negotiated and paid by Peruvian businessmen.”169
111. He further explained that Odebrecht viewed its partnership with Graña y Montero as “a single team”, that is:
“With Graña, most of our projects were done as a single body. That is, it was a single team, where there were people from Odebrecht and Graña, and they treated the project as a whole. As far as I know, Graña was our main consortium partner in most of the projects. It is the largest construction company in Peru. And that history comes from the time of Trujillo, with Chavimochic, from the 80’s. So Graña has a 30-year history with us as a consortium. In our first project in Peru, Graña was our consortium partner.”170
112. Indeed, Marcelo Odebrecht stated that Graña y Montero helped Jorge Barata to establish contact with Peruvian politicians, and that the role of Graña y Montero was decisive in choosing the projects in which bribes could be paid, and in suggesting the name of presidential candidates that should receive financing.171
169 IDL-Reporteros, Marcelo Odebrecht: el audio completo, 22 January 2018 (C-116). ↩
170 Ibid. ↩
171 See A. Zambrano, Odebrecht Cae sobre GyM, November 2017 (C-42). ↩
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113. The illegitimate contributions on the part of Graña y Montero and Odebrecht to President Ollanta Humala’s (President Ollanta Humala) campaign is of critical importance in this case. As Expert Yaya explains, “during the government of the President of the Republic Ollanta Humala Tasso, the companies belonging to the Graña y Montero group, . . . won as the sole bidder 60% of the selection processes in which they participated . . ..” Further, “the companies of the Graña y Montero group had the privilege that the Requirements of the selection processes were designed in a fraudulent manner and avoiding any type of competition. In the processes in which other bidders were present, they were negatively discriminated against, without any response or through unmotivated responses or with apparent motivation.”172
114. During the tenure of President Ollanta Humala, there were several cases of lobbying bias and unethical conduct. These instances involved not only the president and Nadine Heredia, but also various ministers who were responsible for awarding blocks III and IV to Graña y Montero.173 President Ollanta Humala and Nadine Heredia (Nadine Heredia) are known as “the presidential couple” precisely because of the influence exercised by Nadine Heredia on everything related to her husband’s presidential administration.174
115. Graña y Montero was aware that Odebrecht made illicit payments to top officials. Graña y Montero then paid its proportional share of the bribes in the form of differential dividends. Graña y Montero and Odebrecht characterized these payments as legitimate payments for the “additional risks” Odebrecht allegedly incurred for the benefit of the consortium. In other words,
172 See CER – 1 [Yaya], ¶ 86 (emphasis in the original). ↩
173 See F. Durand, Los doce apóstoles de la economía peruana: Una mirada social a los grupos de poder limeños y provincianos (2017), p. 134 (CLA-110). ↩
174 See CER – 1 [Yaya], ¶ 42. ↩
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under the Corruption Scheme, Odebrecht would make the payment, and then Graña y Montero would be required to reimburse Odebrecht for Graña’s proportional share of the bribe.175
116. The term “additional risks” appears in numerous corporate documents of the Graña y Montero-Odebrecht consortium as distribution of differential dividends in favor of Odebrecht, including:
i. the 2012 Profit Distribution Agreement of the Electric Train Consortium;176
ii. the 2015 Liquidation Agreement of the Electric Train Consortium;177 and
iii. the June 1, 2011 Minutes of the General Meeting of Shareholders of the IIRSA South project.178
117. Throughout the partnership period between Graña y Montero and Odebrecht, several public works contracts were obtained through illicit means, including bribery and the manipulation of political figures and officials.179
118. In the decade spanning 2006 to 2016, the investment in public works grew exponentially. Some of the most expensive projects occurred during that period and, most of them, were tainted with corruption. Similarly, at around the same time, Graña y Montero was favored by Peru in the bidding process for the Quinua-San Francisco highway, in the purchase of important urban land in Lima, and in the International Public Bidding Process of the oil Blocks III and IV of Talara.180
175 See A. Zambrano, Odebrecht Cae sobre GyM (C-42). ↩
176 See Acuerdo de Distribucion de Resultados y Liquidacion del Consorcio Tren Electrico, 29 February 2012 (C-44). ↩
177 See Acuerdo de Distribucion de Resultados y Liquidacion del Consorcio Tren Electrico, 4 May 2015 (C-45). ↩
178 See Minutos de la Junta General de Accionistas de Concesionaria Interoceanica Sur el 1 June 2011 (C-46). ↩
179 See CER – 1 [Yaya], ¶¶ 16-25; see also, F. Durand, Odebrecht: la empresa que capturaba gobiernos (2018), pp. 120-123 (CLA-48). ↩
180 See CER – 1 [Yaya], ¶¶ 20, 27, 33; see also, F. Durand, Odebrecht: la empresa que capturaba gobiernos (2018), p. 116 (CLA-48). Jose Graña, leader of the Graña y Montero business group, became an effective collaborator in hopes of being released from prison. He has acknowledged his participation in corruption with Odebrecht directives. ↩
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119. In June 2019, after categorically denying its knowledge and involvement, Graña y Montero finally acknowledged its involvement in the Corruption Scheme undertaken together with Odebrecht in various megaprojects in Peru.181 As a result, by August 2019, Graña y Montero’s former executives were collaborating with the Peruvian Prosecutor’s Office on several investigations: (i) the Lima Metro Project, (ii) the IIRSA South Project, (iii) the IIRSA North Project (iv) the Construction Club, and (v) the South Peruvian Gas Pipeline.182
120. The Lima Metro project (the Lima Metro Project) involved the design and construction of Line 1 of Lima’s metropolitan railway. Its construction originally commenced during former President Alan Garcia’s (President Alan Garcia) first tenure in 1986.183 However, the project was abandoned when the country plunged into economic recession.184 On December 15, 2016, in his testimony before the Brazilian Federal Prosecutor’s Office in Bahia, Brazil, Jorge Barata stated that:
“The Lima Metro was an emblem of the inefficiency of Alan Garcia’s first government. Alberto Fujimori’s government did not resume the project in order to maintain the characterization of the previous government’s failure. The same thing happened with the government of Alejandro Toledo. None of them gave priority to the project.”185
181 See Agencia EFE, Constructora admite un soborno por 3,7 millones de dólares en el Gobierno de Humala, El Economista América, 7 June 2019 (C-81). ↩
182 See Gestión, Caso Lava Jato: ¿Cómo se convirtieron José y Hernando Graña en colaboradores eficaces de la fiscalía?, 25 August 2019 (C-95). ↩
183 See El Comercio, Advertencia antes de un error, por Alan García Pérez, 25 April 2014) (C-117). ↩
184 See EFE, Alan García inaugural la primera línea del metro que inició hace 25 años, 11 July 2011 (C-118). ↩
185 See R. Mella, Cómo Odebrecht pactó las coimas del Metro de Lima, IDL-Reporteros, 21 September 2017 (C-119). ↩
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121. In 2006, when former President Alan Garcia won the presidency for a second term, the completion of this failed project became one of his number one priorities.186 However, by 2008, President Alan Garcia had been unable to secure a company that could complete the project.187
122. On February 19, 2009, President Alan Garcia traveled to Cusco with Jorge Barata for the inauguration of a section of the Interoceanic Highway. During that trip, President Alan Garcia communicated to Jorge Barata his desire to inaugurate the Lima Metro before he left office, and asked Jorge Barata what needed to be done for Odebrecht to become involved.188 Jorge Barata made clear that the Lima Metro Project should be reconfigured as a public bidding project to avoid the perception of corruption.189 Shortly thereafter, President Alan Garcia signed Emergency Decree No. 032-2009, which redefined the Lima Metro Project as a public works project, transferred control of the project to the Ministry of Transportation and Communication (MTC), and directed the Ministry of Economy and Finance to assign a budget to the project.190
123. For this purpose, the MTC created a bidding and technical committee for the Lima Metro project.191 The bidding committee created the technical specifications for the project and opened the project to a bidding process.192
186 Ibid. ↩
187 Ibid. ↩
188 Ibid. ↩
189 Ibid.; see also IDL-Reporteros, Así habló Barata: García y Barata hablan sobre el Metro de Lima en el avión presidencial, 4 May 2019 (C-120). ↩
190 Decreto de Urgencia No. 032-2009, 27 February 2009 (CLA-49); see also A. Bazo Reisman, Corrupción en Perú | Las principales 14 investigaciones que implican a políticos, magistrados y empresarios, RPP Noticias, 18 November 2018, (C-121). ↩
191 See Mella, Cómo Odebrecht pactó las coimas del Metro de Lima, IDL-Reporteros (C-119). ↩
192 Ibid. ↩
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124. During the bidding process for the first phase of Line 1,193 the then MTC’s Vice-Minister Jorge Cuba (Jorge Cuba) approached Carlos Nostre (Carlos Nostre), the Graña y Montero-Odebrecht consortium’s Director for the Lima Metro Project, and offered to support the Consortium in obtaining the contract.194 In return, Jorge Cuba demanded a payment of US $1.4 Million for himself and additional payments for members of the bidding committee, who would ensure that the consortium between Graña y Montero and Odebrecht would get the appropriate score.195 Jorge Cuba proposed the amendment of the technical specifications for the project so that the Graña y Montero-Odebrecht consortium would be the most suitable for the project.196
125. Indeed, according to Jorge Barata, “. . . the conversations with Jorge Cuba progressed in the sense that he said that he could create a series of technical conditions in the project and some subjective ones so that we could have a higher technical score and thus be benefited in the bidding process.”197
126. Accordingly, Graña y Montero and Odebrecht formed the consortium, named the Electric Train Consortium, and submitted a proposal. On June 22, 2011, the bidding committee awarded Graña y Montero and Odebrecht the contract for the construction of the first phase of Line 1 of the Lima Metro Project—in the process, three other companies were disqualified.198
193 The contract for the design and construction of Line 1 of the Lima Metro Project was awarded in two separate phases. ↩
194 See Mella, Cómo Odebrecht pactó las coimas del Metro de Lima, IDL-Reporteros (C-119). Barata stated that “Cuba made a proposal [to Nostre] that he could help us in exchange for a compensation of 1.4 million dollars so that we could be winners of that process. Carlos Nostre informed me, and I authorized it.”); see also IDL-Reporteros, Barata narra cómo negoció y acordó las coimas por el Tramo 1 del Metro, 15 December 2016, (C-122). ↩
195 See Mella, Cómo Odebrecht pactó las coimas del Metro de Lima, IDL-Reporteros (C-119). ↩
196 Ibid. ↩
197 Ibid.; see also IDL-Reporteros, Barata narra cómo negoció y acordó las coimas por el Tramo 1 del Metro, 15 December 2016, (C-122). ↩
198 See G. Villasis Rojas, Jorge Barata: Graña y Montero pagó soborno por el metro de Lima, 24 April 2019 (C-123); see also, Railway Gazette, Tren Electrico Contracts awarded in Lima, 16 December 2009 (C-124). ↩
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127. The Electric Train Consortium also made illegal payments to win the concession for Line 1, Phase II, of the Lima Metro Project.199 Jorge Barata testified that, “Jorge Cuba said that they wanted to build the second phase and do it in the same manner, with the same procedures. Only that this time the payment would be of USD $6.7 Million American Dollars.”200
128. As part of the Corruption Scheme, Graña y Montero was required to reimburse Odebrecht for its proportional share of the bribes. In this sense, Graña y Montero had to assign a percentage of its proceeds to Odebrecht as compensation for the “additional risks” Odebrecht incurred for the benefit of the consortium. All these bribes are documented in the Consortium’s Profit Distribution Agreements.201 The stock ownership in this project was divided 67% to Odebrecht and 33% to Graña y Montero.202
129. In total, Graña y Montero’s share of the bribes for the Lima Metro Project, was approximately US $9 Million.203
130. In July 2018, Graña y Montero was named as a civilly liable third party in the case of the Lima Metro Project.204
131. A consortium formed by Odebrecht, Graña y Montero, JJC Contratistas Generales, S.A. (JJC), and Ingenieros Civiles y Contratistas Generales, S.A. (ICCGSA) called
199 See Mella, Cómo Odebrecht pactó las coimas del Metro de Lima, IDL-Reporteros (C-119). ↩
200 IDL-Reporteros, Jorge Barata relate cómo se pactaron las coimas por el Tramo 2 del Metro, 15 December 2016, (C-125). ↩
201 See Acuerdo de Distribucion de Resultados y Liquidacion del Consorcio Tren Electrico, 29 February 2012 (C-44); see also Acuerdo de Distribucion de Resultados y Liquidacion del Consorcio Tren Electrico, 4 May 2015 (C-45). ↩
202 See (C-44). ↩
203 Ibid.; see also Liquidation Agreement of the Electric Train Consortium, 4 May 2015 (C-45). ↩
204 See Gestión, Graña y Montero incluida como tercero civil responsable en caso Metro de Lima, 17 July 2018 (C-126). ↩
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Concesionaria Interoceanica Sur Tramos 2 y 3, S.A. (the Interoceanica Consortium), presented a bid for the contract for the construction, operation, and maintenance of Sections 2 and 3 of the IIRSA South highway system (the IIRSA South Project) was awarded in June 2005.205 The Interoceanica Consortium was awarded the contract in June 2005.206
132. Graña y Montero and the other minority stakeholders jointly appointed Fernando Almenara, a Graña y Montero employee, to serve as the Administrator and Finance Manager of the IIRSA South Project.207
133. On August 26, 2004, Jorge Barata, Marcelo Odebrecht, and former President Alejandro Toledo (President Alejandro Toledo), met at Peru’s Government Palace to discuss the IIRSA South Project.208 While they were at the Palace, Avi Dan On — President Alejandro Toledo’s head of security — approached Jorge Barata as an intermediary of President Alejandro Toledo and offered to support Odebrecht’s bid for the IIRSA South Project in exchange for bribes.209
134. Thereafter, in a meeting held in November 2004, in the presidential suite of the Copa Cabana Marriot Hotel in Rio de Janeiro, between Jorge Barata, President Alejandro Toledo, Avi Dan On, Sabi Gideon, and Josef Maiman, Jorge Barata ultimately agreed to pay President Alejandro Toledo US $35 Million for the IIRSA South Project.210 However, Odebrecht only paid US $20 Million due to President Alejandro Toledo’s inability to influence Proinversion, Peru’s
205 See J. Mendoza, La inverosímil cronología de la Interoceánica, Gestión, 28 February 2017 (C-127). ↩
206 See IDL-Reporteros, Barata narra cómo negoció las coimas por IIRSA Sur, 17 December 2017) (C-128). ↩
207 See J. Mendoza, La inverosímil cronología de la Interoceánica, 28 February 2017 (C-127). ↩
208 See R. Mella and G Gorriti, Cómo y cuándo se pagaron las coimas a Alejandro Toledo, IDL-Reporteros, 17 December 2017 (C-129). ↩
209 See IDL-Reporteros, Jorge Barata confiesa que le solicitan US $35 millones por carretera Interoceánica, 17 December 2017 (C-130). ↩
210 See IDL-Reporteros, Barata narra cómo negoció las coimas por IIRSA Sur, 17 December 2017 (C-128). ↩
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agency in charge of awarding the contract and the agency engaged in the promotion of business opportunities.211
135. When President Alan Garcia took office in 2006, the IIRSA South Project was already underway, and, to facilitate the smooth completion of the project, Odebrecht agreed to pay US $1.3 Million to President Alan Garcia.212 Odebrecht paid an additional amount of US $3 Million to Luis Nava, President Alan Garcia’s secretary.213
136. Like the payment procedure for the Lima Metro Project, as a stakeholder in this project, Graña y Montero was required to reimburse Odebrecht for their proportional share of the bribes.214 In March 2018, Graña y Montero was named as a civilly liable third party in the case of the IIRSA South Project.215
137. The Construction Club (the Construction Club or the Construction Cartel) was a cartel formed by Peruvian and foreign construction companies that, instead of competing with each other, colluded to share the public works contracts tendered by Provias Nacional, an agency of the MTC, involving the construction, improvement, rehabilitation and maintenance of Peru’s National Road Network.216
211 See IDL-Reporteros, Jorge Barata explica por qué pagó solo US $20 millones a Alejandro Toledo, 17 December 2017 (C-131). ↩
212 See Buenos Aires Times, Odebrecht boss details alleged ‘money routes’ to Peru politicians, 25 April 2019 (C-132). ↩
213 Ibid. ↩
214 See IDL-Reporteros, Marcelo Odebrecht: el audio completo, 22 January 2018 (C-116). ↩
215 See W. Gonzalo Arcasi Mariño, Incorporan a G&M, JJ Camet e ICCGSA como terceros civiles responsables en el caso IIRSA Sur, Gestión, 19 December 2018 (C-133). ↩
216 See Compras Estatales, ¿Qué es el ‘club de la construcción’ y cómo operaba en el Ministerio de Transportes? [VIDEO], 17 February 2020 (C-134). ↩
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138. Graña y Montero formed part of the Construction Cartel and indeed was its most prominent representative in Peru.217
139. The Corruption Scheme implemented by the Construction Cartel follows the same plan as the other projects — and as we will see below, the project for Blocks III and IV of the Talara Basin. The Construction Cartel scheme confirms that a critical component of the plan was to intervene at the inception of the project and arrange for a rigged public tender where the handpicked company would be benefitted with the buena pro.
140. The process, in a nutshell, is as follows: after the publication of public tenders on the Provias Nacional website, representatives of the Construction Cartel would hold a meeting with Rodolfo Priale de la Peña (Rodolfo Priale), a corrupt businessman, to determine which company would be selected by the Cartel.218 Then, Rodolfo Priale would communicate to Carlos Eugenio Garcia Alcazar (Carlos Garcia), advisor to the Vice-minister of Transportation during the tenure of President Ollanta Humala, the identity of the selected company.219 The selected company would then be declared the winner of the bid. As explained below, an almost identical plan was put in place for the public bidding of Blocks III and IV.
217 See Gestión, Caso Odebrecht: Revelan que el ‘Club de la Construcción’ existía, por lo menos, desde hace 23 años, 23 February 2019 (C-135). ↩
218 See Peru21, Detienen a ex funcionario del MTC vinculado al caso ‘Club de la Construcción’ [VIDEO], 12 January 2018 (C-136); Compras Estatales, ¿Qué es el ‘club de la construcción’ y cómo operaba en el Ministerio de Transportes? [VIDEO], 17 February 2020 (C-134). ↩
219 See O. Humala, Sobenes confirma que tuvo tratos con el “Club de la Construcción”, Diario Expreso (Peru), 12 February 2019 (C-137). ↩
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141. The Southern Gas Pipeline project or Gasoducto Sur Peruano (GSP) involved the construction and operation of a pipeline that would transport natural gas from central Peru to the Pacific coast.
142. The GSP contract was awarded in June 2014 to a consortium comprised of Odebrecht and Enagás Internacional, S.L.U. (Enagás).220 In August and September 2015, Graña y Montero and Odebrecht entered into a memorandum of understanding and addendum, by which Graña y Montero joined GSP as a minority shareholder.221
143. However, by April 2016, Odebrecht became the subject of an investigation by Brazilian authorities in connection with corrupt activities in Brazil.222 Consequently, the Peruvian banks decided to withhold financing for the GSP.223
144. Odebrecht made a request to the Proinversion Committee to disqualify its competitor. The request was granted in an unusually short amount of time, with legal reports issued by law firms connected to the winning consortium being used as a basis for the decision.224 During this time, Graña y Montero was Odebrecht’s hidden partner.225 As it has been discussed,
220 See Andean Air Mail & Peruvian Times, Odebrecht, Enagas Win Bid for Peru Gas Pipeline, 1 July 2014, (C-138) ↩
221 U.S. Securities and Exchange Commission, Form 20-F, Graña y Montero S.A.A. Annual Report, Exhibit 10.05 Memorandum of Understanding Odebrecht - Graña y Montero, pp. 870-874 (C-161). ↩
222 See D. Gallas, Brazil’s Odebrecht corruption scandal explained, BBC News, 17 April 2019 (C-139). ↩
223 See G. Parra-Bernal et. al, Odebrecht Peru deal hits snag as banks fret over $4.1 billion loan: sources, Reuters, 21 July 2016 (C-140) ↩
224 See Instituto de Defensa Legal, Contraloría: Odebrecht fue favorecida con el Gasoducto del Sur (La República), 16 July 2019 (C-141). ↩
225 See G. Villasis Rojas et. al, Odebrecht sabía que iba a ganar licitación del gasoducto sur peruano cinco días antes, El Comercio, 11 March 2020 (C-142). It is worth noting that Nadine Heredia expressed displeasure when El Comercio released an interview that she intended to keep private. When Odebrecht solicited the assistance of the First Lady in the Gasoducto Sur project, she initially declined to involve Graña y Montero. However, she subsequently altered her position and held meetings with Graña y Montero just prior to their securing Blocks III and IV. See YAYA-40; see also, YAYA-46. ↩
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this is precisely the appearance of legality employed by governmental authorities in conjunction with Graña y Montero-Odebrecht to cloak the Corruption Scheme that ran extensively in contracts with the government, including the award of the license contract to operate Blocks III and IV.226
226 The Corruption Scheme also included Payments to Arbitrators. In addition, Odebrecht bribed arbitrators to obtain favorable awards and generate fraudulent cost overruns. According to Jorge Barata, Jorge Horacio Canepa Torre (Arbitrator Canepa) is the only arbitrator Odebrecht was authorized to pay to obtain decisions in favor of Odebrecht. On February 22, 2019, Luiz da Rocha Soares, Odebrecht’s former international treasurer, testified before Peruvian prosecutors that Odebrecht paid US $3 Million in bribes to Arbitrator Canepa in exchange for the favorable arbitration awards. In September 2017, Peru’s Prosecutor’s Office discovered that Arbitrator Canepa had paid government officials and other arbitrators to render arbitration awards in favor of Odebrecht. Consequently, Arbitrator Canepa requested to be treated as a protected witness and identified other arbitrators who allegedly formed part of the bribery scheme to benefit the Corruption Scheme. This situation led the Peruvian Preparatory Investigation Court to order, on November 4, 2019, the detention of 14 arbitrators who sat as arbitrators in cases between Odebrecht and Peru. The imprisonment of these arbitrators sent shockwaves throughout the international arbitration community. Indeed, the former President of the International Chambers of Commerce (ICC), Alexis Mourre, sent at least two letters to the Peruvian Ministry of Justice attesting to the good character and morale of some of the detained arbitrators and requesting their release. Other institutions like the International Bar Association (IBA) and the Spanish Club of Arbitration (CEA) also sent letters to the Peruvian Ministry of Justice expressing their concern about the detention of the arbitrators. See C. Ríos Pizarro, Mixing Righteous and Sinners: Summary of the Odebrecht Corruption Scandal and the Peruvian Jailed Arbitrators, Kluwer Arbitration Blog, 10 December 2019 (CLA-112); see also La Ley, Esta es la resolución que ordenó la prisión preventiva por 18 meses contra 14 árbitros, 6 November 2018 (C-144); Letter from ICC to Peruvian Ministry of Justice, 7 November 2019 (C-48); see also Letter from ICC to Peruvian Ministry of Justice, 14 November 2019 (C-49); CIAR Global, Cantuarias suma más apoyos: La IBA, el CEA y Catherine Rogers condenan el trato recibido por el árbitro peruano, 15 November 2019 (C-145). ↩
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C. THE CORRUPTION SCHEME TO AWARD THE CONTRACTS TO OPERATE BLOCKS III & IV TO GRAÑA Y MONTERO
145. Peru cannot dispute that corruption drove the decision to abort Amorrortu’s Direct Negotiation Process for Blocks III and IV, in favor of the rigged International Public Bidding designed to favor Graña y Montero.
