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Modernisation of the Energy Charter Treaty: A View from the Inside

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New Frontiers for EU Investment Policy (NFEIP 2022)

Part of the book series: European Yearbook of International Economic Law ((Spec. Issue))

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Abstract

The energy sector is subject to complex political risks, including regulatory ones, making foreign investors vulnerable in long-term energy projects. In response, the Energy Charter Treaty (ECT) was negotiated in 1994, becoming the first sector-specific multilateral treaty with investment provisions. However, the international energy and international investment regime have evolved significantly since then. Concerns have arisen over the legitimacy of investment arbitration and states’ regulatory flexibility, especially in light of growing awareness about threats of climate change and the environmental impact of the energy sector. To address some of these issues, the Energy Charter Conference embarked on an effort to reform the 1994 ECT, resulting in the Agreement in Principle (AIP) in June 2022. The AIP proposes amendments seeking a stronger climate focus and alignment with the goals of the Paris Agreement. It revises definitions, introduces detailed substantive protection standards, reinforces the right to regulate in the public interest, and pioneers the opt-in “Flexibility Mechanism” to gradually phase out investment protection for fossil fuels. Nevertheless, the AIP has faced criticism, prompting some Contracting Parties to announce their intention to withdraw or withdrawal from the ECT. This chapter explains the negotiation process and highlights the key achievements of the AIP. It further examines the most critical provisions with references to relevant arbitral jurisprudence and explores the potential outcomes of the proposed amendments.

The views expressed in this chapter are solely those of the authors.

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Notes

  1. 1.

    Energy Charter Treaty (adopted 17 December 1994, entered into force 16 April 1998). See also ECOWAS (Economic Community of West African States) Energy Protocol (adopted 31 January 2003, entered into force after the ninth instrument of ratification was deposited in accordance with Article 39) negotiated on the basis of the ECT.

  2. 2.

    See Article 19 ECT (Environmental Aspects), further supplemented by the Energy Charter Protocol on Energy Efficiency and Related Environmental Aspects (PEEREA; adopted 17 December 1994, entered into force 16 April 1998).

  3. 3.

    For more detailed statistics, see International Energy Charter (10 January 2023) Statistics. https://www.energychartertreaty.org/cases/statistics/.

  4. 4.

    At the time of writing, the ECT’s membership comprised 52 Contracting Parties, including the EU and the European Atomic Energy Community (EURATOM), as well as two signatories: see International Energy Charter (2023) Annual Report 2022. https://www.energycharter.org/fileadmin/DocumentsMedia/AR/IEC_Annual_Report_2022_WEB.pdf, pp. 4–5.

  5. 5.

    The United Nations Conference on Trade and Development (UNCTAD) regards the ECT as the most frequently invoked international investment agreement in arbitral proceedings in investment disputes: see UNCTAD (2022a), p. 74.

  6. 6.

    See Decision of the Energy Charter Conference (CCDEC 2018 15) Bucharest Energy Charter Declaration, 7 November 2018. https://www.energycharter.org/fileadmin/DocumentsMedia/CCDECS/2018/CCDEC201815_-_GEN_Bucharest_Energy_Charter_Declaration.pdf.

  7. 7.

    See Decision of the Energy Charter Conference (CCDEC 2022 10) Public Communication explaining the main changes contained in the agreement in principle, 24 June 2022. https://www.energycharter.org/fileadmin/DocumentsMedia/CCDECS/2022/CCDEC202210.pdf.

  8. 8.

    Paris Agreement to the United Nations Framework Convention on Climate Change (Paris Agreement; adopted 12 December 2015, entered into force 4 November 2016) UN Doc FCCC/CP/2015/L.9/Rev/1.

  9. 9.

    See International Energy Charter. Letter of the Secretary-General to the Parliament of the European Union. 13 February 2023. https://www.energycharter.org/fileadmin/DocumentsMedia/News/0047-SG-13022023-EP_President.pdf; Written notifications of withdrawal from the Energy Charter Treaty. 22 March 2023. https://www.energycharter.org/media/news/article/written-notifications-of-withdrawal-from-the-energy-charter-treaty/?tx_news_pi1%5Bcontroller%5D=News&tx_news_pi1%5Baction%5D=detail&cHash=da7935d6899f348360408dfaad518bc9, confirming the withdrawal of France, Germany and Poland; Written notification of withdrawal from the Energy Charter Treaty. 30 August 2023. https://www.energycharter.org/media/news/article/written-notification-of-withdrawal-from-the-energy-charter-treaty/?tx_news_pi1%5Bcontroller%5D=News&tx_news_pi1%5Baction%5D=detail&cHash=b0ed49a6364a7830b9a3185225716cec, confirming the withdrawal of Luzembourg.

  10. 10.

    The mandate of the United Nations Commission on International Trade Law (UNCITRAL) Working Group III (Investor-State Dispute Settlement Reform) is limited to the potential reform of investor-state dispute settlement, leaving aside the issues of substantive investment law: see United Nations General Assembly (Fiftieth session, 3– 21 July 2017) Report of the United Nations Commission on International Trade Law. Seventy-second session, Supplement No 17, UN Doc. A/72/17, para 264.

  11. 11.

    See, e.g. Article 2(1)(c) of the Paris Agreement (“This Agreement, in enhancing the implementation of the Convention, including its objective, aims to strengthen the global response to the threat of climate change, in the context of sustainable development and efforts to eradicate poverty, including by: [...] (c) Making finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development [emphasis added]”).

  12. 12.

    See, e.g. the Organisation for Economic Co-operation and Development (OECD) work programme on the Future of Investment Treaties https://www.oecd.org/investment/investment-policy/investment-treaties.htm. See also UNCTAD (2022b).

  13. 13.

    For the full list of subsidiary bodies of the Conference, see International Energy Charter (4 January 2021) Subsidiary Bodies of the Energy Charter Conference. https://www.energycharter.org/who-we-are/subsidiary-bodies/overview/.

  14. 14.

