Summary

I. INTRODUCTION

Bacilio Amorrortu (Amorrortu), a citizen of the United States of America, hereby requests the institution of arbitration proceedings against the Republic of Peru (Peru) in accordance with Article 3 of the Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL Arbitration Rules).

This notice of arbitration (the Notice) is submitted pursuant to Chapter 10 of the United States-Peru Trade Promotion Agreement (USPTPA),[1] which was ratified by Peru in June 2006 and signed by the United States on December 14, 2007. The USPTPA entered into force on February 1, 2009.

The USPTPA seeks "to promote transparency and prevent and combat corruption, including bribery, in international trade and investment."[2] However, Amorrortu's investments and legitimate expectations were frustrated precisely by a corrupt scheme designed to benefit a local company that bribed the government of Peru to obtain a government contract that Amorrortu was negotiating through a process of "direct negotiation."

This case arises out of Amorrortu's investment in Peru with the expectation to obtain a contract to resume the oil drilling and extraction operations in two oil blocks located in the Talara Basin in the Province of Talara, Piura Region, Peru. The Talara Basin is one of the most important reserves of crude oil in Peru, having produced more than 1.68 billion barrels of oil.[3]

Since 1976, Amorrortu has been involved in drilling and extraction operations in the Talara Basin. Indeed, Block III of the Talara Basin is popularly known in the industry as the "Amorrortu" oil block because it has been successfully serviced and operated by the Amorrortu family company for more than twelve years.

In 1995, Amorrortu had to surrender the contractual rights to operate Block III due to the fierce political persecution launched by the dictatorial government of President Alberto Fujimori. This political persecution led Amorrortu to seek asylum in the United States, which he obtained from the United States Department of Justice on April 26, 2000.[4]

In the United States, Amorrortu continued his involvement in the oil industry together with his wife - a high executive in the industry, and in 2010, he became a citizen of the United States. Amorrortu has since officially renounced his Peruvian citizenship and is not a citizen of any other country.

In 2012, after the return of democracy in Peru, Amorrortu formed Baspetrol S.A.C. (Baspetrol) with the expectation to seek - and indeed recover - the contractual rights to operate Block III of the Talara Basin. To this end, Amorrortu approached "Perúpetro, S.A." (PeruPetro) - the Peruvian governmental entity responsible for the operation of the oil blocks - to negotiate an agreement to operate Block III. After various presentations to PeruPetro about his successful history operating Block III, the persecution leading to his asylum, and his proposal to benefit the community of Talara through the investment of foreign capital, Amorrortu was invited to submit a direct negotiation proposal for Block III and for the adjacent Block IV, which he did on May 28, 2014.

Under Peruvian law, the presentation of a direct negotiation proposal commences a process of direct negotiation unless the proposal is formally rejected within ten days.[5] When a direct negotiation proposal is presented by invitation, the ten-day period is a formality that officially confirms the commencement of the direct negotiation phase. In any event, it is undisputed that the ten-day period expired, giving Amorrortu the right and the legitimate expectation to complete the direct negotiation of the agreement, consistent with Amorrortu's conversations with the President of PeruPetro. At this point, Amorrortu was willing, ready, and able to complete the direct negotiation process with PeruPetro.

Notwithstanding, in violation of Amorrortu's acquired rights to direct negotiation and his legitimate expectations, PeruPetro initiated a public bidding process for the license to operate Blocks III and IV. This public bidding process was clearly designed to benefit the local company Graña y Montero, S.A.A. (Graña y Montero), as the request for proposal issued by PeruPetro included a series of arbitrary requirements that only Graña y Montero could satisfy.

For years, Amorrortu has been claiming that PeruPetro had violated Peruvian law and that the public bidding process was unfairly designed and rigged to benefit Graña y Montero. However, as of March 2017, the government of Peru and Graña y Montero denied any participation in any corruption scheme, and Amorrortu did not have any information corroborating his claims.

The evidence of corruption began to surface in June 2019 when Graña y Montero admitted that the company had in fact bribed the government of Peru to obtain several government projects. Today, there is undisputed evidence that in 2011, during Peru's Presidential campaign, Graña y Montero, together with Odebrecht, paid USD $3,000,000.00 to Ollanta Humala (President Humala) and his wife Nadine Heredia (Mrs. Heredia). Then, during President Humala's presidency (2011-2016), Graña y Montero paid in excess of USD $3,700,000.00 in bribes to members of President Humala's government, in order to be adjudicated government contracts. As a result of these payments, and other payments of bribes currently under investigation, Graña y Montero was favored with numerous contracts by President Humala's government, including the contracts for the operation of oil Blocks III and IV granted in 2014-2015.

It is by now well established that a host state breaches its fair and equitable treatment obligations under a bilateral treaty when it corruptly exercises its discretion to assign government contracts in which foreign investors have acquired interests.[6] That is exactly what happened in this dispute. Peru breached its obligations under the USPTPA by aborting the direct negotiation process with Baspetrol to favor Graña y Montero.

There are usually two significant challenges in these types of cases: (1) proving that the bidding process was in fact influenced by corruption, and (2) establishing that in the absence of corruption, the investor would have been awarded the contract.

This case, however, is unique in that both challenges can be easily overcome. First, the evidence of corruption is overwhelming. Indeed, this is one of several cases in which Graña y Montero was handpicked by the office of President Humala to receive a government contract in exchange for illegitimate payments. Second, Peru cannot seriously dispute that Baspetrol had been qualified to participate in a direct negotiation process. This process guaranteed the contract to Baspetrol if it could satisfy the good faith requirements for the drilling and extraction project. The President of PeruPetro had confirmed Baspetrol's offer satisfied these conditions. Therefore, there is no dispute that Amorrortu's direct negotiation with PeruPetro was aborted by the corrupt relationship between Graña y Montero and the government of Peru and that in the absence of corruption, the contract to conduct the oil drilling and extraction operations in Blocks III and IV would have been given to Baspetrol.

In this Notice, Amorrortu will establish the jurisdictional and substantive bases of his treaty claim. Specifically, Amorrortu will show that:

(a) Peru breached its obligations under the USPTPA by aborting the direct negotiation process with Amorrortu with the corrupt intent to benefit Graña y Montero, a local company that had a corrupt relationship with the government of Peru (Section V below)

(b) Amorrortu is an investor of the United States with investments in Peru protected by the USPTPA (Section IV below); and

(c) Amorrortu has the right to initiate this arbitration because both Peru and Amorrortu have consented to UNCITRAL arbitration and all the conditions precedent to bringing this demand have been performed or have occurred (Section VII below).

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[1] USPTPA Investment Chapter (CL-001).

[2] USPTPA Preamble (CL-002).

[3] See D. Higley, The Talara Basin Province of Northwestern Peru: Cretaceous-Tertiary Total Petroleum System, August 2004, available at https://pubs.usgs.gov/bul/2206/A/ (6 February 2020), p. 1.

[4] See Letter from the U.S. Department of Justice, Immigration and Naturalization Service, 29 January 2001 (C-001).

[5] See Regulation on the Qualification of Petroleum Companies approved through Supreme Decree No. 030-2004-EM (CL-003), Art. 9.

[6] See, e.g., EDF (Services) Limited v. Romania, ICSID Case No. ARB/05/13, Award, 8 October 2009 (CL-004), ¶ 221.