INTERNATIONAL CENTRE FOR SETTLEMENT
OF INVESTMENT DISPUTES
In the matter of
LSG BUILDING SOLUTIONS GMBH; GREEN SOURCE CONSULTING GMBH;
SOLLUCE ROMANIA 1 B.V.; RISEN ENERGY SOLAR PROJECT GMBH; CORE
VALUE INVESTMENTS GMBH & CO KG GAMMA; CORE VALUE CAPITAL
GMBH; SC LJG GREEN SOURCE ENERGY BETA SRL; ANINA PRO INVEST
LTD; GIUST LTD; AND PRESSBURG UK GMBH,
Claimants
v.
ROMANIA,
Respondent
May 23, 2018
King & Spalding LLP
1700 Pennsylvania Ave NW, Suite 200
Washington, DC 20006
United States
12, Cours Albert 1er
75008 Paris
France
1100 Louisiana, Suite 4000
Houston, Texas 77002
United States
Counsel for Claimants
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1. LSG Building Solutions GmbH (“LSG”); Green Source Consulting GmbH (“Green Source”); Solluce Romania 1 B.V. (“Solluce”); Risen Energy Solar Project GmbH (“Risen”); Core Value Investments GmbH & Co KG Gamma (“Core Value Investments”); Core Value Capital GmbH (“Core Value Capital”); SC LJG Green Source Energy Beta SRL (the “Beta Project Company” or “Beta”); Anina Pro Invest Ltd (“Anina”); Giust Ltd (“Giust”); and Pressburg UK GmbH (“Pressburg”) (together, the “Claimants”), hereby request the initiation of an arbitration proceeding against Romania under the Convention and Rules of the International Centre for Settlement of Investment Disputes (“ICSID”).
2. Claimants submit this Request for Arbitration pursuant to Articles 25 and 36 of the ICSID Convention, ICSID Institution Rules 1 and 2, and Articles 26(4)(a)(i) and 26(7) of the Energy Charter Treaty (“ECT”).1
3. LSG Building Solutions GmbH is a company duly incorporated under the laws of Austria and registered in the Commercial Register (Firmenbuch) of the Vienna Commercial Court under registration number FN 157112 y.2 Its corporate address is Gorskistraße 13, 1230 Vienna, Austria.3
4. Green Source Consulting GmbH is a company duly incorporated under the laws of Austria and registered with the Commercial Register (Firmenbuch) of the Vienna Commercial Court under registration number FN 277298 t.4 Its corporate address is Jasomirgottstraße 6, 1010 Vienna, Austria.5
5. Solluce Romania 1 B.V. is a company duly incorporated under the laws of The Netherlands and registered with the Trade Register of the Dutch Chamber of Commerce
1 Exhibit C-1, Energy Charter Treaty and Related Documents. ↩
2 Exhibit C-2, Excerpt from the Commercial Register (Firmenbuch) of the Vienna Commercial Court, July 31, 2017 (LSG Building Solutions). ↩
4 Exhibit C-3, Excerpt from the Commercial Register (Firmenbuch) of the Vienna Commercial Court, November 10, 2017 (Green Source). ↩
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under registration number 55131654.6 Its corporate address is Strawinskylaan 3127, 8e verdieping, 1077ZX Amsterdam, The Netherlands.7
6. Risen Energy Solar Project GmbH is a company duly incorporated under the laws of Germany and listed in the Commercial Register of the Local Court of Frankfurt under registration number HRB 90120.8 Its corporate address is Neumeyerstraße 28-34, 90411 Nurnberg, Germany.9
7. Core Value Investments GmbH & Co KG Gamma is a company duly incorporated under the laws of Austria and registered in the Commercial Register (Firmenbuch) of the Vienna Commercial Court under registration number FN 392345 d.10 Its corporate address is Jasomirgottstraße 6, 1010 Vienna, Austria.11
8. Core Value Capital GmbH is a company duly incorporated under the laws of Austria and registered in the Commercial Register (Firmenbuch) of the Vienna Commercial Court under registration number FN 389545 k.12 Its corporate address is Jasomirgottstraße 6, 1010 Vienna, Austria.13
9. SC LJG Green Source Energy Beta SRL is a company duly incorporated under the laws of Romania and registered in Romania’s National Trade Registry Office under Registration Code 27885494.14 Its corporate address is 89-91 Hagi Ghiţă Street, 4th floor, Room 2 District 1, Bucharest, Romania.15 Beta Project Company is and was at all relevant times foreign-owned and controlled by LSG, Green Source, Risen, and Core Value Capital.
