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DE RUEHBU #1128/01 1582008
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R 072008Z JUN 07
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TO RUEHC/SECSTATE WASHDC 8362
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UNCLAS BUENOS AIRES 001128 
 
SIPDIS 
 
SIPDIS 
SENSITIVE 
 
EB/OIA FOR WSCHOLZ, JFINN 
PARIS FOR OECD 
USDOC FOR 4322/ITA/MAC/OLAC/PEACHER 
PASS NSC FOR JOSE CARDENAS, ROD HUNTER 
PASS USTR FOR EEISSENSTAT, SCRONIN 
TREASURY FOR TRAN 
 
E.O. 12958: N/A 
TAGS: ECON EFIN ETRD EINV PGOV KIDE PREL OPIC AR
SUBJECT: 2007 REPORT ON INVESTMENT DISPUTES AND EXPROPRIATION 
CLAIMS: ARGENTINA 
 
This cable is Sensitive But Unclassified - Not for Internet 
Distribution 
 
REF:  A. SECSTATE 55422 
        ¶B. 2004 BUENOS AIRES 1725 
      ¶C. 2005 BUENOS AIRES 1519 
      ¶D. 2006 BUENOS AIRES 1362 
 
¶1.  (U) The following report outlines new and ongoing investment 
disputes between the GOA and US investors, following an action 
request cable (Ref A), and updating Post's 2004 Investment Disputes 
Report (Ref B), and its subsequent 2005 and 2006 updates (Refs C and 
D).  There were no new disputes filed in during 2006.  Post is aware 
of 13 active disputes.  During 2006, two disputes were formally 
settled (Claimants B and I).  One dispute has been suspended 
formally, but remains active (Claimant F).  Finally, another dispute 
was settled (Claimant M), but because its discontinuance is yet to 
be formally registered, the case is still reported active. 
 
¶2.  (SBU) Many of these claims arise in whole or in part from the 
GOA's implementation of Emergency Law 25,561 on January 6, 2002. 
This law (among other things) converted contract provisions 
denominated in US dollars into Argentine pesos at a 1:1 rate and 
rescinded previously-sanctioned indexation of contracts to US 
inflation indices.  US investors contend that such measures 
unilaterally derogate contractual agreements and effectively 
expropriate US investor capital. 
 
¶3.  (SBU) (a) Claimant A 
 
(b)  2002 
 
(c)  Claimant A is a US energy sector utility with gas distribution 
assets in Argentina.  Its dollar-based gas distribution contracts in 
Argentina were linked to the US producer price index.  In March 
2002, Claimant A initiated consultations under ICSID, claiming that 
various provisions of Emergency Law 25,561 voided its distribution 
contracts and effectively expropriated its capital investment. 
Claimant A also charged that the GOA had failed to pay contractually 
mandated subsidy payments in compensation for pricing its gas at 
below market rates.  Claimant A filed for ICSID arbitration on 
September 10, 2002.  Its request for arbitration was accepted on 
December 6, 2002.  On February 27, 2003, Claimant A's business 
partner filed an arbitration claim under a bilateral investment 
treaty between Luxembourg and Argentina.  The two claims will be 
treated jointly.  ICSID ruled against GOA's objections to its 
jurisdiction. Both parties filed post-hearing briefings on April 3, 
¶2006.  In April 2007, the GOA and Claimant A's business partner 
reached an agreement on tariff increases and domestic investment, 
which included a settlement to discontinue all ICSID cases. 
Formally, the portion of the dispute brought by Claimant A's 
business partner, which was to be treated jointly with that of 
Claimant A's, has not been suspended before ICSID, but it is 
expected to be discontinued shortly.  However, Claimant A has 
continued with the case. 
 
¶4.  (SBU)(a)  Claimant B, first case 
 
(b)  2001 
 
(c)  Claimant B, a US energy sector firm, has a substantial minority 
investment in an Argentine gas pipeline whose dollar-based 
transmission contract was linked to the US producer price index. 
Claimant B initiated preliminary consultations under ICSID 
arbitration guidelines in September 2001 following a GOA decision to 
cease approving index-related increases in gas transmission fees. 
In May 2002, Claimant B began a process to expand its ICSID claim to 
 
 
address certain provisions of Emergency Law 25,561.  Claimant B 
filed for ICSID arbitration on March 19, 2003.  ICSID agreed that 
this dispute would be heard by the same arbitration panel hearing 
Claimant B's second arbitration claim against the GOA (see below). 
ICSID issued a ruling on jurisdiction in January 2004 in favor of 
Claimant B.  The tribunal held a final hearing on the merits in 
November 2005.  On May 22, 2007, ICSID ruled against Argentina in 
this case.  The ruling was for $106.2 million in damages.  In 
addition to the compensation award, the ICSID arbitral panel ruled 
that the GoA must pay interest of Libor plus 2%, retroactive to 
January 2002. 
 