146. The Corruption Scheme set up by Graña y Montero and Peru does not consist of a single act by which a person or company bribes a civil servant to gain some unjustified advantage. During the administration of President Ollanta Humala and First Lady Nadine Heredia, the country was under the rule of a government which had basically established an endemic system of corruption and Graña y Montero was one of the most prominent participants in this conspiracy.227
147. The criminal investigation of the former presidential couple has generated a vast amount of material and has confirmed that Graña y Montero paid numerous bribes to the Humala administration in exchange for any government contract the company desired, including granting contracts to exploit the Blocks III and IV.228 These Blocks were strategically important for Graña y Montero, as it became the main operator of the oil fields in Talara.229
148. The evidence of corruption continues to surface and to confirm that Amorrortu’s Direct Negotiation Process was aborted by order of Nadine Heredia because Blocks III and IV had been requested by Graña y Montero. Indeed, the agenda of Jose Graña confirms that on April 28, 2014, he met with Nadine Heredia to discuss “business.” This meeting takes place approximately a month before PeruPetro shelved Baspetrol’s Direct Negotiation Proposal to conduct a rigged public bidding process. Further, there was another meeting on February 10, 2015, explicitly to discuss
227 See CER – 1 [Yaya], ¶ 33. ↩
228 Id. at ¶¶ 17, 40, 42; see also, M. Belling, Humala ya conoce de la mala adjudicación a Graña y Montero de lote III en Talara, 20 July 2015 (C-146). ↩
229 See Graña y Montero, Memoria Anual Integrada, 2015, p. 56 (C-147). ↩
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“Blocks III and IV” two months after Graña y Montero had purportedly won the bid for the Blocks as the only qualified company and two months before the execution of the contract to operate the Blocks, in which PeruPetro surprisingly, and acting against its own interest, ceded its 25% ownership in the operate to Graña y Montero.230
149. Why are the executives of Graña y Montero meeting with the First Lady, the person in charge of doling out the corrupt government contracts during the Humala administration, to talk “business” the month before the Baspetrol Proposal is shelved in favor of opening a public bidding in which Graña y Montero was the only qualified company? And why were they meeting to talk about Blocks III and IV? These are the questions that Peru will not be able to answer without admitting the inescapable truth in this case: Blocks III and IV were part of the package of government contracts that Graña y Montero received in exchange for its multimillion dollar bribes.
150. As described above, the wholly rigged International Public Bidding Process that took place at the time, was undertaken to favor Graña y Montero. As such, given that Peru has provided no basis for abruptly and arbitrarily (without any notice or reason) abandoning the Direct Negotiation Process with Amorrortu, Peru breached its obligations under the USPTPA.
151. Indeed, when an interested party wants to initiate a Direct Negotiation with the government, the party must follow a series of specific steps once a Direct Negotiation begins.231 If the proposal does not satisfy the requirements, the relevant government entity has a duty to
230 See G. Castañeda Palomino, Gasoducto del Sur case: the prosecutor’s office has an agenda with the meetings of José Graña, Jorge Barata and Nadine Heredia, El Comercio, 31 August 2020 (C-34). ↩
231 See PeruPetro’s Rules and Procedures for the Direct Negotiation of Contracts (CLA-44); see also CER – 1 [Quiroga], ¶¶ 124-126. ↩
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communicate to the interested party the reasons for rejecting the proposal.232 Certainly, as explained by Expert Yaya, all decisions taken by the state must be duly reasoned.233
152. Neither Ortigas nor Tafur attempted to justify (or explain) why Amorrortu’s Proposal was supposedly rejected by PeruPetro’s Administration,234 or why the Board was never informed of the Baspetrol Proposal.235 In other words, clearly, Peru had no intention to engage in the Direct Negotiation of Blocks III and IV, because it had already promised them to Graña y Montero — a company with an established and consistent corruption profile.
153. Amorrortu anticipates that Peru will, in this arbitration, seek to rely upon the supposed rejection of Amorrortu’s Proposal by PeruPetro’s Board, or that the decision to open the Blocks III and IV to an International Public Bidding was taken before Amorrortu submitted the Proposal on May 28, 2014, to justify the fraudulent International Public Bidding of Blocks III and IV. This will be vehemently disputed by Amorrortu.
154. The pertinent question is, if it is true that the decision to open the Blocks to an international public bidding was taken before Amorrortu submitted the Baspetrol Proposal in May 2014, why did PeruPetro not notify Amorrortu of such decision? The answer is simple — all these purported decisions were part of a plan to benefit Graña y Montero. In truth, Peru cannot deny that Ortigas expressly invited Amorrortu to submit a Proposal for Direct Negotiation.236 In fact,
232 See PeruPetro’s Rules and Procedures for the Direct Negotiation of Contracts (CLA-44); see also CER – 1 [Quiroga], ¶¶ 192-193, 215-216. ↩
233 See CER – 1 [Yaya], ¶¶ 34-36. The absence of such justification shall result in the nullity of all acts subsequent to the one that suffers the defect of not being duly justified, as established in the grounds for nullity provided for in Article 10, paragraph 2, and Article 13.1 of Law 27444, General Administrative Procedures Act of Peru. ↩
234 See CWS – 1 [Amorrortu], ¶ 87. ↩
235 See Notice of Arbitration, 16 August 2023, ¶¶ 44-46 (Notice of Arbitration or NOA); see also CWS – 1 [Amorrortu], ¶ 90. ↩
236 See NOA at ¶ 39; see also CWS – 1 [Amorrortu], ¶¶ 79-85. ↩
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the Baspetrol Proposal was submitted twice to PeruPetro: First on May 28, 2014237 and then a second time to Tafur.238
155. However, as Tafur informed Amorrortu, the Baspetrol Proposal never made it to PeruPetro’s Administration.239 Indeed, there is no evidence that Peru ever followed the strict guidelines of a Direct Negotiation.240 It is not uncommon for collusion and corruption to remain undetected, as these transgressions are often veiled in seemingly legitimate arguments that attest to the fulfillment of all legal requirements. In conjunction with business managers or lobbyists who control corrupt entities, state officials are often granted the authority by high-ranking decision-makers to manipulate selection processes.241
156. Clearly, Peru’s officials did not simply fail to give reasons as to why the Baspetrol Proposal was not taken into consideration. Rather, the relevant Peruvian officials consciously took actions to deprive Amorrortu of his legitimate and reasonable expectation to obtain a contract to resume the oil drilling and extraction operations in Blocks III and IV. Indeed, Peru has seized Amorrortu’s opportunity to negotiate in good faith and under the strict parameters of the Direct Negotiation Process a contract to operate these Blocks. This was organized corruption.
157. There is no question that the International Public Bidding Process for Blocks III and IV was staged and plagued with corruption to benefit Graña y Montero. What’s more, to Amorrortu’s surprise, and contrary to Ortigas’ representations and the rights acquired by Amorrortu
237 See Email from Bacilio Amorrortu to Maria Angelica Cobena, 28 May 2014 (C-9). ↩
238 See CWS – 1 [Amorrortu], ¶ 90. ↩
239 See NOA at ¶ 44; see also CWS – 1 [Amorrortu], ¶ 90. ↩
240 See PeruPetro’s Rules and Procedures for the Direct Negotiation of Contracts (CLA-44). ↩
241 See CER – 1 [Yaya], ¶¶ 16, 25; see also, A. Revilla, Entrevista al doctor Ricardo Salazar Chávez, ex presidente del Consejo Superior de Contrataciones y Adquisiciones con el Estado, Revista de la Facultad de Derecho de la PuCP, No. 66 (2011) (CLA-111). ↩
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once he began the Direct Negotiation Process with Peru; on July 14, 2014, PeruPetro opened the International Public Bidding Process for the operation of Blocks III and IV.242 Certainly, there were evident irregularities with respect to (a) the Bidding Rules, (b) the modification of the Bidding Rules, and (c) the selection of Graña y Montero as a qualified company to participate in the International Bidding Process. This evidence of corruption has only begun to emerge in the months after Graña y Montero confessed its participation in the Corruption Scheme. Indeed, in 2017, Graña y Montero vehemently denied any wrongdoing. Critically, the evidence implicating Graña y Montero did not surface until 2018 when Odebrecht identified the company in its confession. In fact, Graña y Montero did not admit any wrongdoing until 2019.
158. The bidding process was marred with irregularities. The Bidding Rules were ostensibly neutral but were in fact meant to favor Graña y Montero. This is not difficult to identify seeing as Graña y Montero was a member of the Construction Cartel. As noted above, the Construction Cartel played a major role in working with the government to rig public tenders to benefit a handpicked company with the buena pro.
159. The Bidding Rules were not followed. For example, after an in-depth analysis of the file, Expert Yaya concluded that there was “no evidence that the bidders received the Technical Indicators that would determine their qualification.”243 Simply, there is no evidence that the interested companies received any document stating the requirements they needed to comply with in order to qualify as bidders in the International Public Bidding Process.
242 See PeruPetro, S.A., Press Release, 14 July 2014 (C-12). ↩
243 CER – 1 [Yaya], ¶ 22. ↩
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160. The first modification to the Bidding Rules contained the determination of a new value to be considered as a Minimum Indicator of Proved Reserves.244 This change was requested by Graña y Montero on October 2, 2014,245 and it obviously favored Graña y Montero, because it allowed it to qualify as a bidder in the International Public Bidding Process. Indeed, on December 12, 2014, Peru awarded Graña y Montero with the buena pro to operate both Blocks.246 In this sense, Expert Yaya concludes that this situation reinforces that “the results of the process show that the procedure was beneficial to only one bidder [. . .] and the Regulation for the Qualification of Oil Companies [. . .] was violated through interpretations that favored the winner of the bid, Graña y Montero S.A.A.”247
161. The second modification in the Bidding Rules of the International Public Bidding Process was the approval of new Bidding Rules (the New Bidding Rules).248 This modification approved a fundamental change in Format I that corresponded to the Letter of Interest to Participate in the International Public Bidding No. PERUPETRO- 001-2014 (that is, the bid for Block III).249 By virtue of this new Format I, the Annual Average Production for the 2012-2013 period could be accredited with field production at the wellhead.250 This modification had no legal motivation.251
162. The modification of Format I is of significance because it reveals that Graña y Montero did not qualify as a bidder in the International Public Bidding Process. Indeed, the review
244 See Memorandum No. CONT-0107-2014, 12 September 2014 (C-50). ↩
245 See CER – 1 [Yaya], ¶¶ 188-195, 231-235. ↩
246 Id. at ¶¶ 205, 246, 248. ↩
247 CER – 1 [Yaya], ¶¶ 195-196. ↩
248 Id. at ¶ 231. ↩
249 See PeruPetro Board Agreement No. 071-2014, 30 June 2014 (C-36). ↩
250 See CER – 1 [Yaya], ¶¶ 188-195. ↩
251 Id. at ¶¶ 188-189. ↩
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of the entire communication process between Graña y Montero and PeruPetro, demonstrates that in the first letter of interest to qualify for Block III, Graña y Montero exceeded the minimum required, while when the same Format is submitted with supporting information, the amount is reduced to values that do not reach the minimum required. This is visible from the snapshot below. Clearly, the amount that enabled Graña y Montero to exceed the minimum required includes a production of LGN that does not correspond to Block III, but to the Cryogenic Plant that Graña y Montero has in the District of Pariñas. Yet, the PeruPetro Committee unlawfully declared it valid.
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Primera Carta de Interés. |
Segunda Carta de Interés. |
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(*) Se refiere únicamente a indicadores costa adentro (**) Considera producción de petróleo, gas natural (boe) y líquidos de gas natural producidos por GMP S.A.. (***) Considera 59 Pozos perforados para GMP S.A. y 60 Pozos adicionales perforados en el Noroeste. (1) Producción promedio de los últimos dos años (2013 y 2012) |
(*) Se refiere únicamente a indicadores costa adentro (1) Producción promedio de los últimos dos años (2013 y 2012) |
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GMP presentó 2 cartas de interés con diferentes valores de producción. En la primera incluyó petróleo, GN y LGN de Planta Pariñas. En la segunda, solo petróleo. |
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GMP filed two Letters of Interest with different production values. In the first one GMP included petroleum, natural gas, and liquid natural gas. In the second one GMP only included petroleum.
163. Additionally, the New Bidding Rules resulted from the suggestions submitted by Oscar Miro-Quesada Rivera (Oscar Miro-Quesada), Manager of Promotion and Communications of PeruPetro. However, he was not authorized to submit these changes because PeruPetro had a committee for these purposes. In other words, Oscar Miro-Quesada was not authorized to modify the most fundamental rules in a public tender: the bidding rules.252
164. The Bidding Rules specified that the oil company or the consortium had to comply with certain technical indicators, according to which bidders had to have proven reserves of 18.27 thousand barrels (MB) as of December 31, 2013, a production of 2.89 MB per day as an average in the years 2012 and 2013 and, 90 development wells drilled in the last five (5) years (2009 - 2013). According to official information from the MEM and PeruPetro, Graña y Montero Petrolera, S.A. (GMP) did not satisfy these requirements. Specifically, GMP relied on its production in Block I (oil and gas) and Block V (oil), which was below the required minimum —
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producing only 2,200 barrels per day in 2012 and 2519 in 2013. GMP did not reach the minimum number of developed wells in its blocks either. And GMP used its equipment service contracts to fulfill the drilling requirements. Yet, these failures were simply ignored by PeruPetro, and GMP was selected as the sole qualified bidder.253
165. With respect to the Economic Indicators of the International Public Bidding Process, Article 3 of Supreme Decree No. 030-2004-EM authorized interested foreign companies to submit supporting financial information from their parent company.254 In this regard, Expert Yaya observes that GMP was illegally favored by the loose interpretation of Article 3 of Supreme Decree No. 030-2004-EM because PeruPetro’s Committee authorized GMP to qualify by using the financial information from its Peruvian parent company: Graña y Montero S.A.A.255 In this sense, Expert Yaya concludes that “being Graña y Montero S.A.A. and [GMP] separate legal entities, the group they form mixed the data of both companies to exceed the Technical Indicators, an act approved by [PeruPetro], defrauding the Peruvian State’s interest in choosing the highest bidder.”256 Expert Yaya further qualifies the International Public Bidding Process as a “sham constructed to [benefit] GMP.”257
166. Notably, even though Graña y Montero was the company that participated as a bidder in the International Public Bidding of Blocks III and IV, Peru granted the buena pro to
253 See CER – 1 [Quiroga], ¶¶ 7, 33, 35, 77-78. ↩
254 See Regulation on the Qualification of Petroleum Companies approved through Supreme Decree No. 030-2004-EM, 18 August 2004 (CLA-3). ↩
255 See CER – 1 [Yaya], ¶¶ 24, 198, 208, 237-242, 257-258. ↩
256 Id. at ¶ 204. ↩
257 Id. at ¶ 26. ↩
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GMP, a completely different and separate entity. Again, PeruPetro somehow justified this irregularity, which should have disqualified the corrupt company.
167. Pursuant to guidelines elaborated by PeruPetro, PetroPeru had the right to participate up to 25% in the license contracts of Blocks III and IV.258 Indeed, as of February 2015, PetroPeru had the intention to exercise this right.259 However, on March 20, 2015, Peru abruptly changed PetroPeru’s Board of Directors.260 Ultimately, the new Board decided not to approve PetroPeru’s participation in the license contracts to exploit Blocks III and IV as Graña y Montero’s partner. With this, Graña y Montero achieved 100% participation in the exploitation of Blocks III and IV.
168. In sum, Peru cannot deny that there was corruption when it arbitrarily decided to abort the Direct Negotiation Process initiated by Amorrortu for the operation of Blocks III and IV and opened a rigged International Public Bidding Process with the sole purpose of benefitting one company, Graña y Montero.
258 See Gestión, Petroperú podrá participar hasta con 25% en cinco lotes petroleros, 17 October 2013 (C-149). ↩
259 See Letter from PetroPeru to the Peruvian Securities Superintendence, 4 February 2015 (C-52). ↩
260 See Gestión, Petroperú cambia de presidente: sale Pedro Touzzet y entra Germán Velásquez, 20 March 2015 (C-150). ↩
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IV. THE TRIBUNAL HAS JURISDICTION TO DECIDE THE DISPUTE
169. This Tribunal has jurisdiction over the present dispute as the requirements of the USPTPA are satisfied.
170. Article 10 of the USPTPA delineates the terms and conditions under which Peru provides its general consent for the submission of a claim by an investor of the United States to arbitration. All these terms and conditions have been satisfied here. Amorrortu is a protected investor with a protected investment who has suffered damages caused by Peru’s flagrant breach of the Treaty. Further, Amorrortu provided more than the required six months of notice prior to commencing this arbitration and commenced this action within three years of the discovery of the corruption that breached Peru’s obligations under the USPTPA.261
A. AMORRORTU IS AN INVESTOR OF THE UNITED STATES OF AMERICA
171. Amorrortu has commenced this arbitration against Peru as an investor of the United States of America. Amorrortu is a national of the United States that made and “attempted through concrete action to make” an investment in the territory of Peru.262 Amorrortu accepted Peru’s offer to arbitrate in writing in his notice of arbitration (Notice of Arbitration or NOA) and provided a written waiver of any right to initiate or continue before any administrative tribunal or court under the law of any Party, any proceeding with respect to the measures alleged in this action to constitute a breach of the USPTPA.263 Amorrortu is therefore a protected “investor of a Party” as defined in Article 10.28 of the USPTPA.264
172. Article 10.28 of the USPTPA defines “investor of a Party” as follows:
261 See USPTPA Investment Chapter, Arts. 10.16, 10.18 (CLA-1). ↩
262 USPTPA Investment Chapter, Art. 10.28 (CLA-1). ↩
263 See NOA, Annex A. ↩
264 Ibid. ↩
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“[A] Party or state Enterprise thereof, or a national or an Enterprise of a Party, that attempts through concrete action to make, is making, or has made an investment in the territory of another Party; provided, however, that a natural person who is a dual national shall be deemed to be exclusively a national of the State of his or her dominant and effective nationality.”265
173. The USPTPA further defines a “national” as a “natural person who has the nationality of a Party according to Annex 1.3 or a permanent resident of a Party.”266 Under the laws of the United States, a natural person has the nationality of the United States of America if he has obtained the citizenship of the United States either by birth or by naturalization.267
174. Amorrortu is a citizen of the United States. As explained by Amorrortu in his Witness Statement, Amorrortu was born in Peru in the area of Talara and became a prominent engineer and executive in the oil industry of the region.268 However, the repressive regime of President Alberto Fujimori269 forced Amorrortu to flee Peru and obtain political asylum in the United States on April 26, 2000.270 In 2010, Amorrortu became a naturalized citizen of the United States, and has held this nationality, without interruption, since then.271 As such, Amorrortu was a citizen of the United States when he made the investment at issue in this arbitration in 2012. He was a citizen of the United States at the time of the underlying breach of the USPTPA by Peru. And he was a citizen of the United States when he filed the NOA.
265 Ibid. ↩
266 Ibid. ↩
267 See United States Immigration and Nationality Act, 8 U.S.C. § 1101, 27 June 1952, Section 22 (A) (CLA-13). ↩
268 See CWS – 1 [Amorrortu], ¶¶ 5-11. ↩
269 Fujimori was later accused and convicted for crimes against humanity. ↩
270 See NOA at ¶ 77; see also CWS – 1 [Amorrortu], ¶ 27; Letter from the U.S. Department of Justice, Immigration and Naturalization Service, 29 January 2001 (C-1). ↩
271 See CWS – 1 [Amorrortu], ¶ 33. See, e.g., U.S. passport issued to Amorrortu on March 1, 2010 (C-25); U.S. passport issued to Amorrortu on March 21, 2016 (C-26). ↩
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175. Amorrortu is not a dual citizen. As allowed by the Peruvian constitution,272 Amorrortu expressly renounced his Peruvian nationality prior to the commencement of these proceedings.273 Therefore, this is not a case of a dual national where the Tribunal needs to determine as a threshold question the dominant nationality of the investor.274 In any event, from the moment he had to seek asylum in the United States, Amorrortu no longer held any strong connections with Peru or his Peruvian nationality.275 On the other hand, he has a long-standing and close connection to the United States, and has strong personal, economic, tax, commercial, and political ties to the country.276
176. In sum, Amorrortu is not only a citizen of the United States, but the United States is his dominant and exclusive nationality.
B. AMORRORTU HAS A PROTECTED INVESTMENT UNDER THE USPTPA
177. Amorrortu’s investment in Peru is comprised of a bundle of rights that arise out of his investment in the Baspetrol enterprise and the rights that under Peruvian law this enterprise acquired almost two years after its incorporation to recover, through Direct Negotiation, the right to operate Block III (and IV). Amorrortu’s rights in the Direct Negotiation Process are a covered investment under the USPTPA.277
178. Article 1.3 of the USPTPA defines the term “covered investment” to mean, “with respect to a Party, an investment, [. . .], in its territory of an investor of another Party in existence as
272 See Peru’s Political Constitution, December 1993, Art. 53 (CLA-14). ↩
273 See NOA at ¶ 77. ↩
274 See USPTPA Investment Chapter, Art. 10.28 (requiring a dominant jurisdiction analysis for dual citizens) (CLA-1). ↩
275 See CWS – 1 [Amorrortu], ¶ 5. ↩
276 Id. at ¶¶ 27-33. ↩
277 See, e.g., USPTPA Ch. 1, Art. 1.3 (CLA-6). ↩
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of the date of entry into force of this Agreement or established, acquired, or expanded thereafter.”278 “Investment” is defined as “every asset that an investor owns or controls, directly or indirectly, that has the characteristics of an investment, including such characteristics as the commitment of capital or other resources, the expectation of gain or profit, or the assumption of risk.”279
179. The definition of “investment” includes an illustrative list of the “[f]orms that an investment may take.” Of relevance in this case, this list includes: “(a) an enterprise; (b) shares, stocks, and other forms of equity participation in an enterprise; [. . .] and (g) licenses, authorizations, permits, and similar rights conferred pursuant to domestic law.”280
180. As the text of the USPTPA makes clear, the term “investment” is broadly defined. This broad definition was not accidental. On the contrary, this broad definition reflects the intent of the United States and Peru to expand the reach of the definition of “investment” in their Treaty and, as a fundamental corollary, to expand the protections afforded to their nationals.