6 Exhibit C-4, Excerpt from the Netherlands Chamber of Commerce Business Register, May 1, 2018 (Solluce Romania 1). ↩
8 Exhibit C-5, Excerpt from the Commercial Register of the Local Court of Frankfurt, September 15, 2017 (Risen Energy Solar Project). ↩
10 Exhibit C-6, Excerpt from the Commercial Register (Firmenbuch) of the Vienna Commercial Court, May 4, 2018 (Core Value Investment). ↩
12 Exhibit C-7, Excerpt from the Commercial Register (Firmenbuch) of the Vienna Commercial Court, May 4, 2018 (Core Value Capital). ↩
14 Exhibit C-8, LJG Green Source Energy Beta SRL, Certificate of Registration, Serial B. Nr. 2728039, January 10, 2011. ↩
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10. Anina Pro Invest Ltd. is a company duly incorporated under the laws of Cyprus and registered in the Cypriot Registrar of Companies under registration number HE 294333.16 Its corporate address is Lampousas 9, 1095, Nicosia, Cyprus.17
11. Giust Ltd. is a company duly incorporated under the laws of Cyprus and registered in the Cypriot Registrar of Companies under registration number HE 297653.18 Its corporate address is Lampousas 9, 1095, Nicosia, Cyprus.19
12. Pressburg UK GmbH is a company duly incorporated under the laws of Germany and listed in the Commercial Register of Arnsberg under registration number HRB 9388.20 Its corporate address is Laer 3, 59872 Meschede, Germany.21
13. Claimants are represented in this proceeding by King & Spalding LLP.22 All correspondence and communications with Claimants should be directed to Claimants’ Counsel as follows:
Kenneth R. Fleuriet
1700 Pennsylvania Ave NW, Suite 200
Washington, DC 20006
United States
Tel. +1 202 737 0500
Fax + 1 202 626 3737
Email: [email protected]
Amy Roebuck Frey
Héloïse Hervé
Rami Chahine
Jessica Beess und Chrostin
12, cours Albert Ier
75008 Paris
France
Tel. +33 1 73 00 39 00
Fax +33 1 73 00 39 59
Email: [email protected]
16 Exhibit C-9, Anina Pro Invest, Certificate of Incorporation, September 23, 2011. ↩
18 Exhibit C-10, Giust Ltd., Certificate of Incorporation, November 25, 2011. ↩
20 Exhibit C-11, Excerpt from the Commercial Register of Arnsberg, March 1, 2018 (Pressburg). ↩
22 Exhibit C-12, Claimants’ Authorizations and Powers of Attorney to King & Spalding. ↩
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Email: [email protected]
Email: [email protected]
Email: [email protected]
Reginald R. Smith
Kevin D. Mohr
1100 Louisiana St., Ste. 4000
Houston, Texas 77002
United States
Tel. +1 713 751 3200
Fax +1 713 751 3290
Email: [email protected]
Email: [email protected]
14. The Respondent is Romania. Romania is likely to be represented in this proceeding by Mr. Dănuţ ANDRUŞCĂ, Minister of Economy of Romania, located at the following address: Calea Victoriei, nr. 152, Sector 1, 010096 Bucharest, Romania.
15. The present dispute arises out of Romania’s unlawful decision to progressively dismantle and ultimately abolish the incentive scheme it put in place to entice Claimants to invest in its renewable energy sector.
16. In 2001, Romania ratified the Kyoto Protocol to the United Nations Framework Convention on Climate Change (the “Kyoto Protocol”), which imposed targets on Romania to reduce greenhouse gas emissions by decreasing reliance on conventional energy sources and by encouraging renewable energy production.
17. At the time, however, the cost of producing electricity from renewable technologies (including from solar photovoltaic (“PV”) technology) was significantly higher than the cost of generating electricity from fossil fuel sources. Accordingly, Romania (like other countries) had to devise and implement a solid support scheme to attract substantial domestic and foreign investments in its renewable energy sector versus (otherwise less costly) investments in traditional energy sources. To achieve its Kyoto Protocol commitments, Romania’s support scheme needed to provide sufficient subsidies to enable plants generating electricity from renewable sources to earn the returns that investors required in order to invest
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in that sector. The scheme also needed to address a number of additional hurdles that potential investors in the renewable energy sector faced.
18. First, PV installations are extremely capital-intensive. As much as 90% of the total cost of production is incurred upfront to build a plant. After the initial investment is “sunk,” a PV plant can operate for many years (in excess of twenty-five) with comparatively low operating costs (mainly because the fuel—sunshine—is free). Second, PV technology was rapidly evolving and maturing at the time. Due to a global “boom” in manufacturing capacity in the early 2000s, along with significant advancements in the design and installation of PV plants, the cost of solar PV plants was declining rapidly. Because the costs for any particular plant are largely fixed at the time of construction, however, a PV plant built in one year quickly became uncompetitive with a comparable PV plant built a few years later. Third, PV plants are more exposed to market volatility (i.e., fluctuations in supply, demand, and wholesale pricing) than conventional electricity generators. Because PV generators cannot curtail production in times of low demand and electricity cannot be stored economically, PV plants need to sell all of the electricity they produce, regardless of the market price at the time. Romania’s support system to induce investment in its PV sector needed to address all of these issues in order to attract investors.
19. There are two main types of renewable energy support schemes that European countries enacted in the 2000s to entice investment in renewable energy and alleviate the hurdles just discussed:23
(1) Feed-in-Tariffs (“FiT”). Under a FiT system, renewable energy producers receive a fixed price (the FiT) for their production over a certain pre-determined period set by regulation, paid either in lieu of or in addition to the market price of electricity. The cost of the FiT is then passed on to electricity consumers, typically through a fee or charge added to consumers’ electricity bills. The primary advantage of an FiT scheme for investors is revenue predictability, because the FiT does not change with fluctuations in electricity supply or demand.
23 There are other policy options available to incentivize investment in renewable energy, including grants, tax incentives, carbon taxes, tendering schemes, etc. During the 2000s, however, FiTs and green certificates were the most common schemes adopted in Europe, because they were perceived to be the most effective and efficient way to incentivize large amounts of investment in a short amount of time. ↩
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(2) Green Certificates. Under a green certificate system, renewable energy producers sell all of the electricity that they generate at market prices. However, in order to finance the additional cost of producing green electricity (and to ensure that the desired green electricity is generated), renewable energy producers receive a predetermined number of “green certificates” for their production. Consumers are required to purchase green certificates according to a fixed percentage of their total electricity consumption. Green certificates are designed to constitute an additional source of revenue for renewable energy producers. While the price of green certificates is expected to fluctuate some with variations in supply and demand, it is crucial to the success (and viability) of this type of support scheme that the state establish rules that will ensure that all green certificates are sold at relatively stable and predictable prices. In particular, it is essential that states maintain predictable quotas and enforce the obligation on consumers to meet the established quotas, because that is the essential element that creates demand and thus imbues green certificates with value.