    See Decision of the Energy Charter Conference (CCDEC 2019 10) Modernisation of the Energy Charter Treaty: Mandate, Procedural Issues and Timeline for Negotiations, 6 November 2019. https://www.energycharter.org/fileadmin/DocumentsMedia/CCDECS/2019/CCDEC201910.pdf.

  15. 15.

    Ibid, point d.

  16. 16.

    Ibid, point e.

  17. 17.

    See Decision of the Energy Charter Conference (CCDEC 2018 18) Modernisation of the Energy Charter Treaty, 27 November 2018. https://www.energycharter.org/fileadmin/DocumentsMedia/CCDECS/2018/CCDEC201818_-_STR_Modernisation_of_the_Energy_Charter_Treaty.pdf.

  18. 18.

    The List of Topics included the following components related to investment dispute settlement: frivolous claims, transparency, security for costs, valuation of damages, and third-party funding: see Decision of the Energy Charter Conference (CCDEC 2019 10), supra n. 15.

  19. 19.

    Decision of the Energy Charter Conference (CCDEC 2017 23) Modernisation of the Energy Charter Treaty, 28 November 2017. https://www.energycharter.org/fileadmin/DocumentsMedia/CCDECS/2017/CCDEC201723.pdf, para 3 (“[...] any discussion on updating, clarifying or modernising the ECT should take into consideration all the provisions of the ECT and not only the investment protection standards”).

  20. 20.

    See Decision of the Energy Charter Conference (CCDEC 2019 08) Policy Options for Modernisation of the ECT, 6 October 2019. https://www.energycharter.org/fileadmin/DocumentsMedia/CCDECS/2019/CCDEC201908.pdf.

  21. 21.

    See infra n. 27. From the perspective of EU law, the ECT is a “mixed” agreement whose Contracting Parties are both the EU and its Member States. The 1994 ECT was negotiated and signed by the European Communities, comprised of the European Economic Community (later replaced by the EU), European Coal and Steel Community (ceased to exist in 2002) and EURATOM, on behalf of their Member States. The EURATOM has remained an independent entity but is represented in the Energy Charter process by the EU. Following Italy’s withdrawal from the ECT in 2015, 26 EU Member States were Contracting Parties to the ECT at the time of writing. The EU as a REIO in the meaning of Article 1(3) ECT represents all EU Member States-Contracting Parties to the ECT in the Energy Charter process and exercises voting rights in accordance with Article 36 ECT—both subject to their internal coordination. See also infra Sect. 5.

  22. 22.

    Decision of the Energy Charter Conference (CCDEC 2020 16) Report of the Modernisation Group on Progress Made in Fulfilling the Negotiations Mandate, 16 December 2020, para 5. https://www.energycharter.org/fileadmin/DocumentsMedia/CCDECS/2020/CCDEC202016.pdf. For initial provisional schedule of negotiation rounds in 2020, see Decision of the Energy Charter Conference (CCDEC 2019 10), supra n. 15.

  23. 23.

    See point m of Decision of the Energy Charter Conference (CCDEC 2019 10), supra n. 15 (“Negotiation drafts, as well as comments and messages sent by delegates will be considered as restricted. After approval by consensus, a short summary on negotiations round will be made public without identifying the Delegations which made interventions”).

  24. 24.

    For a compilation of public communications, see International Energy Charter, ‘Modernisation of the Treaty’. https://www.energychartertreaty.org/modernisation-of-the-treaty/.

  25. 25.

    See Decision of the Energy Charter Conference (CCDEC 2020 16) supra n. 23 and Decision of the Energy Charter Conference (CCDEC 2021 21) Progress Report of the Modernisation Group 2021,14 December 2021. https://www.energycharter.org/fileadmin/DocumentsMedia/CCDECS/2021/CCDEC202121.pdf.

  26. 26.

    See European Union, ‘European Union text proposal for the modernisation of the Energy Charter Treaty’. https://trade.ec.europa.eu/doclib/docs/2020/may/tradoc_158754.pdf and https://energy.ec.europa.eu/system/files/2021-02/eu_submission_-_revised_definition_of_economic_activity_in_the_energy_sector_0.pdf.

  27. 27.

    See Decision of the Energy Charter Conference (CCDEC 2022 10), supra n. 8.

  28. 28.

    The document was initially made available to subscribers of Politico Pro (https://www.politicopro.com/) on 12 September 2022. At the time of writing, the document was available at https://www.bilaterals.org/IMG/pdf/reformed_ect_text.pdf.

  29. 29.

    See Decision of the Energy Charter Conference (CCDEC 2019 10), supra n. 15, point e.

  30. 30.

    See Article 42(2) ECT (“The text of any proposed amendment to this Treaty shall be communicated to the Contracting Parties by the Secretariat at least three months before the date on which it is proposed for adoption by the Charter Conference”).

  31. 31.

    See Article 1(6) ECT (“[…] ‘Investment’ refers to any investment associated with an Economic Activity in the Energy Sector and to investments or classes of investments designated by a Contracting Party in its Area as ‘Charter efficiency projects’ and so notified to the Secretariat [emphasis added]”).

  32. 32.

    See, e.g. Limited Liability Company Amto v. Ukraine, SCC Case No. 080/2005, Final Award, 26 March 2008, para 42 (“[…] the interpretation of the words ‘associated with’ involves a question of degree, and refers primarily to the factual rather than legal association between the alleged investment and an Economic Activity in the Energy Sector [...] The associated activity of any alleged investment must be energy related, without itself needing to satisfy the definition in Article 1(5) of an Economic Activity in the Energy Sector”); see also Thomas W. Waelde, ‘International Investment under the 1994 Energy Charter Treaty – Legal, Negotiating, and Policy Implications for International Investors within Western and Commonwealth of Independent States/Eastern European Countries’ Journal of World Trade (Volume 29 No 5) 26–27 for discussion on the requirement of “associated with Economic Activity in the Energy Sector”.

  33. 33.

    It is worth noting that Article 1(5) ECT does not cover maritime transportation of Energy Materials and Products.

  34. 34.