181. The legislative history of the USPTPA confirms that the United States was fully aware of the broad definition of “investment” in the USPTPA. In fact, several of the advisory committees that are required to advise the President of the United States, the Trade Representative, and Congress after the intent to enter into a trade agreement is announced,281 highlighted that the definition of investment in the USPTPA was “far more expansive than NAFTA” and objected to this wide definition of “investment.”282 However, the United States ultimately rejected these objections and agreed with the view that the broad definition of investment afforded more
278 USPTPA Ch. 1, Art. 1.3 (CLA-6). ↩
279 USPTPA Investment Chapter, Art. 10.28. (CLA-1). ↩
280 Ibid. ↩
281 See H.R. 3009, 107th Cong., Div. B, Title XXI, § 2104(e) (2002) (CLA-52). ↩
282 See e.g., Report of Intergovernmental Policy Advisory Committee, 1 February 2006, p. 3 (CLA-53). ↩
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protections to the U.S. investors. As explained by the Report of the U.S. Congress’ Advisory Committee for Trade Policy and Negotiations, the comprehensive nature of the definition of investment was one of the accomplishments of the treaty:
“Investment - The committee believes the agreement fully meets the investment requirement laid out in the Trade Act of 2002, and applauds the comprehensive nature of the investment provisions. The committee notes that there have been investment disputes with Peru in the past, and believes that the strong investment protections in the bilateral agreement are very important. These provisions should ensure that U.S. investors have the right to establish investments in Peru, and provide U.S. investors with the protections that Peruvian investors currently enjoy in the U.S. legal system.”283
182. Similarly, the Energy Committee reported that “against a background of serious concern by the [Industry Trade Advisory Committee on Energy and Energy Services (ITAC 6)] regarding erosion of investor protections in other free trade agreements, the US-Peru FTA and overall investment agreement approach appear to be a significant improvement.”284
183. The legislative history of the enactment of the USPTPA in Peru similarly reflects that Peru was primarily concerned with protecting its investors and, more relevant to this dispute, ensuring U.S. investors that their investment, in the broadest sense possible, were protected by the Treaty. This broad protection was fundamental to Peru’s efforts to attract more U.S. investment.285
184. The broad definition of investment is intended to broadly protect investors from the United States that invest in an enterprise in Peru and that through that investment obtained
283 The Report of Advisory Committee for Trade Policy and Negotiations, 1 February 2006, p. 5 (CLA-54). ↩
284 Report of the Industry Trade Advisory Committee on Energy and Energy Services (ITAC 6) on the US-Peru Free Trade Agreement, 31 January 2006, Section V (CLA-56). ↩
285 See Comisión de Comercio Exterior y Turismo, Período Anual de Sesiones 2005-2006, Dictamen sobre el Proyecto de Resolución Legislativa No14751/2005-PE, propone aprobar el “Acuerdo de Promoción Comercial Perú-Estados Unidos”, 21 June 2006 (CLA-57). ↩
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economic rights under Peruvian law. That is precisely what Amorrortu did when he invested in Baspetrol and successfully obtained the rights to directly negotiate the contracts for Blocks III and IV.
185. Amorrortu’s investment in Peru consists of his initial investment to form the Baspetrol enterprise, which commenced a process of Direct Negotiation for the contract to operate Blocks III and IV and the rights arising out of this process. In other words, Amorrortu’s investment begins with the Baspetrol enterprise and extends to the bundle of rights and interest derived from the successful performance of this enterprise. This investment falls squarely within the non-exclusive list of categories of covered investments and bears the three fundamental characteristics of an investment.286
186. Amorrortu’s investment in Baspetrol constitutes an “investment.” He committed “capital and other resources to this enterprise with the expectation of profits and the assumption of risk.”
187. After more than 12 years of exile, Amorrortu had become a U.S. citizen and created Baspetrol with the expectation to operate oil fields in Peru and with the main objective of recovering the right to operate Block III. Amorrortu was aware that his initial contract to operate Block III, which his company was forced to assign as part of the political persecution of the Fujimori regime,
286 USPTPA Investment Chapter, Art. 10.28. “[I]nvestment means every asset that an investor owns or controls, directly or indirectly, that has the characteristics of an investment, including such characteristics as the commitment of capital or other resources, the expectation of gain or profit, or the assumption of risk.” (Emphasis added) (CLA-1). ↩
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was to expire on April 4, 2013.287 Amorrortu was also aware that Peru had signed the USPTPA and had committed to fighting corruption and protecting U.S. nationals. Therefore, he decided to form Baspetrol in Talara and to assemble a team of experts with unmatched expertise in the operation and optimization of oil wells in the Talara Basin.
188. Amorrortu initially invested approximately US $500,000 in hard costs in rent, studies, personnel, and travel.288
189. He also contributed to Baspetrol his monetary claim against Peru for violations of his human rights, including the persecution, assaults, ambushes, and kidnap attempts to which Amorrortu and his family were subjected. Further, since 1992, Peru had recognized a debt in favor of Amorrortu’s previous company.289 Amorrortu is a creditor of Peru. This credit against the government stemmed from services rendered by Amorrortu to PetroPeru from 1988 to 1989, and PetroPeru’s failure to pay Amorrortu for the currency exchange deficiencies as agreed by the parties.
190. Amorrortu also contributed his experience and unique know-how. Amorrortu has extensive knowledge and experience in the oil and gas industry, not just as a petroleum engineer native from the Talara region, but specifically as somebody who had been optimizing the marginal wells in the Basin for more than twenty years. Amorrortu contributed this know-how and experience to Baspetrol. He became a key developer of Block III since this Block’s operation was first awarded to a private company, following the 1991 Peruvian oil sector reorganization.290
287 See Hydrocarbons Exploitation Services Contract signed between PetroPeru and PROVISA, 4 March 1993, p. 21 (C-4). ↩
288 See CWS – 1 [Amorrortu], ¶¶ 61-74. ↩
289 See Special Examination on PetroPeru’s debt in Propetsa’s favor, 18 June 1992 (C-2). ↩
290 See CWS – 1 [Amorrortu], ¶¶ 20-21. ↩
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191. As part of his business plan, on May 28, 2014, Amorrortu was able to commence an exclusive Direct Negotiation Process with PeruPetro to operate Blocks III and IV and acquired the appurtenant rights under Peruvian law.
192. PeruPetro is the government entity responsible for the negotiation and execution of the contracts to operate and maintain the oil fields and their subdivisions in Peru. Under Article 11 of the Laws of Hydrocarbons of Peru, PeruPetro has the authority to negotiate such contracts through Direct Negotiation or public bidding.291
193. PeruPetro’s Rules and Procedures for the Direct Negotiation of Contracts (PeruPetro’s Rules and Procedures for the Direct Negotiation of Contracts) establish a predictable legal framework that guarantees oil companies that commence a Direct Negotiation Process the exclusive technical evaluation and the community analysis of their proposals before any competing company is invited to participate in the process. This substantive right is not insignificant. The Direct Negotiation Process gives oil companies that are duly qualified a competitive advantage that is practically insurmountable and that, in practically all cases, concludes with the execution of the contract, particularly in the case of a company, that has the experience and success of Amorrortu in the Talara Basin. Indeed, PeruPetro’s public records do not reveal any Direct Negotiation Process that has not culminated in the execution of a contract. A company that commences a Direct Negotiation Process is entitled to a process in compliance with the principles of good faith, equal treatment, impartiality, due process, procedural conduct, and predictability under Peruvian law.292 This is the bundle of rights that Amorrortu had acquired
291 See CER – 1 [Quiroga], ¶ 7, 101, 130, 156. ↩
292 Id. at ¶¶ 107-123. ↩
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before PeruPetro kowtowed to the corrupt demands of Graña y Montero and opened an arbitrary and illegal bidding process.
194. The PeruPetro’s Rules and Procedures for the Direct Negotiation of Contracts that were in place in 2014 establish three distinct decisional phases in the Direct Negotiation Process: (i) an initial phase in which the commission appointed by PeruPetro to negotiate direct contracts with oil companies (the Direct Negotiation Commission) determines the availability of the subject project; (ii) a second phase in which the oil company is qualified, its proposal is evaluated, and the community reach process is commenced; and (iii) a third phase in which PeruPetro gives notice of the Direct Negotiation Process to the public at large and invites the submission of competing proposals from any oil company interested in the project. Once these three phases are satisfied, then the PeruPetro team proceeds to draft the concession contract with the oil company.
195. Critically, PeruPetro has 10 days to complete the first phase and determine whether the company is qualified. Under Peruvian law, PeruPetro’s silence constitutes an implicit determination that the underlying project is available and that the company is qualified, giving the oil company further rights to continue with the Direct Negotiation Process.293
196. The Direct Negotiation Process is commenced with the submission of a proposal for Direct Negotiation by an interested oil company. The first phase in the process is the determination of whether the oil block is available for Direct Negotiation and the completion of the survey or identification of the block to be negotiated. A block is available for Direct Negotiation when the block is not under contract and is not the subject of a public bidding process that has been open to the public. Upon confirmation that the block is available, the Division of Exploration
293 Id. at ¶ 108. See also, Gold Reserve Inc. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/09/1, Award, 22 September 2014, ¶¶ 367-369 (CLA-31). ↩
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of PeruPetro must comply with the procedures established for the identification and survey of the subject blocks.
197. The PeruPetro’s Rules and Procedures for the Direct Negotiation of Contracts not only lay out the procedures of this phase, but includes the following flow decision chart that illustrates this process:
| Code Name |
GFCN-008 Procurement by Direct Negotiation |
Page Version |
1 of 6 3.0 |
Perú petro |
| General Manager | Solicitation and Procurement Management Office |
Exploration Management | ||
|
[Flowchart showing the initial process for a letter of interest. "Start" leads to "Receive letter of interest". A decision point P1 asks "Is the area available for Direct Negotiation?". If "No", it leads to "Draft letter to the interested Company notifying them that their request is ineligible. Send to General Management for their signature.", which then leads to "Send letter to interested Company" and ends. If "Yes", it leads to "Review letter content". A decision point P2 asks "Is it compliant?". If "No", it leads to "Return letter with comments and/or suggestions for consideration". If "Yes", it leads to "Sign letter and return to the Solicitation and Procurement Management Office for remission". This path then splits, one arrow going to "Order implementation of procedure GFBD-004: Block Composition, Expansion, Delimitation and Nomenclature for Contracts" and the other to "Implement procedure GFBD-004: Block Composition, Expansion, Delimitation and Nomenclature for Contracts". Both end at a connector labeled "A".] |
||||
198. At the end of this phase, the deliverables are clear: if the block is available for Direct Negotiation, PeruPetro continues the process internally and defines the boundaries of the blocks. If the property is not available for Direct Negotiation, PeruPetro must send a letter to the oil company which has to be pre-approved by the general management and the contract division. Indeed, the format of the communication denying the request for Direct Negotiation at this stage is
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attached as Appendix 01 to the PeruPetro’s Rules and Procedures for the Direct Negotiation of Contracts.294
199. As soon as the proposal for Direct Negotiation is received, a working commission is supposed to be formed to evaluate the company pursuant to the certification of qualification law. This commission has 10 days from the date in which the proposal is received to either identify any deficiency that needs to be cured by the oil company or declare the company as qualified.
200. By law, PeruPetro is only authorized to commence a Direct Negotiation Process with oil companies that have complied with the procedure for certification of qualification established in Article 11 of the Law of Hydrocarbons.295 As explained in the Report of Expert Anibal Quiroga (Expert Quiroga), this certification process is deemed to be satisfied when a proposal for Direct Negotiation is submitted to PeruPetro, and PeruPetro does not issue any response identifying any of the limited statutory basis for denial of certification.296 Article 2 of the Rules of Qualification for Oil Companies establishes that “every oil company shall be duly qualified by PeruPetro, S.A., to commence the negotiation of a contract.”297 Article 2 further states that a certification of qualification “does not create any right over the area of the Contract.”298 In other words, a certification of qualification does not give the qualified company the right to establish a contract with PeruPetro, which has to be negotiated by the parties. But the certification of qualification
294 See PeruPetro’s Rules and Procedures for the Direct Negotiation of Contracts, Appendix 01 (CLA-44). ↩
295 See CER – 1 [Quiroga], ¶¶ 30-32, 34-36, 101. ↩
296 Id. at ¶¶ 115-123; Gold Reserve v. Venezuela, ¶¶ 367-369 (CLA-31). Indeed, PetroPeru did not respond to Claimant’s Proposal for a Direct Negotiation Process, which is seen as an implicit, tacit, or constructed administrative act that grants the right to negotiate and continue the process. The Peruvian Hydrocarbons Law protects this right and must be respected by the host State. PeruPetro must also abide by it; any action against it would violate Claimant’s fair and equitable treatment. ↩
297 See CER – 1 [Quiroga], ¶ 103. ↩
298 Ibid. ↩
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gives the certified oil company the right to proceed to the contract negotiation phase of the Direct Negotiation Process with PeruPetro.299
201. The qualification process is very well defined in the Rules of Qualification. The process begins with the submission by the oil company expressing its interest in negotiating a contract for the operation or exploitation of oil fields in Peru. A recently incorporated company like Baspetrol is required to include in its presentation: (i) documents establishing that the company has the financial capacity to complete the underlying project; (ii) the commitment of an operator with the technical capacity to conduct the oil operations or a contract with an experienced oil services company; and (iii) a sworn declaration confirming that the company has a team with the experience and expertise necessary to complete the project.300 These requirements were easily satisfied by Baspetrol, which through various presentations and written proposals had established that Amorrortu had successfully operated and/or serviced Block III and work in the Talara Basin for more than twenty years. Amorrortu had also put together a team of unquestionable technical capacity and had a business plan to fund the operations of Baspetrol.
202. Within 10 days from receiving the request from the oil company, PeruPetro has to give notice to the oil company of any missing document, which must be presented in 30 days after receipt of the notice.301 If PeruPetro does not make any observation to the request within the 10-day period, PeruPetro is obligated to issue the certification of qualification and the oil company is deemed to have satisfied the qualification requirements for all legal purposes. Specifically, Article 14 of the Rules of Qualification states that “PeruPetro is obligated to grant the certification of qualification of the oil company, within the ten days from receipt of the request” provided that the
299 Id. at ¶¶ 115-123. ↩
300 Id. at ¶ 95. ↩
301 Id. at ¶¶ 96, 97. ↩
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oil company presents the required documents and if no additional document is requested to cure any deficiency in the request after the completion of the evaluation process.302
203. At the same time, a separate commission is responsible for evaluating the proposal and communicating with the oil company with respect to any issue in the proposal. And a third commission commences the community participation process if applicable. The following flow chart illustrates the various steps of this second phase.
| Code Name |
GFCN-008 Procurement by Direct Negotiation |
Page Version |
2 of 6 3.0 |
Perú petro |
| General Manager | Work Committee | Environmental Protection and Community Relations |
||
|
[Flowchart showing the second phase of the process. Connector "A" leads to "Order implementation of procedure GFRC-001: Citizen Participation..." and "Appoint Work Committee...". This leads to "Create and open folder to file all negotiation documents" and "Evaluate company in accordance with the 'Qualification of Oil Companies' procedure". A decision point P3 asks "Does it qualify?". If "Yes", it leads to connector "B". If "No", it leads to "Draft letter to the interested Company notifying them that their request is ineligible. Send to General Management for their signature." This then leads to "Review letter content". A decision point P4 asks "Is it compliant?". If "No", it leads to "Return letter with comments and/or suggestions for consideration". If "Yes", it leads to "Sign letter and return to Work Committee for remission". The "Draft letter..." path also leads to "Send letter to Interested Company" which ends at connector "K". The "Citizen Participation" path leads to connector "F".] |
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204. At the end of this phase, the expected deliverables are: (i) the qualification or rejection of the oil company within 10 days of receipt of the Direct Negotiation proposal; (ii) the evaluation of the proposal; and (iii) the commencement of the community participation process.303
302 Id. at ¶ 105. ↩
303 See PeruPetro’s Rules and Procedures for the Direct Negotiation of Contracts (CLA-44). ↩
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205. After PeruPetro has confirmed and surveyed the subject oil blocks, the oil company has satisfied the qualification process, the proposal has been evaluated, and the community participation process has commenced, if applicable, PeruPetro must give public notice of the Direct Negotiation Process and invite any interested oil company to submit their proposal.
206. The invitation that PeruPetro publishes must comply with the form communication attached as Appendix 04 to the PeruPetro’s Rules and Procedures for the Direct Negotiation of Contracts.304
207. If no competing proposal is submitted, then PeruPetro must proceed to work with the Direct Negotiation oil company and prepare the contract. In the case that competing proposals are submitted, PeruPetro must complete the qualification process for any interested entity, and then evaluate these alternative proposals. If the competing company is not qualified or if the proposals are not satisfactory, then PeruPetro may continue with the drafting of the contract with the oil company that commenced the Direct Negotiation Process. The following flowchart in PeruPetro’s own Rules and Procedure illustrates this process:
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| Code Name |
GFCN-008 Procurement by Direct Negotiation |
Page Version |
3 of 6 3.0 |
Perú petro |
| General Manager | Work Committee | |||
|
[Flowchart showing the third phase. Connector "B" leads to "Post Block availability for oil procurement to the web portal for 30 calendar days." A decision point P5 asks "Did any other companies show interest during the 30-day period?". If "Yes", it leads to "Evaluate new interested companies". A decision point P6 asks "Is the evaluation compliant?". If "Yes", it leads to "Order implementation of procedure GFCN-002: Conduct of Selection Process - Invitation to Tender" and ends at connector "K". If P6 is "No", it leads to connector "C". If P5 is "No", it leads to connector "D". Connector "C" leads to "Notify General Management that the Direct Negotiation Procurement process will be completed. Draft letter(s) to other interested Company(-ies) notifying them that their requests are ineligible. Send letter(s) to General Management for their signature." This path then leads to "Review letter content". A decision point P7 asks "Is it compliant?". If "Yes", it leads to "Sign letter(s) and return them to Work Committee for remission" and then "Send letter(s) to interested Company(-ies)" ending at connector "K". If P7 is "No", it leads to "Return letter(s) with comments and/or suggestions for consideration" and then back to connector "C".] |
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208. As can be easily observed, the oil company that commences a Direct Negotiation Process has the advantage of having its proposal fully evaluated and approved by the local community before any competing proposals are even considered. The competitive advantage of this procedure is significant.
209. The process in question is not discretionary and is subject to legal regulation. Once initiated by a proposal from an oil company, such as Baspetrol, PeruPetro is unable to withdraw from the process. Peruvian law constrains the government’s discretion upon the commencement of the Direct Negotiation Process by virtue of a set of legally protected rights and a thorough procedure.
210. As Expert Quiroga explains, hydrocarbon exploitation contracts, as legal contracts governed by the rules of private law, must be negotiated, and executed according to the rules
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imposed by the principle of good faith understood as loyalty in the negotiation of the contract and as correction in the behavior on the concluded contract, in accordance with Article 1362 of the Civil Code.305
211. Further, PeruPetro must perform this Direct Negotiation Process in compliance with the requirements that govern a negotiation process with the government. Specifically, the principle of impartiality, provided for in Article IV, subsection 1, numeral 1.5 of the General Administrative Procedure Law, imposes on the government entities the duty to perform their duties dispensing equal treatment and without discrimination or favoritism.306
212. The principle of procedural conduct, regulated by Article IV, subsection 1, numeral 1.8 of the Law of General Administrative Procedure, requires the government to carry out its actions and adopt its decisions strictly respecting the rights and legitimate interests of the administered and of third parties, within a framework of strict compliance with the principle of good faith.307
213. The principle of predictability, enshrined in Article IV, subsection 1, numeral 1.15 of the Law of General Administrative Procedure, grants certainty to the administered with respect to the knowledge of the administrative legal norms, to the performance of certain administrative powers and regulatory changes.308
214. These are the rights that Amorrortu acquired under Peruvian law and that are protected as investment under the USPTPA.
215. PeruPetro turned its well-defined process to evaluate a Direct Negotiation proposal on its head to favor Graña y Montero.
305 See CER – 1 [Quiroga], ¶¶ 20, 32-34, 155, 170-171, 175-176. ↩
306 Id. at ¶¶ 22, 200-205. ↩
307 Id. at ¶¶ 23, 206-207, 215. ↩
308 Id. at ¶¶ 24, 212-214. ↩
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216. It is undisputed that Amorrortu, through Baspetrol, expressed an interest in commencing the Direct Negotiation Process on August 8, 2013,309 reiterated its interest in the Direct Negotiation Process on January 16, 2014,310 on March 20, 2014,311 and in a meeting with Ortigas on May 22, 2014.312 At that meeting, Ortigas invited Amorrortu to submit a Direct Negotiation proposal, which Amorrortu did on May 28, 2014. In the Baspetrol Proposal, as well as in his subsequent communications, Amorrortu made clear that he had received an invitation to present the Baspetrol Proposal to PeruPetro; a fact that Ortigas never denied or contested.
217. The Baspetrol Proposal was very attractive not only because it had been presented by Amorrortu, with his history of success in the Talara Basin, but also because it had the support of the local community in Talara, which would receive 5% of the revenues under the Baspetrol Proposal. In addition, the Proposal included (i) a legal section which emphasized that the Proposal satisfied the requirements for Direct Negotiation and was therefore submitted for that purpose;313 (ii) an economic section which described the economic terms proposed to PeruPetro;314 and (iii) an exhaustive section which detailed relevant technical expertise, explaining Amorrortu’s expertise in oil exploitation as well as his proven ability to coordinate with international experts in order to maximize production from the Blocks.315
218. At the time the Baspetrol Proposal was presented, on May 28, 2014, Amorrortu formally commenced the Direct Negotiation Process. Critically, PeruPetro never informed Amorrortu that the Blocks were not available, as it was required to do under PeruPetro’s Rules and
309 See Letter from Bacilio Amorrortu to Luis Ortigas, 31 July 2013 (C-31). ↩
310 See Email from Bacilio Amorrortu to Maria Angelica Cobena, 16 January 2014 (C-7). ↩
311 See Email from Bacilio Amorrortu to Maria Angelica Cobena, 20 March 2014 (C-74). ↩
312 See CWS – 1 [Amorrortu], ¶¶ 79-85. ↩
313 See Proposal from Baspetrol SAC to PeruPetro to operate Blocks III and IV of the Peruvian North- West, 27 May 2014, pp. 10-12 (C-11). ↩
314 Id., pp. 13-14. ↩
315 Id., pp. 9-10. ↩
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Procedures for the Direct Negotiation of Contracts. Of course, PeruPetro could not have told Amorrortu that the Blocks were not available because the Blocks were in fact available and not subject to any legitimate contractual interest.
219. PeruPetro suggests that as early as April of 2014, its Directory had decided316 that Blocks III and IV were to be submitted to public bidding. This argument misses the mark. First, irrespective of what internal decision PeruPetro had made, the fact is that the Blocks were available for Direct Negotiation when Amorrortu submitted the Baspetrol Proposal, as the corrupt International Public Bidding Process was not opened until July 14, 2014. Second, the Direct Negotiation Process was in the best interest of PeruPetro, as it would allow PeruPetro to evaluate the Baspetrol Proposal before the project was open for competing proposals. At the end of the day, if PeruPetro received better proposals, it would simply open a public bidding process as provided in PeruPetro’s Rules and Procedures for the Direct Negotiation of Contracts. In other words, the decision to ignore the Baspetrol Proposal and open the International Public Bidding Process did not benefit PeruPetro. Third, after the International Public Bidding Process was opened, Amorrortu was never told that when he submitted the Baspetrol Proposal the Blocks were not available for Direct Negotiation. On the contrary and as previously discussed, PeruPetro’s Directory informed Amorrortu that it had rejected the Baspetrol Proposal, even though PeruPetro’s Administration was not even aware of the Proposal. Simply put, even if PeruPetro had already launched the corrupt process to crown Graña y Montero — which it had not — that process was illegitimate ab initio and with very little relevance in these proceedings, if any.
220. Even more, PeruPetro in an untimely communication informed Amorrortu that Baspetrol did not qualify to negotiate a contract with PeruPetro even though Baspetrol had complied
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with all the qualification requirements, as Expert Quiroga explains.317 Not surprisingly the only qualified bidder was Graña y Montero, who instead of having to present a proposal that would be compared to the pre-qualified, pre-approved Baspetrol Proposal, obtained the contracts after all interested companies were disqualified. Of course, this action is consistent with Graña y Montero's modus operandi in the multiple projects in which it was deemed the only qualified company.