20. Romania elected to implement a green certificate scheme to encourage investment in its renewable energy sector. In 2003, Romania adopted Government Decision 443, its first legislation to establish a legal framework for a renewable energy support program, aimed at fulfilling its obligations under the Kyoto Protocol.24 In 2005, Romania adopted a green certificate (“GC”) trading system. Under this GC program, producers of renewable energy received one GC for each megawatt hour (“MWh”) of renewable energy they produced, irrespective of the specific type of renewable energy technology (solar, wind, etc.) they used.25 However, this regime failed to attract sufficient investment in Romania’s renewable energy sector, especially in light of Romania’s acceptance of mandatory obligations for the development of renewable energy production as part of its accession process to the European Union in 2007.
21. Therefore, in 2008, Romania implemented Law 220/2008 to further incentivize investments in renewable energy generation.26 Under that law, producers of photovoltaic electricity (“PV producers”) would receive 4 GCs for each MWh of electricity they
24 Published in the Official Gazette No. 288 of April 24, 2003. See also, Government Decision 1535, published in the Official Gazette No. 8 of January 1, 2004; Government Decision 1892, published in the Official Gazette No. 1056 of November 15, 2004. ↩
25 Government Decision 1892, Article 2(b). ↩
26 Law 220/2008, published in the Official Gazette on November 3, 2008. ↩
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generated, instead of one under the prior regime.27 Moreover, and importantly, Romania also introduced rules to ensure that all GCs would be sold at relatively stable prices. First, Romania introduced minimum and maximum trading values for GCs.28 Second, it established obligations for their purchase by Romanian energy suppliers (who sell electricity to end-consumers),29 with penalties imposed on buyers should they fail to meet their purchase obligations.30
22. Pursuant to Law 220/2008, Romanian energy suppliers were required to purchase a number of GCs equal to a fixed percentage (i.e., the “mandatory acquisition quota”) of the total quantity of electricity supplied to end consumers over the year (expressed in MWh).31 Law 220/2008 set annual mandatory acquisition quotas for years 2008 to 2020, starting at 5.26% and increasing each year to reach 16.8% in 2020.32 The law required the Government to set new mandatory acquisition quotas for post-2020 (and until 2030) at a later stage, but those quotas could not be lower than the quota set for 2020.33 The costs of GCs purchased by energy suppliers are then passed-on to end consumers.
23. Under Law 220/2008, renewable energy producers had two basic ways to sell their GCs: they could either enter into long-term bilateral contracts for the purchase of certificates by energy suppliers (“GCPAs”), or they could sell the GCs on a centralized GC market, which the electricity market operator, the State entity “OPCOM,” administered.34
24. Mandatory acquisition quotas formed the backbone of Romania’s incentive regime, because they guaranteed the marketability of GCs, and were the main driver of the value that investors expected to receive from GCs. In order to invest in a capital-intensive, long-term asset like a PV plant – and to invest under Romania’s GC program rather than an FiT scheme in a country like Germany that provided very transparent and predictable revenues – investors had to have confidence that the market for GCs in Romania would remain robust for a long time, which in turn depended on Romania’s enforcement of the mandatory acquisition quotas.
27 Law 220/2008, Article 5(2)f. ↩
28 Law 220/2008, Article 10. ↩
29 Law 220/2008, Articles 4 and 7. . ↩
30 Law 220/2008, Article 11(2). ↩
32 Law 220/2008, Article 4(5) and Appendix 1. ↩
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25. In 2009, the European Parliament and Council issued Directive 2009/28/EC, which provided that 22.1% of total energy consumption within the EU would be produced from renewable energy sources by 2020. It required Member States to report on their planned or existing measures to meet those targets as well as to adopt indicative targets for the following ten years. Romania’s official, stated target at the time was to achieve 24% of its gross energy consumption from renewable energy sources by 2020.35
26. To achieve its aggressive target, Romania amended Law 220/2008. In July 2010, it enacted Law 139/2010, which introduced four key changes to Law 220/2008:
- First, Romania increased its mandatory GC acquisition quotas for 2010-2020 by up to 5 percentage points.36 For instance, Romania increased its mandatory GC acquisition quota for 2013 from 9% to 14%.37 These quotas were again set to increase every year, to progressively reach 20% in 2020,38 in line with Romania’s expressly reaffirmed objective to achieve 24% of its gross energy consumption from renewable energy sources by 2020.39
- Second, Romania increased the number of GCs granted to certain renewable energy producers. New PV plants would receive 6 GCs per MWh of electricity they generated, rather than 4 GCs, as previously provided under Law 220/2008.40 Energy facilities commissioned and accredited by the National Energy Regulatory Authority (“ANRE”) before the end of 2016 were entitled to benefit from the set number of GCs for a period of 15 years starting from the date of their commissioning.41
- Third, Romania established the floor and ceiling on the GC trading price for 2008-2025 at €27 – €55 (adjusted annually based on the average inflation index published by Eurostat for the Eurozone),42 while the previous version of Law 220/2008 only established prices for the period of 2008-2014. After 2025, the
35 See Directive 2009/28/EC, Annex I. ↩
36 Law 220/2008, Article 4(4) as amended by Law 139/2010. ↩
39 Law 220/2008, Article 4¹ as amended by Law 139/2010. ↩
40 Law 220/2008, Article 5(2) e) as amended by Law 139/2010. ↩
41 Law 220/2008, Article 3(3), as amended by Law 139/2010. ↩
42 Law 220/2008, Article 10 as amended by Law 139/2010. ↩
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minimum transaction value of GCs could not be lower than the minimum transaction value applicable in 2025, indexed annually.43
- Fourth, to ensure GC buyers complied with their purchase obligations, Romania increased the penalty for defaulting GC buyers from €70 to €110 per GC.44 Importantly, the law specifically provided that if those mandatory acquisition quotas were not reached for a period of two consecutive years, the Government would review the investment incentives in order to ensure compliance with the mandatory acquisition quotas.45
