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RDC obtains full award in claim against Guatemalan government

Railroad Development Corp. (RDC) yesterday confirmed it's received the full $14.6 million awarded in a six-year international arbitration case against the Republic of Guatemala brought under the Dominican Republic-Central America Free Trade Agreement (CAFTA).

In June 2012, a Tribunal of the International Centre for Settlement of Investment Disputes (ICSID) unanimously ruled that the Guatemalan government had violated the minimum standard of treatment set forth in a CAFTA article by engaging in unfair conduct and awarded RDC full reparations.

RDC's Guatemalan affiliate, Ferrovías Guatemala (FVG), won a 50-year concession from the Guatemalan government in 1997 to revive, operate and develop the assets of its national railway, which the government closed in 1996. But the government issued a presidential decree in August 2006 declaring the rolling stock contract of FVG's concession "harmful to the interests of the state." The government issued the decree after RDC refused the government's demands to renegotiate and surrender its key economic rights under the concession contracts, RDC officials said in a press release.

The decree caused FVG's rail business to collapse and RDC shut down its operations in Guatemala in September 2007. Since then, "the railway has literally disappeared," RDC officials said.

ICSID later determined the government violated the CAFTA minimum standard of treatment, which requires each state party to provide fair and equitable treatment and full protection and security to investors of the other parties. As compensation, RDC was awarded full reparations, including damages and compound interest.

ICSID also determined that, upon full payment of the award, RDC must surrender its 82 percent interest in FVG to the government or its nominee. RDC — which also owns Iowa Interstate Railroad Ltd. — now has been replaced by the government as FVG's majority shareholder since it received the full payment.

"The loss of the railway for a second time was a national tragedy, and it can truly be said that there were no winners in this case," said RDC and FVG Chairman Henry Posner III. "But this now offers Guatemala the opportunity to once again look to the international railway investment community to develop the urban train, dry canal, Mexican rail link and other projects that the country aspires to. In this regard, we pledge our full cooperation and support."

Contact Progressive Railroading editorial staff.

More News from 12/4/2013