221. As Expert Quiroga confirms, PeruPetro could not open a public bidding process without adjudicating the Baspetrol Proposal and affording Amorrortu the right to have the Baspetrol Proposal evaluated before competing entities were allowed to submit competing proposals.318 It is clear that when the Baspetrol Proposal was submitted, the Blocks were available, and PeruPetro should have proceeded to evaluate the Baspetrol Proposal, to start the community process, and to qualify Baspetrol. This process should have been conducted without any interference of any competing interest. After the conclusion of this process, PeruPetro should have notified the public of the Direct Negotiation Process and offer any oil company interested in the project the opportunity to submit a proposal. Notably, the rigged International Public Bidding Process confirms that there was little interest in these Blocks from other competitors. For Block III, the only bidders were Baspetrol and Graña y Montero, and for Block IV, there was only an additional bidder, Omega Energy International S.A.C.319 Based on this evidence, it is very unlikely that additional bidders would have participated in a properly held Direct Negotiation invitation process, after the Baspetrol Proposal would have been duly evaluated and approved.
317 See CER – 1 [Quiroga], ¶¶ 30-37, 58-76. ↩
318 Id. at ¶¶ 124-132. ↩
319 See CER – 1 [Yaya], ¶¶ 171-185, 211-228. ↩
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222. Amorrortu's reasonable expectations matured when he formally commenced the Direct Negotiation Process. At that point, Amorrortu was set apart from other investors and Baspetrol became an oil company vested with all the rights of an oil company qualified to negotiate with PeruPetro pursuant to the certification of qualification rules that has commenced a Direct Negotiation Process.
223. Instead of following with this process, PeruPetro decided to open the International Public Bidding Process in which Baspetrol had to be qualified with all other competing companies, even though Baspetrol had already been qualified.
224. The USPTPA protects the interests of Amorrortu, through Baspetrol, in the Direct Negotiation Process with PeruPetro for the contract to operate Blocks III and IV. The explicit language of the USPTPA, which broadly defines investment to include, not only the rights of an investor in an enterprise, but also any rights or claims the investor may have under Peruvian law in this case, particularly with respect to the expansion of the assets and rights of its initial investment.320 Indeed, the USPTPA goes as far as protecting, “an investor that attempts through concrete action to make, is making, or has made an investment.”321
225. When Amorrortu commenced the Direct Negotiation Process, Amorrortu, through Baspetrol, acquired a number of substantive rights, including the right to a Direct Negotiation conducted in compliance with the norms of good faith, impartiality, observance of principles of due process, and predictability.322 These rights are not simply procedural inchoate rights. These
320 See USPTPA Investment Chapter, Art. 10.28 (CLA-1); see also USPTPA Ch. 1, Art. 1.3 (CLA-6). ↩
321 USPTPA Investment Chapter, Art. 10.28 (CLA-1). ↩
322 See CER – 1 [Quiroga], ¶¶ 12, 153-214. ↩
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are substantive rights with monetary value particularly because Amorrortu had operated Block III for more than twenty years and had the know-how and capability to optimize the wells in Block III and Block IV.
226. As it has been long recognized, “an investment is not a single right but is, like property, correctly conceived of as a bundle of rights, some of which are inseparable from others and some of which are comparatively free-standing.”323 The bundle of rights acquired by Amorrortu are an integral part of Amorrortu's business plan when he formed Baspetrol.
227. Notably, recent arbitral awards that have undoubtedly held that a substantive right to negotiate in good faith a contract to expand an initial investment is an investment under definitions of investment almost identical to the definition of investment in the USPTPA. The decisions in Lemire, Bosca, and EDF make clear that an investor that has acquired rights under the applicable law of the host state to negotiate an agreement in good faith has an investment interest that is protected by most bilateral treaties.
228. Lemire was an ICSID case, and the jurisdictional analysis was based on the definition of investment in Article 25(1) of the ICSID Convention in addition to the definition in the applicable Bilateral Investment Treaty between the United States of America and the Ukraine. However, the legal analysis of the tribunal is highly persuasive as the investment rights at issue in Lemire are very similar to the rights that Amorrortu seeks to enforce in this arbitration.
229. In Lemire, the claimant had invested in a music radio station under the laws of Ukraine with the expectation to increase its size and audience of Gala and to establish a network
323 ATA Construction, Industrial and Trading Company v The Hashemite Kingdom of Jordan, ICSID Case No. ARB/08/2, Award, 18 May 2010, ¶ 96 (CLA-102). ↩
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of several radio stations in the country. To this end, the claimant submitted more than 300 applications for radio frequencies, all of which were denied. The claimant commenced an arbitration proceeding alleging that the denial of its frequency applications was arbitrary and capricious and that the frequency applications of other competing radio stations had been illegally granted.324 The claimant alleged a violation of the fair and equitable treatment obligation, among other treaty violations.325 The claimant alleged that he had a protected investment right in that when he made his initial investment in the radio station he had a legitimate expectation that he would be authorized to enlarge the activities of his radio company.326
230. On the issue of the existence of an investment, the tribunal began by noting that it had no doubt that the claimant had established a protected investment interest:
“Summing up the evidence, the Tribunal has no doubt that Mr. Lemire actually made an investment in Ukraine, although the undisputed total amount is only 236,000 USD. Respondent has not challenged that Mr. Lemire is — at least since 2006 — indirect owner of 100 % of the share of capital of Gala [the initial radio station].”327
231. Ukraine argued that the tribunal did not have jurisdiction with respect to claims arising out of claimant's “failure in tenders for additional frequencies on the ground that such tenders precede investments and that pre-investment activities fall outside” the definition of investment under the ICSID Convention.328
232. The tribunal determined that the claims related to the tenders for new frequencies and broadcasting licenses could not be considered pre-investment activities because the claimant
324 See Lemire v. Ukraine, Decision on Jurisdiction and Liability, ¶ 409 (CLA-26). ↩
325 See, e.g., Lemire v. Ukraine, Decision on Jurisdiction and Liability, ¶229 (CLA-26). ↩
326 Id. at ¶ 212 et. seq. ↩
327 Id. at ¶ 54. ↩
328 Id. at ¶ 86. ↩
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had made an initial investment — irrespective of the amount of this investment — in acquiring the first radio station.329 The allocation of frequencies, according to the Lemire tribunal was a condition for claimant's ability to expand his investment in the initial radio station:
“This conclusion is confirmed by the text of the BIT. The BIT expressly extends protection to ‘associated activities' which include 'access to . . . licences, permits and other approvals . . .. ' [see Article II.3.(b)] moreover provides that ‘Neither Party shall in any way impair by arbitrary or discriminatory measures the . . . expansion . . . of investments.”330
233. With respect to the Article 25(1) analysis, the tribunal noted that at the time of the tender, claimant had already invested in the initial radio station. The application of additional frequencies and licenses formed an integral part of the initial radio station's business operations. The tribunal noted that it is irrelevant whether the tender was part of the claimant's initial business plan:
“For this conclusion it is immaterial whether the receipt of additional frequencies had already been envisaged in Claimant's initial business plan and whether Respondent had made any commitment to support such a business plan. It suffices that the additional frequencies were sought by [the initial radio] as part of its strategy to defend and/or expand its market share. It is furthermore immaterial whether additional frequencies were sought to extend the reach of Gala's existing program or to access new audiences with newly designed programs. In either case, the applications were part of Gala's business strategy to maintain and enhance its position in the Ukrainian market.”331
234. Simply put, the frequency applications formed an integral part of Gala's overall business operation.
329 Id. at ¶ 89. ↩
330 Id. at ¶ 91. ↩
331 Id. at ¶¶ 97-98. ↩
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235. This reasoning applies in this case. Amorrortu formed the enterprise Baspetrol in 2012, two years before he formally presented the Proposal for Direct Negotiation to PeruPetro and acquired the appurtenant rights under Peruvian law. By the time Amorrortu presented the Baspetrol Proposal, it was a going concern and was in negotiation with other entities. Amorrortu's presentation of the Baspetrol Proposal to initiate the Direct Negotiation Process is an expansion of his initial investment, which is protected under the USPTPA. Critically, like the US-Ukraine Bilateral Investment Treaty at issue in Lemire, the USPTPA protects investments and the expansion of these investments. In fact, the USPTPA protects attempts through “concrete actions” to make an investment.332 Therefore, under the reasoning of Lemire, Amorrortu has a protected investment in his efforts to expand Baspetrol's business plan through the Direct Negotiation Process to operate Blocks III and IV.
236. The decision of the tribunal in Bosca is another award that confirms that an investor that seeks to expand its initial investment through a negotiation process protected by local law, has a protected investment interest in that negotiation process. Bosca was a popular brand of sparkling wines in Europe with a service agreement to help a local company in Lithuania to produce Bosca sparkling wines for the local market. The government of Lithuania opened a bidding process to privatize its brand of sparkling wine, and Bosca participated in the public bid to acquire the national brand. Ultimately, Bosca was declared the winner of the public tender and commenced the negotiation process to draft the acquisition agreement. However, the parties were not able to reach an agreement because the government insisted on a clause imposing several fines that was unacceptable to Bosca. After the government terminated the negotiations, Bosca filed a judicial
332 USPTPA Investment Chapter, Art. 10.28 (CLA-1). ↩
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action against the privatization agency alleging that the government had failed to negotiate in good faith. Ultimately, the supreme court of Lithuania found that Bosca had been the victim of unfair and arbitrary conduct in the tender process and awarded Bosca its fees and costs.333
237. Bosca then commenced an arbitration under the Italy-Lithuania Bilateral Investment Treaty. Bosca alleged that Lithuania had failed to accord Bosca just and fair treatment, national treatment, most-favored nation treatment and guarantees of legal expropriation.334 The investor claimed that “but for” the state's conduct, Bosca would have earned around EUR 207 million from operating the national company.335
238. Lithuania sought to dismiss the arbitration, arguing inter alia, that Bosca did not have a protected investment interest. The arbitral tribunal disagreed and held that Bosca had a protected investment right in the negotiation of the agreement.336 Like the tribunal in Lemire, the tribunal in Bosca first focused on Bosca's initial investment in Lithuania and held that Bosca had contributed its know-how to the company producing its wines in Lithuania.337 Then, the arbitral tribunal held that Bosca's interest in expanding to acquire the national brand was an expansion of its initial investment that was protected as an associated activity to its initial investment.
239. The arbitral tribunal reasoned that while Lithuania had not interfered with Bosca's initial investment, its agreement to provide its know-how to the company producing its wines, Lithuania had interfered with an associated activity to that investment. That is, Bosca's efforts to expand this investment with the acquisition of the national brand.338
333 See, e.g., Bosca v. Lithuania, Award, ¶¶ 187-200 (CLA-46). ↩
334 Id. at ¶¶ 183-190, 245-249, 256-259, 265-268. ↩
335 Id. at ¶¶ 275-278. ↩
336 Id. at ¶¶ 164-178. ↩
337 Id. at ¶ 168. ↩
338 Id. at ¶ 166. ↩
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240. Lithuania argued that the tender to acquire the national company did not have anything to do with the service contract that Bosca had to produce wines in Lithuania and which the tribunal had considered to be a protected investment.339 However, the tribunal rejected this argument holding that whether the expansion was directly contemplated by the initial investment is irrelevant.340 The tribunal determined that the activities were sufficiently related through “their common purpose, aims, and operation.”341
241. Here, Baspetrol's business plan was to service the oil industry in the Talara Basin. Amorrortu's Direct Negotiation Process with PetroPeru is an integral part of that business plan, and therefore, it is protected.342 Certainly, in Bosca, the claimant had won the bid, but Amorrortu's Direct Negotiation rights are similar particularly given the fact that the vast majority of Direct Negotiation Processes — if not all — concluded in a successful contract.
242. The principle that an investor who seeks to expand its initial investment through a negotiation process has a protected investment interest in a fair negotiation was also implicitly followed by the tribunal in EDF.
243. In EDF, the claimant had invested in a joint venture to operate duty free stores at several airports in Romania. The initial operational license expired, and Romania failed to grant the claimant's renewal request. The claimant alleged that the denial of its renewal application was arbitrary and unreasonable. According to the claimant, the denial of the renewal application was a retaliatory measure for its refusal to pay bribes to several government officials.343
339 Id. at ¶ 38. ↩
340 Id. at ¶ 173. ↩
341 Ibid. ↩
342 See Duke Energy International Peru Investments No. 1, LTD. v. The Republic of Peru, ICSID Case No. ARB/03/28, Decision on Jurisdiction, 1 February 2006, ¶ 119 et. seq. (CLA-61). ↩
343 See EDF v. Romania, Award, ¶ 216. (CLA-4). ↩
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244. The issue of whether the claimant had a protected investment was not highly disputed by Romania. However, the tribunal stated that it shared the view “expressed by other tribunals that one of the major components of the [Fair and Equitable Treatment] standard is the parties' legitimate and reasonable expectations with respect to the investment they have made.”344 In the view of the tribunal, this reasonable expectation included the right of the claimant to negotiate a renewal of its license in good faith and free of corruption.345
245. In EDF, Romania did not take issue with the principle that the claimant's rights in negotiating the renewal of a license after the initial license in which it invested had expired was a protected investment right. The EDF tribunal went on to hold that a host country breaches its fair and equitable standard obligations when it exercises its discretion to negotiate a contract with an investor with corruption, which is the principle at the core of Amorrortu's claim in this arbitration.346
246. Therefore, under the reasoning of Lemire, Bosca, and EDF, Amorrortu has a covered investment right in the Direct Negotiation Process for Blocks III and IV in that he made his initial investment in the enterprise Baspetrol with the reasonable expectation that this enterprise could work in the oil fields in the Talara Basin and participate in a Direct Negotiation Process once the contract between PeruPetro and Interoil expired.
247. The USPTPA sets out specific requirements and suggestions that a claimant must satisfy before submitting its claim to arbitration — all of which have been satisfied by Amorrortu.
344 Ibid. ↩
345 Id. at ¶ 221. ↩
346 Ibid. ↩
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248. On September 19, 2019, Amorrortu initiated his arbitration case against Peru by dispatching the mandatory Notice of Intent (NOI) to the country.347 Peru received the NOI on September 24, 2019,348 and acknowledged its receipt in a correspondence dated November 28, 2019.349 Soon after, representatives for Amorrortu traveled to Peru intending to resolve the dispute in good faith. Regrettably, despite their best efforts, the meetings were unsuccessful.350 As such, Amorrortu submitted his claim to arbitration because the required ninety-day period to submit a claim under the USPTPA has expired,351 and more than six months have elapsed since the events gave rise to Amorrortu's claims.352
249. Moreover, to submit a claim for breach of an investment agreement, a claimant should not have submitted “the same alleged breach” to an administrative tribunal or court of the host State or to any other binding dispute settlement procedure.353
250. On February 13, 2020, Amorrortu submitted his initial notice of arbitration against Peru, marking the first arbitration Amorrortu filed. The Permanent Court of Arbitration (PCA) administered the arbitration and was officially recorded as PCA Case No. 2020-11 (Amorrortu I).
251. The tribunal in Amorrortu I rendered a partial award on jurisdiction on August 5, 2022 (August 2022 Partial Award). In that Partial Award, the tribunal rejected Peru's objection that Amorrortu's allegations were insufficient to state a claim for violation of the USPTPA. Indeed, the tribunal held that in its view, “the Respondent ha[d] failed to establish that the express invitation of PeruPetro to Mr. Amorrortu by Chief Administrator Ms. Tafur to participate in the
347 Claimant's Notice of Intent to Arbitrate Against Peru, 19 September 2019 (NOI) (C-23). ↩
348 See NOA at ¶ 66; see also, Proof of NOI downloaded by the Government of Peru, 20 September 2020 (C-76); DHL Proof of Delivery, 24 September 2019 (C-77). ↩
349 Letter from Ricardo Ampuero Llerena, former President of the Special Commission representing Peru in International Investment Disputes, to Akerman LLP representatives of Bacilio Amorrortu, 28 November 2019 (C-28). ↩
350 See USPTPA Investment Chapter, Art. 10.15 (CLA-1). ↩
351 Id. at Art. 10.16(2). ↩
352 Id. at Art. 10.16(3). ↩
353 Id. at Art. 10.18(4)(a). ↩
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International Public Tender could not give rise to rights of procedural fairness on which an award might be made in Mr. Amorrortu's favor.”354 The tribunal further held that “it would be open to the Tribunal to conclude that the refusal of PeruPetro to take these (or any) steps in a procedure which Mr. Amorrortu says PeruPetro through its President instructed him to pursue, constituted a denial of [Fair and Equitable Treatment] in the application of Direct Negotiation Procedure 8 as promised by the President himself, thereby justifying an award in Mr. Amorrortu's favor.”355
252. However, a majority of the tribunal concluded that the waiver submitted by Amorrortu under Article 10.18 of the USPTPA was non-compliant and dismissed the claim on a technical jurisdictional ground. In his Dissenting Opinion, the Honorable Ian Binnie, K.C., President of the tribunal in Amorrortu I, acknowledged that Amorrortu had submitted a compliant waiver as of April 25, 2021, that is, well over a year before the tribunal ruled on its jurisdiction. Indeed, Judge Binnie reasoned, “there is nothing in the Treaty to support this ‘one strike and you're out' limitation. Peru's ‘offer to arbitrate' remained open (and remains open to this day) for acceptance and was in fact accepted by Mr. Amorrortu when he supplemented his initial filing with a compliant waiver on April 25, 2021.”356
253. Indeed, because there is nothing in the USPTPA precluding Amorrortu from resubmitting his claim after the waiver in an initial submission was deemed non-conforming, and because he attempted to resolve this matter through good faith consultation to no avail,357 Claimant accepted Peru's offer to arbitrate in writing in his August 16, 2022 NOA and provided a written waiver of any right to initiate or continue before any administrative tribunal or court under the law
354 Amorrortu v. Peru [I], ¶ 170. ↩
355 Id. at ¶ 155. ↩
356 Id. at ¶ 269 (emphasis added). ↩
357 Indeed, legal representatives of Amorrortu in Amorrortu I traveled to Peru shortly after submitting the NOI to meet with government officials and negotiate in good faith the resolution of this dispute. However, despite their best efforts, the negotiations were ultimately unproductive, and Amorrortu was compelled to proceed with Amorrortu I. ↩
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of any Party, any proceeding with respect to the measures alleged in this action to constitute a breach of the USPTPA.358
254. On December 22, 2022, Claimant submitted an application to vacate the partial and final awards rendered by the tribunal in Amorrortu I.359 Shortly after, Claimant kindly sent a courtesy email to Foley Hoag, who had represented Peru in the initial arbitration.360 The application to vacate is currently pending before the Paris Court of Appeal.
255. Peru cannot seriously claim that the Claimant has failed to satisfy the requirements provided in the USPTPA, prior to the commencement of this arbitration.361
256. Lastly, under Article 10.18 of the USPTPA, “[n]o claim may be submitted to arbitration under this Section if more than three years have elapsed from the date on which the claimant first acquired, or should have acquired, knowledge of the breach alleged under Article 10.16.1 and knowledge that the claimant (for claims brought under Article 10.16.1(a)) . . . has incurred loss or damage.”362
257. This arbitration was timely filed.
258. Critically, on July 14, 2014, on the basis of the Corrupt Scheme, Peru decided to ignore the Baspetrol Proposal to operate the Blocks and instead it initiated the rigged International Public Bidding Process to favor Graña y Montero. At the same time, although some of Peru's unlawful conduct commenced more than three years before the September 19, 2019 NOI was sent, the fact that such conduct was in breach of the USPTPA was unknown and unknowable
358 See NOA, Annex A. It is worth noting that by the plain text of Article 10.18.2 of the USPTPA, Amorrortu is not required to present this irrevocable waiver in a document separate from this Notice of Arbitration. See Amorrortu v. Peru [I], ¶ 224. ↩
359 See Application to Vacate Awards in Amorrortu I, 22 December 2022 (C-159). ↩
360 See Email from Reed Smith LLP to Foley Hoag regarding the Application to Vacate Awards, 3 January 2023 (C-160). ↩
361 See Oficio No. 535-2022-EF/32, 21 September 2022 (C-78). ↩
362 USPTPA Investment Chapter, Art. 10.18 (CLA-1). ↩
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to Amorrortu until June 2019 when Graña y Montero finally acknowledged its involvement in the Corruption Scheme undertaken together with Odebrecht in various megaprojects in Peru.363
259. Only at that point, in 2019, could Amorrortu begin to suspect for the first time that corruption was at the heart of Peru's failure to consider the Baspetrol Proposal, of Peru's purported rejection of the Baspetrol Proposal, of the rigged International Public Bidding Process, and ultimately of the granting of the buena pro to Graña y Montero. Indeed, in 2017, Graña y Montero vehemently denied any wrongdoing. Critically, the evidence implicating Graña y Montero did not surface until 2018 when Odebrecht identified the company in its confession. In fact, Graña y Montero did not admit any wrongdoing until 2019. As a result, Amorrortu did not become aware of the fact that Peru's prior conduct was unlawful under the USPTPA until June 2019 and could not have learned such information earlier with any amount of due diligence.
260. Furthermore, Amorrortu cannot be blamed for any purported failure to complain about Peru's breaches of the USPTPA in 2017 because Peru — and its co-conspirator in its Treaty breaches, Graña y Montero — affirmatively concealed the fact that the International Public Bidding Process of Blocks III and IV was plagued with corruption.
261. Accordingly, Amorrortu could not have known that Peru was in breach of the USPTPA until June 2019, when Amorrortu understood that corruption had plagued the International Public Bidding Process and that the process had been designed to benefit Graña y Montero, following instructions from the Peruvian Presidency. Therefore, Amorrortu gave Peru notice of his intent to arbitrate this dispute well within the statute of limitations and has timely submitted his claims under the USPTPA.
363 See Agencia EFE, Constructora admite un soborno por 3,7 millones de dólares en el Gobierno de Humala, El Economista América, 7 June 2019, (C-81). ↩
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262. By exercising its discretion to contract on the basis of corruption, Peru has breached its Treaty obligations.
263. The applicable standard of proof to establish corruption is more than satisfied here, by the overwhelming evidence of corruption. Peru is responsible for this corruption, which clearly constitutes a violation of the Fair and Equitable Treatment obligations under the USPTPA.
264. Peru cannot longer dispute that Graña y Montero paid millions of dollars in bribes to Peru's president and government officers. The tale of corruption between the Humala administration and Graña y Montero is undisputed.364 Nor can Peru dispute any more that these bribes were paid in exchange for government contracts to Graña y Montero which were awarded under the guise of public biddings designed to make Graña y Montero the sole qualified bidder.
265. The Corruption Scheme has now been fully exposed to the public. Indeed, Graña y Montero's executives have admitted that they paid bribes to the Humala administration to obtain government contracts in the same period in which Graña y Montero somehow became the only qualified bidder for the contract to operate Blocks III and IV in an illegal public process. The admission that Graña y Montero executives met with the Nadine Heredia to discuss Blocks III and IV is just but another chapter in this tragic saga of corruption and abuse of power.365
266. The license contracts to operate Blocks III and IV were awarded as part of the Corruption Scheme. Amorrortu commenced the Direct Negotiation Process for Blocks III and IV.
