Colombia to return amount paid to Telefonica

In a high-stakes investment arbitration involving telecommunications giant Telefónica S.A., a tribunal recently examined Colombia’s handling of reversion clauses in concession contracts. These clauses require contractors to transfer certain assets back to the state at the end of their agreements. While Colombia introduced reforms limiting reversion to radio spectrum to attract investors, the State argued that Telefónica was excluded from these benefits because its contract predated the regulatory changes. As a result of such measures, Telefónica was forced to pay the State the amount of US$379,804,275.55 in 2017.

Telefónica challenged this under the Colombia-Spain investment treaty, which guarantees fair and equitable treatment for investors. The tribunal found that Colombia violated this standard by treating Telefónica differently from other operators in similar situations. It held that Colombia breached the treaty by rescinding the application of legal provisions that limited reversion to radio spectrum. By creating two investor categories—one benefiting from the reforms and another excluded—Colombia unfairly disadvantaged Telefónica, despite the company’s significant participation in the nation’s telecommunications market.

The tribunal stated that Colombia failed to comply with its obligation to grant fair and equitable treatment to Telefónica’s investments and ordered the State to pay the amount of US$379,804,275.55, plus compound interest at a rate of 5% as compensation for the damages caused. This decision, however, is not final. Colombia has already announced it will seek to annul the award.