¶5.  (SBU)(a) Claimant B, Second Case - SETTLED 
 
(b)  1996 
 
(c)  Six western Argentine provinces are attempting to collect over 
$3 billion in retroactive stamp tax and gross receipts tax duties 
from international energy companies operating in their 
jurisdictions.  Claimant B registered its claim with ICSID on April 
11, 2001.  Because Claimant B asserts that it does not have any 
stamp tax liability, there is no information on the amount of this 
claim.  In April, 2004, in a separate but similar case, the 
Argentine Supreme Court ruled that the stamp tax levies imposed by a 
province not linked to this case were invalid.  Thereafter, Claimant 
B and the GOA agreed to suspend the case.  On December 8, 2005, the 
ICSID tribunal issued a procedural order on discontinuance of the 
stamp tax claim embodying the parties' agreement on the 
discontinuance. 
 
¶6.  (SBU)(a)  Claimant C 
 
(b)  2000 
 
(c) Claimant C is a US energy sector infrastructure firm, which 
operates natural gas pipelines in Argentina through a local company, 
under a licensed granted to the local company by the GOA.  The 
Argentine gas legal framework and the local company's license linked 
the tariffs for gas transmission services to the US producer price 
index.  On October 20, 2000, following a decision by the GOA to 
cease approving index-related increases in gas transmission tariffs, 
Claimant C initiated preliminary consultations with the GOA under 
the US-Argentine Bilateral Investment Treaty.  On July 24, 2001, 
Claimant C filed for ICSID arbitration, claiming over $100 million 
in compensation.  On January 6, 2002, the GOA passed Emergency Law 
25, 561, which abolished adjustments and indexation clauses in 
contracts contained in licenses, and converted all 
dollar-denominated tariffs into pesos at the mandatory rate of 1 
peso per USD.  On February 13, 2002, Claimant C wrote to the GOA, 
saying these measures further affected Claimant C's property rights 
and were tantamount to an expropriation.  On July 5, 2002, Claimant 
C submitted its Memorial seeking $261.1 million in damages from the 
GOA for expropriation of its investment.  On May 12, 2005, Claimant 
C received an award of $133.2 million from the ICSID tribunal, with 
interest to date of payment, and granting a right to the GOA to 
purchase Claimant C's interest in the local subsidiary for an 
additional payment.  On September 27, 2005, the GOA filed an 
application for institution of annulment proceedings.  An annulment 
panel has been formed and the first hearing in the annulment process 
was held June 5, 2006. 
 
¶7.  (SBU)(a)  Claimant D 
 
(b)  2000 
 
(c)  Claimant D is a diversified US energy sector firm with gas 
transmission assets in Argentina, whose dollar-based transmission 
 
contract was linked to the US producer price index.  In October 
2000, following a GOA decision to no longer approve index-related 
increases in gas transmission fees, Claimant D initiated preliminary 
consultations under ICSID arbitration guidelines.  It formally filed 
for ICSID arbitration in March 2001.  In May 2002, Claimant D began 
a process to expand its ICSID claim to include provisions of 
Emergency Law 25,561.  On April 30, 2004, the arbitral panel issued 
its decision on jurisdiction, ruling in favor of Claimant D on all 
jurisdictional issues.  In September 2006, the Tribunal decided on 
liability, based upon the GOA's assertion that provisions of 
Emergency Law 25,561 were adopted pursuant to a "state of necessity" 
that reflected the rights of the GOA to pursue "measures necessary 
for the maintenance of public order...or the protection of its own 
essential security interests" as recognized under Article XI of the 
U.S. - Argentine Bilateral Investment Treaty.  The Tribunal 
concluded that the GOA underwent a "state of necessity" starting 
December 1, 2001 and ending April 26, 2003.  The tribunal said a) 
that the claim for expropriation of the investment was dismissed; b) 
that Argentina breached the standard of fair and equitable 
treatment, no less favorable treatment than that to be accorded 
under the international law, and adopted discriminatory measures, 
causing damage to Claimant D; and c) that the standard prohibiting 
the adoption of arbitrary measures was not deemed to have been 
violated.  During the state of necessity, the tribunal ruled the 
Argentine Republic was exempted from the payment of compensation for 
damages incurred; however, the Argentine Republic was liable for 
damages outside that period.  Damages, including interest, as well 
as specification of the periods during which the respondent incurred 
in violation of its international obligations, are to be determined 
in a next phase of the arbitration. 
 