27. In October 2011, to ensure that its support scheme would not constitute impermissible state aid under EU law,46 Romania introduced certain additional amendments to Law 220/2008.47 In particular, Romania sought to avoid “overcompensation” by establishing a system for adjusting the number of GCs to be issued to new facilities if the internal rate of return (“IRR”) for a given technology exceeded the reference IRR used to establish the support scheme by more than 10%. In such case, the Romanian regulator would propose a new number of GCs that it would issue in a future Government Decision and grant to plants that started producing energy after the entry into force of that decision.48 This additional feature strengthened the stability and viability of Romania’s incentive scheme because it gave Romania the ability to adapt its GC framework to future economic changes, without affecting the incentives already granted to existing facilities. Moreover, Romania also required producers with plants over 125 MW to seek special approval from the European Commission before benefitting from the regime,49 and placed an expiration period of 16 months on GCs from the date they were issued.50
43 Law 220/2008, Article 10(5) as amended by Law 139/2010. ↩
44 Law 220/2008, Article 11(2) as amended by Law 139/2010. ↩
45 Law 220/2008, Article 23, as amended by Law 139/2010. ↩
46 See Decision of the European Commission No. C (2011) 4938 dated July 13, 2011. ↩
47 EGO 88/2011 amending Law 220/2008. ↩
48 Law 220/2008, Article 29 (3), as amended by EGO 88/2011. ↩
49 More specifically, renewable energy producers with an installed capacity exceeding 125 MW that had entered into a grid connection agreement before October 19, 2011, would benefit from GCs for 24 months. (EGO 88/2011, Article II). During this period they were required to seek individual authorization from the EC. After authorization, the project would benefit from the incentive regime for the entire period set forth by Law 220/2008. See Law 220/2008, Article 26 as amended by EGO 88/2011. This provision and requirement were later abolished in 2015. ↩
50 Law 220/2008, Article 6(9) as amended by EGO 88/2011. ↩
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28. On July 18, 2012, Romania made additional changes to Law 220/2008 to provide even more stability to its GC framework.51 Under Law 134/2012, Romania committed to establish a guarantee fund that would act as a “buyer of last resort” for unsold GCs. This fund was intended to operate as a “safety net” in case of possible excess of GCs on the market.52 Pursuant to Law 134/2012, Romania undertook to set up the guarantee fund within 90 days of entry into force of the law on July 26, 2012.53 The regulation to establish this guarantee fund was published on the OPCOM website in 2012. To further reassure investors, Romania also undertook not to carry out any GC adjustments (see ¶ 27 above) prior to January 1, 2014, in the PV sector (or prior to January 1, 2015, for all other sectors), irrespective of whether the reference IRRs were exceeded. In other words, Romania expressly guaranteed the grant of 6 GCs per MWh of electricity generated for a duration of 15 years to any solar power plant operator that commissioned its facility and that the ANRE approved before the end of 2013.
29. The GC program described above, which Romania set up in order to induce a massive wave of investment in its renewable energy sector, constituted one of Europe’s most favorable incentive schemes for renewable energy investments. Romania had not only guaranteed specific benefits to eligible producers in terms of a fixed number of GCs for a stated duration; it had also ensured a market for the sale of those GCs within minimum and maximum price thresholds. Unsurprisingly, Romania’s GC scheme was widely viewed as one of the most attractive programs for renewable energy investments at the time. Romania aggressively promoted its GC scheme to induce foreign investment in its renewable energy sector.
30. Claimants decided to invest in Romania’s PV sector in reliance on, and directly as a result of the GC scheme described above, and legitimately expected that the incentive regime would remain essentially unchanged for its entire promised duration:
51 Published in the Official Gazette No. 505 of July 23, 2012. ↩
52 Law 220/2008, Article 12(2¹) and (2²) as amended by Law 134/2012. ↩
53 Law 134/2012, Article II. ↩
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of 45 MWp installed capacity (the “Alpha PV Facility”). The Alpha Project Company was created in January 2011 by LSG and Green Source, which remain minority shareholders of that company at 11% each.
31. Claimants LSG, Green Source, Solluce, Risen, Core Value Investments, Core Value Capital, Anina, Giust, and Pressburg immediately injected substantial funds into their Romanian Project Companies in order to swiftly finalize the construction of the relevant PV Facilities. The Alpha, Beta, Gamma, and Frasinet PV Facilities entered into operation and were accredited by the ANRE before the end of 2013. The Project Companies thus secured their rights to receive 6 GCs per MWh of energy produced for a duration of 15 years.
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32. Romania subsequently altered the regime it had put into place to entice investment in its renewable energy sector, significantly harming Claimants’ investments. Starting in mid-2013, Romania implemented a number of measures that progressively distorted and destroyed the market for GCs by reducing the demand for GCs. The measures caused a depressed market that became incapable of absorbing all of the GCs granted (or to be granted) to renewable energy producers, resulting in GCs either expiring before they could be sold, or selling invariably at the lowest price.
33. On June 4, 2013, Romania adopted EGO 57/2013, which amended the existing GC incentive regime as of July 1, 2013.54 The most important feature of that regulation was Romania’s decision to “defer” the issuance of 2 GCs (out of 6 per MWh) for PV plants. At that time, the “deferred” GCs were expected to be reintroduced to accredited PV facilities gradually between April 1, 2017 and December 31, 2020, at the latest.55 The result of this modification was to defer temporarily the number of GCs that existing plants would receive going forward (and therefore their revenues), which caused lenders to adjust financing terms. In addition, Romania excluded from the support scheme the quantities of renewable energy delivered by PV plants over 5 MW that exceeded the daily forecasts submitted by renewable energy producers to the Romanian Transmission and System Operator (“TSO”).56 This caused a number of PV plants not to receive GCs for all of the electricity they produced. Finally, Romania introduced the possibility of exempting certain end-consumers from their obligation to pay for the costs of GCs.57
34. At the same time, though, under EGO 57/2013, the reduction in the number of GCs was temporary, and – importantly – EGO 57/2013 still referred to the guarantee fund that Romania ostensibly intended to establish. Furthermore, ECO57/2013 contained an assurance that Romania would buy all untraded certificates according to rules to be approved by the ANRE.
