Wednesday, December 04, 2013

RDC reimbursed for Guatemala action

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RDC reimbursed for Guatemala action Railroad Development Corp.

Pittsburgh-based Railroad Development Corp. (RDC) confirmed Wednesday, Dec. 4, 2013, that it had been paid the full $14.6 million awarded in its six-year international arbitration against the Republic of Guatemala brought under the Dominican Republic-Central America Free Trade Agreement (CAFTA).

On June 29, 2012, a Tribunal of the International Center for Settlement of Investment Disputes (ICSID) unanimously ruled that Guatemala had violated the minimum standard of treatment set forth in Article 10.5 of CAFTA by engaging in conduct that was "arbitrary, grossly unfair, [and] unjust" toward RDC and awarded RDC full reparations, RDC noted.

RDC's Guatemalan affiliate, Ferrovías Guatemala (FVG), was awarded a 50-year concession by the Government of Guatemala in 1997 to revive, operate and develop the assets of FEGUA, the national railway of Guatemala which had been closed by the government in 1996. The requirements of the concession were considered unprecedented since it involved the revival of a completely-abandoned national railway by the private sector.

But after RDC revived and operated the railway for seven years, the government of Guatemala issued a Presidential decree in August 2006 which declared the rolling stock contract of FVG's concession "lesivo" or "harmful to the interests of the State."

The decree contributed to the collapse of FVG's railway business, and RDC was forced to shut down FVG's operations in Guatemala in September 2007. Since then the railway has almost literally disappeared, with even steel bridges being stolen for scrap in broad daylight.

RDC subsequently defeated two sets of jurisdictional objections raised by Guatemala, and following a hearing on the merits, the Tribunal issued its finding that Guatemala violated the CAFTA minimum standard of treatment which requires each state party to provide fair and equitable treatment and full protection and security to investors of the other parties. The Tribunal found that Guatemala used the "lesivo remedy...under a cloak of formal correctness allegedly in defense of the rule of law, [but] in fact for exacting concessions [from RDC] unrelated to the finding of lesivo."

Said RDC and FVG Chairman Henry Posner III, "The loss of the railway for a second time was a national tragedy, and it can truly be said that there were no winners in this case. But this now offers Guatemala the opportunity to once again look to the international railway investment community to develop the urban train, dry canal, Mexican rail link and other projects that the country aspires to. In this regard we pledge our full cooperation and support."