¶8.  (SBU)(a)  Claimant E, First Claim 
 
(b)  2001 
 
(c)  Claimant E is a water resource management company that, through 
a local subsidiary, won a 30-year concession in 1999 to manage a 
significant share of Buenos Aires province's water and wastewater 
management facilities.  Many of its tariff rights under the 
Concession Contract were effectively repudiated by the Province when 
the water in one city turned sour in April 2000 because of algae in 
the local reservoir, which was under the Province's exclusive 
control.  According to Claimant E, provincial officials blamed 
Claimant E for the problems, refused to allow the company to bill 
for its services, required the company to provide bottled water to 
the town at the company's expense, and publicly announced that 
people should not pay their water bills.  The Province also 
allegedly repudiated Claimant E's right to amortize its bid payment. 
 In January 2001, Claimant E filed for ICSID arbitration.  Following 
unsuccessful settlement efforts, an ICSID panel was constituted in 
July 2001, and the case was formally accepted by the panel in 
September 2001.  While the arbitration case remains in process, 
Claimant E filed for bankruptcy in December 2001 and returned 
operation of all its water and wastewater management facilities to 
provincial authorities in March 2002.  The final hearing on the 
merits was held in March 2005.  In June 2006, the Tribunal decided 
that the Respondent failed to accord full protection and security to 
the investment and that the respondent breached the BIT by taking 
arbitrary measures that impaired the claimant's use and enjoyment of 
its investment.  Therefore, it awarded compensation to Claimant E of 
US$165.2 million.  The Argentine Republic registered an annulment 
proceeding on December 11, 2006 to contest the award. 
 
¶9.  (SBU)(a)  Claimant E, second claim 
 
(b)  2003 
 
 
(c)  Claimant E held, through a local subsidiary, a concession to 
manage a significant share of Mendoza province's water and 
wastewater management facilities. Claimant E filed for ICSID 
arbitration in 2003, alleging that by interfering with Claimant E's 
contractual rights, the province effectively repudiated its 
concession.  ICSID 
registered the claim on December 8, 2003.  Each side has appointed 
an arbitrator, but a panel president has not yet been selected. 
 
¶10.  (SBU) (a)  Claimant F 
 
(b)   2002 
 
(c)   Claimant F owns and operates several hydrocarbon and 
hydroelectric power plants in Argentina, and has electricity 
distribution concessions in the Province of Buenos Aires.  In March 
2002, Claimant F pursued informal negotiations, claiming that the 
pesification of its dollar-denominated distribution contracts and 
the devaluation of the peso, have resulted in the effective 
expropriation of a large portion of the value of Claimant F's 
investment.  In April 2005, one of Claimant F's subsidiaries signed 
a definitive agreement on re-negotiation of its concession agreement 
with the GOA.  The agreement was ratified by the Argentine Congress 
in May.  As part of that agreement, Claimant F agreed to suspend its 
claim, and to definitively drop its claim if a tariff agreement were 
approved.  Parties requested the suspension of proceedings, which 
the Tribunal accepted on December 29, 2006.  Additionally, the 
portions of the proceedings referring to the Claimant's other two 
distribution subsidiaries, were discontinued after Claimant F 
reached an agreement with the provincial government. 
 
¶11.  (SBU)(a)  Claimant G 
 
(b)  2001 
 
(c)  Claimant owned an interest in an oil and gas company involved 
in the exploration for and production of hydrocarbons in Neuquen, 
Rio Negro, Santa Cruz, Tierra del Fuego and Mendoza Provinces of 
Argentina.  On February 25, 2002, Claimant G requested 
consultations, claiming over $100 million in damages allegedly 
resulting from the pesification of its contracts, the dilution of 
fiscal credits, the imposition of export taxes, the losses on sales 
due to the exchange rate, and the imposition of an oil export tax in 
alleged violation of 1992 decrees guaranteeing export tax stability. 
 On October 16, 2002, Claimant G filed notice of its intention to 
negotiate before beginning formal ICSID arbitration.  ICSID formally 
registered the claim on June 5, 2003.  On April 4, 2005, both sides 
filed a request with ICSID for the discontinuance of proceedings 
based on a final settlement agreement between the parties.  On June 
23, 2005, the Tribunal issued an order taking note of the 
discontinuance pursuant to Arbitration Rule 43(1) issued by the 
Tribunal on June 23, 2005. 
 
