NERA Experts Contribute to Estonia’s Win in $100 Million ICSID Water Tariffs Case

The Situation

In 2011, the Estonian Competition Authority (ECA) rejected a water tariff increase application from Tallinna Vesi (ASTV), the capital city Tallinn’s water and sewerage services company. The ECA dismissed the application on the grounds that it would allow the company to earn excess profits and requested that ASTV submit a tariff application for a reduction in tariffs.

In 2014, ASTV’s Dutch shareholders commenced arbitration proceedings against Estonia for allegedly breaching the fair and equitable treatment provision of the Bilateral Investment Treaty (BIT) between the Netherlands and Estonia and presented a claim for US$100 million in damages.

NERA's Role

Counsel for Estonia retained Dr. Richard Hern, a Managing Director in NERA’s London office, to deliver an assessment of ASTV’s expected profitability under the ECA proposed tariff reduction, in response to the profitability assessment presented by the Claimants’ quantum expert. In addition, NERA’s reports also analysed the evolution of the regulatory framework in which ASTV operated since the privatisation to provide relevant context of the ECA’s 2010 tariff decision. Dr. Hern’s team included NERA experts Clara Segurola and Zuzana Janeckova.

Dr. Hern provided oral testimony at a hearing in Paris, which was webcast live from the ICC Hearing Centre in Paris.

The Result

The ICSID arbitration tribunal dismissed all claims brought against the Republic of Estonia and ordered the Claimants to pay more than US$750,000 to Estonia for costs incurred defending the claim.

The decision has important implications for many Central and Eastern European countries because it shows that investment treaties do not curtail a country’s rights to regulate excessive water tariffs post-privatisation. It also highlights the importance of understanding the regulatory framework and the information available to investors at the time of investing in disputes involving regulated assets.

Rostislav Pekar, one of the lead partners from Squire Patton Boggs who successfully defended Estonia, commented, “It’s always a great pleasure to work with Richard, Clara, and Zuzana. They immediately identified the key weak spots in the Claimants’ business case and exposed them in their report and at the hearing. We were so impressed that we have hired the team on two other major arbitrations.”

NERA is included in Global Arbitration Review’s Expert Witness Firms’ Power Index, a listing of top consulting firms that provide expert witness services in international arbitration cases. Dr. Hern is listed in Who’s Who Legal: Arbitration (2019 and 2020), where he is highly praised as "an absolutely fantastic expert witness" and "the first choice for quantum assessment work". He is also listed in Who’s Who Legal: Consulting Experts – Quantum of Damages (2017, 2018 and 2019), as a “firm favourite among clients who credit him with the ability to engage in a constructive dialogue with the client and counsel”. Ms. Segurola is listed in Who’s Who Legal: Arbitration – Future Leaders and won high praise from respondents who consider her “an extremely bright, personable and smart individual”. She is recognised for her expert handling of economic and financial analyses in commercial disputes.

Further Information

GAR: Estonia Defeats Intra-EU Claim Over Water Tariff Cap

Law 360: Water Utility's $100M Claim Against Estonia Gets Nixed

Squire Patton Boggs Secures Victory for the Republic of Estonia in US$100 Million Investment Dispute