Peruvian Electricity Transmission Contract Dispute


The Situation

A concessionaire alleged that the 2008 economic crisis made its transmission line project financially infeasible and requested contract reform, including additional compensation.

NERA's Role

The Government of Peru retained NERA to provide expert testimony before the International Centre for Settlement of Investment Disputes (ICSID). NERA’s expert report addressed liability and the claimant’s damages estimates.

Under the Peruvian Civil Code, contracts may be reformed or canceled if performance of these contracts is excessively onerous due to an unforeseeable or extraordinary event. The claimant argued that the 2008 financial crisis was such an event, specifically citing an increase in the cost of financing the project.

Assessing the claimant’s request, NERA pointed out that the criteria for contract reform should be evaluated based on the financial conditions for the claimant specifically, rather than looking at the financial crisis globally. NERA stressed that judicial contract reform should be balanced against the importance of the sanctity of contracts. Based on our literature review, we determined that a standard of excessive onerosity required more than simply disappointing earnings, but rather an extreme or encumbering financial burden. We showed that (even using the claimant’s modeling assumptions) the standard for contract reform was not met from an economic perspective.

The Result

The tribunal ruled in favor of Peru, confirming the claimant’s responsibility to finance the project.