Bulgaria has won an international arbitration case filed in 2016

Bulgaria has won an international arbitration case filed in 2016 by the Czech company CEZ before the International Centre for Settlement of Investment Disputes (ICSID) in Washington. The claim against the country was for nearly EUR 1 billion.

At the end of last week, the tribunal issued a decision rejecting all claims by CEZ and ruling that the actions of the Republic of Bulgaria through the Energy and Water Regulatory Commission (EWRC), the Ministry of Economy, the Ministry of Energy, as well as the Administrative Court – Sofia City, the Administrative Court – Varna and the Supreme Administrative Court do not constitute violations of the standards for the treatment of foreign investments under the Energy Charter Treaty, the Ministry of Finance announced.

The total amount of CEZ’s claims reached EUR 967 million, plus interest of 1.9% with annual capitalization from the date of the ruling until final payment.

CEZ argued that it was a foreign investor within the meaning of the Energy Charter Treaty because it had made three separate investments in Bulgaria: in the electricity distribution company CEZ Distribution Bulgaria AD and the electricity supply company CEZ Electro Bulgaria AD; in the Varna Thermal Power Plant; and in the Bara biomass power plant in Smolyan.

During the proceedings, the claimant complained about actions by the Bulgarian state, and in particular the Ministry of Economy, the Ministry of Energy, the Energy and Water Regulatory Commission (EWRC), and the Bulgarian courts in relation to its three investments.

With regard to the investment in the electricity distribution and supply companies, CEZ a.s. complained of violations of its legitimate expectations acquired during the privatization of the two companies based on the Price Regulatory Framework of 2004. Alternatively, the claimant argued that the sector regulator EWRC had acted arbitrarily and unreasonably in determining prices in each pricing decision in the period 2004–2018, thereby causing damage to its investment. The claimant also complained about the actions of the Administrative Court – Sofia City and the Supreme Administrative Court during appeals against EWRC pricing decisions. CEZ’s claim for compensation for this investment amounted to EUR 733 million, plus interest of 1.9% with annual capitalization from the date of the ruling until final payment.

Regarding the investment in Varna TPP, CEZ a.s. argued that its legitimate expectations had been violated that Bulgaria would liberalize its energy market and determine electricity prices in accordance with the commitments made during the privatization of the plant, based on the Guidelines for the Regulation of Bulgarian Electricity Generation Companies of 2005. Alternatively, it claimed that EWRC had acted arbitrarily and unreasonably in determining prices in each pricing decision during the period 2006–2014, and it also complained about actions by the Ministry of Energy regarding the determination of the cold reserve. Complaints were also made about the actions of the Administrative Court – Varna and the Supreme Administrative Court during appeals against EWRC pricing decisions. CEZ a.s. claimed EUR 220 million in compensation for this investment, plus interest of 1.9% with annual capitalization from the date of the ruling until final payment.

With regard to the investment in the Bara biomass power plant, CEZ a.s. claimed that Bulgaria had unjustifiably changed the incentive regime for electricity generation from renewable sources, which led to the complete loss of its investment. The compensation sought for this investment amounted to EUR 14 million, plus interest of 1.9% with annual capitalization from the date of the ruling until final payment.

This marks the third consecutive success for Bulgaria in the series of cases brought against it by the electricity distribution and supply companies EVN AG, Energo-Pro a.s., and CEZ a.s., the Ministry of Finance emphasized. The total amount of claims filed by the three companies was approximately EUR 2 billion.