54 EGO 57/2013, Published in the Official Gazette No. 335 of June 7, 2013. ↩
55 Law 220/2008, Article 6 (2¹) and (2²), as amended by EGO 57/2013. ↩
56 Law 220/2008, Article 3(6)(f), as amended by EGO 57/2013. ↩
57 Law 220/2008, Article 8(8), as amended by EGO 57/2013. ↩
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35. Unfortunately, however, Romania did not stop there. On February 14, 2014, it enacted Law 23/2014.58 Under that law, Romania altered its approach to mandatory GC acquisition quotas, which henceforth could be modified annually.59 The annual quotas originally had been enshrined in Law 220/2008 until 2020.
36. From 2014 onward, Romania availed itself of the annual modification to lower GC quotas unreasonably, contradicting its publicly-stated objective of supporting renewable energy generation. For 2014, Romania lowered its mandatory GC acquisition quota from 15% to 11.1%;60 for 2015, it reduced the quota from 16% to 11.9%;61 for 2016, it decreased the quota from 17% to 12.1%.62 In 2017, Romania further reduced its mandatory GC acquisition quota to only 8.3% (from 18% originally),63 despite the ANRE’s warning that this quota would likely lead to the bankruptcy of renewable energy producers and thus prevent Romania from achieving its 24% target of renewable energy consumption by 2020.64
37. Romania’s decision to reduce its mandatory GC acquisition quotas was in part driven by the fact that, in July 2014, Romania partially exempted energy-intensive users (“EIUs”) from their obligation to pay for the costs of GCs, as permitted by EGO 57/2013.65 This exemption led to an increase of the costs borne by non-exempted end-consumers, which Romania tried to contain by artificially lowering its mandatory GC acquisition quotas.
38. These reduced GC quotas directly resulted in a drastic decrease of the number of GCs that energy suppliers were required to purchase, which in turn led to a severe decline in the demand for GCs (and severely impacted their trading price). Moreover, Romania compounded the impact of constraining demand for GCs by eliminating all references in Law 220/2008 to the guarantee fund (or “buyer of last resort”),66 which Romania had never established despite repeatedly having promised to do so in previous legislation.
58 Law 23/2014, Published in the Official Gazette No. 184 of March 14, 2014. ↩
59 Law 220/2008, Article 4¹ as amended by Law 23/2014. ↩
60 Government Decision (“GD”) no 224/2014 ↩
64 Exhibit C-13, ANRE’s Letter to the Ministry of Energy, June 30, 2016. ↩
65 GD no 495/2014. EIUs include large industrial companies in certain sectors such as aluminum, steel mills, and petrochemical plants that consume a disproportionate amount of the country’s electricity. Approximately 300 companies are included in this definition, and together, their electricity consumption equals 20% of Romania’s gross final consumption of electricity. ↩
66 Law 23/2014, Article I para. 12. ↩
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39. Romania’s modification of its GC framework in 2014 and subsequent years not only created an unexpected oversupply of GCs - which pushed GCs to trade at their lowest value - but also resulted in a large number of GCs remaining unsold. Those results were aggravated by Romania’s decision to reduce the validity period of GCs from 16 months to 12 months from their date of issuance.67 For instance, for 2016, the surplus number of unsold GCs was estimated at 6.8 million, or approximately one-third of all GCs issued.68 These important market distortions were further exacerbated by Romania’s failure to take action against energy suppliers that failed to purchase their mandatory GC quotas.69
40. On March 31, 2017, Romania adopted EGO 24/2017, which again amended Law 220/2008.70 Despite extending the duration of validity of GCs issued after 2017 until March 31, 2032, this most recent legislation largely failed to redress the significant market distortions already created by Romania, and in fact introduced a number of additional changes that preclude any chance of recovery of the GC market in the near, medium, or long term.
41. To begin with, and most significantly, Romania decided to further extend the aforementioned deferral mechanism by seven years for PV producers accredited before December 31, 2013 (such as Claimants).71 In other words, Romania will continue to withhold 2 out of the 6 GCs per MWh owed to Claimants’ PV Facilities until December 2024, instead of April 2017 as provided under previous legislation. Under this new regime, all the deferred GCs are ostensibly to be recovered in equal monthly installments over a period of 6 years starting from January 1, 2025, until December 31, 2030 for PV plants (assuming that the deferred GCs are ever issued).72 This drastic change in the law considerably impacts the financial situation of PV producers because it reduces the revenues they expected to receive from the sale of GCs until 2025. Moreover, it will significantly increase the already-existing oversupply of GCs starting in 2025 (when those GCs allegedly
67 Law 220/2008, Article 6(9), as amended by Law 23/2014 ↩
68 Exhibit C-14, Lexology, “Final RES-Electricity Quota for 2015,” March 8, 2016. ↩
69 During the years 2013-2014, an important number of companies did not respect their acquisition quotas and did not pay the default penalties. The Romanian Authority for Nuclear Activities (“RAANA”) topped the list of defaulting GC buyers. The RAANA purchased none of the 44,430 GCs it was obliged to purchase in 2013, which meant that it owed approximately 5 million Euros to the fund. Similarly, in 2014, the RAANA only acquired 1,300 of the 32,401 GCs it was required to purchase. We understand that Romania has taken no action against companies that failed to meet their GC acquisition quotas. ↩
70 EGO 24/2017, Published in the Official Gazette No. 224 of March 31, 2017. ↩
71 Law 220/2008, Article 6(2⁵), as introduced by EGO 24/2017 ↩
72 Law 220/2008, Articles 6(2⁶), as introduced by EGO 24/2017 ↩
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will be reintroduced), and therefore the likelihood that the GCs will remain unsold (at least for a significant period of time).
