Claims of Tallinna Vesi against Estonia dismissed by intl arbitration tribunal

  • 2019-06-24
  • BNS/TBT Staff

TALLINN - A majority of the International Center for Settlement of Investment Disputes (ICSID) on Friday decided to dismiss the listed water services company Tallinna Vesi's and United Utilities (Tallinn) B.V.'s claims against the Republic of Estonia in the company's arbitration case.

The tribunal decided that the claimants are to cover 25 percent of respondent's legal costs, fees and expenses and 25 percent of the expended portion of respondent's share of the advance costs of the arbitration.

25 percent of respondent's legal costs is approximately 500,000 euros and 25 percent of the respondent's share of the advance costs is approximately 165,000 euros. The exact amount to be paid by AS Tallinna Vesi is yet to be determined.   

AS Tallinna Vesi will now conduct a legal analysis of the decision. 

In October 2014, AS Tallinna Vesi and its shareholder United Utilities (Tallinn) B.V., registered in the Kingdom of the Netherlands, commenced international arbitration proceedings against the Republic of Estonia for breach of the Agreement on the Encouragement and Reciprocal Protection of Investments between the Kingdom of the Netherlands and the Republic of Estonia. 

The company claimed compensation for the total loss in revenue caused by the inability to charge tariffs according to the Services Agreement between 2011-2020.

According to Tallinna Vesi, the Republic of Estonia as a signatory to the agreement undertook to ensure "the fair and equitable treatment" of investments protected by the agreement. Tallinna Vesi claimed that the Republic of Estonia had breached the requirement by changes to the law and activities of the public authorities which deprived Tallinna Vesi of tariffs approved according to the Services Agreement concluded as part of the privatization in 2001.

Tallinna Vesi and the City of Tallinn concluded on Jan. 12, 2001 a services supply contract which among other things put in place the water company's price regime for five years. The contract was extended until 2020 in 2007. Under the contract Tallinna Vesi has the right to raise tariffs by the change in the consumer price index.

The Public Water Supply and Sewerage Act that stepped into effect in November 2010 laid the task of endorsing tariff changes on the Competition Authority. Under the law the prices of water services must be based on justified costs and cost benefits, not the consumer price index. 

The competition watchdog refused to give the nod to the next tariff increase and ordered Tallinna Vesi in 2011 to bring its tariffs into keeping with the law. The water company did not comply and took legal action. The debate between the Competition Authority and the water company has been going on since then.

The water company announced in May 2014 it was going to start international arbitration proceedings to claim compensation for potential damages of over 90 million euros over the lifetime of the contract to 2020. According to the calculations the company made in 2014, of this amount 50 million euros of damage had already been caused by the refusal to permit tariff increases in 2011-2013 and the rest would arise from its ongoing impact until 2020.

The eventual size of Tallinna Vesi's claim against the state of Estonia in the arbitration proceeding at the International Center for Settlement of Investment Disputes (ICSID) is 67.5 million euros.

The international arbitration hearings were held in November 2016.

International arbitration is a procedure where an independent, international tribunal issues a final ruling on the dispute. Pursuant to the agreement, arbitration was carried out through the International Center for the Settlement of Investment Disputes (ICSID), which is part of the World Bank Group.

The Administrative Law Chamber of the Supreme Court of Estonia in December 2017 to a larger extent left unsatisfied an appeal filed by Tallinna Vesi against the Estonian Competition Authority and decided that the Competition Authority does not have to follow an agreement established between the water company and the City of Tallinn concerning the prices of water services.

The Administrative Court also found that there are no grounds for obliging the Competition Authority to abide by the provisions of the service agreement concerning tariffs because the agreement is not binding for them. Hence the complaints of AS Tallinna Vesi were not satisfied. Also a claim of Tallinna Vesi for damages was not satisfied. 

The Estonian Competition Authority said then that after the court decision, consumers will be able to claim tens of millions of euros in compensation from Tallinna Vesi for paying a too high water tariff for years.