Ecuador ordered to pay Perenco $449 million (US) for decade-old energy windfall levy, but investor must pay $54 million (US) towards environmental cleanup

In a September 27, 2019 award, an ICSID tribunal in the case of Perenco v. Ecuador has ordered Ecuador to pay approximately $449 million (US) in compensation for breaches of two crude oil participation contracts and the Ecuador-France Bilateral Investment Treaty (BIT). Upholding Ecuador’s counter-claim, the arbitrators also ordered the claimant to pay approximately $54 million (US) to Ecuador for the restoration of the environment and infrastructure in the two Amazonian oil blocks involved in the dispute (Block 7 and Block 21).

The case was one of several brought by foreign investors against Ecuador following the country’s bid to claw back a larger share of energy profits during a period in the mid 2000’s when oil prices rose dramatically.

As we’ve reported previously, in 2014, the tribunal of Peter Tomka (chair, appointed by ICSID), Neil Kaplan (claimant’s nominee) and J. Christopher Thomas (Ecuador’s nominee) held that the adoption by Ecuador of a 99% windfall profit tax (but not an earlier, lesser levy of 50%) violated the two participation contracts for Block 7 and Block 21, and the BIT’s fair and equitable treatment standard.

In a subsequent 2015 decision (discussed here), the arbitrators revealed that they were likely to hold Perenco liable for breaches of Ecuadorian environmental law, subject to the determination of an independent expert appointed by the tribunal.

Now, in its September 27, 2019 final award, the tribunal has put an end to what it characterized as the “lengthy, complex, multi-faceted, hard fought and very expensive” Perenco v. Ecuador arbitration saga.

The arbitrators awarded the claimant compensation of $448,820,400 (US), and they granted Ecuador damages of $54,439,517 (US) under the counter-claim. On both sums, post-award interest at a rate of LIBOR for three months plus two percent will start to accrue from December 1, 2019.

The tribunal also ordered Ecuador to pay Perenco $23 million as contribution to the claimant’s legal costs and expenses (amounting in total to $58 million (US)).

The tribunal also ordered Perenco to pay approximately $6.3 million (US) as a contribution to Ecuador’s legal costs and expenses (out of a total of $32 million (US)) and $50,000 (US) to PetroEcuador (as claimed by PetroEcuador).

The arbitration costs (amounting to $9.5 million (US)) were evenly split between the parties. We may report further on the award once we have reviewed it in its entirety.

The claimant was represented by Debevoise & Plimpton in New York. Ecuador relied on Dechert in Paris.