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LSG Building Solutions GmbH and others v. Romania (ICSID)

Why it matters

This case is significant for its detailed application of the fair and equitable treatment standard under the ECT to regulatory changes in renewable energy incentives. The tribunal's decision on quantum, using a discounted cash flow methodology and addressing complex issues like green certificate caps and balancing costs, provides guidance for future investor-state disputes involving similar regulatory measures. The award also clarifies the allocation of costs in ICSID arbitration.

Summary

The case involves claims by ten companies (Claimants) against Romania under the Energy Charter Treaty (ECT) for alleged breaches of the fair and equitable treatment standard. The Claimants invested in photovoltaic (PV) facilities in Romania, relying on a green certificate (GC) incentive scheme that guaranteed a minimum trading value and a certain number of GCs per megawatt-hour. Romania enacted several emergency ordinances (EGO 57/2013, EGO 24/2017, and Law 184/2018) that deferred the issuance of two out of six GCs, limited the ability to trade GCs, and ceased indexing the minimum trading value to inflation. The tribunal found that these measures drastically altered the essential characteristics of the GC scheme and unreasonably impaired the investments, breaching Article 10(1) of the ECT. In the quantum phase, the tribunal ordered the parties' experts to calculate damages based on a discounted cash flow (DCF) model, comparing the actual scenario (with the measures) to a counterfactual scenario (without the measures). The experts disagreed on several issues, including the treatment of GC caps, balancing costs, and GC sales in both scenarios. The tribunal resolved these disputes, awarding EUR 42,200,000 in compensation (including pre-award interest) and ordering Romania to pay post-award interest at Euribor plus 3%, compounded annually. Romania was also ordered to pay 60% of Claimants' defense expenses and all ICSID costs. One arbitrator dissented on part of the damages calculation.

The detail

Parties: LSG Building Solutions GmbH and others v. Romania

Case number: ICSID Case No. ARB/18/19

Outcome: Romania ordered to pay EUR 42,200,000 in compensation plus interest and costs.

Quantum: EUR 42,200,000

Applicable law: Energy Charter Treaty (ECT), ICSID Convention

Issues in play: Romania's alteration of its green certificate incentive scheme for renewable energy investors conflicted with the fair and equitable treatment standard under Article 10(1) of the ECT.

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