Coal Producer Receives Ps60 Billion Pay-Out from Government
By Gabriela Mancero Bucheli
In December 2012 the Ministry of Transport paid Drummond – a multinational company
exploiting coal on the north coast – nearly Ps60 billion (more than $30 million) for
breach of contract, in compliance with a decision of the Court of Arbitration of the Paris
Chamber of Commerce.
The contract for the transportation of coal from the Guajira and Cesar provinces to the
Santa Marta municipality seaport was signed in 1999. Drummond argued that as a
consequence of the contracting party's non-compliance with its contractual obligations,
it had allegedly faced delays and experienced huge financial losses. Drummond
named both state-owned company Ferrocarriles de Colombia (Fenoco) and Ferrovias
Railways as respondents to the complaint, as both companies were responsible for
transporting the coal.
It subsequently transpired that Fenoco's main shareholder was Drummond, which held
more than 40% of the company's shares. Therefore, it could be said that the
government paid Drummond for its own failures. However, according to the Ministry of
Transport and the National Infrastructure Agency, Drummond had not yet acquired
Fenoco when the company was sued.
The award was issued in Paris in 2006 – the same year in which the ministry opened a
tender to sell Fenoco and permitted Drummond to enter the process. Drummond
bought the highest percentage share of the company. Fenoco was jointly sentenced in
the award, since it was in liquidation and it had been established with the specific
purpose of replacing the previous state-owned company.
According to the Civil Cassation Chamber of the Supreme Court,(1) the Paris tribunal
had issued the enforcement order after ruling that none of the provisions of the contract
were contrary to law or public policy. At the Ministry of Foreign Affairs' request, in April
2008 Civil Judge 34 of the Bogota Circuit notified the National Institute of Concessions,
the Ministry of Transport, Ferrovias Railways and Fenoco. The interested parties failed
to initiate an annulment action against the ruling in France.
On receipt of the request for an exequatur for the enforcement of the foreign decision,
the civil prosecutor was informed and the National Concessions Institute opposed
Drummond's claims, arguing that they failed to satisfy the requirements of Article 693 of
the Colombian Civil Procedure Code, and thus the award was not enforceable.
The Ministry of Transport stated that it opposed the granting of approval for execution of
the award since:
- the general and special conditions defined in national law and applicable treaties on the subject had not been taken into account;
- the controversy related to property rights on constituted public goods situated in Colombian territory at the time that the process had commenced;
- the award was contrary to Colombian laws and provisions dealing with matters within the exclusive competence of local judges;
- the judgment related to matters for which an arbitration decision had already been handed down; and
- the award did not comply with proper defendant summoning.
The Civil Cassation Chamber of the Supreme Court studied the award and in
December 2011 stated that the ruling was in line with Colombian domestic law. The
government was subsequently ordered to pay Ps38 billion ($21 million) to Drummond
for coal transportation costs and Ps13 billion ($7.2 million) as a penalty for breach of its
supervision and control duties.
The judgment was accepted in Colombia in December 2011; however, since the 2012
budget had already been approved, the payment could not be made in that year. Only in
December 2012 was the Ministry of Transport forced to pay the entire amount to
Drummond, in order to prevent the debt from escalating due to interest. The award was
fulfilled in secrecy, but was leaked in the media in early 2013.
(1) Supreme Court of Justice, Civil Cassation Chamber, FGG Exp 1100102030002008-