Mota-Engil uses international arbitration against Paraguay
Mota-Engil Construções has filed a lawsuit with the international arbitration center against the State of Paraguay. The request to establish an arbitration tribunal at this institution affiliated with the World Bank dates back to July and will be the first filed by a Portuguese company at this level.
The case is filed by the Attorney General's Office of Paraguay and the issue is the metrobus system, a rapid bus that was awarded to the Portuguese company in 2016. After having obtained compensation for the breach of this contract decided by a first arbitration court, this decision was reversed in the Paraguayan courts on the initiative of the Government, having substantially reduced the agreed value.
This step takes the dispute between Mota-Engil and Paraguay to the international arbitration center, which evaluates disputes between companies and states through independent arbitrators, provided that the investors' home countries have an investment treaty with the said state. This institution has not been used by Portuguese companies, but Portugal has already been the target of a lawsuit by international funds that invested in Banco Espírito Santo and used its Mauritius subsidiaries to file a complaint against the Portuguese state.
The construction company is represented in this process by the Spanish office of Uría Menéndez.
The case dates back to 2016, when Mota-Engil was awarded a contract by the Paraguayan Ministry of Public Works for the design and construction of a BRT public transportation system between the capital, Asunción, and San Lorenzo, a nearby town. The project was awarded for €45.6 million with a 22-month execution period. The contract for the BRT system, an electric rapid transit system, marked the Portuguese company's entry into that country, at a time when Mota-Engil was heavily focused on Latin American markets.
With the change in the Paraguayan government, accusations began to be exchanged between the company and the project owner regarding who was to blame for the inability to perform the contract.
In 2018, the Paraguayan government terminated the contract, claiming it had already paid the company US$30 million (€25.8 million) without the project being completed. Mota-Engil had reportedly requested an extension to the investment deadline. Mota-Engil argued that the government had failed to secure access to the construction sites or obtain authorization from the municipality of Asunción to develop the metrobus.
In 2019, the company moved forward with the establishment of an arbitration tribunal to demand advance payment of contract guarantees. The local Ministry of Public Works challenged Mota-Engil's demand, accusing it of failing to comply with the contract's dispute resolution clauses. The company responded that the compensation requested was a result of the risks assumed in the project.
This was the backdrop for the first arbitration under the investment protection treaty between Paraguay and Portugal, in which the court found that the company was prevented from accessing the planned construction sites. Compensation of €17 million plus interest (totaling €19 million) was awarded for breach of contract, as the local government and the municipality of Asunción were responsible for obtaining construction permits, issuing licenses to execute the project, and ensuring the company's access to the construction site, which they allegedly failed to do.
But in 2024, the Paraguayan government managed to partially annul the arbitration award in a Paraguayan court, reducing the compensation amount from €16 million to approximately €2.2 million. According to the Attorney General, the company could still appeal to the Constitutional Court.
The option was to attempt international arbitration, an action that has not yet seen developments beyond the initial request.
Contacted by Observador, Mota-Engil did not comment.
Latin America is one of the construction company's main markets, accounting for 40% of its €14.7 billion order book, according to the half-year results presented on Wednesday. The largest markets in this region are Mexico, Peru, Brazil, and Colombia.
Just this week, the company announced it had secured contracts worth €540 million , of which €290 million is for the construction of the 30-kilometer railway section connecting Querétaro and Irapuato (Mexico). The other contracts are in Portugal—€108 million for a residential project in Lisbon—and in Rwanda—€162 million for a phase of Bugesera International Airport.
Mota-Engil reported a half-year net profit of €59 million, a 20% increase compared to the same period last year. Revenue grew 0.5% to €2.745 billion, and gross margin (EBITDA) reached €448.2 million.
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