Mexico Loses Arbitration Case Against Duro Felguera

CFE lost an international arbitration case against the Spanish company Duro Felguera, following a breach of the construction contract for the combined cycle power plant Empalme II, located in Sonora. The state utility will have to pay a compensation of US$22 million to the Spanish company, taxes already included. Back in 2015, the project represented an investment of US$396 million.

Via a financial report, Duro Felguera reported the completion of the arbitration case held with CFE in the week of Jan. 10, 2022. "The parties filed their respective submissions and costs, after which the arbitration proceedings were completed. Pending review by the Tribunal for the drafting of the award, which was issued on Sept. 26, 2022,” the statement read.

On September 26, an arbitration tribunal at the London Court of International Arbitration (LCIA) concluded that CFE had breached the construction contract for Empalme II and ordered it to pay US$20.76 million plus interest equivalent to an additional US$1.1 million, which will be paid once Duro Felguera accredits the payment to its subcontractors.

CFE attempted to file a counterclaim, which was rejected as the court argued this was outside of its authority. Finally, the court stated that each party would bear their legal costs, plus 50 percent of the administrative expenses corresponding to LCIA.

In recent days, it was also revealed that CFE had lost another international arbitration case against the Canadian company ATCO in 2021. Consequently, the state utility had to pay a compensation of around US$85 million. ATCO pursued arbitration after CFE canceled a contract the Canadian firm had signed with the previous administration to build a natural gas pipeline near the city of Tula, Hidalgo. 

Moreover, CFE’s 2022 report submitted to the Mexican Stock Exchange (BMV), showed that the state utility also initiated an international arbitration on April 26, 2021, against J. Aron & Company as a result of a commercial dispute with CFE international. According to the report, the dispute stems from payment and delivery obligations under long-term natural gas purchase contracts following the February 2021 winter storm Uri in Texas, which resulted in extraordinary price spikes. The arbitral proceedings are at the initial stage, so the outcome of the case is difficult to predict.

In addition, there are 34 further proceedings managed by CFE’s legal area, 24 of which are international, 13 presented before the LCIA, eight before an Inter-American court and one before the American court. In addition, CFE faces 10 trials in Mexico resulting from disagreements with various suppliers.