364 See CER – 1 [Yaya], ¶¶ 85-86. ↩
365 See G. Castañeda Palomino, Gasoducto del Sur case: the prosecutor's office has an agenda with the meetings of José Graña, Jorge Barata and Nadine Heredia, El Comercio, 31 August 2020 (C-34). ↩
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But his statement of interest and proposals were shelved to give way to the phony International Public Bidding Process in which the rules and regulations were bent or ignored to benefit Graña y Montero.366
267. Allegations of corruption are very serious, and it is by now well-established that allegations not supported by evidence and based on suppositions are not sufficient to prove corruption.367 Some tribunals have taken this principle to the extreme and required “clear and convincing evidence” to prove corruption.368 However, most tribunals have agreed that direct evidence of corruption is only available in a few unique cases and that corruption may be proved by circumstantial evidence that establishes with “reasonable certainty” the alleged corruption.369
268. In Metal Tech v. Uzbekistan,370 the various forms of evidence which led the tribunal to find corruption were circumstantial in nature. To prove corruption in the Metal Tech proceedings, the parties disagreed on the burden and standard of proof applicable to allegations of corruption. While the claimant contended that the corruption alleged by Uzbekistan must be proved by “clear and convincing evidence,” Uzbekistan posited that the corruption may be proved through “prima facie or circumstantial evidence.”371 The tribunal disagreed holding that circumstantial evidence was sufficient:
366 See CER – 1 [Yaya], ¶¶ 228, 249-260. ↩
367 See EDF v. Romania, Award, ¶¶ 221-237 (CLA-4). ↩
368 Id. at ¶ 232. ↩
369 Metal-Tech LTD. v. The Republic of Uzbekistan, ICSID Case No. ARB/10/3, Award, 4 October 2013, ¶ 243 (CLA-62); see also C. Lamm et. al, Fraud and Corruption in International Arbitration (Liber Amicorum Bernardo Cremades, 2010), pp. 702-703 (CLA-103). Indeed, “in a survey of twenty-five arbitral awards regarding bribery, only five tribunals ruled that ‘clear and convincing' evidence was needed. . . to declare the agreement invalid because of corruption [...] Professor Crivellaro surveyed twenty-five arbitral awards involving bribery and corruption charges and concluded that arbitrators frequently rely on indirect evidence of corruption when credible allegations of corruption have been made.” ↩
370 Ibid. ↩
371 Id. at ¶ 228. ↩
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“[T]he Tribunal will determine on the basis of the evidence before it whether corruption has been established with reasonable certainty. In this context, [the Tribunal] notes that corruption is by essence difficult to establish and that it is thus generally admitted that it can be shown through circumstantial evidence.”372
269. Therefore, the Tribunal demonstrated how various forms of circumstantial evidence, such as the amount of payments awarded, the qualifications of the alleged consultants, the (lack of) documentary evidence of services rendered and the consultants' relationships with those in power, can and should be contemplated as a whole. The tribunal unequivocally acknowledged that corruption can be shown through circumstantial evidence subject to a “reasonable certainty” standard.373 This standard is consistent with the applicable burden of proof under Peruvian law and in practically all of the states in the United States,374 and according to section 2 of Procedural Order No. 1, dated 27 June 2023, the seat of this arbitration is New York, United States.375
270. It is beyond dispute that PeruPetro awarded the contract to operate Blocks III and IV as part of the Corruption Scheme designed to grant all the government contracts that Graña y Montero requested in exchange for the bribes and corrupt influence in the cult of the construction with Odebrecht. Indeed, as shown below, there are numerous red flags of corruption present in this case.
372 Id. at ¶ 243 (emphasis added). ↩
373 See U. Cosar, Claims of Corruption in Investment Treaty Arbitration: Proof, Legal Consequences, and Sanctions, Legitimacy: Myths, Realities, Challenges, ICCA Congress Series, Volume 18, ICCA & Kluwer International Law 2015, pp. 531-556 (CLA-63). The Tribunal in Metal-Tech v. Uzbekistan, an ICSID arbitration that arose under the Israel-Uzbekistan BIT, concluded that “[r]ules establishing presumptions or shifting the burden of proof under certain circumstances, or drawing the inferences from a lack of proof are generally deemed to be part of the lex causae", which in those cases were “essentially the BIT" and the laws incorporated by reference therein. ↩
374 See Rutas de Lima S.A.C. vs. Municipalidad de Metropolitana de Lima, UNCITRAL, Arbitration Award, 11 May 2020, ¶¶ 394-402 (CLA-64). ↩
375 See Procedural Order No. 1, 27 June 2023, ¶ 2.1. ↩
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271. The evidence of corruption is simply overwhelming.
272. Graña y Montero have admitted that the President of Peru together with his advisers concocted a plan to award government contracts to Graña y Montero through rigged public bidding processes in which Graña y Montero was the only qualified bidder.376 As Expert Yaya explains, “[i]t should be noted that, during the government of the President of the Republic Ollanta Humala Tasso, the companies belonging to the Graña y Montero Group, [repeatedly] obtain[ed] the buena pro as the sole bidder. [Indeed] . . . the companies . . . won as the sole bidder in 60% of the selection process in which they participated [. . . ] which brings our first conclusion: during the government of Ollanta Humala Tasso, the companies of the Graña y Montero group had the privilege that the Requirements of the selection processes were designed in a fraudulent manner and avoiding any type of competition. [When] other bidders were present, they were negatively discriminated against, without any response or through unmotivated responses or with apparent motivation.”377
273. Graña y Montero paid millions of dollars in bribes to obtain any government contract it requested pursuant to this plan.378 During the Humala administration, which was co-governed by his wife, Nadine Heredia, the official “presidential couple,” Odebrecht secretly donated US $3 million in cash to both Ollanta Humala and Nadine Heredia. This donation granted them access to high-level government decision-making, particularly in the Ministries of Economy, Energy and Mines, and Construction, where Heredia significantly influenced decisions. Odebrecht's manager, Jorge Barata, considered the donation a quid pro quo. Privileged meetings
376 See CER – 1 [Yaya], ¶¶ 171-228. ↩
377 Id. at ¶¶ 86 (emphasis in the original), 153. ↩
378 See E. Salazar Vega, Lava Jato: ex Graña y Montero confesó corrupción en 16 proyectos de infraestructura, 22 May 2021 (C-102). ↩
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were held at the Government Palace between Nadine Heredia, Jorge Barata, and José Graña to seek influence, discussing projects such as the South Peruvian Gas Pipeline and oil blocks III and IV of Talara. This collusive and corrupt relationship resulted in privileges and favors for Odebrecht and Graña y Montero, contrary to the public interest. Nadine Heredia managed decisions favoring these private partners with the collaboration of Luis Miguel Castilla (Minister of Economy and Finance) and Eleodoro Mayorga (Minister of Energy and Mines), among other ministers.379
274. These bribes gave Graña y Montero total control of the negotiation process for government contracts. As already explained, Marcelo Odebrecht admitted that Graña y Montero helped Jorge Barata to establish contact with Peruvian politicians, and that the role of Graña y Montero was decisive in choosing the projects in which bribes could be paid, and in suggesting the name of presidential candidates that should receive financing.380 Not surprisingly, Graña y Montero received an exorbitant number of government contracts during the Humala administration.381
275. Worse yet, 60% of these contracts were awarded with Graña y Montero as the sole qualified bidder.382
276. Simply put, the vast majority of contracts awarded during the Humala administration to Graña y Montero were awarded consistent with the Corruption Scheme: (1) a facially legitimate public bidding process where (2) all competitors of Graña y Montero fail to qualify and (3) Graña y Montero is the only qualified bidder.
379 See CER – 1 [Yaya], ¶ 40; see also, K. Barboza Quiroz, Fiscal pide 26 años y 6 meses de cárcel para Heredia y 20 años para Humala, 7 May 2019 (C-151); see also S. Perez et. al, The Road to the Land of the Mother of God: A History of the Interoceanic Highway in Peru (2023) pp. 227-229 (CLA-66). ↩
380 See A. Zambrano, Odebrecht Cae Sobre GyM, Hildebrandt en sus trece, 30 November 2017 (C-42). ↩
381 See CER – 1 [Yaya], ¶¶ 152-153; see also Graña y Montero Contracts during the Humala Presidency (Yaya-9). ↩
382 See CER – 1 [Yaya], ¶ 153. ↩
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277. To pretend that during this period of corrupt bonanza, the contracts to operate Blocks III and IV were legitimate is simply not credible.
278. This argument is not credible because there was no justification to abort the process of Direct Negotiation with Amorrortu when Baspetrol was led by Amorrortu with his history of success in the Talara Basin. The argument is not credible because Blocks III and IV had a significant importance for Graña y Montero, as it would increase its presence in the Talara Basin. This argument is not credible because PeruPetro amended the Bidding Rules to allow Graña y Montero to qualify. And this argument is not credible because PeruPetro ceded its 25% interest in the Blocks in favor of Graña y Montero. In other words, the process under which Graña y Montero obtained the contracts for Blocks III and IV was plagued with irregularities, all of which confirm that these contracts were part of the Corruption Scheme.
279. As Expert Yaya concluded, the process under which Graña y Montero obtained the contracts to operate Blocks III and IV is highly suspect:
“That it is important to consider the meeting revealed by José Graña Miró Quesada with Nadine Heredia, ‘NdH’, prior to the publication of the Terms and Conditions.
That there is no evidence that the bidders received the details of the Technical Indicators that would be used for their qualification, specifically, the material called average production.
That the Rules of the International Public Bid No. PERUPETRO-001-2014 to Grant the License Contract for the Exploitation of Hydrocarbons in Block III were illegally modified, when an official, identified as Oscar Miró Quesada Rivera, intervened in them, who was not competent to receive the observations and propose the changes.
That the modifications to the Rules of the International Public Tender No. PERUPETRO-001-2014 to Grant the License Contract for the Exploitation of Hydrocarbons in Block III, favored the bidder Graña y Montero S.A.A. Likewise, the bidder Graña y Montero S.A.A. was illegally favored by the broad interpretation of the provisions of Article 3 of Supreme Decree No. 030-2004-EM,
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which allows supporting the economic indicators of foreign companies with the equity of their parent company but does not establish the possibility of qualifying the Peruvian company with the economic indicators of another Peruvian company.”383
280. In any event, revelations of the agenda of some of the executives of Graña y Montero have all but confirmed that Blocks III and IV were part of the Corruption Scheme and indeed were the subject of discussions between Nadine Heredia and the executives of Graña y Montero. As Expert Yaya explains, “the meeting agendas of one of the main directors of Graña y Montero S.A.A. and Graña y Montero Petrolera. . . [i]t can be observed . . . that on April 28, 2014. . . José Graña and Nadine Heredia, 'Ndh', reportedly met prior to the publication of the Bidding Rules for Blocks III and IV.”384
281. Therefore, Peru cannot seriously deny that the contracts for Blocks III and IV were obtained by Graña y Montero as part of the Corruption Scheme.
282. As set forth below, Peru is responsible for the corrupt acts that harmed Amorrortu, including the acts and omissions of Nadine Heredia — and indeed, President Ollanta Humala, PeruPetro, Ortigas, and MEM as agents and/or organs of Peru established under the laws of the state.
283. PeruPetro was established to “reformulate the State's business role and the consequent restructuring of the Energy and Mining Sector.”385 Nadine Heredia had official and semi-official duties, including the responsibility of assigning special government contracts.386
383 Id. at ¶¶ 207-210. ↩
384 Id. at ¶¶ 174, 216. ↩
385 See PeruPetro, History, (C-85); see also Organic Hydrocarbons Law No. 26221, 13 August 1993 (CLA-45) (Law establishing PeruPetro in 1993). ↩
386 See CER – 1 [Yaya], ¶ 17. ↩
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Ortigas was the President of PeruPetro during the relevant period, and MEM is the governmental ministry that regulates activities of PeruPetro, among others.387 Therefore, under international law, the acts or omissions of Nadine Heredia, President Ollanta Humala, PeruPetro, Ortigas, and MEM in exercise of their official functions are attributable to Peru.388
284. Under chapter 10 of the USPTPA:
“A Party's obligations under this Section shall apply to a state enterprise or other person when it exercises any regulatory, administrative, or other governmental authority delegated to it by that Party, such as the authority to expropriate, grant licenses, approve commercial transactions, or impose quotas, fees, or other charges.”389
285. An “enterprise” is defined as “any entity constituted or organized under applicable law, whether or not for profit, and whether privately-owned or governmentally-owned, including any corporation, trust, partnership, sole proprietorship, joint venture, or other association.”390 An “enterprise of a Party” is defined as “an enterprise constituted or organized under the law of a Party.”391
286. The conducts identified by Amorrortu as giving rise to this dispute were carried out in the exercise of PeruPetro's governmental authority. First, PeruPetro through Ortigas instructed Amorrortu to present the Baspetrol Proposal to initiate the Direct Negotiation Process of Blocks III and IV.392 Second, Ortigas lied to Amorrortu when he made representations to Amorrortu to the effect that the Baspetrol Proposal would be subject to a legal-technical-economic analysis by
387 See Peruvian Ministry of Energy and Mines, Sectors, Ascribed Organs, (C-153). ↩
388 Intl. Law Commission's Arts. on the Responsibility of States for Internationally Wrongful Acts, Arts. 4, 5, 8 (CLA-33); see also Commentaries on Draft Articles on Responsibility of States for Internationally Wrongful Acts, 2001 (hereinafter the Draft Articles Commentary or Commentary) (CLA-67). ↩
389 USPTPA Investment Chapter, Art. 10.1(2) (emphasis added) (CLA-1). ↩
390 USPTPA Preamble (CLA-2). ↩
391 USPTPA Investment Chapter, Art. 10.28 (CLA-1). ↩
392 See CWS – 1 [Amorrortu], ¶ 85. ↩
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PeruPetro, and that it would be discussed by PeruPetro's Board.393 Third, as provided under Peruvian law, the Direct Negotiation Process was binding on PeruPetro when, after 10 days, PeruPetro had not responded to the Baspetrol Proposal.394 Fourth, PeruPetro flouted Peruvian law and infringed on Amorrortu's right to due process when it rejected the Baspetrol Proposal without any explanation even after the Direct Negotiation Process had already become binding on PeruPetro.395 Fifth, PeruPetro engaged in an irregular bidding process when it declared Graña y Montero, a sole bidder, as the winner of the International Public Bidding Process.396 Sixth, MEM failed to ensure that due process was accorded to Amorrortu in the Direct Negotiation Process.397 These actions were taken as part of PeruPetro's governmental mandate to negotiate and monitor contracts on behalf of Peru. Therefore, it is squarely within the authority delegated to PeruPetro by Peru vis-à-vis the petroleum sector of Peru's economy.
287. PeruPetro is an enterprise of Peru because it is constituted under Peruvian law.398 Additionally, Peru's obligations under Chapter 10 of the USPTPA applies to the above-referenced conducts of PeruPetro because those actions, as explained, were taken in exercise of governmental authority delegated to PeruPetro by Peru.
288. In a similar manner, under the 2001 ILC Articles on Responsibility of States for Internationally Wrongful Acts (the ILC Articles), a state can be held responsible for, among others: (i) conducts of its organs; and/or (ii) conducts of persons or entities exercising elements of governmental authority.399 Article 4 provides as follows:
393 Id. at ¶ 83. ↩
394 See CER – 1 [Quiroga], ¶¶ 25-28, 34-36. ↩
395 Ibid. ↩
396 See CER – 1 [Yaya], ¶¶ 171-228, 242-245. ↩
397 See Peruvian Ministry of Energy and Mines, Sectors, Ascribed Organs, (C-153). PeruPetro is an ascribed organ to the Peruvian MEM. ↩
398 See Organic Hydrocarbons Law No. 26221, 13 August 1993 (CLA-45). ↩
399 ILC Arts. on State Responsibility, Art. 5. ↩
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“The conduct of any State organ shall be considered an act of that State under international law, whether the organ exercises legislative, executive, judicial or any other functions, whatever position it holds in the organization of the State, and whatever its character as an organ of the central Government or of a territorial unit of the State. An organ includes any person or entity which has that status in accordance with the internal law of the State.400
289. Therefore, “State organs” do not only include the quintessential branches of government, namely the legislature, judiciary, or executive branches. This reference “covers all the individual or collective entities which make up the organization of the State and act on its behalf.”401 Additionally, “the reference to a State organ in article 4 is intended in the most general sense. It is not limited to the organs of the central government.”402 Moreover, “the term is one of extension, not limitation, as is made clear by the words 'or any other functions.'”403 Further, “it is irrelevant for the purposes of attribution that the conduct of a State organ may be classified as 'commercial' or as act iure gestionis.”404
290. Under Article 4 of the ILC Articles, it is also irrelevant that a person concerned may have had ulterior or improper motives or may be abusing public power. Where such a person acts in an apparently official capacity or under color of authority, the actions in question will be attributable to the state.405
291. Furthermore, according to the Commentary on the Draft Articles:
“In internal law, it is common for the 'State' to be subdivided into a series of distinct legal entities. For example, ministries, departments, component units of all kinds, State commissions or corporations may have separate legal personality under internal law, with separate accounts and separate liabilities. But
400 Id., Art. 4 (emphasis added). ↩
401 Draft Articles Commentary, p. 40 at ¶ 1 (emphasis added). ↩
402 Id. at ¶ 6. ↩
403 Ibid. ↩
404 Ibid. ↩
405 Id. at p. 41, ¶ 13. ↩
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international law does not permit a State to escape its international responsibilities by a mere process of internal subdivision. The State as a subject of international law is held responsible for the conduct of all the organs, instrumentalities and officials which form part of its organization and act in that capacity, whether or not they have separate legal personality under internal law.”406
292. The Draft Articles Commentary also explains the extent to which internal law is relevant in determining the status of a state organ. The Draft Articles Commentary states that “it is not sufficient to refer to internal law for the status of State organs”407 because:
“In some systems the status and functions of various entities are determined not only by law but also by practice, and reference exclusively to internal law would be misleading. The internal law of a State may not classify, exhaustively or at all, which entities have the status of “organs”. In such cases, while the powers of an entity and its relation to other bodies under internal law will be relevant to its classification as an “organ”, internal law will not itself perform the task of classification. Even if it does so, the term “organ” used in internal law may have a special meaning, and not the very broad meaning it has under article 4.”408
293. Therefore, in determining whether an entity is a state organ, both internal law and practice are relevant, and the tribunal should consider its “very broad meaning.”409
294. On the other hand, Article 5 of the ILC Articles provides as follows:
“The conduct of a person or entity which is not an organ of the State under article 4 but which is empowered by the law of that State to exercise elements of the governmental authority shall be considered an act of the State under international law, provided the person or entity is acting in that capacity in the particular instance.”410
406 Id. at p. 39, ¶ 7 (emphasis added). ↩
407 Id. at. p. 42, ¶ 11. ↩
408 Ibid. (emphasis added). ↩
409 Ibid. ↩
410 ILC Arts. on State Responsibility, Art. 5 (emphasis added). ↩
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295. Article 5 provides an alternative means in which a state may be held responsible for conducts of other persons or entities not considered “organs” of the state in the sense of Article 4. This situation arises where such person or entity exercises some elements of governmental authority. In this regard, the Draft Articles Commentary explains that:
“The article is intended to take account of the increasingly common phenomenon of parastatal entities, which exercise elements of governmental authority in place of State organs, as well as situations where former State corporations have been privatized but retain certain public or regulatory functions.”411
296. The Commentary further explains that the generic term “entity” reflects the wide variety of bodies which, though not organs, may be empowered by the law of a State to exercise elements of governmental authority, such as “public corporations, semi-public entities, public agencies of various kinds and even, in special cases, private companies.”412 It also notes that for purposes of Article 5, an entity is covered “even if its exercise of authority involves an independent discretion or power to act; there is no need to show that the conduct was in fact carried out under the control of the state.”413
297. As noted by the tribunal in EDF,414 for an act to be attributed to the state under ILC Article 5, two cumulative conditions must be fulfilled: (i) the act must be performed by an entity empowered by the internal law of the state to exercise elements of governmental authority; and (ii) the act in question must be performed by the entity in the exercise of the delegated governmental authority.
411 Draft Articles Commentary at p. 40, ¶ 1 (emphasis added). ↩
412 Id. at ¶ 2. ↩
413 Id. at ¶ 7. ↩
414 See EDF v. Romania, ¶ 191(CLA-4). ↩
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298. Here, PeruPetro's conduct is attributable to Peru because PeruPetro is an organ or agent of Peru established under Peruvian law, and at every material time was exercising governmental authority. First, there is abundant information on PeruPetro's website establishing that it is an organ or agent of Peru, or that it was empowered to exercise certain governmental authority. Second, the various actions of PeruPetro in question were within the scope of its delegated powers.
299. PeruPetro was established under the internal laws of Peru. Specifically, Law No. 26221 states that PeruPetro was created to “reformulate the State's business role” and “restructuring of the Energy and Mining Sector.”415 By way of background information on PeruPetro's website, it is stated that PeruPetro is the “new state company” that assumes the rights and obligations of PetroPeru (the predecessor state company).416
300. Under the “about us” tab on the website, PeruPetro is described as:
“[T]he State company, on behalf of the Peruvian State and it is responsible for promoting, negotiating, underwriting and monitoring contracts for exploration and exploitation of hydrocarbons in Peru.”417
301. The webpage ends with the following statement:
“In virtue of this rule, which aims to promote investment in hydrocarbon exploration and exploitation, the Peruvian government created PERUPETRO S.A. as a State Enterprise Sector Private Law Energy and Mines, which began operations on November 18, 1993.”418
302. PeruPetro's own website makes clear that it is a “state company,” and that it acts “on behalf of the Peruvian State.” As noted previously under Article 4(1) of the ILC Articles and
415 See PeruPetro, History (C-85). ↩
416 Ibid. ↩
417 Ibid. (emphasis added). ↩
418 Ibid. (emphasis added). ↩
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explained in the Commentary, reference to “State organs” covers entities which act on the state's behalf. Because PeruPetro is such an entity, as expressly stated on its website, there can be no doubt that it is an organ of Peru.
303. Therefore, as long as PeruPetro is a state organ acting on behalf of Peru, it is inconsequential that under Peruvian law PeruPetro possesses a separate legal identity or is considered a private enterprise.
304. Alternatively, even if PeruPetro is not considered an organ of Peru, its conduct is still attributable to Peru under Article 5 of the ILC Articles because: (i) it is empowered by Peruvian law to exercise elements of the Peruvian government authority; and (ii) the conduct in question was performed by PeruPetro in the exercise of the delegated Peruvian governmental authority.419
305. There is no doubt that PeruPetro performs “certain public or regulatory functions.”420 The mission statement on its website states as follows:
“We are the organization that manages the reserves and resources of hydrocarbons with quality, to contribute to the sustainable development of Peru, harmonizing the interest of the State the community and investors.”421
306. An entity saddled with the responsibility of ensuring the sustainable development of a state is necessarily empowered to exercise governmental authority in ensuring that such governmental objective is achieved. Similarly, any action taken by an entity to establish a balance between the state's interest on the one hand, and the interests of the communities within the state as well as investors in the state on the other hand, must also necessarily utilize governmental
419 See EDF v. Romania, ¶ 191(CLA-4). ↩
420 See Draft Articles Commentary, p. 42 at ¶ 1. ↩
421 See PeruPetro, Mission and Vision, (C-154) (emphasis added). ↩
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powers to achieve those goals. It is this governmental stamp of approval that gives legitimacy to the entity's actions. Without such legitimacy, the actions would be ineffective. Therefore, by declaring its mission to include these responsibilities, PeruPetro has expressly certified that it performs public functions based on the delegated governmental authority.