42. Second, and very importantly, Romania further weakened the obligation to purchase GCs imposed on energy suppliers. As of April 2017, the purchase requirement is no longer calculated on the basis of mandatory acquisition quotas expressed as a percentage of total electricity consumption (as originally provided by Law 220/2008), but rather by allocating among energy suppliers an annual “fixed” amount of GCs that is arbitrarily set by the ANRE every two years.73 Notably, when calculating this “fixed” number of GCs, the ANRE must ensure that the financial impact of the entire incentive program on electricity consumers does not exceed EUR 11.1/MWh.74 In case the total cost of GCs to be purchased by energy suppliers exceeds that threshold, their obligation to purchase GCs will be reduced accordingly (which, in turn, further drives down the demand for GCs and increases the number of unsold GCs).
43. Finally, Romania further altered the GC market by: (i) decreasing the maximum threshold for the price of GCs from €55 to €35 per MWh and deciding that the GCs’ minimum and maximum prices would no longer be indexed to inflation;75 (ii) discouraging suppliers from meeting their purchase obligations by lowering the penalty applicable to consumers who do not meet their mandatory purchase obligations (to the extent Romania actually enforces any penalty at all);76 and (iii) deciding to ban private agreements for the sale and purchase of GCs as of September 1, 2017, thereby centralizing the trading of GCs on the (dysfunctional) market administered by the electricity market operator, the State entity OPCOM.77
44. As a result of these recently adopted measures, the GC market for renewable energy producers has become even more moribund and artificially depressed, and it will remain so in
73 Law 220/2008, Article 4(6¹) introduced by EGO 24/2017; and Article 4(7), as amended by EGO 24/2017. ↩
74 Law 220/2008, Article 4(7), as amended by EGO 24/2017 and Article 4(9¹), introduced by EGO 24/2017. ↩
75 EGO 24/2017, Article XIII. ↩
76 Law 220/2008, Article 12 (2), as amended by EGO 24/2017. ↩
77 EGO 24/2017, Article XI and XII. While new GCPAs will be prohibited, those entered into prior to September 2017 will remain effective but cannot be prolonged or renewed or amended to increase the number of GCs to be sold. ↩
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years to come. The consequence is that the value of Claimants’ investments in Romania has been substantially destroyed.
45. As a Contracting Party to the ECT and a Contracting State to the ICSID Convention, Romania agreed that Claimants could submit this dispute to ICSID arbitration. Article 26 of the ECT, governing the settlement of disputes between an investor and a Contracting Party, provides:
(1) Disputes between a Contracting Party and an Investor of another Contracting Party relating to an Investment of the latter in the Area of the former, which concern an alleged breach of an obligation of the former under Part III shall, if possible, be settled amicably.
(2) If such disputes can not be settled according to the provisions of paragraph (1) within a period of three months from the date on which either party to the dispute requested amicable settlement, the Investor party to the dispute may choose to submit it for resolution:
(a) to the courts or administrative tribunals of the Contracting Party to the dispute;
(b) in accordance with any applicable, previously agreed dispute settlement procedure; or
(c) in accordance with the following paragraphs of this Article.
(3) (a) Subject only to subparagraphs (b) and (c), each Contracting Party hereby gives its unconditional consent to the submission of a dispute to international arbitration or conciliation in accordance with the provisions of this Article. ...
(4) In the event that an Investor chooses to submit the dispute for resolution under subparagraph (2)(c), the Investor shall further provide its consent in writing for the dispute to be submitted to:
(a)(i) The International Centre for Settlement of Investment Disputes, established pursuant to the Convention on the Settlement of Investment Disputes between States and Nationals of other States opened for signature at Washington, 18 March 1965 (hereinafter referred to as the “ICSID Convention”), if the Contracting Party of the Investor and the Contracting Party party to the dispute are both parties to the ICSID Convention, ...
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(5) (a) The consent given in paragraph (3) together with the written consent of the Investor given pursuant to paragraph (4) shall be considered to satisfy the requirement for:
(i) written consent of the parties to a dispute for purposes of Chapter II of the ICSID Convention ...
(7) An Investor other than a natural person which has the nationality of a Contracting Party to the dispute on the date of the consent in writing referred to in paragraph (4) and which, before a dispute between it and that Contracting Party arises, is controlled by Investors of another Contracting Party, shall for the purpose of article 25(2)(b) of the ICSID Convention be treated as a “national of another Contracting State” and shall for the purpose of article 1(6) of the Additional Facility Rules be treated as a “national of another State”.
46. Article 25(1) of the ICSID Convention states that “the jurisdiction of the Centre shall extend to any legal dispute arising directly out of an investment, between a Contracting State ... and a national of another Contracting State, which the parties to the dispute consent in writing to submit to the Centre.” Article 25(2)(b) of the ICSID Convention provides that:
(2) “National of another Contracting State” means:
(b) any juridical person which had the nationality of a Contracting State other than the State party to the dispute on the date on which the parties consented to submit such dispute to conciliation or arbitration and any juridical person which had the nationality of the Contracting State party to the dispute on that date and which, because of foreign control, the parties have agreed should be treated as a national of another Contracting State for the purposes of this Convention.
47. The requirements for ICSID jurisdiction under Article 26 of the ECT as well as under Article 25 of the ICSID Convention may be summarized as follows: a) the dispute must be a legal dispute arising directly out of an investment and concerning an alleged breach of Part III of the ECT; b) the dispute must involve a covered “investment;” c) the Respondent must be a Contracting Party to the ECT and a Contracting State of the ICSID Convention; d) the Claimant must be a covered “investor” that either is or may be treated as a national or company of another Contracting Party to the ECT and of a Contracting State of the ICSID Convention; e) the parties must have consented to ICSID jurisdiction; and f) the parties must have failed to amicably settle the dispute within a three-month period after the notice of dispute was given.