    See Article 1(5) (“‘Economic Activity in the Energy Sector’ means an economic activity concerning the exploration, extraction, refining, production, storage, land transport, transmission, distribution, trade, marketing, or sale of Energy Materials and Products except those included in Annex NI, or concerning the distribution of heat to multiple premises”). See also Understanding 2 to the Final Act of the European Energy Charter Conference with respect to Article 1(5), which includes the list of activities that are illustrative of an “Economic Activity in the Energy Sector”.

  35. 35.

    See Article 1(4) ECT (“‘Energy Materials and Products’, based on the Harmonised System of the World Customs Organization and the Combined Nomenclature of the European Communities, means the items included in Annexes EM I or EM II”) as amended by Article 2 of the Amendment to the Trade-Related Provisions 1998.

  36. 36.

    See Bamberger (1996), p. 2, referring to the Chair of the Legal Advisory Committee of the Energy Charter Conference in negotiations of the 1994 ECT, who describes the Treaty as “not as ‘user-friendly’ as might be wished”.

  37. 37.

    See, e.g. Electrabel v. Hungary, ICSID Case No. ARB/07/19, Decision on Jurisdiction, Applicable Law and Liability, 30 November 2012, para 5.50 (“[…] in accordance with the definition contained in Article 1(5) ECT and the provisions of Annex EM paragraph 27.16 ECT and Annex NI ECT, the activities of ‘production’ and ‘sale’ of ‘electrical energy’ as ‘energy materials’ also constitute an ‘economic activity in the energy sector’ […]”).

  38. 38.

    See, e.g. supra n. 7.

  39. 39.

    See Article 3(1) UNFCCC (“The Parties should protect the climate system for the benefit of present and future generations of humankind, on the basis of equity and in accordance with their common but differentiated responsibilities and respective capabilities. Accordingly, the developed country Parties should take the lead in combating climate change and the adverse effects thereof”) and Article 4(1) UNFCCC (“All Parties, taking into account their common but differentiated responsibilities and their specific national and regional development priorities, objectives and circumstances, shall […]”). See also Article 2(2) Paris Agreement (“This Agreement will be implemented to reflect equity and the principle of common but differentiated responsibilities and respective capabilities, in the light of different national circumstances”), Article 4(3) Paris Agreement (“Each Party’s successive nationally determined contribution will represent a progression beyond the Party’s then current nationally determined contribution and reflect its highest possible ambition, reflecting its common but differentiated responsibilities and respective capabilities, in the light of different national circumstances”), and Article 4(19) Paris Agreement (“All Parties should strive to formulate and communicate long-term low greenhouse gas emission development strategies, mindful of Article 2 taking into account their common but differentiated responsibilities and respective capabilities, in the light of different national circumstances”).

  40. 40.

    In multilateral negotiations, the lack of consensus on certain issues has resulted in specific drafting techniques, leaving a choice for states to decide to commit to particular obligations. The use of lists in free trade agreements is one of the examples. Such lists may take the form of a “positive list” (a state party undertakes full or partial commitments with respect to sectors specifically listed) or a “negative list” (an agreement covers all sectors unless a state party specifies a reservation related to a certain (sub-)sector).

  41. 41.

    See Article 1(5) ECT (“‘Economic Activity in the Energy Sector’ means an economic activity concerning the exploration, extraction, refining, production, storage, land transport, transmission, distribution, trade, marketing, or sale of Energy Materials and Products except those included in Annex NI, or concerning the distribution of heat to multiple premises [emphasis added]”).

  42. 42.

    Current Annexes ID and IA enable individual Contracting Parties to decide to introduce limitations on their consent to international arbitration or conciliation under Article 26 ECT.

  43. 43.

    See Annex NI AIP, supra n. 9.

  44. 44.

    See Article 36(1) ECT (“Unanimity of the Contracting Parties Present and Voting at the meeting of the Charter Conference where such matters fall to be decided shall be required for decisions by the Charter Conference […]”).

  45. 45.

    See Article 1(6) AIP, supra n. 29 (“‘Investment’ means every kind of asset, owned or controlled directly or indirectly by an Investor of a Contracting Party in the Area of another Contracting Party (‘host Contracting Party’) that is made or acquired in accordance with the applicable laws in the latter and that have the characteristics of an investment, such as the commitment of capital or other resources, the expectation of gain or profit, a certain duration or the assumption of risk”). See also Article 8.1 Canada-European Union Comprehensive Economic and Trade Agreement (CETA; adopted 30 November 2016, not yet in force) (“investment means every kind of asset that an investor owns or controls, directly or indirectly, that has the characteristics of an investment, which includes a certain duration and other characteristics such as the commitment of capital or other resources, the expectation of gain or profit, or the assumption of risk”); Article 1.2(1) EU–Singapore Investment Protection Agreement (EU–Singapore IPA; adopted 19 October 2018, not yet in force); and Article 1.2(h) EU–Viet Nam Investment Protection Agreement (EU–Viet Nam IPA; adopted 30 June 2019, not yet in force).

  46. 46.

    See, e.g. State Enterprise Energorynok v. Moldova, SCC Case No. 2012/175, Final Award, 29 June 2015, paras 62–70, where claimant argued that a succeeded debt claim was a “claim to money” in accordance with Article 1(6)(c) ECT and, by virtue of a Ukrainian court’s decision in favour of the claimant, also a “right conferred by law” under Article 1(6)(f) ECT; and Petrobart Limited v.Kyrgyz Republic, SCC Case No. 126/2003, Arbitral Award, 29 March 2005, p. 68, where the claimant argued that its investment was comprised of a supply contract, claim to money for non-payment under the contract, and the judgment of a Kyrgyz court in the claimant’s favour in connection with such non-payment.

  47. 47.

    See Komstroy (formerly Energoalians) v. Moldova, UNCITRAL, Arbitral Award, 23 October 2013, paras 69–74 for the factual background of the case; see also paras 193–262 for the tribunal’s analysis of the contract at issue; see also Article 1(6)(c) ECT (“claims to money and claims to performance pursuant to contract having an economic value and associated with an Investment [emphasis added]”).

  48. 48.

    See ibid, para 251.

