ICSID Tribunal Endorses Drs. Abdala and Spiller’s Views on Valuation of Regulated Assets in Argentina

Dr. Manuel A. Abdala and Professor Pablo T. Spiller provided expert testimony in an ICSID arbitration, retained by French investors led by EDF and SAUR. The outcome resulted in a US$208 million award against Argentina. An ICSID Tribunal found that Argentina’s denial to adjust properly tariffs substantially eroded the value of Claimants’ investments in electricity distribution. Abdala and Spiller demonstrated that the size of the investment had to be measured by the asset base, including the actual purchase price paid at privatization and not by the (lower) tag price set at the time of bid, as advocated by opposing experts. The Tribunal also dismissed the claim that Abdala and Spiller’s fair market valuation exercise was circular by virtue of anchoring value to the asset base. It found that the exercise was proper since it included a drop in value due to adverse market conditions, similar to those experienced by benchmark traded utilities. The Tribunal sided with Abdala and Spiller on electricity demand being highly inelastic, even in the presence of high but-for tariff increases. The Tribunal also endorsed Abdala and Spiller’s view that the spread on sovereign bonds could not be used as a valid measure of country risk premium, under the circumstances of their defaulted status.