An ICSID tribunal has ordered Egypt to pay US$ 2,013,071,000 as a compensation to Union Fenosa Gas over the interruption of gas supplies to a liquefied natural gas plant at the port of Damietta.
On August 1, 2000, the Egyptian General Petroleum Corporation (“EGPC”) and Unión Fenosa Gas, S.A. (“UFG”) entered into a Sale and Purchase Agreement (“SPA”). Under the SPA UFG acquired the contractual right to receive a certain supply of natural gas at the Damietta Plant over a period of at least 25 years. It should be emphasized that the economic feasibility of the Damietta Plant was dependent on its receiving the contractually agreed quantities of natural gas. The SPA was endorsed by the Egypt’s Minister of Petroleum and approved by the Egyptian Council of Ministers and Egypt’s Prime Minister. Damietta Plant dependency on gas supplies has resulted into adoption of following contractual guarantees: “Seller shall at all times keep a backup supply to meet an on stream (load) factor of 95% of the LNG Complex”; Seller is the sole responsible [party] for securing adequate supplies of Natural Gas for performance of its obligations hereunder”; and “Seller is aware that the supply of natural gas to Buyer is a key element for the successful development of the Project”. Even a force majeure clause excluded changes in the market that affect the price or demand for gas or that result in the need to divert natural gas to other users from the scope of force majeure within the meaning of the SPA.
In reliance upon Egypt’s undertakings UFG spent approximately US$ 1.3 billion to build the Damietta Plant and its associated facilities. At the time of its construction, Damietta Plant was the largest single-train liquefaction facility in operation in the world. However, EGPC failed to comply with its supply obligations. From 2012, the gas supply to the Damietta Plant was repeatedly suspended by EGPC as a result of Egypt’s decision to divert gas to other purchasers.
UFG commenced the international arbitration on February 14, 2014. The tribunal selected by the parties consisted of Mr. V. V. Veeder (President), Dr. J. William Rowley, QC (appointed by UFG), and Mr. Mark Alan Clodfelter (appointed by Egypt). UFG contended that its investment has suffered and continues to suffer significant harm as a result of the decisions attributable to Egypt to curtail and cut the supply of natural gas to the Damietta Plant, which eventually resulted in the Damietta Plant’s complete shut-down for lack of the necessary gas supply. UFG argued that acts and omissions amounted to violation of substantive obligations under the bilateral investment treaty concluded between Spain and Egypt in 1992 (BIT), namely the obligation to grant fair and equitable treatment; the obligation not to hamper by means of unjustified or discriminatory measures the management, maintenance, use, enjoyment, expansion or disposal of an investment; or the obligation to protect UFG’s investment.
Egypt argued that the tribunal lacked jurisdiction because the claimant had procured its alleged investments through corrupt and illegal means in violation of Egyptian law and international public policy. In addition, Egypt contended that the conduct of which UFG complains is not attributable to the respondent and the dispute is essentially contractual in nature and has been submitted to contractual arbitrations.
The tribunal issued the ICSID Award on August 31, 2018. According to the tribunal, no corruption had occurred and Egypt’s necessity defense was rejected. The tribunal found that Egypt exercised its sovereign authority and public powers by curtailing the gas supply to the Damietta Plant, including by directing EGAS to limit and eventually stop the supply of feed gas under the agreement. On the merits, the tribunal concluded that the interruption of gas supplies amounted to the breach of Egypt’s international obligation under the BIT. As compensation for Egypt’s breaches of the BIT, the tribunal awarded UFG US$ 2,013,071,000.