  49. 49.

    See ibid, paras 268–272.

  50. 50.

    Paris Court of Appeal, No 13/22531, Judgment, 12 April 2016.

  51. 51.

    Court of Cassation of France, No 16-16568, Judgment, 28 March 2018.

  52. 52.

    See CJEU, Case C-741/19. Judgment of the Court (Grand Chamber), 2 September 2021, paras 73–76.

  53. 53.

    Ibid, para 77.

  54. 54.

    Paris Court of Appeal, No 18/14721, Judgment, 10 January 2023.

  55. 55.

    See Annex 8-B CETA, Annex 4 EU–Singapore IPA, and Annex 5 EU–Viet Nam IPA.

  56. 56.

    See Article 26(12) (“A claim with respect to the restructuring of debt issued by a Contracting Party may only be submitted under Article 26(4) in accordance with Annex PD”) and Annex PD (Public Debt) AIP, supra n. 28.

  57. 57.

    See, e.g. Abaclat and others v. Argentina, ICSID Case No. ARB/07/5, where the claimants argued that their interests in Argentine sovereign bonds purchased in the secondary market qualified as an investment under the 1990 Argentina–Italy bilateral investment treaty (BIT). See also Poštová banka, a.s. and ISTROKAPITAL SE v. Greece, ICSID Case No. ARB/13/8, where the claimants argued that their interests in Greek sovereign bonds purchased in the secondary market qualified as an investment under 1992 Cyprus–Greece BIT and 1991 Slovakia–Greece BIT.

  58. 58.

    See Article 1(7)(i) AIP, supra n. 29 (“[…] a natural person having the nationality of or who is a permanent resident of a Contracting Party in accordance with its applicable law, provided that such person does not have the nationality or is not a permanent resident of the host Contracting Party at the time the investment was made or acquired”).

  59. 59.

    However, in case of dispute resolution under the Convention on the Settlement of Investment Disputes between States and Nationals of other States (ICSID Convention) pursuant to Article 26(4)(a)(i) ECT, Article 25(2)(b) ICSID Convention prohibits individuals to bring claims against the state of their nationality (“[...] ‘National of another Contracting State’ means: [...] but does not include any person who on either date also had the nationality of the Contracting State party to the dispute”).

  60. 60.

    See Cem Cengiz Uzan v. Turkey, SCC Case No. V 2014/023, Award on Respondent's Bifurcated Preliminary Objections, 20 April 2016, paras 79–86.

  61. 61.

    See ibid, paras 147–153.

  62. 62.

    See ibid.

  63. 63.

    See ibid, para 148.

  64. 64.

    See Svea Court of Appeal, Case No T 6582-16, Judgment, 26 February 2018.

  65. 65.

    See supra n. 64, p. 26 (“[…] it is highly doubtful that such an investor – in relation to the state of their citizenship – can at the same time be considered as an investor from another contracting state because he or she resides there [unofficial translation]”).

  66. 66.

    See, e.g. Isolux Netherlands B.V. v. Spain, SCC Case V2013/153, Final Award, 17 July 2016, para 711 (“[...] the Arbitral Tribunal does not doubt that the denial of benefits of Article 17 of the ECT raises a question of admissibility [unofficial translation]”); and Khan Resources Inc., Khan Resources B.V., and Cauc Holding Company Ltd. v. Mongolia (Khan v. Mongolia), UNCITRAL, Decision on Jurisdiction, 25 July 2012, para 411 (“The question of the application of Article 17 is therefore one for the merits not jurisdiction”).

  67. 67.

    See Article 1(7)(ii) AIP (“The existence of substantial business activities should be established by an overall examination, on a case-by-case basis, of the relevant circumstances, which may include w whether the enterprise (a) has a physical presence in the Area of that Contracting Party; (b) employs staff in the Area of that Contracting Party; (c) generates turnover in the Area of that Contracting Party; or (d) pays taxes in the Area of that Contracting Party”). It is worth noting that international investment agreements, including newer generation, do not normally provide any guidance on what constitutes “substantial business activities”. Arbitral jurisprudence in investment disputes under the ECT does not provide any uniform list of elements indicative of “substantial business activities” either. However, in often cited Limited Liability Company Amto v. Ukraine, SCC Case No. 080/2005, Final Award, 26 March 2008, para 56, the tribunal observed that “‘substantial’ in this context means ‘of substance, and not merely of form’. It does not mean ‘large’, and the materiality not the magnitude of the business activity is the decisive question”. The tribunal concluded that the claimant maintained “substantial business activities” in its country of incorporation, Latvia, by conducting various investment-related activities concerning its shareholdings in foreign companies, paying taxes, using a bank account, having its office, and employing permanent staff in Latvia (paras 68–69). In contrast, the claimants in Littop Enterprises Limited, Bridgemont Ventures Limited and Bordo Management Limited v. Ukraine, SCC Case No. V 2015/092, Final Award, 4 February 2021, did not show evidence of any investment-related activities conducted in their country of incorporation, Cyprus, apart from holding shares in a Ukrainian company (paras 615–638). At the time of writing, the authors were not aware of any other arbitral proceeding in an investment dispute under the ECT where the claimant was found to have no “substantial business activities” in the country of their nationality.

  68. 68.

    See, e.g. AES Summit Generation Limited and AES-Tisza Erömü Kft v. Hungary, ICSID Case No. ARB/07/22, Award, 23 September 2010, para 13.3.2 (“[…] a state’s obligation to take reasonable steps to protect its investors (or to enable its investors to protect themselves) against harassment by third parties and/or state actors […]”) and Liman Caspian Oil B.V. and NCL Dutch Investment B.V. v. Kazakhstan, ICSID Case No. ARB/07/14, Excerpts of Award, 22 June 2010, para 289 (“[…] to protect the integrity of an investment against interference by the use of force and particularly physical damage”).

  69. 69.

    See, e.g. Mohammad Ammar Al-Bahloul v. Tajikistan, SCC Case No. V (064/2008), Partial Award on Jurisdiction and Liability, 2 September 2009, para 246 (“[…] while the concept of protection and security in investment treaties has developed principally in the context of physical security, some tribunals have applied it more broadly to encompass legal security as well. Therefore, it could arguably cover a situation in which there has been a demonstrated miscarriage of justice”).

