San Diego, CA-based Sempra Energy was awarded approximately $172 million, including interest, to settle a 2002 dispute involving its 43% ownership of two Argentine natural gas holding companies, Sodigas Pampeana and Sodigas Sur, the company said last Tuesday. The award came from an autonomous third-party organization, the International Centre for Settlement of Investment Disputes.
The international unit made its award late last month as the result of arbitration proceedings that took place under the 1994 Bilateral Investment Treaty between the United States and Argentina, Sempra said. The award also could accelerate Sempra's efforts to sell its Argentine interests, as the company had announced late last year was its intention. A Sempra spokesperson told NGI the sale plans would continue as they have been proceeding.
Sodigas companies control Camuzzi Gas Pampeana SA and Camuzzi Gas del Sur SA, which collectively are Argentina's largest natural gas distributor, serving about 45% of the nation. They serve about 1.5 million customers through natural gas transmission and distribution pipeline systems.
Sempra's dispute involved its efforts to recover the utilities' diminution in value that occurred as a result of measures taken by the Argentine government in early 2002, including a devaluation of the Argentine peso..
"We are pleased that after several years this arbitration case has been decided in our favor," said Javade Chaudhri, Sempra general counsel. "We hope that the government of Argentina will honor its legal obligations as we seek immediate enforcement of the award."
The international dispute unit is linked to the World Bank, providing facilities for conciliation and arbitration of disputes between member countries and its investors. Use of the center's dispute resolution services, however, is entirely voluntary, Sempra said.
However, once the parties have consented to arbitration under the international unit's auspice, neither party can unilaterally withdraw its consent, Sempra said. Further, all of the nations contracting with the international center are "required to recognize and enforce [the center's] awards as if it were a final judgment of that country's court."
In May 2003, Sempra's then-CEO Steve Baum told financial analysts in response to specific questions about the company's South American investments that Sempra would like to exit all of those investments "in an orderly fashion" over a five-year period (2003-2008). He also said that the Argentine assets could not be sold before Sempra got "some resolution in the claim against the Argentine government."
At the time, Baum said Sempra's other two Southern American assets (in Chile and Peru) were performing well, and that is still the case today, according to a Sempra spokesperson who noted there are no current plans to sell those holdings.
In January 2002, Argentina's economic "restoration plans" that included a devaluation of the currency, immediately impacted a number of overseas companies with operations in South America, including Sempra, Duke Energy and other private-sector investors in utility and energy projects in South America's third largest economy.
As part of Argentina's economic stabilization program, the new Argentine government at that time set the currency exchange at 1.40 pesos to a dollar, a devaluation of 28.5%. International financial analysts immediately questioned whether the devaluation could be held to any certain percentage, pointing out that unplugging the peso from the one-for-one exchange with the U.S. dollar would likely send the peso into a free fall, and it did.
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