The international arbitration was raised by the company Energía y Renovación Holding, SA in 2021, against the state of Guatemala before the International Center for Arrangement of Differences Relative to Investments (CIADI).
CIADI is a World Bank institution for dispute resolution.
The award or ruling was issued by the Court on Monday, March 31, 2025, and in this one is condemned to Guatemala to the immediate payment of compensation to energy and renewal of US $ 64 million 504 thousand (about Q496 million 680 thousand to the current change), as recorded in the document, disclosed by the institution,
It was also resolved that the country must cover, in addition to its own expenses, half of the expenses and fees incurred by the plaintiff, all of the fees and expenses of the members of the court, as well as the administrative expenses of the CIADI amount estimated at US $ 3 million 931 thousand 028.48, to the date of the award.
The figure could rise more because to these costs the accumulated interests should be applied, to an annual interest rate, capitalizable annually.
The company had requested a greater amount of compensation according to the information of the case in the award, but after various revisions the court estimated that it was US $ 80 million 630 thousand, however, it is explained that it has not fully complied with its duty to mitigate the damage, so by major The breach of the duty of the investor to mitigate the damages suffered as a result of the violation of the treaty.
They indicate violation of commercial treaty
According to the Award of Ciadi, it is declared that Guatemala violated article 10.06 of the Free Trade Agreement between Central America and Panama signed on March 6, 2002 and in force in the Republic of Guatemala and in the Republic of Panama since June 22, 2009 (the “Treaty” or the “FTA”), which refers to the protection of the investment.
The claim includes full protection and safety, violation of the fair and equitable treatment (FET), also damages suffered as a result of violent attacks to the project and omission of the state to provide effective protection.
In the context it is explained in the award document, which energy and renewal was founded in 2012 and that this year identified an investment opportunity in a hydroelectric project developed by PDH in San Mateo Ixtatán, Huehuetenango.
The investment involved the construction and operation of two hydroelectric plants called generator San Mateo SA and generator San Andrés and a transmission line known as the northern transmission line.
According to the document, the plaintiff indicated that, in 2014, “armed groups attacked their facilities, they set fire to their camp, destroyed machinery and assaul workers ”.
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It is added that the company claims to have requested on multiple occasions the intervention of the State to guarantee security in the area, and although the government recognized the problem of ungovernability and promoted a dialogue table, the commitments assumed in the Agreement for the Peace and Development of San Mateo Ixtatán, signed in 2018, would not have been fulfilled. It is added that the company asked the State to guarantee the rule of law and those responsible for violent acts were not processed.
Meanwhile, the State rejected the claims of the plaintiff and considers that she acted with due diligence considering the resources it had available, reads in the award.
They affect country image
Carmen María Torrebiarte, president of the Coordinating Committee of Agricultural, Commercial, Industrial and Financial Associations (CACIF), indicated that this result has three aspects to be considered.
The first is legal certainty, and this type of international resolutions against the state of Guatemala Evidence is the need to have certainty to prevent this type of clear, stable and predictable conflicts and regulations. He explained that much of all these large investment projects affect that investment extraction when it comes to the time they need and a bad country image.
The second consideration is the fiscal impact, because these resolutions is a cost for public finances, “why you have to pay for the taxes of the Guatemalans.”
“That amount of taxes could be invested in investment things that are needed in the country. We return that leaves us a bad reliable image,” he said.
Finally, to the Government and the State of Guatemala and in general to all, it is time to review, as well as improve the dialogue mechanisms, what is the supervision and fulfillment of contracts with investors, so it is important to avoid future litigation and protect national.
That’s when we return to the regulation of Agreement 169, “because this regulation was probably had, doing properly, these types of demands would not happen.”
Fiscal risks
The president of the Finance Commission of the Congress, Julio Héctor Estrada, said that this resolution of the award is “iconic” because he begins to demand payments to the central government, for things he did, but did not do, and it is simply to stop doing things.
He commented that having ignored issues such as having done the important work to regulate and regulate the consultations of indigenous peoples Agreement 169 or cannot impose a reasonably governance in the places, open the door to continue another important group of demand demands in trouble.
“It is a call to strengthen the government and in general the Guatemalan State so that, within the framework of international investments, there is a legal strength and accompaniment because if the violation is very flagrant it can represent in punitive payments that disrupt the fiscal capacity of the State,” he said.
The deputy exemplified that the greatest fiscal risk is that behind this award, there are more arbitrations, in which the State would have commitments, so it is necessary to take it into account in the fiscal planning and recognize that the country’s borrowing capacity closes a little, more conservative, thinking about the future that this type of fiscal conflicts can materialize, such as this occasion with similar failures.
“You have to be more conservative with the use of available fiscal space,” Estrada concluded.
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Chronology
The state of Guatemala faced international demands as a result of problems in several hydroelectric projects for construction and operation.
- On November 15, 2021 CIADI based in Washington, DC, registered the request for arbitration presented by the company Energía y Renovación Holding, SA, registered in Panama.
- The invoked instrument was the Free Trade Agreement (FTA) of Central America and Panama.
- The company promoted the construction of the Pojom II project, which is also known as San Mateo, for a capacity for generating 20 megawatts (MW), with an investment projected at US $ 48.5 million (about Q373.4 million), as well as the generator San Andrés, with capacity of 10.65 MW, for US $ 27.2 million (about Q209.44 million), according to the records disclosed in 2019. They locate in the Ixquisis area, San Mateo Ixtatán, Huehuetenango.
- By February 2021, the Ministry of Energy and Mines (MEM) approved an extension of 72 months (six years) for the use of public domain goods, which is necessary to build and operate hydroelectric plants, but failed to continue building and start operations.
The beginning of conflict
- In the area near the two hydroelectric projects it was a constant focus of tension for several years.
- One of the reasons was because the communities of these municipalities oppose the projects. Sometimes manifestations or actions that were violent were recorded while in others they are peaceful resistance movements.
- In addition, the appearance of armed groups attacked the facilities, machinery and equipment of the projects; In separate cases, the death of two people who opposed the projects in addition to a hydroelectric worker were reported.
- In the records, it is indicated that, by November 2018, several communities, local authorities and the Government signed a peace and development agreement in order to stop violent acts, but then there were other attacks.
Alleged breach
By consulting on that occasion the then Minister of Energy and Mines Alberto Pimentel Mata confirmed that there was knowledge of a possible arbitration approach, to which he replied that the developer that has a Panamanian capital, could not advance these projects due to problems of social conflict and now “they are adducing that these problems have supposed a breach by the state of Guatemala in the clauses that protect the investments, by virtue FTA with Panama ”.
“They argue that the state of Guatemala breacted some obligations having given a different treatment to that investment project with respect to others, but that is not true; unfortunately, the conflict associated with that project as in others is real, and we have made efforts to solve, for example, the issue of consultations to indigenous peoples,” he explained at that time.