The European Commission has requested authorisation from the European Council to intervene in a €106 million legal dispute between Spain and a US-based investment fund, according to a document obtained by Euronews. The case, brought under the Energy Charter Treaty (ECT), highlights a fundamental clash between international investment arbitration and the primacy of EU law.
The dispute originates from Spain’s 2013 decision to roll back a generous state aid scheme established in 2007 to promote renewable electricity generation. The Japanese investor Eurus Energy, which had invested under the original framework, claimed compensation under the ECT and won a €106 million award plus interest in November 2022 from the International Centre for Settlement of Investment Disputes (ICSID), a World Bank-affiliated tribunal. Spain challenged the award in 2023 but failed.
Eurus then assigned its claim to Blasket Renewables, described in the Commission document as a “vulture fund” specialising in enforcing difficult arbitration awards. Blasket filed a petition in US courts to recognise and enforce the ICSID award, putting Madrid in a legal bind: pay the compensation and risk breaching EU state aid rules, or refuse and face enforcement proceedings abroad.
State aid versus international arbitration
The Commission argues that if Spain compensates investors for losses caused by the repeal of the 2007 scheme, that payment would constitute illegal state aid under Article 107 of the Treaty on the Functioning of the European Union. Under EU rules, member states cannot grant selective financial advantages to companies without prior Commission approval. “Where aid is granted in violation of that provision, the beneficiary cannot have any legitimate expectations in being allowed to keep that aid, and the member state is obliged to recover it ex officio,” the document states.
Investors counter that the payments are not subsidies but legally binding compensation for a sovereign measure that breached investment protections. The case thus pits two legal orders against each other: international investment law, which holds that Spain must pay, and EU law, which says the payment would distort competition and must be recovered.
The Commission considers that foreign court enforcement of such awards is “incompatible with EU law” and would undermine “the primacy of EU law,” which it deems “unenforceable” in this context. The request to the Council is a procedural step to allow the Commission to formally represent Spain in the US proceedings.
Madrid blames previous government
Spain’s Energy Ministry has distanced itself from the original policy, noting that the 2013 reforms were enacted under former conservative Prime Minister Mariano Rajoy. The ministry added that most final arbitration awards linked to renewable energy investments are now held by litigation funds, not the original investors. “They are not the companies affected; they have purchased debts against Spain and try to enforce them abroad, filing the same cases in different countries,” a ministry statement said.
Paul de Clerck, economic justice coordinator at Friends of the Earth Europe, called the case a “perfect illustration of the absurdity” of investor-state dispute settlement (ISDS). He argued that investors should use Spanish courts rather than “business-friendly tribunals.” “Vulture funds are further misusing the system by buying up claims to make profits at the expense of tax payers,” de Clerck told Euronews.
The case also underscores broader tensions over the ECT, which was originally designed to protect investments in post-communist states but has become controversial as energy companies use it to challenge climate policies. Several EU member states, including Spain, have signalled their intention to withdraw from the treaty, though the process is complex and the treaty’s sunset clause means existing investments remain protected for years.
For Spain, the immediate risk is that a US court could order enforcement of the award, forcing Madrid to choose between complying with EU law or facing asset seizures abroad. The Commission’s intervention, if approved by the Council, would aim to prevent that scenario by asserting the supremacy of EU law in a US courtroom.