¶12.  (SBU)(a)  Claimant H 
 
(b)  2001 
 
(c)  Claimant H is an information systems provider that won a $37 
million public bid contract to provide information services to the 
judicial branch.  The contract amount was payable in 36 equal, 
monthly installments beginning when the system was completed.  Work 
started in early 1998.  85 percent of the work had been completed by 
November 1999, and the remaining 15 percent was completed in 
December 2000. During work on the contract, Claimant H agreed to do 
$30 million in additional information systems work for the GOA. It 
also provided the GOA with $3.5 million in postal machinery.  In 
January 2001, the GOA began paying for the 85 percent work completed 
 
in November 1999, and in February 2001, on the remaining 15 percent. 
 In December 2001, the contract was pesified by law when Argentina 
did away with its fixed, 1-to-1 conversion system with the US 
dollar.  From January 2002 through April 2003, the GOA made no 
payments under the contract, even after it had been pesified. 
 
Claimant H filed notice of its intention to pursue ICSID arbitration 
in October 2002.  It held friendly consultations with the GOA in 
February 2003 without success.  ICSID formally registered Claimant 
H's claim on October 15, 2003. The claim is based on allegations of 
the pesification of the original contract, the refusal to recognize 
the additional work done under the contract, and the non-payment 
from February 2002 through April 2003.  Total claim amount is 
approximately $55 million.  According to Claimant H, it did not 
include a claim for the value of the postal machinery because the 
GOA has recognized that debt and repeatedly promised to pay it. 
Before an arbitral panel was constituted to hear the claim, the 
parties signed an agreement in August 2005 to postpone the case and 
jointly appointed accounting and technical experts to examine the 
facts.  In July 31, 2006, the accounting expert issued a report 
establishing a compensation for Claimant H in the range of ARP 21.6 
million and ARP 38.4 million.  Once the parties agree on this range, 
a technical expert will begin its part of the analysis.  These 
reports will be used as the basis for final settlement 
negotiations. 
 
¶13.  (SBU)(a)  Claimant I - SETTLED 
 
(b)  2004 
 
(c)  Claimant I is a US reinsurance company that underwrote 
Argentina's privatized pension system between 1994 and 2001. 
Claimant I's liability is based upon the market value of the pension 
system's assets.  In 2002, the GOA implemented measures that fix the 
price of certain pension fund assets (Argentine Government bonds) at 
above-market prices.  Because reinsurance contract benefits were 
linked to the value of these assets, this regulatory measure 
allegedly increased Claimant I's financial obligations by 45 
percent.  The Claimant contended that it was entitled to 
compensation for the substantial losses suffered because of the 
manipulation of asset values and filed a request for ICSID 
arbitration. After holding a hearing on witnesses in September 2005, 
the ICSID held its first session on November 22, 2005.  In March 
2006, the Claimant presented a letter of discontinuance to ICSID 
because it had mitigated damages through negotiations with local 
insurance companies.  The parties agreed on a settlement and 
proceedings were discontinued at their request on September 14. 
¶2006. 
 
¶14.  (SBU)(a)  Claimant J 
 
(b)  2003 
 
(c)  Claimant J owned an interest in electrical generating plants 
and in an oil and gas company operating in Argentina.  In January 
2002, Argentina pesified dollar-denominated oil and gas supply 
contracts, imposed an oil export tax in alleged violation of decrees 
from 1992 that guaranteed export tax stability, and changed the 
electrical generation regulatory and legal framework based on which 
the company invested.  Claimant filed for ICSID arbitration in June 
¶2003.  On April 27, 2006, the panel issued a decision on 
jurisdiction in favor of Claimant J.  The Claimant filed a reply on 
the merits November 28, 2006. 
 
