I. INTRODUCTION

1. The Ministry of Economy of the Republic of Guatemala (the “Republic”), in the context of the international arbitration before the International Centre for Settlement of Investment Disputes filed by Railroad Development Corporation against the Republic (ICSID Case No. ARB/07/23), has asked me to render an expert opinion on the grounds pursuant to Guatemalan law of the lesividad - declared by the President of Guatemala by means of Executive Resolution No. 433-2006 of 11 August 2006 - of the Onerous Usufruct Contract of Railway Equipment owned by Ferrocarriles de Guatemala (“FEGUA”) entered into by FEGUA and Compañía Desarrolladora Ferroviaria, Sociedad Anónima (“Ferrovías”), formalized by Deed No. 143 of 28 August 2003 (“Contract 143”)1, and amendment of the Onerous Usufruct Contract of Railway Equi9pment owned by Ferrocarriles de Guatemala, formalized by Deed No. 158 of 7 October 2003 (“Contract 158”).2 The Republic has also asked me to analyze the liabilities which could result for the President of the Republic in the context of a potential lesividad and, in particular, in the specific case of the lesividad of Contracts 143 and 158.

2. The conclusions of this opinionare: (a) the management of FEGUA, as a decentralized, autonomous and intervened State entity, corresponds to its Overseer. He is vested with the powers of ordinary management of the company, while the remaining powers, and those specifically provided in the Law of FEGUA, rest with the President, who is the Overseer’s hierarchical superior; (b) FEGUA has the power to enter into contracts regarding goods and services, and the instruments by virtue of which FEGUA grants special rights of use over its assets, including an onerous usufruct contract such as Contracts 143 and 158, are of the same nature as licenses, authorizations, permits, concessions and similar rights; c) FEGUA could enter into Contract 143 to confer a special right of use over state assets consisting of railway equipment. However, in order to do so, FEGUA should have complied with the requirements established by Law, including the Public Contracting Act; such usufruct would share the nature of a license, authorization, permit, concession, or similar instrument; (d) that the process of lesividad is regulated by law in Guatemala, and it is based on the protection of the principles of legality, security and legal certainty. The declaration of lesividad is a mere procedural requirement, with no effects on the administered private party, and the process to give effect to the declaration meets all the guarantees of due process; (e) Contracts 143 and 158 suffered from serious legal defects that justified the declaration of lesividad, were not conferred pursuant to Guatemalan law, and did not create rights protected under Guatemalan law; (f) the President of the Republic, after receiving the request to declare the lesividad, and five legal opinions issued by independent entities confirming the legal defects in the contracts and recommending that the President declare them lesivos, could not ignore this situation without incurring in liability. The President’s only options were to proceed with the declaration or to negotiate a settlement agreement under the terms established by Guatemalan law. After making the decision to declare Contracts 143 and 158 lesivos in April 2006, the President could not revert this decision without incurring in personal liability unless a settlement agreement with Ferrovías guaranteeing the Republic’s best interests was reached, something that did not occur.