  70. 70.

    See Article 10(3) AIP, supra n.29, (“The obligation to accord ‘Full Protection and Security’ refers to the physical security of Investors and Investments”). See also UNCTAD (2022c), p. 23, suggesting that “a definition of the standard could be included to clarify that the provision is limited to ‘physical’ or ‘police’ security. In the absence of such a clarification, arbitral tribunals are free to adopt a limited or expansive approach, leading to uncertainty for States and investors”.

  71. 71.

    See Article 14 AIP, supra n. 29.

  72. 72.

    See UNCTAD (2018a), p. 100, suggesting that “an unqualified transfer-of-funds provision significantly reduces a host country’s ability to deal with sudden and massive outflows or inflows of capital, balance-of-payments (BoP) difficulties and other macroeconomic problems” and that “[c]ountries may also need to reserve their right to restrict transfers if this is required for the enforcement of the [p]arty’s laws (e.g. to prevent fraud on creditors etc.)”.

  73. 73.

    See, e.g, Articles 8.4 and 15.8 EU–Republic of Korea Free Trade Agreement (adopted 15 October 2009, entered into force 13 December 2015) and Articles 9.3 and 9.4 of EU–Japan Economic Partnership Agreement (adopted 17 July 2018, entered into force 1 February 2019); see also CJEU, Case C-205/06, Judgment of the Court (Grand Chamber), 3 March 2009 and CJEU, Case C-249/06, Judgment of the Court (Grand Chamber), 3 March 2009 finding that EU Member States were under obligation to take appropriate steps to eliminate incompatibilities of freedom-of-transfers clauses in their international agreements with EU law.

  74. 74.

    See Statistics, supra n. 3.

  75. 75.

    Ibid.

  76. 76.

    See, e.g. AES Solar and others (PV Investors) v. Spain, PCA Case No. 2012-14, Final Award, 28 February 2020, para 565 (“[…] the Tribunal likewise considers that FET encompasses […] the protection against arbitrary, unreasonable, and disproportionate conduct”); Mohammad Ammar Al-Bahloul v. Tajikistan, SCC Case No. V (064/2008), Partial Award on Jurisdiction and Liability, 2 September 2009, para 221 (“It is recognized in literature and jurisprudence that the duty to provide due process is part of the obligation to provide fair and equitable treatment”); Limited Liability Company Amto v. Ukraine, SCC Case No. 080/2005, Final Award, 26 March 2008, para 75 (“Denial of justice is a concept of state responsibility afflicted by imprecision. It is a manifestation of a breach of the obligation of a State to provide fair and equitable treatment and the minimum standard of treatment required by international law”); Infracapital F1 S.à r.l. and Infracapital Solar B.V. v. Spain, ICSID Case No. ARB/16/18, Decision on Jurisdiction, Liability and Directions on Quantum, 13 September 2021, para 658 (“[…] the principle of non-discrimination referenced in the third sentence is part of the requirement of equality of treatment in the sense that it allows the possibility of different treatment but only on reasonable and justifiable ground […] the impairment clause of the third sentence forms part of the FET obligation”); Anatolie Stati, Gabriel Stati, Ascom Group SA and Terra Raf Trans Traiding Ltd. v. Kazakhstan (Stati v. Kazakhstan), SCC Case No. V 116/2010, Award, 19 December 2013, para 1095 (“[…] Respondent’s measures […] constituted a string of measures of coordinated harassment by various institutions of Respondent. These measures must be considered as a breach of the obligation to treat investors fairly and equitably”).

  77. 77.

    See, e.g. Electrabel S.A. v. Hungary, supra n. 38, para 7.74 (“[…] the obligation to provide fair and equitable treatment comprises several elements, including an obligation […] to refrain […] from frustrating the investor’s reasonable expectations with respect to the legal framework adversely affecting its investment”) and 9REN Holding S.a.r.l v. Spain, ICSID Case No. ARB/15/15, Award, 31 May 2019, para 308 (“[I]n addition to deciding that its legitimate expectations have been frustrated by the host State, a claimant must also prove a breach of the FET standard. The former does not necessarily lead to the latter. ‘Legitimate expectations’ based upon a specific representation are only ‘a relevant factor’ in assessing whether or not the Respondent violated the FET standard in Article 10(1) of the ECT”).

  78. 78.

    See, e.g. Masdar Solar & Wind Cooperatief U.A. v. Spain, ICSID Case No. ARB/14/1, Award, 16 May 2018, Award, paras 489–510 for a discussion on the two “schools of thought” on the sources of investors’ legitimate expectations.

  79. 79.

    European Energy Charter (adopted 17 December 1991) Title II “Implementation”, 4. Promotion and protection of investments.

  80. 80.

    See Wälde (1996), pp. 277–284 and Wälde and Hamida (2008), pp. 174–190 for a discussion on the nature of obligation under Article 10(1) ECT, first sentence. However, some arbitral tribunals concluded that the obligation of Article 10(1), first sentence is connected to or forms part of the FET clause of the second sentence, or that the standard of FET under the ECT includes the conditions listed in Article 10(1), first sentence: see, e.g. Electrabel v. Hungary, supra n. 38, para 7.73 (“The first part of Article 10(1) ECT refers to the encouragement and creation of ‘stable, equitable, favourable and transparent conditions for investors’, which is said to include a commitment to accord at all times fair and equitable treatment to investments. Fair and equitable treatment is connected in the ECT to the encouragement to provide stable, equitable, favorable and transparent conditions for investors”).

  81. 81.

    See, e.g. Infrastructure Services Luxembourg S.à.r.l. and Energia Termosolar B.V. (formerly Antin Infrastructure Services Luxembourg S.à.r.l. and Antin Energia Termosolar B.V.) v. Spain, ICSID Case No. ARB/13/31, Award, 15 June 2018, para 526 (“[…] the stability of the conditions for Investors of other Contracting Parties to make Investments in another Contracting Party’s Area is a leitmotiv in the text of the ECT and is clearly reinforced in the Charter”) and para 532 (“[…] the obligation under Article 10(1) of the ECT to provide FET to protected investments comprises an obligation to afford fundamental stability in the essential characteristics of the legal regime relied upon by the investors in making long-term investments”).

