Part 1: The Arbitration Award
This is an attempt to raise the awareness of we the people re Tribunal Award in respect of the dispute between the majority shareholders of GRENLEC – the Grenada Private Power and WRB Enterprise Inc. – and the Government of Grenada. It draws mainly from the award document. It will be presented in various parts.
The following, Part 1, presents:- the summary re the claim by GPP/WRB, the Claimants in this dispute; the counter claim of the Respondent, the Government of Grenada and the Tribunal’s award.
Declarations by Hon. Gregory Bowen:
In his opening remarks, on March 3rd, 2020, at the first consultation re the Public Utilities Regulatory Commission regulations, Hon. Gregory Bowen advised:-
- Tribunal’s Decision: The government was awaiting the decision of the international dispute tribunal re the valuation of the prices of shares in GRENLEC. The Tribunal’s decision is final. WRB owns 50 percent of GRENLEC’s shares. Government could then purchase the shares and WRB would depart the scene.
- Interest in Purchase of Shares: He further advised that four (4) Chinese companies and a local group were interested in purchasing the shares of GRENLEC.
- Individual Shares: He also advised that it was not the duty of the Government to take over the burden of individual shares, i.e. repurchase the shares of citizens.
Award by the International Centre for Settlement of Investment Disputes (ICSID):
A few weeks later, we the people heard that the Tribunal had awarded as follows:-
- Payments by the Government: The Government of Grenada is to pay as follows:-
- USD58, 427.92: the assessed valuation of the GPP/WRB shares in GRENLEC as per the valuation formula set out in the Second Schedule of the 1994 Electricity Supply Act as agreed in the Share Purchase Agreement of 1994
- USD239, 972.37: Reimbursement of advances paid to the ICSID in respect of the arbitration.
- USD $6,333,142.51: legal fees of the attorneys representing GPP/WRB
- Interest: Pre-award and post-award interest in respect of the assessed value of the GPP/WRB shares from 3rd May, 2017 until fully paid.
- Repatriation of Payment: All amounts due to GPP/WRB are to be repatriated exempt of all taxes, levies and duties.
- Reimbursement to GRENLEC: GPP/WRB is to reimburse GRENLEC:-
- USD522, 353.15: accounting and legal fees paid on behalf of GPP/WRB.
The following observations of the Tribunal are noteworthy (all emphases are my own):
Political Rivalry: The New National Party, then in opposition, had opposed the privatisation recommendation that was embraced by the administration of the National Democratic Congress (“NDC”) “This political rivalry played out over the next 20 years and provides essential background to many of the events that led to the current dispute.”
Lack of Factual Evidence: “The main difficulty confronting the Respondent was not so much that the Government lacked legal arguments (on which point the Respondent was very creative) as it was the lack of FACTUAL evidence necessary to sustain the legal arguments that were put forward with considerable gusto.”
Why did the private investors with controlling interests in GRENLEC invoke Repurchase Event provisions of the Special Purchase Agreement of 1994, ending up with an award in excess of USD65 mn to be paid by the Government of Grenada which in effect means WE THE PEOPLE HAVE TO PAY?
It is instructive to read the award document. One learns that this is the SECOND dispute that WRB had taken to the ICISD, not dissimilar from the first. One would also note the claims and counter claims put forward by the Government of Grenada and could make his/her own assessment in the context of past and current actions of the New National Party administration. Is the BEST interests of the PEOPLE of Grenada being served?
Liberalization of the Electricity Sector:
As part of the conditionalities of the Structural Adjustment Programme undertaken over the period of 2014-2017, the Government of the New National Party administration committed to the liberalisation of the electricity sector.
Under World Bank financing, Grenada received support towards “Strengthening the Policy and Regulatory Environment for the Energy Sector” to contribute to improved investment climate and competitiveness.
- ESA 2016 and PURC 2016:
A new Electricity Supply Act 2016 and a 2016 Public Utilities Regulatory Act were passed in the Houses of Parliament in May 2016 and came into force on August 1, 2016 as part of the restructuring of the electricity sector. The Acts changed substantially the policy and regulatory environment in which GRENLEC would be operating:-
Exclusive Licence to Generate Electricity: The Act shortened and narrowed GRENLEC’s exclusive license on the generation of electricity and cut short any future license
Self-Generators: It cancelled GRENLEC’s monopoly re permission or refusal of self-generators
Rate Setting Mechanism: It abolished the statutory rate-setting mechanism of the 1994 ESA and replaced it with a more discretionary procedure before the Public Utilities Regulatory Commission.
Elimination of Fiscal Incentives: The Act eliminated GRENLEC’s concessions re import duty and tax concessions.
Renewable Energy: GRENLEC no longer had authorisation to harness potential wind and solar power without making payment to the Government.
Compensation for the Revocation of Licence: The Act removed the guarantee of compensation for revocation of the license contained in Sections 28, 29, and the Second Schedule to the 1994 Electricity Supply Act.
