Arbitration In Public-Private Alliances – Challenges For Its Application

The Law on Incentives for Public-Private Alliances ("PPA Law")1 and its regulations ("PPA Regulations")2 include provisions approving local and international arbitration as a means for dispute resolution in relation to PPA contracts. Specifically, I will make reference to Article 20 of the Law and Articles 19, 20, 21 and 22 of the Regulations.

Those provisions, however, raise doubts about the feasibility of the arbitral system and its application within the scope of PPA contracts.

In this paper we will refer specifically to (i) exclusions with respect to arbitrable issues, and (ii) the requirement to exhaust the administrative channels. This paper only refers to the arbitral mechanism deriving from a PPA contract and sets aside any possible claims deriving from bilateral investment treaties.

Arbitrable issues

In relation to issues that may be arbitrable, Article 20 of the PPA Law includes a very general provision which excludes from the arbitrators' decision any "tax matters as well as any other actions directly deriving from the legislative and regulatory powers of the Ecuadorian State". (Emphasis added)

The excessive generality of that provision gives rise to much concern because it seems that any infringement of the rights and benefits acquired by a private sector entity or investor through a PPA contract due to a legal norm having been promulgated - even a simple resolution or regulation - could not be brought before a local or international arbitral tribunal for its consideration. In other words, if by using its legislative and regulatory powers the State decides to cut down the tax benefits of a private sector entity, the private sector entity would have no other option than to submit its contractual claim to the administrative-litigation jurisdiction in accordance with the aforementioned Article 20.

In this respect, and although the Regulations cannot change the provisions of the PPA Law, it is important to highlight that the Regulations only refer - as non-arbitrable issues - to "tax matters", without mentioning those relating to the legislative and regulatory powers of the State. Furthermore, this exclusion is included in Article 22 which solely refers to international arbitration.

Exhaustion of the administrative channels

As a previous requirement for filing an arbitral claim, Article 20.2 of the PPA Law provides that the parties are to exhaust the direct negotiations and mediation phase and, additionally, the administrative...