  82. 82.

    See Decision of the Energy Charter Conference (CCDEC 2019 08), supra n. 21. See also UNCTAD (2022d), p. 16, suggesting “[c]larifying the content of investment protection standards with regard to climate action”, “[c]arving-out climate action measures from investment standards and/or ISDS”, and “[c]onsidering limiting the scope of FET or excluding it altogether, while detailing specific types of conduct against which sustainable investors and investments are protected”.

  83. 83.

    See Decision of the Energy Charter Conference (CCDEC 2019 08), supra n. 21.

  84. 84.

    See Article 10(1) AIP, supra n. 29 (“Each Contracting Party shall accord to Investments of Investors of other Contracting Parties, and to such Investors with respect to their Investments, Fair and Equitable Treatment and Full Protection and Security in its Area”).

  85. 85.

    See, e.g. Article 8.10(2) CETA, Article 2.4(2) EU–Singapore IPA, and Article 2.5(2) EU–Viet Nam IPA.

  86. 86.

    See Article 10(2) AIP, supra n. 29.

  87. 87.

    See Article 10(2)(vi) AIP, supra n. 29 (“[…] where these were central to its Investment [emphasis added]”).

  88. 88.

    ibid (“[…] upon which the Investor reasonably relied in deciding to make or maintain the Investment [emphasis added]”).

  89. 89.

    ibid (“[…] arose from a clear and specific representation or commitment [emphasis added]”). See also Article 10(3)(vi), fn. 3 AIP, supra n. 29 (“For the purpose of this Article, the determination of whether there is a clear and specific representation or commitment requires a case-by-case, fact-based inquiry that considers, among other factors, laws and regulations and the Contracting Party's relevant publicly known policies and their objectives”). The reference to “publicly known polices” is deemed to balance investors’ expectations against relevant political developments, including the Contracting Parties’ energy and climate policies.

  90. 90.

    See Article 10(2)(vi), fn. 2 AIP, supra n. 29 (“For greater certainty, an Investor’s legitimate expectations do not include general expectations, such as an expectation (in the absence of clear and specific representations or commitments to that effect) that a Contracting Party’s legal or regulatory framework will not change”).

  91. 91.

    See, e.g. Greentech Energy Systems A/S, NovEnergia II Energy & Environment (SCA) SICAR, and NovEnergia II Italian Portfolio S.A. v. Italy, SCC Case No. V 2015/095, Final Award, 23 December 2018, para 464 (“[…] the Tribunal majority is inclined to interpret ‘obligations’ referred to in the ECT’s umbrella clause as sufficiently broad to encompass not only contractual duties but also certain legislative and regulatory instruments that are specific enough to qualify as commitments to identifiable investments or investors”) and Stadtwerke München GmbH, RWE Innogy GmbH and others v. Spain, ICSID Case No. ARB/15/1, Award, 2 December 2019, para 380 (“[…] the ECT negotiators intended the umbrella clause to cover only contractual obligations or contractual-like arrangements, that is to say obligations assumed specifically in respect of a particular individual or legal person”).

  92. 92.

    See Wälde (2006), pp. 214–219, on the “original intentions” of the drafters; see also UNCTAD (2018b), p. 45 (“[…] States can clarify that the clause covers only ‘written obligations’ and that the obligations must be ‘entered into’ with respect to specific investments. They can also indicate that the umbrella clause applies only to conduct that constitutes an exercise of sovereign powers by a government, i.e. not an ordinary breach of contract by the State”).

  93. 93.

    See Statistics, supra n. 3.

  94. 94.

    Ibid.

  95. 95.

    Hulley Enterprises Limited (Cyprus) v. Russian Federation, PCA Case No. AA 226; Yukos Universal Limited (Isle of Man) v. Russian Federation, PCA Case No. AA 227; Veteran Petroleum Limited (Cyprus) v. Russian Federation, PCA Case No. AA 228; Yukos Capital S.à.r.l v. Russian Federation, PCA Case No. 2013-31; Luxtona Limited v. Russian Federation, PCA Case No. 2014-09. For the Energy Charter Secretariat’s database of arbitral proceedings in investment disputes under the ECT, see International Energy Charter, List of Cases. https://www.energychartertreaty.org/cases/list-of-cases/. Accessed 11 March 2023.

  96. 96.

    See Rockhopper Italia S.p.A., Rockhopper Mediterranean Ltd., and Rockhopper Exploration Plc v. Italy, ICSID Case No. ARB/17/14, Final Award, 23 August 2022.

  97. 97.

    See, e.g. Petrobart Limited v. Kyrgyz Republic, supra n. 47, p. 77 (“[…] this provision gives protection not only in respect of expropriation but also in regard to measures having effect equivalent to expropriation. Such measures are sometimes referred to as ‘indirect’, ‘creeping’ or ‘de facto’ expropriation and are frequently assimilated to formal expropriation as regards their legal consequences [references omitted]”) and Electrabel S.A. v. Hungary, supra n. 38, para 6.62 (“[…] the requirement under international law for the investor to establish the substantial, radical, severe, devastating or fundamental deprivation of its rights or the virtual annihilation, effective neutralisation or factual destruction of its investment, its value or enjoyment”).

  98. 98.

    See Article 13(3) AIP, supra n. 29.

  99. 99.

    See, e.g. Annex 8-A (Expropriation) CETA, para 3. Similar clarifications are contained in Annex 4 (Understanding on Expropriation) EU–Viet Nam IPA and Annex 1 (Expropriation) EU–Singapore IPA. See also UNCTAD (2018b), p. 39, suggesting public policy exceptions to allow states to regulate in public interest with greater legal certainty and reduced exposure to investment claims and particularly noting the 1994 ECT (“[…] the relationship between an exceptions clause and each IIA obligation needs to be considered carefully. The Energy Charter Treaty’s Article 24 on ‘Exceptions’ for example, does not apply to the article on expropriation”).