WRB’s Response to ESA 2016 AND PURC 2016:
Repurchase Events Triggered: WRB considered that the new laws amounted to three separate repurchase events as provided for in the Share Purchase Agreement of 1994. Therefore, on 22 March 2017 – ten months after the passage of the 2016 Acts – WRB wrote to the Government stating that the 2016 Acts “gave direct rise” to a number of Repurchase Events. They “put” their shares to the GoG for repurchase, claiming compensation of XCD 182 million or XCD19/share as per to the statutory valuation formula in the Second Schedule of ESA 1994.
Government’s Response: On 2 May 2017, the Government responded that there was a good-faith dispute as to whether the passage of the 2016 Acts gave rise to any obligation to repurchase the GRENLEC shares from WRB and requested negotiations to “resolve the matter”.
Request for ICSID Arbitration: Three days later, on 5 May 2017, the Claimants filed a Request for Arbitration with ICSID
5.Issues in Dispute:
- WRB’s Claim:
The WRB sought the following:-
Repurchase Event: The declaration that a “Repurchase Event” had occurred, thus obligating the Government to purchase and acquire GRENLEC shares owned by GPP at the price calculated on the basis specified in the Second Schedule to the 1994 Share Purchase Agreement – a value of EC $361.882 mn./USD $134 mn. for 100% of GRENLEC, and EC $180.941 mn./USD $67 mn for the Claimants’ 50% interest in GRENLEC;
Breach of Obligations by Government: A declaration that the Government has breached its obligations under the SPA by failing to purchase and acquire, by no later than 3 May 2017, all GRENLEC shares owned by GPP;
Purchase and Acquisition of GPP’s Shares in GRENLEC: An order to the Government of Grenada that, within 30 days of the Tribunal’s award, the government completes its purchase and acquisition of all GRENLEC shares owned by GPP, pays the Claimants, in immediately available funds, the sum of not less than EC $180.941 mn./USD $67 mn.
Accrued Interest: An award of pre-and post-award interest on the repurchase price of EC $180.941 million (and on all other amounts awarded), at a rate of 6% compounded. semi-annually, from 3 May 2017 up until the date of payment;
Repatriation of Award: All sums to be paid by the GoG must be paid net of and exempt from all Grenadian taxes, levies, and other duties and may be repatriated by the Claimants free and exempt from all Grenadian taxes, levies, and other duties;
Dismissal of Government’s Counter Claim
Costs: Award of costs to WRB including attorneys’ fees, associated with enforcing its rights prior to these proceedings and costs, including attorneys’ fees, associated with the tribunal proceedings, including all professional fees and disbursements.
- Government of Grenada Counter Claims:
Among the arguments of the Government of Grenada in response to the WRB claims were the following:-
Wilful Malfeasance: The GoG suggested that the claimants committed “wilful malfeasance” in their management of GRENLEC which (under the express terms of the SPA) disentitles the Claimants from insisting on the GOG repurchase of the Claimants’ shares.
Repurchase Obligation Void and Unenforceable: Even if there was a repurchase event, the Government is not under any liability to pay under the Second Schedule which was “void and unenforceable” under Grenadian law.
Penalty: The obligation was a penalty under Grenadian law rendering it unenforceable.
Unconstitutional: The obligation was unconstitutional and thus void because the effect (and perhaps intent) was to fetter the authority of the GoG to regulate electricity in the public interest.
Fair Market Value: The repurchase price payable under the SPA should be limited to fair market value determined by Discounted Cash Flow (“DCF”) methodology rather than pursuant to the formula in the Second Schedule of the 1994 ESA, which is a bizarre formula inherited from the colonial past. Its application would produce compensation “extravagantly disproportionate” to the actual fair market value of the shares.
Counter Claims: Any award to WRB should be offset by the amount of the Government’s counterclaim.
Task of Tribunal: The Tribunal noted that its task was to determine whether the complex contractual arrangements between the Parties had been complied with and, if not, what remedy should be awarded.
SPA 1994 /Supplementary SPA: Neither the SPA (nor the Supplementary SPA) unconstitutionally fettered Government action. When the NNP party returned to Government in 2018, it was clearly not deterred in any way from enacting the 2016 restructuring legislation.
Lacked of Factual Evidence: There was a lack of factual evidence necessary to sustain the creative legal arguments of the Respondent/Government of Grenada.
Special Purchase Agreement: In respect of the Special Purchase Agreement, the Tribunal awarded as follows:- SPA is valid; there was no penalty; the terms were not contrary to the Constitution of Grenada.
Wilful Malfeasance: The Respondent/ Government of Grenada had not established either the procedural condition precedent or the substantive factual prerequisites to deny the Claimants compensation on the basis of “wilful malfeasance”.
Repurchase Event: The Claimants had established a “repurchase” event which requires the Respondent/Government of Grenada to pay compensation at the level agreed to in the Second Schedule of the Special Purchase Agreement.
SPA Second Schedule Compensation: Tribunal awarded the Claimants/WRB Second Schedule compensation but calculated in a way that pays due regard to the differences of opinion among the quantum experts, i.e. those who did the valuations based on particular methodologies.
Pre and Post Award Interest: The Claimants were also entitled to pre and post-Award interest and costs.
NB: In a follow-up, Part 2 will present the Tribunal’s analysis of the issues in dispute.