307. Under the “About us” section of PeruPetro's website, the purpose of the company includes, among others: (i) to promote hydrocarbons investment in exploration and exploitation activities; (ii) to negotiate, execute and monitor contracts and technical evaluation agreements; (iii) to assume the appropriate payment of fee, overfee and income participation; (iv) to propose to the Ministry of Energy and Mines other policy options related to hydrocarbon exploration and exploitation; (v) to participate in development of sector plans; (vi) to coordinate with the corresponding entities, compliance with the provisions related to environmental preservation.422
308. These functions cannot be performed without having some sort of governmental backing. For instance, an entity without any affiliation to the government cannot promote investments in the form of exploration and exploitation in a country's hydrocarbons sector. Neither would such an entity be able to negotiate, execute or monitor contracts with investors on behalf of the government. Similarly, it cannot prescribe fees to be paid by industry players, nor can it propose policies to the government through governmental ministries. Therefore, these functions are clearly a reflection of governmental authority exercised by PeruPetro.
309. Further, under the “negotiation & contracts” section of PeruPetro's website, PeruPetro “[represents Peru]” and “negotiates, signs and monitors contracts about hydrocarbons.”423 Again, an entity cannot represent a state in negotiations, execution, and monitoring of contracts if the state has not expressly bestowed on such entity legitimate
422 See PeruPetro, About Us (C-155). ↩
423 See PeruPetro, Negotiation & Contracts (CLA-110). ↩
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governmental authority. There is therefore no doubt that PeruPetro is empowered by Peru to exercise governmental authority in carrying out its functions.
310. In sum, actions taken by PeruPetro with regard to Amorrortu and Baspetrol are attributable to Peru because PeruPetro is an organ of Peru, or because PeruPetro was exercising elements of governmental authority at all relevant times. Therefore, the international obligations set forth in the USPTPA applies to PeruPetro's conducts culminating in this dispute. The same is true with respect to the actions of Nadine Heredia, Ortigas, and all the other agencies that directly or indirectly participated in the corruption orchestrated to benefit Graña y Montero.
311. This reprehensible and unlawful course of conduct violates the fair and equitable treatment obligations guaranteed by the USPTPA. Article 10.5 of the USPTPA requires Peru to accord covered investments “treatment in accordance with customary international law, including fair and equitable treatment.”424 The standard “fair and equitable treatment” is not defined in the USPTPA. But it is by now well established that fair and equitable treatment requires a host country (i) to abide by customary principles of international law; (ii) to honor the reasonable expectations of investors; (iii) to refrain from conduct that is arbitrary, grossly unfair, unjust, or idiosyncratic or discriminatory; and (iv) to act in good faith. Peru failed to comply with each of these requirements when it implemented a corrupt scheme to deprive Amorrortu of his substantive right to resume his operation of Block III (and IV) through Direct Negotiation.
424 USPTPA Investment Chapter, Art. 10.5 (CLA-1). ↩
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312. The phrase “fair and equitable treatment” is not defined in the USPTPA. But the USPTPA makes clear that the fair and equitable treatment requirement guarantees the customary principle of international law of minimum standard of treatment of aliens, including “all customary international law principles that protect the economic rights and interests of aliens.”425 Peru's Corruption Scheme is a flagrant violation of the customary principles of international law. Indeed, there is no dispute that “corruption is universally condemned.”426 Unfortunately, corruption “remains widely practiced and infects may aspects of life; foreign investment is no exception.”427 But the fact that this infectious flagellum has creeped into the world of foreign investment does not negate its unlawfulness. A government that exercises its discretion to contract based on corruption violates customary principles of international law, and a violation of customary principles of international law, by definition, is a violation of the fair and equitable treatment obligations of Peru under the USPTPA.
313. International arbitration tribunals have not hesitated to hold that corruption is a clear violation of customary principles of international law. The first international arbitral tribunal of record to denounce corruption was the tribunal that issued the ICC Award No. 1110 in 1963. That arbitration arose out of a commission agreement between a foreign investor and a company in Argentina that agreed to procure a series of supply contracts with the government of Argentina for the foreign investor. After determining that the commission contract contemplated the payment of bribes to officers of the government of Argentina “for the purpose of obtaining the hoped-for
425 USPTPA Investment Chapter, Annex 10-A (CLA-1). ↩
426 I. Devendra, State Responsibility for Corruption in International Investment Arbitration, Journal of International Dispute Settlement (2019), p. 248 (CLA-68). ↩
427 Ibid. ↩
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business,” the sole arbitrator dismissed the arbitration for lack of jurisdiction. The sole arbitrator reasoned that “it cannot be contested that there exists a general principle of law recognized by civilized nations that contracts which seriously violate bonos mores or international public policy are invalid or at least unenforceable and that they cannot be sanctioned by courts or arbitrators.”428 The sole arbitrator explained that “[a]lthough these commissions were not to be exclusively for bribes, a very substantial part of them must have been intended for such use. Whether one is taking the point of view of good government or that of commercial this it is impossible to close one's eyes to the probable destination of amounts of this magnitude, and to the destructive effect thereof on the business pattern with consequent impairment of industrial progress.”429
314. Critically, the sole arbitrator admonished the parties that:
“Such corruption is an international evil; it is contrary to good morals and to an international public policy common to the community of nations.”430
315. In a prescient final statement, the sole arbitrator emphasized the deterring impact of his award and its importance in international public policy, “[p]arties who ally themselves in an enterprise of the present nature must realize that they have forfeited any right to ask for assistance of the machinery of justice (national courts or arbitral tribunals) in settling their disputes.”431 And the sole arbitrator made clear that the application of this principle should not inure to the benefit of any party participating in the corruption:
428 ICC Award 1110, ¶ 16 (CLA-60). ↩
429 Id. at ¶ 20. ↩
430 Ibid. ↩
431 Id. at ¶ 23. ↩
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“[C]are must be taken to see that one party is not thereby enabled to reap the fruits of his own dishonest conduct by enriching himself at the expense of the other.”432
316. This ruling was the genesis in international arbitration of the principle that corruption is anathema to the regime of international commerce and investment. The principles and admonishments of ICC Award 1110 have echoed through a range of arbitral tribunals all of which explicitly rejected claims arising out of corrupt investments.433
317. In the field of investment arbitration, the application of this anti-corruption principle was more controversial given the concern that host states may rip the benefits of their own misconduct. Notwithstanding, numerous investment arbitration tribunals have expressed their rejection of corruption, as a matter of established international law.
318. The seminal case of World Duty Free v. Kenya,434 is illustrative of how corruption has been rejected as contrary to international law. The World Duty Free dispute arose out of the expropriation by the Government of Kenya of duty-free concessions at two international airports. The claimant admitted that its chief executive officer had made a personal donation of US $2,000,000 to the president of Kenya before obtaining the concessions. The US $2,000,000 payment was undisputed. However, the parties differed on the nature of the payment. The claimant argued the payment was a donation consistent with the applicable protocol while the state argued that the donation was a bribe in disguise that voided the investment.
319. The World Duty Free tribunal first concluded that the claimant had made the payment as a bribe for the concessions. “Those payments were made not only in order to obtain an audience with President Moi (as submitted by the Claimant), but above all to obtain during
432 Id. at ¶ 21. ↩
433 World Duty Free Company Limited v. Republic of Kenya, ICSID Case No. ARB/00/7, Award, 4 October 2006, ¶¶ 149-150 (CLA-65). ↩
434 Ibid. ↩
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that audience the agreement for the President on the contemplated investment. The Tribunal considers that those payments must be regarded as a bribe in order to obtain the conclusion of the 1989 Agreement.”435
320. Then, the tribunal went on to discuss the consequences of the bribe. The tribunal began by noting that “bribery or influence peddling, as well as both active and passive corruption, are sanctioned by criminal law in most, if not all, countries.”436 Then the tribunal noted that a number of international conventions also condemned corruption, including the Declaration against Corruption and Bribery in International Commercial Transactions adopted on December 16, 1996 by the General Assembly of the United Nations.437 In these conventions, states “have shown their common will to fight corruption, not only through national legislation, as they did before, but also through international cooperation. In doing so, States not only reached a new stage in the fight against corruption but also solidly confirmed their prior condemnation of it.”438 The tribunal went on to conclude that “[i]t would be an affront to public conscience to grant the plaintiff the relief which he seeks because the court would thereby appear to assist or encourage the plaintiff in his illegal conduct.”439 The tribunal recognized that a “highly disturbing” consequence of the holding was the possibility that Kenya would benefit from the corrupt acts of its highest officers.440 However, the tribunal rejected that concern reasoning that Kenya would receive the same fate if it were on the side of the claimant. The analysis of this point is so important to this case that is worth restating verbatim:
. . . the objection, that a contract is immoral or illegal as between plaintiff and defendant, sounds at all times very ill in the mouth of
435 Id. at ¶ 136. ↩
436 Id. at ¶ 142. ↩
437 Id. at ¶ 143. ↩
438 Id. at ¶ 146. ↩
439 Id. at ¶ 161 (discussing the English common law principles regarding public policy). ↩
440 Id. at ¶ 180 (citations omitted). ↩
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the defendant. It is not for his sake, however, that the objection is ever allowed; but it is founded in general principles of policy, which the defendant has the advantage of, contrary to the real justice, as between him and the plaintiff, but accidentally, if I may say so. The principle of public policy is this: ex dolo malo non oritur actio. No court will lend its aid to a man who founds his cause of action upon an immoral or illegal act. If, from the plaintiffs own stating or otherwise, the cause of action appears to arise ex turpi causa, or the transgression of a positive law of this country, there the court says he has no right to be assisted. It is upon that ground the court goes; not for the sake of the defendant, but because they will not lend their aid to such a plaintiff. So if the plaintiff and defendant were to change sides, and the defendant was to bring his action against the plaintiff, the latter would then have the advantage of it; for where both are equally at fault, potior est condition defendentis.441
321. Similarly, the tribunal in Metal-Tech held that a contract procured by bribes was not a legal investment under the underlying investment treaty.442 And in Inceysa Vallisoletana v. El Salvador, the tribunal concluded that treaty protections apply only to lawful investments.443 The same principle was followed by the tribunal in Plama Consortium v. Bulgaria.444
322. While most of these cases have focused on addressing corruption as a defense on the basis that arbitral tribunals should close their doors and reject corrupt investments, a number of tribunals have also held that corruption is a claim that can be asserted by a foreign investor. The case of EDF is illustrative. The claimant contended that the government engaged in actions that resulted in the claimant's loss of holdings in Romania due to their refusal to pay bribes to an official. The arbitral tribunal recognized “that a request for a bribe by a state agency is a violation
441 Id. at ¶ 180 (citations omitted). ↩
442 Metal-Tech v. Uzbekistan, ¶ 422 (CLA-62). ↩
443 See Inceysa Vallisoletana, S.L. v. Republic of El Salvador, ICSID Case No. ARB/03/26, Award, 2 August 2006, ¶¶ 256-257 (CLA-69). ↩
444 See Plama Consortium Limited v. Republic of Bulgaria, ICSID Case No. ARB/03/24, Award, 27 August 2008, ¶¶ 139-146 (CLA-70). ↩
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of the fair and equitable treatment obligation owed to the Claimant pursuant to the BIT, as well as a violation of international public policy.”445
323. The emphasis on international public policy in the EDF decision makes clear that corruption is the antithesis of customary principles of international law; and therefore, a host state that implements a corruption scheme that harms a foreign investor is in violation of customary principles of international law, and hence in violation of the fair and equitable standard obligations.446
324. This conclusion is not at all controversial and is also based on the notion that customary international law also encompasses the principle of good faith. As the Teco tribunal explained “the Arbitral Tribunal also considers that the minimum standard is part and parcel of the international principle of good faith. There is no doubt in the eyes of the Arbitral Tribunal that the principle of good faith is part of customary international law established by Article 38.1(b) of the Statute of the International Court of Justice, and that the lack of good faith on the part of the State or one of its organs should be taken into account in order to assess whether the minimum standard was breached.”447
325. Furthermore, good faith is a necessary element of fair and equitable treatment. Indeed, the tribunal in Tecmed v. Mexico observed that fair and equitable treatment “is an expression and part of the bona fide principle recognized in international law.”448 The expectation
445 See EDF v. Romania, ¶ 221 (CLA-4). ↩
446 See Yukos Universal Limited (Isle of Man) v. The Russian Federation, UNCITRAL, PCA Case No. 2005-04/AA227, Award, 18 July 2014 (CLA-72) (In Yukos, the Tribunal was presented with a claim that Russia had violated the fair and equitable treatment standard obligation by launching a corruption scheme that caused damages to the foreign investor. The tribunal did not have to rule on this claim, as the tribunal found that the actions of the government constituted expropriation in violation of the Treaty). ↩
447 Teco Guatemala Holdings LLC v The Republic of Guatemala, ICSID Case No. ARB/10/17, Award, 19 December 2013, ¶ 456 (CLA-78). ↩
448 Tecnicas Medioambientales Tecmed S.A. v The United Mexican States, Case No. ARB (AF)/00/2, Award, 29 May 2003, ¶ 153 (CLA-73). ↩
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that a host state will act in good faith is fundamental to a foreign investor's decision to invest. Indeed, no investor would invest in a foreign nation with the expectation that the host state would act in bad faith. The tribunal in Saluka v. Czech Republic remarked that “[t]he expectations of foreign investors certainly include the observation by the host State of such well-established fundamental standards as good faith, due process, and nondiscrimination.”449
326. An examination of the circumstances of this case as described above reveals that Peru's conduct not only was motivated by corruption but lacked good faith and evidenced bad faith that shocks the conscience. Indeed, it was not enough for Peru to not consider the Baspetrol Proposal, but it also orchestrated an International Public Bidding Process plagued with corruption in violation of Amorrortu's rights as protected under the USPTPA.
327. Corruption in and of itself is sufficient to establish a violation of customary principles of international law. But corruption is further a violation of customary principles of international law in that by definition corruption constitutes and embodies bad faith.
328. In interpreting the fair and equitable treatment standard under customary principles of international law, the neuralgic objective is the protection of the legitimate expectations of a protected investor, especially when specific representations have been made by the state and relied upon by the investor — to induce the foreign investment. As explained by the tribunal in Thunderbird Gaming Corp v. Mexico:
“Having considered recent investment case law and the good faith principle of international customary law, the concept of 'legitimate expectations' relates, within the context of the NAFTA framework, to a situation where a Contracting Party's conduct creates reasonable and justifiable expectations on the part of an investor
449 Saluka Investments B.V. v. The Czech Republic, UNCITRAL, Partial Award, 17 March 2006, ¶ 303 (CLA-23). ↩
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(or investment) to act in reliance on said conduct, such that a failure by the NAFTA Party to honour those expectations could cause the investor (or investment) to suffer damages.”450
329. The protection of legitimate expectations is well established in investment arbitration. A state that generates legitimate expectations in an investor and then directly or indirectly destroys those expectations is in breach of its fair and equitable treatment obligations and must compensate the investor for any damages suffered.451 “The standard of 'fair and equitable treatment' is . . . closely tied to the notion of legitimate expectations which is the dominant element of that standard. By virtue of the 'fair and equitable treatment' standard . . . must therefore be regarded as having assumed an obligation to treat foreign investors so as to avoid the frustration of investors' legitimate and reasonable expectations.”452 Simply put, fair and equitable treatment is meant to “provide to international investments treatment that does not affect the basic expectations that were taken into account by the foreign investor to make the investment.”453
330. To establish a breach of the fair and equitable treatment obligations based on the allegation that Peru breached Amorrortu's legitimate and reasonable expectations, Amorrortu has to establish that (a) Peru made a promise or assurance; (b) Amorrortu relied on that promise or assurance as a matter of fact; and (c) such reliance was reasonable.454 As the tribunal in Micula v. Romania: “[t]here must be a promise, assurance or representation attributable to a competent organ or representative of the state, which may be explicit or implicit. The crucial point is whether the state, through statements or conduct, has contributed to the creation of a reasonable expectation, in this case, a representation of regulatory stability. It is irrelevant whether the state
450 International Thunderbird Gaming Corporation v. The United Mexican States, Award, 26 January 2006, ¶ 147 (CLA-74). ↩
451 See Ioan Micula et al. v. Romania, ICSID Case No. ARB/05/20, Award, 11 December 2013, ¶ 667 (CLA-75). ↩
452 Saluka v. Czech Republic, ¶ 302 (CLA-23). ↩
453 Tecmed v. Mexico, ¶ 154 (CLA-73). ↩
454 See Micula v. Romania, ¶ 668 (CLA-75). ↩
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in fact wished to commit itself; it is sufficient that it acted in a manner that would reasonably be understood to create such an appearance. The element of reasonableness cannot be separated from the promise, assurance or representation, in particular if the promise is not contained in a contract or is otherwise stated explicitly. Whether a state has created a legitimate expectation in an investor is thus a factual assessment which must be undertaken in consideration of all the surrounding circumstances.”455 “The assessment of the reasonableness or legitimacy must take into account all circumstances, including not only the facts surrounding the investment, but also the political, socioeconomic, cultural and historical conditions prevailing in the host State.”456
331. This principle is particularly applicable in investment disputes arising out of bilateral treaties that explicitly condemn corruption like the Agreement between Peru and the United States that is at issue in this arbitration. The USPTPA explicitly confirms the promise of the subscribing state to fight the plague of corruption.
332. That promise rings hallow because Graña y Montero obtained practically all its government contracts in Peru through corruption. Peru's flagrant breach of its Treaty obligations prejudiced Amorrortu, who had the legitimate right to formalize an agreement to exploit and maintain Blocks III and IV.
333. The USPTPA reflects the commitment of Peru and the United States to fight corruption in all its forms to enhance and protect foreign investors and their investments. The objectives of the USPTPA are set forth in the Preamble, as the Legislative History of the USPTPA confirms.
455 Ibid. ↩
456 Duke Energy Electroquil Partners & Electroquil S.A. v. Republic of Ecuador, ICSID Case No. ARB/04/19, Award, 18 August 2008, ¶ 340 (CLA-22). ↩
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“The Preamble to the Agreement provides the Parties' underlying objectives in entering into the Agreement and provides context for the provisions that follow.”457
334. In the Preamble, Peru and the United States agree to “prevent and combat corruption, including bribery, in international trade and investment.”458
335. As its Legislative History confirms, this anti-corruption promise in the Preamble permeates the entire Treaty. Section B of Chapter 19 is titled Anti-Corruption. In this anti-corruption section, “[t]he Parties affirm their commitment to prevent and combat corruption, including bribery, in international trade and investment.”459 The Parties further commit to “promoting, facilitating, and supporting international cooperation in the prevention and fight against corruption.”460 To this end, the Parties reaffirm their existing rights and obligations under the 1996 Inter-American Convention Against Corruption and agreed to implement measures to prevent and combat corruption consistent with the 2003 United Nations Convention against Corruption.461
336. To this end, Article 19.9, which is titled “Anti-Corruption Measures” states that each Party shall adopt or maintain the necessary legislative or other measures to establish that it is a criminal offense under its law, in matters affecting international trade or investment, for:
457 The United States-Peru Trade Promotion Agreement, Summary of the Agreement, 14 December 2017, p. 1 (CLA-76). ↩
458 USPTPA Preamble (CLA-2). ↩
459 USPTPA Chapter Nineteen, Art. 19.7 (CLA-42). ↩
460 Ibid. ↩
461 Id. at Art. 19.8. ↩
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337. Each Party further agreed to “ensure that enterprises shall be subject to effective, proportionate, and dissuasive non-criminal sanctions, including monetary sanctions”462 for any of the above offenses.
338. But Chapter 19 is not the only anti-corruption Chapter in the USPTPA. As the Legislative History confirms, “Chapter Nine builds on the anticorruption provisions of Chapter Nineteen, including by requiring each Party to maintain procedures to declare suppliers that have engaged in fraudulent or other illegal actions in relation to procurement ineligible for participation in the Party's procurement.”463
339. Not surprisingly, in the US Senate, the USPTPA was approved in part precisely because of the “strong anti-corruption procedures”464 that were included in the Agreement, which was supposed to establish “a secure, predictable legal framework for U.S. investors in Peru.”465
462 Id. at Art. 19.9(3). ↩
463 The United States-Peru Trade Promotion Agreement, Summary of the Agreement, 14 December 2017, p. 11 (CLA-76). ↩
464 United States-Peru Trade Promotion Agreement, S. Hrg 109-995 Before the Committee on Finance, 109 Cong. (2006), p. 11 (CLA-77). ↩
465 Id. at p. 7. ↩
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Throughout the years, U.S. investors have been undermined by the rampant corruption and arbitrariness in Peru, and a number of United States Senators were concerned about corruption in Peru. As the exchange between Senator Bunning and the Assistant Trade Representative Eissenstat demonstrate, Senators voted for the USPTPA only after receiving assurance that Peru had in fact agreed to fight corruptions and give U.S. investors in Peru the same protection that Peruvians investors would receive in the United States:
Mr. Eissenstat: Thank you, Senator Bunning. We have had significant investment disputes with Peru over a very, very long period of time, and we have raised those with them in many different forums. I think that one of the things that the trade agreements enable us to do is engage on a more in-depth and deeper level in these discussions. I think, as part of that, we have made—. Senator Bunning: Well, are they in the agreement? That is my question.
Mr. Eissenstat: Yes. That is a great question, and I was going to get to that. Let me get to that, first. What the agreement attempts to do on investment is make our investors in Peru get the same type of protections that a Peruvian investor would get in the United States, and in that sense get a level playing field so there will not be arbitrary decisions against our investors in Peru. It does that through a number of mechanisms, both procedural and substantive, including transparency provisions, anti-corruption provisions, the ability to go to investor state arbitration in the event there is a dispute, so it does provide significant new guarantees that are not present, should this agreement not be followed.
Senator Bunning: In other words, you are telling me that if this agreement is approved, American companies will have recourse if taxation is inappropriately applied by the Peru government? We will have the same level field that we would have as though they were in the United States?
Mr. Eissenstat: Yes, Senator. It is in the agreement. There is a very extensive investment chapter. It does include procedural and substantive guarantees for investors in Peru across the board, and this will enable companies that have had disputes, similar to those in the past, to go to investor state arbitration. Should they be treated in an unfair manner, in a discriminatory manner by the government, should they have their property expropriated without compensation, they will have remedies. That is one of the major benefits of this agreement.
Senator Bunning. At the same subcommittee hearing, there was a discussion about transparency and the rule of law in the court system in Peru. Again, there have been numerous complaints about the treatment of international investors by the Peruvian court system. Without due process and fair treatment by the court system, it is difficult for any businessman to feel comfortable investing in Peru. Obviously, this affects not only American investors, but all investors, including the Peruvian investors themselves. Assistant USTR Vargo, one of your predecessors, told the House subcommittee back in October of 2004 that the administration and members of Congress
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need to have confidence that the rule of law is respected by our respective FTA partners. Is that factual in this agreement?
Mr. Eissenstat: Yes. The rule of law is very important and should be respected by our FTA partners. In selecting partners, we look to those governments that are embracing the transparency/openness/democratic principles.