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48. Each of these requirements is satisfied in the present case.
49. As explained above, the present dispute arises out of Romania’s unlawful and unreasonable decision to progressively dismantle the legal and regulatory scheme that it had originally enacted to entice Claimants to invest in its renewable energy sector. The acts and omissions of Romania described above and to be developed further in the course of this proceeding constitute serious and repeated breaches of the protections accorded to Claimants’ investments under Part III of the ECT. Those protections include, but are not limited to, those found in Articles 10 and 13 of the ECT.
50. Article 10 provides a number of guarantees and protections to Claimants and their investments, including: 1) fair and equitable treatment; 2) a requirement that the host state accord “the most constant protection and security” to investments; 3) a prohibition against unreasonable or discriminatory measures that impair the management, maintenance, use, enjoyment, or disposal of investments; 4) a prohibition against treatment less favorable than that required by international law, including treaty obligations; 5) a requirement to observe any obligations the host state has entered into with an investment or an investor; 6) most-favored nation treatment; and 7) national treatment. Article 13 of the ECT prohibits the illegal expropriation of Claimants’ investments. Romania violated each of the foregoing standards of protection in the present case.
51. The term “investment” is not defined in Article 25 of the ICSID Convention, but it is widely understood to have a broad definition such as that found in the ECT. Article 1(6) of the ECT defines “Investment” as:
“Investment” means every kind of asset, owned or controlled directly or indirectly by an Investor and includes:
(a) tangible and intangible, and movable and immovable, property, and any property rights such as leases, mortgages, liens, and pledges;
(b) a company or business enterprise, or shares, stock, or other forms of equity participation in a company or business enterprise, and bonds and other debt of a company or business enterprise;
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(c) claims to money and claims to performance pursuant to contract having an economic value and associated with an Investment;
(d) Intellectual Property;
(e) Returns;
(f) any right conferred by law or contract or by virtue of any licences and permits granted pursuant to law to undertake any Economic Activity in the Energy Sector.
A change in the form in which assets are invested does not affect their character as investments and the term “Investment” includes all investments, whether existing at or made after the later of the date of entry into force of this Treaty for the Contracting Party of the Investor making the investment and that for the Contracting Party in the Area of which the investment is made (hereinafter referred to as the “Effective Date”) provided that the Treaty shall only apply to matters affecting such investments after the Effective Date.
“Investment” refers to any investment associated with an Economic Activity in the Energy Sector.
52. Under this definition, it is unquestionable that Claimants directly and indirectly own and control “Investments,” including, but not limited to: (i) Claimants’ ownership of tangible and intangible property and property rights, including their ownership of the Alpha, Beta, Gamma, and Frasinet PV Facilities and underlying assets; (ii) Claimants’ ownership of shares and equity participation in the Alpha, Beta, Gamma, and Frasinet Project Companies, as well as debt obligations; (iii) rights to “Returns” and claims to money; (iv) rights conferred to Claimants’ investments by law; and (v) rights conferred by licenses and permits.
53. All Claimants currently own those “Investments,” which they also owned on the date of consent to ICSID jurisdiction (discussed below) and immediately before the events giving rise to the dispute. Furthermore, all of Claimants’ “Investments” entail an “Economic Activity in the Energy Sector.”
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54. Romania is a Contracting Party to the ECT. Romania signed the ECT on December 17, 1991, and ratified it on March 10, 1996. Romania deposited its instrument of ratification on August 12, 1997. The ECT entered into force for Romania on April 16, 1998.78
55. Romania is also a Contracting State of the ICSID Convention. Romania signed the ICSID Convention on September 6, 1974, and deposited its ratification of the Convention on September 12, 1975. The ICSID Convention entered into force for Romania on October 12, 1975.79
56. For purposes of Article 25 of the ICSID Convention, nationality is determined by the domestic laws of each Contracting State. Article 1(7) of the ECT likewise provides that the term “investor” means “a company or other organization organized in accordance with the law applicable in that Contracting Party.”80
57. As described above (see ¶¶ 3-12), Solluce is a business entity duly incorporated in The Netherlands, which is a Contracting Party to the ECT81 and a Contracting State to the ICSID Convention.82 LSG, Green Source, Core Value Investments, and Core Value Capital are all companies duly formed under the laws of Austria, which is also a Contracting Party to the ECT83 and a Contracting State to the ICSID Convention.84 Both Pressburg and Risen are
78 Exhibit C-15, Energy Charter: Members and Observers—Romania. ↩
79 Exhibit C-16, ICSID: List of Contracting States and Other Signatories of the Convention, January 11, 2018. ↩
80 Exhibit C-1, Energy Charter Treaty and Related Documents. ↩
81 The Netherlands signed the ECT on December 17, 1994 and ratified it on December 11, 1997. The ECT entered into force for The Netherlands on April 16, 1998 (see Exhibit C-17, Energy Charter: Members and Observers—The Netherlands). ↩
82 The Netherlands signed the ICSID Convention on May 25, 1966, and deposited its ratification on the Convention on September 14, 1966. The ICSID Convention entered into force for The Netherlands on October 14, 1966 (see Exhibit C-16, ICSID: List of Contracting States and Other Signatories of the Convention, January 11, 2018) ↩
83 Austria signed the ECT on December 17, 1994 and ratified it on August 12, 1997. The ECT entered into force for Austria on April 16, 1998 (see Exhibit C-18, Energy Charter: Members and Observers—Austria). ↩
84 Austria signed the ICSID Convention on May 17, 1966, and deposited its ratification on the Convention on May 25, 1971. The ICSID Convention entered into force for Austria on June 24, 1971 (see Exhibit C-16, ICSID: List of Contracting States and Other Signatories of the Convention, January 11, 2018) ↩
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lawfully incorporated in Germany, which is also a Contracting Party to the ECT85 and a Contracting State to the ICSID Convention.86 Beta Project Company is a company incorporated under the laws of Romania, but owned and controlled at all relevant times by nationals of other Contracting States: LSG, Green Source, Risen and Core Value Capital. Therefore, Beta Project Company may be treated as a national of another Contracting State under Article 26(7) of the ECT and Article 25(2)(b) of the ICSID Convention. Finally, Giust and Anina are companies lawfully incorporated in Cyprus, which is also a Contracting Party to the ECT87 and a Contracting State to the ICSID Convention.88
58. Thus, Claimants are all covered “Investors” and nationals of a Contracting Party to the ECT and a Contracting State of ICSID.