  100. 100.

    See Article 13(4) AIP, supra n. 28. (“Except in rare circumstances when the impact of a measure or series of measures is so severe in light of its purpose that it is manifestly excessive, non-discriminatory measures by a Contracting Party that are designed and applied to protect legitimate policy objectives, such as public health, safety and the environment (including with respect to climate change mitigation and adaptation), do not constitute indirect expropriations [emphasis added]”). In this connection, see, e.g. UNCTAD (2022d), p. 16, suggesting “[c]larifying the content of investment protection standards with regard to climate action” and “[c]arving-out climate action measures from investment standards and/or ISDS”.

  101. 101.

    See, e.g. Plama Consortium Limited v. Bulgaria (Plama v. Bulgaria), ICSID Case No. ARB/03/24, Decision on Jurisdiction, 8 February 2005, para 157 (“By itself, Article 17(1) ECT is at best only half a notice; without further reasonable notice of its exercise by the host state, its terms tell the investor little; and for all practical purposes, something more is needed”) and Khan v. Mongolia, supra n. 68, para 420 (“If Article 17(1) were to provide for an automatic denial of benefits, it would effectively create an exception to this broad definition. Such exception would more logically be found within the definition at Article 1(7) itself”). See also Plama v. Bulgaria, para 150, on how the right to deny benefits may be excercised (“[…] a general declaration in a Contracting State’s official gazette could suffice; or a statutory provision in a Contracting State’s investment or other laws; or even an exchange of letters with a particular investor or class of investors”). For Ukraine’s notification on the denial of benefits under Article 17(2) of the ECT, see International Energy Charter, ‘Ukraine denies advantages under Article 17(2) of the ECT’ (19 August 2022). https://www.energycharter.org/media/news/article/ukraine-denies-advantages-under-article-172-of-the-ect/?tx_news_pi1%5Bcontroller%5D=News&tx_news_pi1%5Baction%5D=detail&cHash=f522138c347edda150bdaca599ba25f4.

  102. 102.

    See, e.g. Stati v. Kazakhstan, supra n. 78, para 745 (“Art. 17 ECT would only apply if a state invoked that provision to deny benefits to an investor before a dispute arose”). Other tribunals suggested that the right to deny advantages under Article 17 may need to be exercised before the making of investments by the subject investor—see, e.g. Luxtona Limited v. Russian Federation, PCA Case No. 2014-09, Interim Award on Respondent’s Objections to the Jurisdiction of the Tribunal, 22 March 2017, para 282 (“[…] the Tribunal decides that the invocation of Article 17(1) does not reach back in time to deprive existing Investments of the protections of Part III of the ECT”).

  103. 103.

    See, e.g. Jagusch and Sinclair (2008), pp. 35–42 and Baltag (2012), pp. 154–159 for a discussion on the requirement of prior notification.

  104. 104.

    See, e.g. Jagusch and Sinclair (2008). See also UNCTAD (2015), p. 94 (“To ensure the effectiveness of the denial-of-benefits clause in light of the contradictory arbitral practice, it may be useful to clarify that the clause can be invoked also after the commencement of arbitral proceedings”).

  105. 105.

    Littop Enterprises Limited, Bridgemont Ventures Limited and Bordo Management Limited v. Ukraine, SCC Case No. V 2015/092, Final Award, 4 February 2021, para 601. See also NextEra Energy Global Holdings B.V. and NextEra Energy Spain Holdings B.V. v. Spain, ICSID Case No. ARB/14/11, Decision on Jurisdiction, Liability and Quantum Principles, 12 March 2019, paras 264–269, where the tribunal determined that the respondent for the first time invoked the denial of benefits in its memorial on jurisdiction in the arbitral proceeding, having been aware for several years about the investors’ corporate structure.

  106. 106.

    See Article 17(1) AIP, supra n. 29.

  107. 107.

    See Article 10(8)(i) AIP, supra n. 29.

  108. 108.

    See Emilio Agustín Maffezini v. Spain, ICSID Case No. ARB/97/7, Decision of the Tribunal on Objections to Jurisdiction, 25 January 2000, finding that the MFN clause of 1991 Argentina Spain BIT allowed importing more favourable dispute resolution provisions of another agreement. See also Técnicas Medioambientales Tecmed, S.A. v. Mexico, ICSID Case No. ARB (AF)/00/2, Award, 29 May 2003; Siemens A.G. v. Argentina, ICSID Case No. ARB/02/8, Decision on Jurisdiction, 3 August 2004; Camuzzi International S.A. v. Argentina, ICSID Case No. ARB/03/2, Decision on Objections to Jurisdiction, 11 May 2005; Gas Natural SDG, S.A. v. Argentina, ICSID Case No. ARB/03/10, Decision of the Tribunal on Preliminary Questions on Jurisdiction, 17 June 2005; and Suez, Sociedad General de Aguas de Barcelona, S.A. and Vivendi Universal, S.A. v. Argentina, ICSID Case No. ARB/03/19, Decision on Jurisdiction, 3 August 2006. While the authors are not aware of any arbitral decision interpreting the MFN provision of Article 10(7) ECT vis-à-vis dispute resolution provisions of other treaties, the issue of operation of another MFN clause was considered in Plama v. Bulgaria, supra n. 103. In this case, the claimant sought to overcome Bulgaria‘s invocation of the denial-of-benefits clause under Article 17 ECT by invoking 1987 Cyprus–Bulgaria BIT, albeit lacking ICSID arbitration among the dispute resolution avenues offered. By way of operation of the MFN clause in Cyprus–Bulgaria BIT, Plama pursued to establish Bulgaria’s consent to ICSID arbitration found in 1997 Bulgaria–Finland BIT. Nevertheless, the tribunal concluded that an MFN clause in a basic agreement could not be read as covering dispute resolution provisions of other treaties in the absence of evidence to the opposite.

  109. 109.