340. Indeed, Amorrortu testified in front of the Senate Committee and denounced the atrocities that Peru had committed against him. His concerns were assuaged by the Treaty's corruption protections.466
341. Therefore, when he formed Baspetrol, Amorrortu had the reasonable expectation that Peru was going to live up to its promise and comply with its anti-corruption obligations. Instead of complying with its obligations, Peru launched a plan to hide its corruption practices behind a facade of legitimacy.
342. Peru understood that when the majority of the profitable government contracts are awarded directly to the same company, corruption becomes too obvious. Instead, Peru adopted the practice of commencing international public biddings in which all competitors were disqualified for a myriad of arbitrary reasons, except the company that had prepaid the required bribes.467 That is what happened in this case. Amorrortu presented the Baspetrol Proposal to initiate the Direct Negotiation Process with PeruPetro with the legitimate expectation that the Proposal was going to be evaluated on its merits without any corrupt bias. But that was not the case. Graña y Montero had a corrupt arrangement with Peru to obtain all the public contracts it desired, and that meant that the contracts for the operation of Blocks III and IV had to go to a public bidding process in which Graña y Montero was the only qualified company. That is a clear violation of Amorrortu's legitimate expectations.
466 See CWS – 1 [Amorrortu], ¶ 31. ↩
467 See CER – 1 [Yaya], ¶ 16. ↩
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343. A host state violates the fair and equitable treatment standard if its treatment of an investor or investment is arbitrary, grossly unfair, unjust, or idiosyncratic or discriminatory, or if it involves lack of due process leading to an outcome which offends judicial propriety, or a complete lack of transparency and candor in an administrative process.468
344. In international law, the most widely recognized definition of arbitrary conduct comes from the International Court of Justice in the ELSI case. In that case, the Court held that “[a]rbitrariness is not so much something opposed to a rule of law, as something opposed to the rule of law . . . It is a willful disregard of due process of law, an act which shocks, or at least surprises, a sense of judicial propriety.”469 The essence of arbitrary conduct is that it is not based on reason, or that is taken for reasons other than those put forward.470
345. In the Lemire case, the tribunal went on to quote with approval Professor Christoph Schreuer's definition of “arbitrary,” which he had put forth as an expert in the EDF dispute and which that tribunal had accepted. Under this definition, arbitrary conduct is:
468 See Waste Management v. United Mexican States, ICSID Case No. ARB(AF)/00/3, Award, 30 April 2004, ¶ 98
(CLA-28); see also Teco v. Guatemala, ¶ 454 (CLA-78). ↩
469 Elettronica Sicula SpA (ELSI) (United States v. Italy), Judgment, 20 July 1989, ICJ Reporter 15, ¶ 128 (CLA-79). ↩
470 See Lemire v. Ukraine, ¶ 262 (describing arbitrariness as including conduct “founded on prejudice or preference
rather than on reason or fact," and measures “taken for reasons that are different from those put forward by the
decision maker"). ↩
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346. The tribunal in Crystallex v. Venezuela embraced a similar definition: “In the Tribunal's eyes, a measure is for instance arbitrary if it is not based on legal standards but on excess of discretion, prejudice or personal preference, and taken for reasons that are different from those put forward by the decision maker.”472 In Eureko v. Poland, the tribunal found a breach of fair and equitable treatment where the respondent “acted not for cause but for purely arbitrary reasons linked to the interplay of Polish politics and nationalistic reasons of a discriminatory character.”473
347. At a minimum, as the tribunal in the Frontier Petroleum v. Czech Republic concluded, a state violates the fair and equitable treatment obligations when it uses the law for purposes other than those for which it was created. Such unjust purpose “includes a conspiracy by state organs to inflict damage upon or to defeat the investment...”474
348. Peru's failure to consider and evaluate the Baspetrol Proposal, Peru's purported rejection of the Proposal without any technical, legal basis or justification, and Peru's fabrication of a public bidding plagued with irregularities and corruption to ultimately benefit a hand-picked company (Graña y Montero) by the highest public servants of the government, were decisions taken for purely arbitrary and capricious reasons; and therefore, violate the fair and equitable treatment standard.
471 EDF v. Romania, ¶ 303. ↩
472 Crystallex International Corporation v. Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/11/2, Award,
4 April 2016, ¶ 578 (emphasis added) (CLA-24). ↩
473 Eureko B.V. v. Republic of Poland, Ad Hoc, Partial Award, 19 August 2005, ¶ 233 (CLA-80). ↩
474 Frontier Petroleum Services Ltd. v. The Czech Republic, UNCITRAL, Final Award, 12 November 2010, ¶ 300
(CLA-81). ↩
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349. A host state violates the fair and equitable treatment standard if it fails to act in a transparent manner.475 The conduct of Peru falls far short of the norms of transparency required by the fair and equitable treatment obligations.
350. The USPTPA seeks “to promote transparency and prevent and combat corruption, including bribery, in international trade and investment.”476 However, Amorrortu's investments and legitimate expectations were frustrated precisely by a corrupt scheme designed to benefit a local company that bribed Peru to obtain a government contract that Amorrortu was negotiating through a process of Direct Negotiation.
351. In addition to the representations made by Ortigas (on behalf of PeruPetro) to Amorrortu, Peru expressly made representations regarding its intent to provide foreign investors with a stable and transparent framework for international investment to encourage such investments. This is clearly reflected in Peru's establishment of constitutional guarantees of nondiscriminatory treatment to foreign investors,477 and the USPTPA.478
352. The international community agrees that transparency constitutes part of fair and equitable treatment standard. For instance, after analyzing several arbitral decisions, the OECD has taken the position that “transparency” is one of the requirements of the fair and equitable standard.479
475 A host state's failure to abide by its own legal system can also result in a breach of fair and equitable treatment.
See Total S.A. v. Argentine Republic, ICSID Case No. ARB/04/01, Decision on Liability, 27 December 2010, ¶ 333
(CLA-21). ↩
476 USPTPA Preamble (CLA-2). ↩
477 See Peru's Political Constitution, December 1993, Art. 63 (CLA-14). ↩
478 USPTPA Preamble (CLA-2). ↩
479 See OECD, Fair and Equitable Standard in International Investment Law, OECD Working Papers on International
Investment, No. 2004/03, OECD Publishing, Paris, p. 26 (CLA-106); see also World Trade Organization,
Transparency – Note by the Secretariat, Working Group on the Relationship between Trade and Investment, 27 March
2002 (CLA-107) (expressing the view that the principle of "fair and equitable treatment has been in certain cases
interpreted as "requiring parties to adhere to basic norms of transparency"). ↩
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353. The tribunal in Waste Management v. Mexico noted that “a complete lack of transparency and candour in an administrative process” is a violation of the fair and equitable treatment standard.480
354. Peru has systematically acted without giving Amorrortu “clear, specific, and binding representation[s]”481 and, furthermore, has made inaccurate and untrue representations to Amorrortu while simultaneously violating Peruvian law. Specifically, Peru failed to follow PeruPetro's Rules and Procedures for the Direct Negotiation of Contracts, thereby avoiding mandatory procedural steps concerning information to be made available to the public in general. Peru not only failed multiple times to give Amorrortu a well-reasoned response to the Baspetrol Proposal, it also induced Amorrortu to attempt to expand his investment by directly making manifestly false representations to which Amorrortu relied to his detriment, all in an attempt to hide the Corruption Scheme.
355. In fact, Amorrortu did not only expect the commencement of a Direct Negotiation following Ortigas' specific representation, but also expected the Direct Negotiation Process to be consistent, in accordance with Amorrortu's experience and diligent research. In other words, Amorrortu did not expect the arbitrariness with which Peru acted when Peru deliberately decided not to follow the Direct Negotiation Process. Peru's “contradictory and ambiguous”482 conduct can only be “characterized by . . . [an] uncertainty which [was] prejudicial to [Amorrortu],483 who systematically received inconsistent commands from Peru's officials. This lack of forthrightness
480 Waste Management, Inc. v. The United Mexican States, ¶ 98 (CLA-28). ↩
481 9REN HOLDING S.A.R.L. v. The Kingdom of Spain, ICSID Case No. ARB/15/15, Award, 31 May 2019, ¶
320(CLA-82). ↩
482 Tecmed v. Mexico, ¶ 172 (CLA-73). ↩
483 Ibid. ↩
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in communications, questionable statements, and misrepresentations advanced by Peru constitute a breach of the fair and equitable treatment standard.484
356. Peru's conduct which resulted in significant detriment to Amorrortu is similar to that of the Czech Republic in Saluka Investments v. Czech Republic. In Saluka, the government was found to have breached the fair and equitable treatment standard by failing to disclose information to the investor.485 The government had refused to discuss with the claimant its reasons for treating the investor in a discriminatory manner.486 Here, Peru failed to give Amorrortu any explanation regarding the decision to proceed with a public bidding process as opposed to a Direct Negotiation. In addition, the Baspetrol Proposal was never formally rejected, not even after Amorrortu sought clarifications.
484 See Pope & Talbot Inc. v. The Government of Canada, Award on the Merits of Phase 2, 10 April 2001, ¶¶ 177-179
(CLA-83). ↩
485 Saluka v. Czech Republic, ¶ 407 (CLA-23). ↩
486 Ibid. ↩
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357. Peru's corruption harmed Amorrortu. Corruption hurts honest investors and affected citizens alike: the former through competitive disadvantages, e.g., in tendering procedures, and the latter through the frustration of good-governance efforts and higher prices.487 There is a causal link between Peru's breach of its fair and equitable standard obligations. Peru's corrupt behavior is the proximate cause of Amorrortu's harm, and indeed Peru cannot allege any uncertainty as to the amount of damages caused by its breach.
358. But for Peru's breach of the USPTPA Articles, the Baspetrol Proposal for operation of Blocks III and IV would have been approved and the Blocks would have produced significant oil and gas.
359. Proof of causation requires (A) cause, (B) effect, and (C) a logical link between the two to be established.488 Cause and effect are straight forward — Cause being the wrongful acts attributable to the host state, and effect being the resulting consequence of the wrongdoing experienced by the investor.489 In this case, the cause is Peru's refusal to follow the correct and lawful procedure for Direct Negotiation.
360. As noted above, Peru's refusal to follow this established Direct Negotiation Process was based on its corrupt manipulation of the process to benefit Graña y Montero. Therefore, the cause in this case is two-fold. First, Peru's decision to discontinue the Direct Negotiation Process in violation of established procedures under the Peruvian legal framework.490 This resulted in an
487 Mbiyavanga, Combating Corruption Through International Investment Treaty Law (CLA-43). ↩
488 Id. at ¶ 157. ↩
489 Id. at ¶¶ 157-162. ↩
490 See PeruPetro's Rules and Procedures for the Direct Negotiation of Contracts (CLA-44). ↩
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irregular process. Second, the corruption which induced such a decision is a violation of customary principles of international law and is direct evidence of lack of good faith.491
361. The third element of causation in the causal link, the chain which leads from cause to effect. According to the Lemire tribunal, the causal link can be viewed from two angles: the positive aspect requires that the aggrieved party prove that an uninterrupted and proximate logical chain leads from the initial cause (in our case the wrongful acts of Peru) to the final effect (the loss in value of Baspetrol); while the negative aspect permits the offender to break the chain by showing that the effect was caused – either partially or totally — not by the wrongful acts, but rather by intervening causes, such as factors attributable to the victim, to a third party or for which no one can be made responsible (like force majeure).492
362. The Lemire tribunal noted certain challenges with the claimant's contention that there was a causal link between the actions of Ukraine and the claimant's loss mainly because Ukraine's irregular process took place in public tenders convened for the awarding of radio frequencies in accordance with pre-established legal criteria.493 The tribunal identified two reasons why the presence of tenders would be a problem for causation. First, there were bona fide third parties — and not only claimant and the media groups irregularly privileged by the authorities — who participated in the tenders. Therefore, the possibility that these third parties could have been awarded frequencies in preference over claimant must be factored into the analysis. Second, although Ukrainian law established a number of criteria for awarding frequencies by tender, the National Council was not required to explain the reasons underlying its decisions.494
491 See CER – 1 [Quiroga], ¶¶ 20-23, 32-35, 153-178. ↩
492 See Lemire v. Ukraine, ¶ 163 (CLA-26). ↩
493 Id. at ¶ 168. ↩
494 Ibid. ↩
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363. Those set of facts in Lemire could not be more different from the situation in the present dispute. First, unlike Lemire, the situation in this dispute does not involve a public tender process. Rather, it was a unique Peruvian contract award process through Direct Negotiation. As explained earlier, this unique Direct Negotiation Process establishes a predictable legal framework that guarantees oil companies that commence a Direct Negotiation Process the exclusive technical evaluation and analysis of their proposals before any competing company is invited to participate in the process.495 Amorrortu's enterprise, Baspetrol, was not accorded that guaranteed right. Second and a corollary to the first point, unlike Lemire, there were no other bona fide third parties who participated in the process because this was not a typical tender process. Only Amorrortu was invited to submit the Baspetrol Proposal for Direct Negotiation. Baspetrol was not only technically qualified as established in the Baspetrol Proposal,496 it was also the only company invited for Direct Negotiation. Peru corruptly commenced an irregular process culminating in the award of Blocks III and IV to Graña y Montero. Third, unlike the Ukrainian process in Lemire, where the National Council was not required to explain the reasons underlying its decisions, under Peruvian law, PeruPetro was required to communicate its decision to Amorrortu. In fact, PeruPetro's silence constituted an implicit determination that the underlying project (Blocks III and IV) is available and that Baspetrol is qualified, thereby giving Amorrortu further rights to continue with the Direct Negotiation Process.497 Therefore, the factual scenario in this present dispute undoubtedly provides a more solid basis for this Tribunal to find a causal
495 See CER – 1 [Quiroga], ¶¶ 7, 124-129. ↩
496 Proposal from Baspetrol SAC to PeruPetro to operate Blocks III and IV of the Peruvian North-West, 27 May 2014
(C-11). ↩
497 See PeruPetro's Rules and Procedures for the Direct Negotiation of Contracts (CLA-44); see also, Gold Reserve
v. Venezuela, ¶¶ 367-369 (CLA-31). ↩
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link between Peru's conduct and Amorrortu's loss than the link that the tribunal in Lemire found to be sufficient.
364. In this case, there is no question that in the absence of corruption, Baspetrol would have completed the Direct Negotiation Process and would have executed the contracts to operate Blocks III and IV.
365. The Lemire tribunal explained that “[g]iven the characteristics of the Ukrainian process for the awarding of licenses, it is impossible to establish, with total certainty, how specific tenders would have been awarded if the National Council had not violated the FET standard.”498 The tribunal further noted that “[i]f it can be proven that in the normal cause of events a certain cause will produce a certain effect, it can be safely assumed that a (rebuttable) presumption of causality between both events exists, and that the first is the proximate cause of the other.”499
366. Additionally, one must be deemed to have foreseen the natural consequences of their wrongful acts, and to stand responsible for the damage caused.500 Therefore, the Lemire tribunal determined that:
Proximity and foreseeability are related concepts: a chain of causality must be deemed proximate, if the wrongdoer could have foreseen that through successive links the irregular acts finally would lead to the damage.501
367. In sum, the tribunal concluded that the specific circumstances of the case require that two links in the causal chain be analyzed and proven: (i) if the tenders had hypothetically been
498 Lemire v. Ukraine, ¶ 169 (CLA-26). ↩
499 Ibid. ↩
500 Id. at ¶ 170. ↩
501 Ibid. ↩
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decided in a fair and equitable manner, and claimant had participated in them, he (and not some of the other participants) would have won the disputed frequencies; and (ii) with these frequencies, Lemire would have been able to grow Gala Radio into the broadcasting company he had planned — a FM national broadcaster, for music format, plus a second AM channel, for talk radio.502
368. Interestingly, despite the situation in Lemire which involved a public tender with other participants, the tribunal concluded that “Claimant has been able to prove that the initial cause (Ukraine's wrongful acts) and the final effect (Claimant's frustration to fulfil his plans and operate a nationwide FM channel plus AM informational channel) are linked through a chain of causation. And this chain of causation is proximate and foreseeable.”503
369. As demonstrated above, the present dispute provides an even stronger case for this Tribunal to find causation. Peru was aware of Amorrortu's business plans; Peru could foresee that irregularities in the Direct Negotiation Process would result in the rejection of the Baspetrol Proposal thwarting Baspetrol's operation of Blocks III and IV, eventually leading to a reduction in value of the company and a loss for Amorrortu.
370. The certainty of the Direct Negotiation Process also distinguishes this case from the situation in Bosca where the tribunal could not determine with any certainty the outcome of the negotiation process.504 Unlike Bosca, there is certainty in the Peruvian Direct Negotiation Process. As explained earlier, Amorrortu was ready, able, and willing to commence operation of Blocks III and IV. He had done the basic groundwork putting everything in place for a successful operation. Pursuant to Peruvian law, upon initiating the Direct Negotiation Process, PeruPetro would be unable to change its mind as the Lithuanian government could have done in Bosca (the applicable
502 Id. at ¶ 171. ↩
503 Id. at ¶ 208. ↩
504 See Bosca v. Lithuania, ¶¶ 291-296 (CLA-46). ↩
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legal framework in each situation is different). The only option for PeruPetro was to continue the Direct Negotiation Process in compliance with the principles of good faith, impartiality, and non- discrimination.505 Therefore, all the factors that persuaded the tribunal in Bosca to hold that lost profits based on the assumption of an agreed contract were “much too remote and speculative”506 are not present here. The rights and entitlements of Amorrortu for lost profits in this dispute are not speculative. Amorrortu possessed a tangible right. The certainty of the Direct Negotiation Process has been undoubtedly established. Baspetrol would have been awarded Blocks III and IV but for the irregular process adopted by PeruPetro.
371. Significantly, Peru cannot prove that the refusal to commence the Direct Negotiation Process was due to causes other than Peru's wrongful conduct, that if there was no corruption in the process, Amorrortu, through Baspetrol, would not have succeeded in receiving authorizations required to operate Blocks III and IV, and that once awarded, Amorrortu would not have been able to successfully operate the Blocks. Indeed, there is no record of a Direct Negotiation Process commenced by a qualified oil company that has not concluded in the execution of a contract.
372. With Amorrortu's wealth of experience and significant success operating the Blocks in the 1990s, coupled with the technical expertise detailed in the Baspetrol Proposal, it would be near impossible for Peru to show that Baspetrol would not have been awarded the license to operate Blocks III and IV, or that Baspetrol's operation of Blocks III and IV would have been anything but successful.507
505 See PeruPetro's Rules and Procedures for the Direct Negotiation of Contracts (CLA-44). ↩
506 See Bosca v. Lithuania, ¶ 301 (CLA-46). ↩
507 See CWS – 1 [Amorrortu] at II (A), II (B); see also Proposal from Baspetrol SAC to PeruPetro to operate Blocks
III and IV of the Peruvian North-West, 27 May 2014, pp. 9-14 (C-11). ↩
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373. In sum, causation exists between Peru's wrongful acts and the losses suffered by Amorrortu because but for such wrongful conduct, Amorrortu would not have suffered the losses and would have had a profitable operation of Blocks III and IV.
374. Although there is no single formula in investment arbitration to guide tribunals in assessing causality with respect to damages. From the analysis, Peru has a much higher burden to overcome. The tribunal in Gemplus v. Mexico explained that:
[It is] a “general legal principle [that] when a respondent has committed a legal wrong causing loss to a claimant (as found by a tribunal), the respondent is not entitled to invoke the burden of proof as to the amount of compensation for such loss to the extent that it would compound the respondent's wrongs and unfairly defeat the Claimant's claim for compensation.”508
375. The Gemplus Tribunal further noted:
“[I]t would be wrong in principle to deprive or diminish the Claimants of the monetary value of that lost opportunity on lack of evidential grounds when that lack of evidence is directly attributable to the Respondent's own wrongs. This is not therefore a case where the burden of proof lay exclusively on the Claimants: and, in the Tribunal's view, it was also for the Respondent to prove the contrary.”509
376. In regard to quantum (discussed fully below), the tribunal in Crystallex also held that any uncertainty is to be resolved in favor of the investors, where the uncertainty is the fault of the state:
508 Gemplus S.A., SLP S.A., Gemplus Industrial S.A. de C.V. v. The United Mexican States, ICSID Case No.
ARB(AF)/04/3, Award, 16 June 2010, at ¶¶ 13-92, 13-99 (CLA-84). ↩
509 Ibid. ↩
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“In the Tribunal's view, this approach may be particularly warranted if the uncertainty in determining what exactly would have happened is the result of the other party's wrongdoing.”510
377. In this case, Peru's breaches are not only responsible for Amorrortu's loss, but they are also the direct cause of any potential evidentiary limitations regarding future lost profits. But for Peru's breaches, Amorrortu would have operated the Blocks profitably and would have had records of such profits. It would therefore not be enough for Peru to raise speculative, hypothetical possibilities that might have affected the operation and/or profitability of Blocks III and IV. Rather, it is Peru that must prove that Blocks III and IV would not have been profitable. Peru cannot satisfy this burden of proof as it is manifest in the results of the operation of the Blocks by Graña y Montero.
378. As detailed below, and in the expert report on quantum and damages, the Blocks had substantial reserves and would have been profitable had Amorrortu been allowed to commence operations. Furthermore, Amorrortu has established, beyond a mere balance of probabilities, that but for the wrongdoing of Peru which constituted breaches of the USPTPA, there would have been a profitable operation of Blocks III and IV.
510 Crystallex v. Venezuela, ¶ 871 (CLA-24). ↩
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379. Under the USPTPA, Amorrortu is entitled to full compensation for the damages he suffered as a result of Peru's breaches to the USPTPA. As such, the independent expert retained by Amorrortu, Santiago Dellepiane of Berkeley Research Group (BRG), has calculated the damages from the date of the breach based on the fair market value methodology relying on two widely used methods: (i) the income approach and (ii) the market approach.
380. Article 10.26.1 empowers the Tribunal to “make a final award against” Peru, in which it may award “monetary damages and any applicable interest”, including “in lieu of restitution.”511 As established above, Peru has violated its fair and equitable standard obligations under Article 10.5 (Minimum Standard of Treatment) of the USPTPA. As a result, Amorrortu is entitled to reparation in accordance with the applicable principles of international law.
