Enagás risks two years of profits in its arbitration before the World Bank | Companies

The manager of the Spanish gas system has been looking at the arbitration court of the World Bank, the ICSID, for more than five years, where he is disputing 511 million dollars (475 million euros) with the Peruvian State on account of the failed GSP gas pipeline. Now, however, the day of truth has arrived: Enagás expects a ruling before the end of the month, as stated in its latest communications to the National Securities Market Commission (CNMV). In its financial projections, the company expects to recover at least 236 million euros before the end of the decade, leaving the rest for later. The expectation is maximum: the amount at stake is equivalent to nearly two years of annual benefit.

The dispute came into the hands of the International Center for Settlement of Investment Disputes (ICSID) in July 2018, following a claim by Enagás against the Peruvian State under the agreement for the promotion and reciprocal protection of investments between both countries. The organization established the court a year later, with a president agreed upon by the two parties (the Argentinian Diego Fernández Arroyo) and two arbitrators (the Chilean Andrés Jana Linetzky and the German Claus Von Wobeser), one appointed by the Spanish firm and the other by the Peruvian authorities. The last public progress in the case occurred a year and a half ago, in December 2022, when both parties sent written documents regarding costs to the arbitration body attached to the World Bank. Since then, silent stampa.

On January 8, however, Enagás informed in a brief communication to the stock market regulator that “in accordance with the instructions of the arbitration court”, the preparation of the award was “at an advanced stage.” He also pointed to the “first half of 2024” as the probable date on which it will be announced. A deadline for which there are now less than three weeks left.

Investment and guarantees

The 457 million claimed by the Spanish company correspond both to the recovery of the financial investment and to “the credit rights associated with the recovery of the guarantees executed as a result of the termination of the concession contract in GSP,” according to the latest annual report of Enagás.

The manager of the Spanish gas system recorded a net profit of 342 million euros last year and the average of the analysts on the Bloomberg panel points to profits of 266 million in 2024, within the range established by the company itself. In 2025, forecasts point to 237 million. A ruling in favor of their interests would, therefore, mean an injection of resources equivalent to 24 months of benefits, which is said to be early.

“First you must receive the award, we hope favorable, before the end of the month. And then collect it, which is a process that can take a long time,” says Fernando García, head of analysis at utilities from RBC Capital Markets. In addition, remember, the gas manager has “the problem of not being able to repatriate the dividends” of his subsidiary Transportadora de Gas del Perú (TGP), where he has “about 400 million” stranded. “Enagás hopes that, if the GSP arbitration is resolved favorably, this other arbitration will also be resolved quickly,” he completes by email.

Along the same lines, Virginia Romero, director of ESG analysis at Banco Sabadell, places the emphasis not so much on the amount that can be achieved in this first award – that of GSP – but on the links between both cases. “Although they are independent, if the current one comes out positive for Enagás, which would be logical, the door would be opened to a negotiation with the Peruvian Government so that all dividends could soon be unlocked when the second award, that of TGP, comes out.” That of TGP, which will be known at the end of this year or at the beginning of next year, has blocked all the cash generated by the Spanish company in the South American country. “It is essential from the point of view of its rating from 2026,” Romero highlights. Something, she emphasizes, very relevant for the future.

Six years of conflict

The conflict between Enagás and Peru over GSP dates back to 2017, when the Government of the Latin American country paralyzed the project, awarded three years earlier. The company chaired by Antonio Llardén, with a 25% stake in the consortium that was going to exploit the pipeline—more than 1,000 kilometers long—demands from the Andean State the recovery of everything invested before it decreed its definitive cancellation. Something that was stipulated in one of the clauses of the contract. The company run by Arturo Gonzalo Aizpiri has entrusted its legal representation to the British law firm Linklaters, while the Latin American country has entrusted its legal representation to the American law firm Arnold & Porter.

If it is finally unfavorable, the award would have a negative impact on Peruvian public accounts, which already point to a deficit of 2.5% this year. On the contrary, it would be indirect good news for the Spanish coffers: the largest shareholder of Enagás is the Sociedad Pública de Participaciones Industriales (SEPI), with a 5% stake today valued at almost 200 million euros. The Government, in addition, with a golden share that prevents the rest of the shareholders from exceeding their participation in the company’s capital.

Despite being one of the listed companies with the highest dividend yield on the Ibex, the operator of the gas network and the eight Spanish regasification plants has accumulated a 20% decline in the stock market in the last year. Its activity depends, to a large extent, on the pattern of gas consumption, threatened in the coming years by the gradual electrification in industry and homes.

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