¶15.  (SBU)(a)  Claimant K 
 
(b)  2003 
 
 
(c)  Claimant K is a provider of leasing services in Argentina. 
Claimant K's claim was registered with ICSID on February 27, 2004. 
The claim asserts that various actions by the Government of 
Argentina effectively expropriated the value of its investment.  On 
October 13, 2005, Claimant filed a memorial on the merits of the 
case. On December 28, 2005, the GOA filed its objections to 
jurisdiction.  Claimant K filed a counter-memorial on jurisdiction 
in March 2006.  A final resolution on jurisdiction is expected 
shortly. 
 
¶16.  (SBU)(a)  Claimant L 
 
(b)  2003 
 
(c)  Claimant is an insurance company with operations in Argentina. 
ICSID registered Claimant L's complaint on May 22, 2003.  Post has 
not been able to obtain details about the substance of Claimant's 
dispute.  An arbitration panel has been selected, and the Claimant 
filed its Memorial on the Merits on April 28, 2004.  According to 
the ICSID website, the panel held a hearing on jurisdiction in 
February 2005 and that it had jurisdiction over the claim. 
Argentina has filed a counter-memorial, and the ICSID website refers 
to a hearing on the merits in late 2006. 
 
¶17.  (SBU)(a)  Claimant M 
 
(b)  2003 
 
(c)  Claimant M are two companies, an Argentine energy firm and its 
largest foreign shareholder who owned interests in electrical 
generating plants and hydrocarbon development assets in Argentina. 
In January 2002, Argentina pesified dollar-denominated oil and gas 
supply contracts, imposed an oil export tax in violation of decrees 
from 1992 that guaranteed export tax stability, and changed the 
electrical generation regulatory and legal framework on which the 
company was induced to invest by pesifying dollar-denominated 
capacity payments and regulating the previously unregulated 
electrical generation industry in a way that does not allow it to be 
profitable.  Claimants M filed their claims with ICSID in June 2003, 
 
and the two claims are being heard jointly by one arbitration panel. 
 The panel held a hearing on jurisdiction in March 2005.  Meanwhile, 
the Province of Chubut Government renegotiated its hydrocarbon 
exploration and development concession contract with Claimant M.  A 
provision of this concession extension agreement required Claimant M 
to discontinue its ICSID claim.  Claimant M did so after in mid May 
2007  ICSID has not yet officially announced the termination of the 
claim.  A case has been filed before provincial courts to review the 
legality and the constitutionality of the new contract. 
 
¶18.  (SBU)(a)  Claimant N 
 
(b)  2004 
 
(c)  Claimant N is an oil and gas exploration and development 
company.  Claimant N contends that its investment was effectively 
expropriated following the 2002 pesification of its 
dollar-denominated oil and gas supply contracts.  Claimant N also 
complains that the imposition of export taxes in 2002 violated the 
decrees that were in force at the time of its investment.  Claimant 
N's claim was formally registered August 5, 2004.  A panel has not 
yet been constituted; both sides have named an arbitrator, but a 
president has not yet been chosen.  Claimant N filed an ancillary 
claim to expand the case on February 14, 2006. 
 
¶19.  (SBU)(a)  Claimant O 
 
 
(b)  2005 
 
(c)  Claimant O is an Argentina-based company with US and German 
investors.  It formally registered its claim on June 23, 2005. 
Claimant has sought $20 million from the GOA, claiming that a local 
bank illegally canceled a contract in 2003 and expropriated its 
funds.  An arbitral panel was constituted on March 27, 2006.  The 
Tribunal held a first session March 2, 2007. 
 
¶20.  (SBU) Identification of claimants 
 
Claimant A = Sempra 
 
Claimant B = Enron-TGS 
 
Claimant C = CMS - TGN 
 
Claimant D = Louisville Gas and Electricity (LG&E Energy Corp., LG&E 
Capital Corp., and LG&E International Inc.) This firms assets are 
now held by German-owned E-On America Inc. 
 
Claimant E = Enron Azurix.  Post Chapter XI, this firm's assets were 
purchased by Satellite Asset Management 
 
Claimant F = AES 
 
Claimant G = Pioneer 
 
Claimant H = Unisys 
 
Claimant I = RGA Reinsurance 
 
Claimant J = El Paso Energy 
 
Claimant K = CIT Group 
 
Claimant L = Continental Casualty Company 
 
Claimant M = Pan American Energy/BP America 
 
Claimant N = Mobil Oil Company 
 
Claimant O = Asset Recovery Trust 
 
MATERA