Since 2011, Romania has been an attractive destination for investors in renewable energy due to the Romanian Renewable Energy Law which was passed in 2008 and contained a support scheme that became effective in 2011.
With the prospect of high returns and an encouraging support scheme offered by the government, companies from all over the world poured money into green energy projects in Romania. Inevitably, this increased financial pressures on Romania’s large industrial producers which in turn reduced government support for renewable energy and triggered the placement of a series of restrictions on renewable energy sources. What was initially considered a safe haven became not only an obstacle to new investment but also a serious blow to existing investors. It is anticipated that the new legislation will significantly reduce revenues and harm the property rights of investors.
Options for Recourse:
The investment-protection provisions of various sources, including the Romanian Constitution, EU Law, bilateral investment treaties (BITs), and the Energy Charter Treaty (ECT) afford foreign investors the right to seek compensation by commencing arbitration against Romania. Under both the ECT and BITs, there are various claims available to investors. These include violations of Romania’s obligations to provide: (i) fair and equitable treatment; (ii) protection from arbitrary and discriminatory measures; (iii) full protection and security treatment; (iv) protection from expropriation measures; and (v) breach of the constant protection and security provided for in the ECT Umbrella Clause. Additionally, investors have access to a number of arbitration forums, including the International Centre for Settlement of Investment Disputes (ICSID), the Stockholm Chamber of Commerce , and the United Nations Commission on International Trade Law .
Consolidated vs. Coordinated Proceedings:
One of the initial decisions investors face is whether to consolidate their claim with other similarly situated investors and initiate multi-party arbitration or proceed with single party arbitration that is coordinated with other investors. There have been several cases that allowed multiple parties to bring investment claims in a single case, including cases concerning multiple BITs. Joint claims can be efficient, cost effective, have the potential to make a larger impact, and avoid the risk of inconsistent decisions. However, single party claims that are well coordinated also have the potential to make a large impact while minimizing the chances of delay, confidentiality issues, and coordination difficulties present in multi-party claims.
Costs:
With the average ICSID arbitration taking 3.6 years to resolve, arbitrations of this type are bound to be costly endeavors. Costs associated with initiating large scale arbitration will be a major concern for all investors who not only must bear the escalating cost of legal fees but also face the possibility that, due to the difficulty of quantifying and proving causation, damages may not be awarded even with a ruling in their favor. It would be prudent, therefore, for investors to take the advice of a damages valuation expert, given the speculative nature of any damages claimed.
Damages:
One of the main hurdles investors face in recouping loses is establishing and demonstrating a verifiable amount of damages. Tribunals have demonstrated that they will not award speculative or uncertain damages. In order to satisfy this high threshold, investors must be prepared to: (i) quantify their investment at cost; (ii) obtain projected financial results; (iii) obtain actual results; (iv) establish causation; and (v) assess reasonableness. Expert evaluation on damages and thorough benchmarking will be pivotal in demonstrating that these figures are concrete rather than speculative.
Third Party Funding:
One source of funding available to investors in Romania is third party funding, in which a non-party pays all or some of the costs in return for a share of the damages. As can be reasonably expected, third party funders require preliminary expert assessments of damages in order to evaluate the risks involved in becoming involved. Third party funders may prefer funding single party claims which likely present fewer delays over consolidated multi-party claims.
In Summary:
The measures implemented by the Romanian Government which have radically revised the incentive scheme in the renewable energy sector in Romania have resulted in damage to investors. International investment treaty claims are a real alternative for foreign investors in the Romanian renewable energy sector who believe the Romanian Government has breached its international law obligations. Although arbitration in one of the various tribunals will likely be a lengthy and costly process, it remains the only effective option for investors to recover loses and also provides the opportunity for valuable settlement negotiations along the way. However, initiating arbitration of this type is not a decision that should be taken lightly and investors are strongly advised to seek expert advice.
By Gabriel Sidere, Managing Partner (Romania), CMS
