Case summary: Nykomb v Latvia

Latvia_Nykomb

This summary is prepared based on the publicly-available award rendered in December 2003. The case concerned an alleged discriminatory treatment by Latvian state, through its state-owned company, against a foreign investor in electricity industry.

Nykomb Synergetics Technology Holding AB (“investor”) is a Swedish company that had a business in electricity generation. It wholly-owned Windau, a Latvian subsidiary company.

In 1997, Windau and Latvenergo, a Latvian state-owned company, concluded a contract in which Windau was to build a plant that will produce electric power. Latvenergo, in turn, was to purchase the power from the plant.

The dispute revolved around electricity pricing, where the investor claimed that Latvian law guaranteed Windau a multiplier of two (double tariff) for the first eight years of the plant operation. The law was changed in 1998 to provide a 0.75 tariff. Latvenergo refused to pay double tariff to Windau and contended that the correct multiplier was 0.75.

The investor brought an ISDS claim against Latvia under the Energy Charter Treaty (ECT), claiming among others that this treatment was discriminatory.

The tribunal sided with the investor and held that according to Latvian law and the contract between Windau and Latvenergo, Windau had a right to a double tariff in the first eight years of the plant’s operation. In this case, the Latvian state was responsible for Latvenergo’s refusal to pay double tariff because Latvenergo was “clearly an instrument of the State in the highly regulated electricity market”.

Further, the tribunal found that Windau has been subject to a discriminatory treatment since Latvenergo were paying double tariff to two Latvian companies. It went on to say that there was no legitimate reason to treat Windau differently than those two companies.

The tribunal ordered Latvia to compensate the investor for the loss suffered before the award was rendered and to pay double tariff for the remainder of the eight years. However, it refused to award compensation for future loss on grounds that this was too uncertain and speculative.