59. Romania consented to submit legal disputes like the present one to ICSID arbitration by signing and ratifying the ECT. Article 26(4) of the ECT expressly includes ICSID as a dispute settlement option for investors. As noted above, the ECT entered into force for Romania on April 16, 1998.89
60. Claimants consented to arbitrate this dispute pursuant to Article 26 of the ECT through letters to Romania dated August 28, 2017.90 Claimants further confirm their consent
85 Germany signed the ECT on December 17, 1994 and ratified it on March 14, 1997. The ECT entered into force for Germany on April 16, 1998 (see Exhibit C-19, Energy Charter: Members and Observers— Germany). ↩
86 Germany signed the ICSID Convention on January 27, 1966, and deposited its ratification on the Convention on April 18, 1969. The ICSID Convention entered into force for Germany on May 18, 1969 (see Exhibit C-16, ICSID: List of Contracting States and Other Signatories of the Convention, January 11, 2018) ↩
87 Cyprus signed the ECT on December 17, 1994 and ratified it on January 2, 1998. The ECT entered into force for Cyprus on April 16, 1998 (see Exhibit C-20, Energy Charter: Members and Observers—Cyprus). ↩
88 Cyprus signed the ICSID Convention on March 9, 1966, and deposited its ratification on the Convention on November 25, 1966. The ICSID Convention entered into force for Cyprus on December 25, 1966 (see Exhibit C-16, ICSID: List of Contracting States and Other Signatories of the Convention, January 11, 2018) ↩
89 Exhibit C-15, Energy Charter: Members and Observers—Romania. ↩
90 See Exhibit C-21, Solluce’s, LSG’s, Green Source’s, and the Alpha Project Company’s Notice of Legal Dispute Arising Under the Energy Charter Treaty and Offer of Amicable Settlement to Romania, August 28, 2017; Exhibit C-22, Risen’s, LSG’s, Green Source’s, and the Beta Project Company’s Notice of Legal Dispute Arising Under the Energy Charter Treaty and Offer of Amicable Settlement to Romania, August 28, 2017; Exhibit C-23, Pressburg’s, Giust’s, Anina’s, and the Frasinet’s Project Companies’ Notice of Legal Dispute Arising Under the Energy Charter Treaty and Offer of Amicable Settlement to Romania, August 28, 2017; Exhibit C-24, Core Value Investment’s, Core Value Capital’s, LSG’s, Green Source’s, and the Gamma Project Company’s Notice of Legal Dispute Arising Under the Energy Charter Treaty and Offer of Amicable Settlement to Romania, August 28, 2017. ↩
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to settle this dispute through ICSID arbitration through this Request for Arbitration. Thus, Claimants have satisfied the “consent” requirement under the ICSID Convention.
61. Before submitting a dispute to arbitration, Article 26 of the ECT requires disputing parties to settle their disputes amicably, if possible. Claimants sent letters to Respondent on August 28, 2017, which described their concerns regarding Romania’s alterations to the legal and economic regime applicable to their photovoltaic plants, notifying it of this dispute, and offering to settle the dispute amicably.91 Romania has not responded to Claimants’ offer to pursue a settlement and no resolution of the present dispute has been achieved.
62. Article 26 of the ECT allows an Investor to submit its dispute to ICSID arbitration if the dispute is not settled amicably within a three-month period. As three months have passed since Claimants attempted to settle this dispute amicably with Romania, Claimants are entitled to submit this Request for Arbitration to ICSID.
63. In accordance with Article 37 of the ICSID Convention, Claimants request that a Tribunal be constituted to hear this matter as soon as possible. In view of the size and complexity of this case, the Arbitral Tribunal should consist of three arbitrators.
64. Pursuant to Rule 22(1) of the ICSID Rules of Procedure for Arbitration Proceedings, Claimants select English as the procedural language for this arbitration.
65. Pursuant to Article 62 and 63 of the ICSID Convention, and in view of the locations of Claimants and Respondent, Claimants request that the arbitration proceedings be held at ICSID’s facilities in Paris, France.
66. The request is submitted in six (6) signed original paper copies, as well as an electronic copy, and it is accompanied by payment of the fee for lodging requests.
67. Claimants request an award granting them the following relief:
- A declaration that the dispute is within the jurisdiction of ICSID and the ECT;
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- A declaration that Romania has violated Part III of the ECT, including but not limited to Articles 10 and 13, as well as international law with respect to Claimants’ investments;
- Compensation to Claimants for all damages they have suffered, to be developed and quantified in the course of this proceeding but likely to include, by way of example and without limitation, sums invested by Claimants to acquire the investments, lost profits, and consequential damages flowing from Respondent’s breaches;
- All costs of this proceeding, including Claimants’ attorneys’ fees;
- Pre- and post-award compound interest until the date of Respondent’s final satisfaction of the award; and
- Any additional relief the Tribunal may deem just and proper.
68. Claimants reserve their right to modify, amend, or supplement their claims during the course of the arbitration proceeding.
69. For the reasons set forth above, Claimants respectfully request that ICSID register this arbitration against Romania.
Respectfully submitted,
Signature
King & Spalding
Kenneth R. Fleuriet
Reginald R. Smith
Kevin D. Mohr
Amy Roebuck Frey
Héloïse Hervé
Rami Chahine
Jessica Beess und Chrostin