REUTERS | Andrea Comas

Is Spain offering a settlement to foreign investors? Absolutely not, the new Royal Decree Law 17/2019 of 22 November 2019 is just another retaliatory measure

On 23 November 2019, the Official Gazette of Spain (BOE) published the Royal Decree Law 17/2019 of 22 November 2019, adopting urgent measures in response to the need to adapt the remuneration parameters affecting its electrical system and addressing the process for shutting down thermal generation power plants. It entered into force on 24 November 2019 and the Spanish Parliament ratified its content as of 27 November 2019. This is therefore new law.

Royal Decree Law 17/2019 establishes the reasonable rate of return to be applied during the second remuneration period (that is, 1 January 2020 to 31 December 2025) for renewable energy, co-generation and waste plants. The new rate of return is set at 7.09%, which entails a further reduction of 0.3% in relation to the rates of return that the Spanish government set forth in July 2013.

Exceptionally, for installations that had been registered under RD 661/2007 and had been entitled to receive feed-in tariffs and premiums prior to the entry into force of Spanish Royal Decree Law 9/2013, the new legislation keeps the rate of return at 7.398% (that is, the same rate of return that had been in effect since July 2013). It further provides for a stabilisation commitment for 2020 to 2031.

The need for introducing this stabilisation commitment (or grandfathering clause) would confirm the arbitrary nature of the remuneration model passed in 2013. It would also constitute  an acknowledgement of liability.

However, foreign investors involved in arbitration or having obtained compensation or damages in a final award shall not receive this protection. Quite the opposite; if the owners, partners or investors of one of those installations registered under RD 661/2007 had decided to bring a claim for damages under the Energy Charter Treaty (ECT), the new legislation would aggravate its current status, providing for a different treatment.

The new regulation appears to be a subtle intimidation. Either the investors terminate their arbitrations under the ECT and waive their rights to enforce their arbitral award, or the Spanish government shall reduce its current remuneration in a retroactive manner at 7.09% between 2020 and 2025 and revise the rate of return of the installation in 2026. Moreover, at any time, Spain shall recalculate any compensation the installation may have received during its entire lifespan, if the investors seek to enforce the award and are successful in getting compensation.

Yes indeed. Not only has the Spanish government refused to compensate foreign investors, but it has also announced additional revisions for those seeking protection under international law. Since the new regulation does not provide investors with any incentive to terminate the arbitration, it is unlikely that the government’s apparent goals could be accomplished. Besides, it is likely that the new regulation will create unnecessary corporate disputes between national and foreign partners who manage the same asset.

Even though the Spanish government presented this regulation as medicine for settling current arbitrations and avoiding future claims, it is more likely that investors will increase their damages in ongoing arbitrations and bring new claims. Therefore, the new regulation is not a form of pain relief.

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