Press Releases 2010

Instigation of Arbitration Process in connection with Compensation Claim for Bolivian Nationalisation of Controlling Stake in Guaracachi

Details

Published: Thursday, 13 May 2010 16:30

13 May 2010

Rurelec PLC (AIM:RUR), the power plant developer and owner-operator of power generation assets in Latin America, announces Rurelec has today served a formal notice of a breach of the Bilateral Investment Treaty between the UK and Bolivia ("the Treaty") on President Evo Morales thereby triggering the six month negotiating period prior to international arbitration. Rurelec has instructed Freshfields Bruckhaus Deringer LLP, who have experience in resolving nationalisation claims against Bolivia, to advise them in relation to negotiations and in an eventual arbitration.

Compensation Claim

The Decree ordered expropriation of the 50.001 per cent. interest in Guaracachi held by Rurelec subsidiary Guaracachi America, Inc ("GAI").  The Supreme Decree stated that ENDE (the integrated electricity utility owned by the Bolivian state) had to pay fair value ("compensacion adecuada") for GAI's shares. Bolivia's proposals regarding compensation amount should be made within 120 days of the issue of the Decree.

Subsequent statements by Bolivia's Minister for Economic Development, Sra Viviana Caro have sought to reassure investors in the four companies nationalised on May Day that Bolivia has the resources and the willingness to meet its compensation payment obligations.  A facility of US $1 billion has been made available by the Bolivian Central Bank for the power sector including compensation to investors whose share stakes have been nationalised.  On 6th May Standard & Poor's announced that it was upgrading Bolivia's foreign currency to B from B-.  on the grounds of the country's strong economic performance and the fact that Bolivia currently has US $8.5 billion of foreign exchange reserves on deposit.

Under the terms of the Treaty, which came into force in 1990 and protects the investments of UK companies in Bolivia, Rurelec has a right to receive the market value of its investment in Guaracachi, calculated prior to any threat of nationalisation.  This value is likely to be materially in excess of Guaracachi's Bolivan GAAP audited net asset value of US$70.5 million (£46 million). Since President Morales came to office in 2006, Rurelec has sponsored over US$110 million of intestment in new power capacity in Bolivia totalling 185 MW in five separate projects involving eleven new turbines or gas engines.  Rurelec is believed to be the third largest British investor in Bolivia after BP and BG.  In the event that no settlement on compensation is reached with Bolivia prior to expiry of the six month notice period established under Treaty, Rurelec is entitled to commence an international arbitration against the Government of Bolivia under the Treaty in order to obtain just and effective compensation.  

Commenting on the nationalisation, Peter Earl, Managing Director, Rurelec PLC, said: "We have instigated the formal arbitration process now in order to shorten the overall time frame in the event that an internationally supervised settlement is required.  However, we are hopeful of negotiating a settlement during the six month prelude to arbitration.  Guaracachi's market value is clearly linked to its future earnings which were set to double from 2010 onwards as a result of increased combined cycle margins from our new power plant and contracted carbon credit income in excess of US $7 million a year."  He also noted: "Rurelec has some US $50 million invested in its Argentine power business, Energia del Sur, of which US $33 million is in inter-company loans from Rurelec which are due to be refinanced and repaid to Rurelec in 2010.  Energia del Sur owns a state of the art combined cycle power plant which has recently received Argentine government approvals for premium tariffs.  Even without its Bolivian power plants, Rurelec still has a major asset in Argentina which is expected to contribute to the group significantly from this year onwards

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