NERA Testimony Supports Canadian Government in ICSID Win

The Situation

In April 2012, Mercer International Inc. (Mercer), a US-based pulp and paper mill company, requested an arbitration under International Center for Settlement of Investment Disputes (ICSID) international arbitration rules, alleging certain violations of the North American Free Trade Agreement (NAFTA) by Canada. Mercer alleged that it had been denied fair and equitable treatment by the Canadian government concerning the Celgar pulp mill in British Columbia (BC), which Mercer had purchased in 2005. Celgar, like other BC pulp mills, had an on-site power plant (by-products of the pulping process provided fuel for the power plant). Also like other pulp mills, Celgar had a contract to sell a portion of the generation from its power plant to BC Hydro, a government-owned electric utility that serves customers in BC. Mercer alleged that Celgar’s contract with BC Hydro was far less favorable than the terms in other pulp mills’ contracts with the government. They also had other related complaints about how BC Hydro, the BC government, and the BC Utilities Commission treated Celgar compared to the other mills.

NERA's Role

Counsel for Canada retained NERA as its economic and damages expert. NERA’s first report:

  • Analyzed each pulp mill in BC with a contract to sell power to BC Hydro and found that BC Hydro had a reasonable, consistent, and consistently applied methodology to determine the key contract terms that Mercer alleged were unfair;

  • Provided a clear opinion on the role of an electric utility and its regulator, in response to additional claims by Mercer of unfair, unequal, and discriminatory treatment; and

  • Presented differences in Celgar’s situation versus the other mills, where those differences justified the different treatment of the mills, considering regulatory principles and the efficient provision of incentives.

NERA submitted a second expert report responding to three experts who critiqued NERA’s first report, and finally NERA provided oral testimony at a hearing in Washington, DC.

The Result

The tribunal ruled in favor of Canada, deciding that Canada did not have to pay damages and that Mercer had to pay almost all of Canada’s legal costs.

More information on this case can be found here.