    See, e.g. Article 8.7(4) CETA and Article 2.4(5) EU–Viet Nam IPA. See also UNCTAD (2020), p. 19, observing that “[t]he MFN clause can potentially have the effect of rolling back substantive treaty reform. A number of arbitral decisions have read the MFN obligation as allowing investors to invoke more investor-friendly provisions from third treaties [...] States may wish to exclude this possibility by clarifying what constitutes “treatment” for the purposes of the MFN clause”.

  110. 110.

    See Article 10(8)(ii) AIP, supra n. 29.

  111. 111.

    See, e.g. Article 8.9 CETA or Article 9.16 Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP; adopted 8 March 2018, entered into force 30 December 2018).

  112. 112.

    Previously, tribunals in arbitral proceedings in investment disputes under the ECT confirmed the Contracting Parties’ right to regulate: see, e.g. Antaris Solar GmbH and Dr. Michael Göde v. Czech Republic, PCA Case No. 2014-01, Award, 2 May 2018, para 360 (“The requirements of legitimate expectations and legal stability as manifestations of the FET standard do not affect the State’s rights to exercise its sovereign authority to legislate and to adapt its legal system to changing circumstances”). However, the tribunals observed that the degree of the Contracting Parties’ regulatory flexibility may be limited by their obligations under the ECT: see, e.g. Foresight Luxembourg Solar 1 S.à.r.l. and others v. Spain, SCC Case No. 2015/150, Final Award, para 364 (“[…] the right to regulate must be subject to limitations if investor protections are not to be rendered meaningless”).

  113. 113.

    See New Article “Right to Regulate” AIP, supra n.29. See also UNCTAD (2022d), p. 16, suggesting “[c]larifying the content of investment protection standards with regard to climate action”, “[c]arving-out climate action measures from investment standards and/or ISDS,” and “[r]eferencing commitment to combat climate change and undertake climate action” in treaties’ preambles.

  114. 114.

    See Articles XX and XXI General Agreement on Tariffs and Trade (GATT; signed 30 October 1947, entered into force 1 January 1948).

  115. 115.

    See Article 24(1)(b), fn.10 AIP, supra n. 29 (“paragraph (i)(b) includes environmental measures (including climate change mitigation and adaptation measures) necessary to protect human, animal or plant life or health”). See UNCTAD (2022d), p. 16, suggesting “[i]ncluding general climate action exceptions”.

  116. 116.

    See Article 24bis(1) AIP, supra n. 29 (“Nothing in this Treaty shall be construed to prevent any Contracting Party from taking any measure in pursuance of maintenance of international peace and security, or to require a Contracting Party to furnish any information, the disclosure of which it considers contrary to its essential security interests”).

  117. 117.

    For an overview of the ICSID 2022 Rules and Regulations and relevant resources, see ICSID, ‘ICSID 2022 Rules and Regulations: Resources’. https://icsid.worldbank.org/rules-regulations/2022-rules-and-regulations/resources.

  118. 118.

    See Article 26(6) AIP, supra n. 29. See also UNCITRAL, UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration (2014). https://uncitral.un.org/sites/uncitral.un.org/files/media-documents/uncitral/en/rules-on-transparency-e.pdf.

  119. 119.

    See New Article “Frivolous Claims” (1) AIP, supra n. 29.

  120. 120.

    See, e.g. Article 27(2) Argentina–Japan BIT (adopted 1 December 2018, not yet in force), Article 9.23(4) CPTPP, and Article 8.33 CETA.

  121. 121.

    See New Article “Frivolous Claims” (2) AIP, supra n. 29.

  122. 122.

    See ibid, (1).

  123. 123.

    See New Article “Security for Costs” AIP, supra n. 29.

  124. 124.

    See New Article “Third Party Funding” AIP, supra n. 29.

  125. 125.

    See Article 26(9)(b) AIP, supra n. 29.

  126. 126.

    See Article 26(10) AIP, supra n. 29.

  127. 127.

    See Article 26(11) AIP, supra n. 29.

  128. 128.

    See Article 36(7) ECT (“A Regional Economic Integration Organisation shall, when voting, have a number of votes equal to the number of its member states which are Contracting Parties to this Treaty; provided that such an Organisation shall not exercise its right to vote if its member states exercise theirs, and vice versa”).

  129. 129.

    See Article 24(3) AIP, supra n. 29 (“For greater certainty, Articles 7, 26, 27, 29 shall not apply among Contracting Parties that are members of the same Regional Economic Integration Organisation in their mutual relations”).

  130. 130.

    See Statistics, supra n. 3.

  131. 131.

    See CJEU, Judgement, 6 March 2018, C-284/16 (Slovak Republic/Achmea B.V.); CJEU, Judgement, 2 September 2021, C-741/19 (Republic of Moldova/Komstroy LLC).

  132. 132.

    Euractive, ‘Brussels calls for pause in ECT reform talks after losing key EU vote’ (21 November 2022). https://www.euractiv.com/section/energy/news/brussels-calls-for-pause-in-ect-reform-talks-after-losing-key-eu-vote/.

  133. 133.

    See supra n. 134.

  134. 134.

    Energy Charter Conference Decision (CCDEC 2022 32) of 22 November 2022 at https://www.energycharter.org/fileadmin/DocumentsMedia/CCDECS/2022/CCDEC202232.pdf.

  135. 135.

    See Article 47(3) ECT (“The provisions of this Treaty shall continue to apply to Investments made in the Area of a Contracting Party by Investors of other Contracting Parties or in the Area of other Contracting Parties by Investors of that Contracting Party as of the date when that Contracting Party’s withdrawal from the Treaty takes effect for a period of 20 years from such date”).

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    Yuriy Pochtovyk

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    Lukas Stifter

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Pochtovyk, Y., Stifter, L. (2023). Modernisation of the Energy Charter Treaty: A View from the Inside. In: Bungenberg, M., Reinisch, A. (eds) New Frontiers for EU Investment Policy. NFEIP 2022. European Yearbook of International Economic Law(). Springer, Cham. https://doi.org/10.1007/978-3-031-41977-5_5

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