El Salvador Loses International Suit by Italian Corporation over Public-Private Partnership

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Last week, the Court of Appeals of the Paris-based International Chamber of Commerce rejected the Government of El Salvador's appeal of a 2011 decision granting an Italian company the option to acquire a majority of shares in the public LaGeo geothermal energy company. The decision is a grim example of the dangers of public-private partnerships (P3s), and lends further credence to Salvadoran labor’s opposition to a US-backed P3 Law that now sits before the National Legislative Assembly.

In a wave of privatizations of public services in the 1990s, the then-governing Nationalist Republican Alliance (ARENA) party restructured and partially privatized the national electrical utility CEL, opening the public LaGeo company up to private international bidders. In 2002, the Italian company Enel Green Power won the contract to jointly administer it in a P3 with the State and later moved to acquire a majority ownership in LaGeo. But CEL refused to relinquish its control of the company, and Enel took the case to the International Chamber of Commerce for arbitration, which resolved in favor of the Italian company. (For more information on the case, see this recent article in Labor Notes)

El Salvador’s loss means that the state is obligated to sell Enel a majority of shares in LaGeo, even allowing the foreign company to take over this former state enterprise entirely. The decision illustrates precisely why many consider P3s to be nothing more than privatization in disguise: rather than serving to grow the Salvadoran economy as claimed by the US State Department, P3s in fact greatly weaken the nation, diverting much-needed state income into private, foreign pockets. According to President Mauricio Funes, El Salvador will lose $80 million a year as a result of the ruling.

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