A European investor acquired a 25-year concession to provide water and sanitation services to one of the largest and fastest growing cities in Latin America. Under the terms of the concession contract, the tariffs the company would be able to charge its customers would be reviewed every five years by the relevant government agency. New tariffs were to be determined based on the value of certain parameters using a pre-agreed formula.

At the first tariff review, the government agency in charge of setting the new tariffs decided to keep the tariffs constant. The investor contested the new tariffs arguing that they were too low and did not comply with the requirements set out in the concession contract.  Specifically, the investor disagreed with four parameters that the government agency had used in the tariff-setting formula. The parties commenced an arbitration for the arbitral tribunal to determine the value of these four parameters.

Counsel for the investor retained NERA consultants to provide expert testimony on the main economic principles of the concession contract, including the concept of financial and economic equilibrium, and to determine three of the four parameters in dispute. The team of testifying experts included:

• Dr. Richard Hern, a Managing Director in NERA’s London office;
• Dr. Fabrizio Hernández, a Managing Director in NERA’s Madrid office; and
• Marco Schoenborn, a Senior Consultant in NERA’s Berlin office.

NERA’s experts submitted a total of ten expert reports analyzing the risk allocation and the allowed remuneration under the concession contract. They also provided direct expert testimony at the hearings and were cross-examined. 

The arbitral tribunal issued a partial award, stating that the tariffs set by the government agency were too low, and determined the level of tariffs that should have been set at the tariff review. In their decision, the arbitral tribunal relied on the analysis and opinions presented by the NERA experts, who were widely quoted throughout the award. 

The tribunal also ordered the government to compensate the concessionaire for not being able to charge a higher tariff since the tariff review. A NERA team led by Dr. Hern, Mr. Schoenborn, and Clara Segurola determined the net present value of the amount that would compensate the concessionaire and devised a mechanism for the concessionaire to receive this amount within the framework of the concession agreement.