IC Power Ltd and Kenon Holdings Ltd v. Republic of Peru
ICSID · Investment (ICSID and treaty) · Peru · 3 Oct 2023
Why it matters
This case is significant for its detailed analysis of the fair and equitable treatment standard in the context of regulatory changes in the electricity sector. It clarifies the distinction between legitimate regulatory adjustments and measures that frustrate an investor's legitimate expectations, particularly in regulated industries. The award also addresses jurisdictional issues such as denial of benefits and corporate restructuring, providing guidance on treaty interpretation under the Singapore-Peru FTA.
Summary
IC Power Ltd and Kenon Holdings Ltd, investors in Peru's electricity sector through subsidiaries Kallpa Generación S.A., Cerro del Águila S.A., and Samay I S.A., brought an ICSID claim against Peru under the Singapore-Peru Free Trade Agreement. They alleged that two regulatory measures breached the fair and equitable treatment (FET) standard: Resolution No. 141, which changed the remuneration for secondary frequency regulation (SFR) service from a long-term tender system to a daily market-based system, and Resolution No. 164, which introduced a new methodology for allocating transmission costs. The Tribunal upheld jurisdiction over both claims, rejecting Peru's objections based on denial of benefits and the status of Kenon as a shareholder. On the merits, the Tribunal found that Resolution No. 141 violated FET because it fundamentally altered the regulatory framework for SFR service, frustrating the legitimate expectations of the investors who had relied on the previous system when making their investments. The Tribunal noted that the change was abrupt, lacked adequate transitional provisions, and disproportionately affected the claimants' investments. However, the Tribunal dismissed the claim regarding Resolution No. 164, finding that the new transmission cost methodology was a reasonable and non-discriminatory regulatory change that did not breach FET. The Tribunal awarded US$ 110.7 million in damages for the SFR claim, plus pre- and post-award interest, and ordered Peru to pay a portion of the claimants' costs. The award is notable for its thorough analysis of the FET standard in regulated industries and its treatment of jurisdictional issues.
The detail
Parties: IC Power Ltd and Kenon Holdings Ltd v. Republic of Peru
Case number: ICSID Case No. ARB/19/19
Outcome: The Tribunal found that Peru breached the fair and equitable treatment standard under the Singapore-Peru Free Trade Agreement by issuing Resolution No. 141, which changed the remuneration for secondary frequency regulation service, and awarded Claimants US$ 110.7 million in damages plus interest. The Tribunal dismissed the claim regarding Resolution No. 164 (new transmission cost methodology).
Quantum: US$ 110.7 million
Applicable law: Free Trade Agreement between Singapore and Peru (Article 10.5 on fair and equitable treatment and full protection and security); ICSID Convention; ICSID Arbitration Rules; Peruvian electricity regulations (Law 28832, OSINERGMIN resolutions).
Issues in play: The case involved a collision between Peru's regulatory changes to the electricity market (specifically the secondary frequency regulation service and transmission cost allocation) and the investor's legitimate expectations under the fair and equitable treatment standard. The Tribunal had to determine whether the changes were a reasonable exercise of regulatory power or a breach of the minimum standard of treatment.
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