381. The USPTPA does not specify the applicable measure of damages in the event of violation of the above-referenced provisions. Accordingly, the applicable principles of international law provide the appropriate measure of damages.512 These principles are by now well established. In the Case Concerning the Factory at Chorzów, the Permanent Court of International Justice articulated the basic purpose and principle of reparation under international law as follows:
“The essential principle contained in the actual notion of an illegal act – a principle which seems to be established by international practice and in particular by the decisions of arbitral tribunals – is
511 USPTPA Investment Chapter, Art. 10.26.1(a) and (b) (CLA-1) (“1. Where a tribunal makes a final award against
a respondent, the tribunal may award, separately or in combination, only: (a) monetary damages and any applicable
interest; and (b) restitution of property, in which case the award shall provide that the respondent may pay monetary
damages and any applicable interest in lieu of restitution. A tribunal may also award costs and attorney's fees in
accordance with this Section and the applicable arbitration rules."). ↩
512 Id., Art. 10.22(1) (“[T]he tribunal shall decide the issues in dispute in accordance with this Agreement and
applicable rules of international law."). ↩
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that reparation must, as far as possible, wipe out all the consequences of the illegal act and re-establish the situation which would, in all probability, have existed if that act had not been committed. Restitution in kind, or, if this is not possible, payment of a sum corresponding to the value which a restitution in kind would bear; the award, if need be, of damages for loss sustained which would not be covered by restitution in kind or payment in place of it – such are the principles which should serve to determine the amount of compensation due for an act contrary to international law.”513
382. The authoritative standard set out in Chorzów514 has since been codified in the ILC Articles.515 Specifically, Article 31(1) of the ILC Articles provides that "[t]he responsible State is under an obligation to make full reparation for the injury caused by the internationally wrongful act.”516
383. In other words, the “full reparation" standard under customary principles of international law requires that Amorrortu be placed in the same economic position he would have been, had Peru not committed the wrongful acts – i.e., the “but-for” scenario. The Tribunal's task in valuing the damages owed to Amorrortu's investment as a result of Peru's breaches is to consider the value of that investment in a but-for world, “wip[ing] out all the consequences of the illegal
513 Case Concerning The Factory at Chorzów (Germany v. Poland), Decision on the Merits, 13 September 1928, PCIJ
Rep. Series A. – No. 17, p. 47 (emphasis added) (CLA-30). ↩
514 Crystallex v. Venezuela, ¶¶ 847-48 (describing Chorzów as “[a]n authoritative description of the principle of full
reparation"); see also Veteran Petroleum Limited (Cyprus) v. The Russian Federation, PCA Case No. AA 228, Final
Award, 18 July 2014, ¶¶ 1587-88, 1593 (quoting Chorzów and recognizing it as amongst “accepted principles of
international law") (CLA-85); Foresight Luxembourg Solar 1 S.A.R.L., et al. v. The Kingdom of Spain, SCC
Arbitration V 2015/150, Final Award, 14 November 2018, ¶¶ 434-36 (noting that “the principle of full reparation is
generally accepted in international investment law”) (CLA-86); CEF Energia B.V. v. The Italian Republic, SCC
Arbitration V 2015/158, Award, 16 January 2019, ¶ 275 (refusing to adopt a valuation approach that "would be
inconsistent with the even longer-established Chorzów Factory principle.”) (CLA-87); Legal Consequences of the
Construction of a Wall in the Occupied Palestinian Territory, Advisory Opinion of July 9, 2004, (2004) I.C.J. Reports
136, 198, ¶ 152 (CLA-88). ↩
515 Draft Articles Commentary, Art. 31 (CLA-67); see also CME Czech Republic B.V. (The Netherlands) v. The Czech
Republic, UNCITRAL, Partial Award, 13 September 2001, ¶¶ 617-18 (CLA-89); Murphy Exploration & Production
Company - International v. The Republic of Ecuador, UNCITRAL, PCA Case No. 2012-16, Partial Final Award, 6
May 2016, ¶¶ 424-25 (CLA-90); Bernhard Friedrich Arnd Rüdiger von Pezold et al. v. Republic of Zimbabwe, ICSID
Case No. ARB/10/15, Award, 28 July 2015, ¶¶ 682-84 (CLA-91). ↩
516 ILC Arts. on State Responsibility, Art. 31(1). ↩
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act.”517 Where a host state unlawfully deprives an investor of its entire investment, tribunals will consistently grant an award of compensation equal to the “fair market value” (FMV) of the investment and any damages incurred in connection with unlawful conduct leading up to the unlawful taking.518 The concept of FMV is well established in international law and regularly adopted in investor-state disputes.519 According to the World Bank, the FMV of an investment is:
“[A]n amount that a willing buyer would normally pay to a willing seller after taking into account the nature of the investment, the circumstances in which it would operate in the future [...] and other relevant factors pertinent to the specific circumstance of each case.”520
517 Chórzow Factory, p. 47. ↩
518 See, e.g., Flughafen Zürich A.G. and Gestión e Inginería IDC S.A. v. Bolivarian Republic of Venezuela, ICSID
Case No. ARB/10/19, Award, 18 November 2014, ¶¶ 747-48 (“In an expropriation, full restitution equals the market
value of the expropriated asset, which is the value the owner could have obtained if it had been sold right before the
date the State took possession. . . . Market value must be understood as the price in money that a hypothetical buyer
would be willing to pay to a hypothetical seller, [i] both being interested in carrying out the transaction, but without
obligation to do so, [ii] acting in good faith and according to market practice, [iii] in an open, unrestricted market,
and [iv] both having a reasonable knowledge of the purpose of the contract and market conditions.”) (CLA-92); see
also Draft Articles Commentary, Art. 36, ¶¶ 21-22 (“The reference point for valuation purposes is the loss suffered
by the claimant whose property rights have been infringed. This loss is usually assessed by reference to specific heads
of damage relating to (i) compensation for capital value; (ii) compensation for loss of profits; and (iii) incidental
expenses. . . . Compensation reflecting the capital value of property taken or destroyed as the result of an
internationally wrongful act is generally assessed on the basis of the “fair market value” of the property lost. . .")
(CLA-67). ↩
519 See, e.g., CME v. Czech Republic, ¶ 618; Metalclad v. Mexico, ¶118; Tecmed v. Mexico, ¶ 189; Sempra Energy
International v. Argentine Republic, ICSID Case No. ARB/02/16, Award, 28 September 2007, ¶¶ 402-10 (CLA-93);
CMS Gas Transmission Company v. The Argentine Republic, ICSID Case No. ARB/01/8, Award, 12 May 2005, ¶¶
409-10 (CLA-16); Enron Corporation and Ponderosa Assets, L.P. v. Argentine Republic, ICSID Case No. ARB/01/3,
Award, 22 May 2007, ¶¶ 359-63 (CLA-94). ↩
520 The World Bank Group, Legal Framework for the Treatment of Foreign Investment (Vol. II, 1992), ¶¶ 5-6 (CLA-
55); see also S. Ripinsky and K. Williams, Damages in International Investment Law, British Institute of International
and Comparative Law (2008), pp. 183-84 ("Starting with awards of the Iran-US Claims Tribunal, the willing-
buyer/willing- seller analytical framework has been used to determine the FMV of investments. Tribunals have used
different definitions of FMV, but the common denominator has been that FMV represents a reasonable price that
would normally be paid by a willing buyer to a willing seller of the asset.”) (CLA-95); CMS v. Argentina, ¶ 402; El
Paso Energy International Company v. The Argentine Republic, ICSID Case No. ARB/03/15, Award, 31 October
2011, at ¶ 702 (CLA-96). ↩
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384. The appropriate date of valuation for damages accruing to Amorrortu is July 14, 2014. This is the date that Peru's breaches to the USPTPA led to an irreversible and substantial deprivation of the value of Amorrortu's investment.
385. For treaty violations such as breaches of the obligation to accord FET, tribunals have looked to when the investment was “irreversibl[y] depriv[ed]”521 of value, or “the date when the loss crystallised with the divesture”522 of the investment to determine the appropriate date of valuation.
386. In this case, Amorrortu reached out to Ortigas through a letter, indicating his interest to take over the exploration of Block III.
387. Amorrortu further contacted PeruPetro via email, and further expressed his willingness, capacity, and expertise to operate Block III. On February 6, 2014, Amorrortu had a telephone conference with Ortigas, where he discussed, in more detail, his plan to modernize the oil industry in the Talara Basin. Amorrortu reiterated this position on March 20, 2014 correspondence to PeruPetro. This time he copied MEM.
521 Masdar Solar & Wind Cooperatif U.A. v. Kingdom of Spain, ICSID Case No. ARB/14/1, Award, 16 May 2018, ¶
605 (“The Tribunal considers Claimant's proposed application of an 'irreversible deprivation test' to cases of non-
expropriatory breaches convincing. As a number of tribunals have concluded, and Claimant correctly argues, this
date provides a reasonably ascertainable point in time, capable of consistent and objective application in FET cases,
just as it does in expropriation cases.”) (CLA-97). ↩
522 Total S.A. v. Argentine Republic, ICSID Case No. ARB/04/1, Award, 27 November 2013, ¶ 150 (setting the
valuation date as “the date when the loss crystallised with the divesture [of the investment]”) (CLA-98); see also
Tethyan Copper Company Pty Limited v. Islamic Republic of Pakistan, ICSID Case No. ARB/12/1, Award, 12 July
2019, ¶ 272 (setting the date of valuation as the date that Pakistan denied the claimant's mining lease application and
breached its obligations under the relevant BIT) (CLA-99); Azurix Corp. v. The Argentine Republic, ICSID Case No.
ARB/01/12, Award, 14 July 2006, ¶¶ 417-18 (setting the date of valuation as the date when "breaches of the BIT had
reached a watershed.") (CLA-100). ↩
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388. Ortigas eventually agreed to meet with Amorrortu on May 22, 2014. This meeting is critical to Amorrortu's claim because it was at that meeting that Ortigas instructed Amorrortu to prepare the Baspetrol Proposal to operate Blocks III and IV.523
389. With this understanding that he was presenting a Proposal for Direct Negotiation, Amorrortu prepared a Proposal based on Ortigas' instructions, and sent the Proposal to operate Blocks III and IV, to PeruPetro on May 28, 2014.524 At this point, Peru became locked into a Direct Negotiation with Amorrortu, and could only back out of that process by giving Amorrortu formal rejection notice. In other words, this was the moment Baspetrol was set apart from other potential investors and became an oil company vested with all the rights of an oil company qualified to negotiate with PeruPetro pursuant to the Rules and Procedures of PeruPetro that commence a Direct Negotiation Process.525
390. As discussed above, Amorrortu never received any formal notice. Rather, on July 14, 2014, PeruPetro invited oil companies to participate in the International Public Bidding Process. This was in sharp contrast to the representations made by Ortigas, and not in line with Peruvian law. In fact, as previously explained, Ortigas invited Amorrortu to submit the Baspetrol Proposal.526
391. By opening Blocks III and IV to public bidding without even considering the Baspetrol Proposal, PeruPetro eliminated revenues Baspetrol would have earned as an investor and operator of Blocks III and IV. Therefore, the losses associated with Amorrortu's investment
523 See CWS – [Amorrortu], ¶¶ 79-85; see also Email exchange between Bacilio Amorrortu, Maria Angelica Cobena,
and Magali Hernandez, May 2014 (C-8). ↩
524 See Email from Bacilio Amorrortu to Maria Angelica Cobena, 28 May 2014 (C-9). ↩
525 Id. at ¶¶ 111, 156. ↩
526 See PeruPetro Board Agreement No. 071-2014, 30 June 2014, p. 1 (C-36); see also PeruPetro Board Agreement
No. 072-2014, 30 June 2014, p. 1 (C-43). ↩
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crystallized in or around the same time that PeruPetro announced the decision to open Blocks III and IV for public bidding.
392. July 14, 2014 is therefore the appropriate date for the valuation of damages resulting from Peru's breach of Article 10.5 (FET) of the USPTPA and related relevant provisions.
393. The FMV of an investment may be assessed using an income527, market528, or asset- based529methodology and tribunals have discretion as to which method they adopt.530
394. As detailed above, prior to the frustration of Amorrortu's Direct Negotiation with PeruPetro, Amorrortu had set up Baspetrol to undertake various projects, including the operation of Blocks III and IV. These activities for a highly successful operation of Blocks III and IV ranged from elaborate research regarding the technical and operational conditions of the Blocks, putting together technical, operational, administrative, and executive staff, to opening offices in Talara, and obtaining a municipal license.
395. Based on his track record when he first operated Blocks III and IV, Amorrortu was expected to generate substantial value once the investment in Blocks III and IV became operational. A critical factor in this analysis is the fact that a corruption free Direct Negotiation Process guarantees the execution of the contract. Indeed, the public records of PeruPetro do not reflect or report any Direct Negotiation Process that had not culminated in the execution of an agreement
527 The income approach relies on the future stream of cash flows that the asset is expected to generate. ↩
528 The market approach relies on transaction prices in similar assets for which price and other information is available. ↩
529 The asset-based valuation typically estimates either the liquidation value, cost basis or the replacement cost value
of asset. ↩
530 See, e.g., Wena Hotels Limited v. Arab Republic of Egypt, ICSID Case No. ARB/98/4, Decision on Annulment
Proceeding, 5 January 2002, ¶ 91 (CLA-101); and Rumeli Telekom A.S. and Telsim Mobil Telekomunikasyon
Hizmetleri A.S. v. Republic of Kazakhstan, ICSID Case No. ARB/05/16, Decision of the Ad Hoc Committee, 25 March
2010, ¶¶ 143-46, 179(5) (CLA-58). ↩
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after the company was duly qualified pursuant to PeruPetro's Rules and Procedures. In other words, there is more than a reasonable certainty that Baspetrol would have executed the contracts to operate Blocks III and IV in the absence of corruption. This is not a case where PeruPetro was likely to have suspended the negotiations. PeruPetro was under a mandate to assign the Blocks. This is not a case where there could be other companies interested in the Blocks that could compete at the same level with Baspetrol. Under the Direct Negotiation Process, competing alternatives were only to be considered after Baspetrol is qualified and the evaluation of its Proposal is at an advanced stage.531 Indeed, this is not a case where a new company is experimenting with a startup project. Amorrortu had successfully serviced and operated the wells in the Talara Basin for more than twenty years. Therefore, in assessing the damages suffered by Amorrortu, the fair market value of the contracts to operate Blocks III and IV at the time of the breach is the correct measure, as Amorrortu was deprived of his right to complete the Direct Negotiation of the contracts to operate Blocks III and IV and Baspetrol was reasonably certain to obtain the contract in the absence of corruption.532
396. This is not a case of a loss of chance. Amorrortu was not deprived of the opportunity to commence a Direct Negotiation Process, which was available to a number of oil companies. Amorrortu properly commenced the Direct Negotiation Process and was deprived of the opportunity to complete the Direct Negotiation and profit from the contracts to which he was entitled. Faced with a similar situation, the tribunal in Lemire aptly noted that “the investor's loss does not consist in being deprived of some chance to win additional frequencies; what has been
531 See PeruPetro's Rules and Procedures for the Direct Negotiation of Contracts (CLA-44). ↩
532 As the court explained in Miller v. Allstate Insurance Co., 573 So.2d 24, 29 (Fla. Dist Ct App. 1990) (“[i]t is now
an accepted principle of contract law ... that recovery will be allowed where a plaintiff has been deprived of an
opportunity or chance to gain an award or profit even where damages are uncertain.”) (CLA-104); see also Schonfeld
v. Hilliard, 218 F.3d 164 (2d Cir. 2000) (in a case assessing damages for the loss of the rights to a contract, the court
reasoned that “the value of an income-producing asset ... represents what a buyer is willing to pay for the chance to
earn the speculative profits") (CLA-105). ↩
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proven is that Ukraine's wrongful acts have resulted through a foreseeable and proximate chain of events in the damage suffered by the investor.”533 In a case assessing damages for the loss of the rights to a contract, “the value of an income-producing asset . . . represents what a buyer is willing to pay for the chance to earn the speculative profit.”534 However, the application of the loss of chance doctrine would yield the same result, as every direct negotiation that has been properly commenced for the operation of the oil lots in Talara has concluded in the execution of a contract.535
397. In determining the fair market value of Claimant's anticipated equity stake in Blocks III and IV, BRG employs the income approach as its primary method and the market approach as a confirmatory method. This was done to accurately assess the value of the contracts required for their operation.536
398. BRG calculated the damages to Amorrortu by assessing the FMV of Blocks III and IV as of July 14, 2014.
399. BRG's damages calculations were based on the FMV of the Blocks III and IV operations under a 30-year license agreement had Peru not breached Claimant's rights under the USPTPA. Regrettably, Amorrortu did not receive any cash flows due to these breaches by Peru, resulting in zero cash flows in this case.
533 Schonfeld v. Hilliard, 218 F.3d 164 (2d Cir. 2000) (CLA-105). ↩
534 Ibid. ↩
535 See William Richard Clayton, Douglas Clayton, Daniel Clayton, and Bilcon of Delaware, Inc. v. the Government
of Canada, PCA Case No. 2009-04, Award on Damages - Concurring Opinion of Professor Bryan P. Schwartz, 10
January 2019 (CLA-114). ↩
536 See BRG Expert Report, 21 August 2023, at ¶¶ 59-60 (CER – 1 [BRG]). ↩
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400. To determine the amount of free cash flows Claimant could have received in the absence of Peru's violations, BRG utilized the discounted cash flow method (DCF), a commonly employed valuation technique.537 Here, the calculation is not speculative. Indeed, “[t]he DCF method is the most appropriate tool to assess damages in this matter because it allows [BRG] to directly estimate the expected cash flows from Claimant's investment as of the Date of Valuation, which can be reasonably projected based on contemporaneous market information and third-party data (e.g., forecasts of oil prices and inflation).”538
401. BRG conducted a valuation analysis by computing the present value of expected free cash flows. BRG accomplished this by applying the Weighted Average Cost of Capital (WACC) method, which involved discounting the cash flows to the Valuation Date.539
402. The combined value of Blocks III and IV is determined by calculating the sum of their discounted cash flows as of the valuation date.
403. Further, BRG has calculated damages up to the award date and included pre-award interest at a rate equivalent to Peru's sovereign cost of borrowing until August 21, 2023. BRG used this date as a representative for the award date.540
404. Consequently, BRG has determined that Claimant has incurred damages totaling US $ 266.6 million as of July 14, 2014, and US $512.7 million as of August 21, 2023. The figures are presented clearly in the accompanying illustrations.541
537 See CER – 1 [BRG], ¶¶ 60-62. ↩
538 Id. at ¶ 62. ↩
539 Id. at ¶¶ 83-86. ↩
540 Id. at ¶ 108. ↩
541 Id. at ¶¶ 105-108. ↩
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Table 1: Total damages to Claimant (USD Million)
| USD MM | ||
|---|---|---|
| Damages to Claimant as of 14 Jul 2014 | [a] | 266.6 |
| Pre-award interest at Claimant's estimated cost of debt | [b] | 246.0 |
| Damages to Claimant as of 21 Aug 2023 | [a] + [b] | 512.7 |
Source: BRG Valuation model (Ex. BRG-2)
405. The market approach is typically utilized in determining the value of an asset through the analysis of valuation multiples of comparable assets, which are then applied to the asset under evaluation. This method allows for a thorough examination of relevant market data and provides a reliable means of determining the value of an asset.542
406. BRG utilized a series of transactions conducted by peer groups to obtain data, which were sourced from IHS Markit's upstream transaction database. This database boasts a substantial inventory of market-based deal records within the oil and gas industry.543
407. First, BRG conducted an analysis of the upstream oil and gas sector, focusing on the period from July 14th, 2011 to July 14th, 2014. Using this filter yielded a total of 4,514 transactions.544 BRG only focused on asset-based transactions and removed corporate transactions, leading to a decrease in observations to 3,723. Additionally, they removed transactions with no transaction information or without both reported 1P and 2P or 3P reserves, leading to a further decrease in observations to 184 transactions.545
408. To determine the fair market value of Claimant's investments in Bocks III and IV as of the Date of Valuation, BRG utilized the 184 market-based peer groups sample, utilizing as a
542 See CER – 1 [BRG], ¶ 89. ↩
543 Id. at ¶¶ 93-94. ↩
544 Ibid. ↩
545 Id. at ¶ 94. ↩
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benchmark two valuation multiples: (i) the 1P Reserve Multiple, which represents the most economically and technically feasible reservoirs, and (ii) the Reserve Equivalent Multiple, which considers reserve equivalents. Reserve equivalents are defined as the weighted sum of proved, probable, and possible reserves, with an adjustment made to capture their true economic value.546
409. Lastly, based on the DCF evaluation, BRG considered Claimant's complete ownership of Blocks III and IV.547 Following the prescribed methodology, BRG calculated the total damages incurred by Claimant for Blocks III and IV as of the Date of Valuation. Through the application of the 1P Reserve Multiple, BRG determined that an indicative range of value of Blocks III and IV between US $253.4 million and US $ 659.5 million. Similarly, employing the Reserve Equivalent Multiple, BRG found an indicative range of value between US $183.8 million and US $ 542.7 million. The figure below shows that BRG's income approach valuation falls within the lower half of this range of indicative values.:
Figure 12: Indicative range of value for Claimant's investment based on market approach
| Category | Value / 25th Percentile (USD Million) | Median (USD Million) | 75th Percentile (USD Million) |
|---|---|---|---|
| FMV of Claimant's investment | 266.6 | ||
| 1P reserves multiple | 253.4 | 402.5 | 659.5 |
| Reserve equivalent Multiple | 183.8 | 292.5 | 542.7 |
Source: BRG Valuation Model, sheet "Charts" (Ex. BRG-2)
546 Id. at ¶ 95. ↩
547 Id. at ¶ 98. ↩
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410. Amorrortu is also entitled to pre-award interest. To calculate the interest, BRG assessed Claimant's estimated cost of debt. Based on the analysis, Claimant's estimated cost of debt equaled 7.4% as of July 2014.548
411. As of August 21, 2023—as a proxy for the award date—the assessment of damages awarded to Claimant is reflected in the table below. Based on BRG's calculations, the damages incurred by Claimant amount to US $517,671,743.
Table 4: Summary of Damages to Claimant as of 21 August 2023 (USD Million)
| Damages to Claimant as of 14 Jul 2014 | [a] | 266.6 |
| Pre-award interest at Claimant's estimated cost of debt | [b] | 246.0 |
| Damages to Claimant as of 21 Aug 2023 | [a] + [b] | 512.7 |
Source: BRG Valuation model (Ex. BRG-2)
412. To make Amorrortu whole, Peru must pay the entire costs and expenses of the arbitration, including Amorrortu's legal fees, the fees and expenses of any experts, the fees and expenses of the Tribunal, and other administrative costs.
413. The Tribunal's authority to award costs is established in Article 10.26(1) of the USPTPA, providing that a tribunal “may also award costs and attorney's fees” in the final award.549 Furthermore, Article 38 of the UNCITRAL Rules authorizes the Tribunal to award costs. If the Tribunal finds that Peru breached its obligations under the USPTPA, the award of costs is consistent, and in fact required, by the full reparation principles set out in Chorzów. Amorrortu would not have brought this arbitration and incurred substantial costs and lost time as a result if Peru had respected its obligations under the USPTPA. Accordingly, Amorrortu should be
548 Id. at ¶ 105. ↩
549 USPTPA Investment Chapter, Art. 10.26(1) (CLA-1). ↩
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awarded his costs and will submit a formal quantification of costs at the appropriate phase of these proceedings.
414. BRG has calculated damages owed to Amorrortu accounting for corporate taxes that Amorrortu would have paid in Peru had his investments been allowed to develop. Therefore, to ensure full reparation and place Amorrortu in the same position he would have occupied but for Peru's breaches of the USPTPA, the Award should not be subjected to any further taxes by Peru.550
415. BRG projects total damages for Amorrortu's investment of US $266,636,979 plus pre-award interest at Claimant's estimated cost of debt.
550 See Tethyan v. Pakistan, dispositif; see also Saint-Gobain Performance Plastics Europe v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/12/13, Decision on Liability and the Principles of Quantum, 30 December 2016 (CLA-51), dispositif. ↩
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416. On the basis of the foregoing, without limitation and reserving Amorrortu's rights to supplement these prayers for relief, including without limitation in the light of further action by Peru, Amorrortu respectfully requests that the Tribunal:
[Page 146]
Respectfully submitted on August 21, 2023
Signature
ReedSmith LLP
Francisco A. Rodriguez
Gilberto A. Guerrero-Rocca
Sandra J. Millor
Rebeca E. Mosquera
Ana R. Ulseth
Counsel for Claimant