Commentary on the Energy Charter Treaty

Edited by Rafael Leal-Arcas, Professor of Law and Public Policy, KAPSARC School of Public Policy, Riyadh, Saudi Arabia

• Contents:INTRODUCTION 1Rafael Leal-Arcas, Alanoud Alkhorayef, Moudhi Al Shehail and Loloah Al SheikhAN ENERGY CHARTER TREATY FOR THE 21ST CENTURY 41. Criticisms of the Energy Charter Treaty 4Restriction on the governments’ ability to regulate or restrict the use of fossil fuels 5Environmental concerns 5Sovereignty concerns 6Transparency 6The ECT is outdated 72. The modernization process 7Investment protection 8Trade 9Transit 10Energy efficiency 113. Investor-state dispute settlement (ISDS) mechanism 11CONCLUSION 14STRUCTURE OF THE BOOK 16PREAMBLE 17Antonio MorelliCOMMENTARY 18PART I DEFINITION AND PURPOSEARTICLE 1 DEFINITIONS 24Dylan Geraets and Leonie ReinsCOMMENTARY 26Introduction 26A. Part I: Definitions and purpose 27ARTICLE 2 PURPOSE OF THE TREATY 59Leonie ReinsCOMMENTARY 59A. ‘In accordance with the objectives and principles of the Charter’ 60B. ‘Complementarities and mutual benefits’ 64C. ‘Long-term cooperation in the energy field’ 64D. ‘A legal framework’ 66E. Modernisation of the ECTPART II COMMERCEARTICLE 3 INTERNATIONAL MARKETS 70Lisa M. RichmanCOMMENTARY 70A. Introduction 70B. ‘An open and competitive market’ 71C. ‘Energy Materials and Products and Energy-Related Equipment’ 72ARTICLE 4 NON-DEROGATION FROM WTO AGREEMENT 75Lisa M. RichmanCOMMENTARY 75A. Introduction 75B. The non-derogating provision 77ARTICLE 5 TRADE-RELATED INVESTMENT MEASURES 82Lisa M. RichmanCOMMENTARY 84A. Introduction 84B. Trade-related investment measures: basic elements and the WTO approach 85C. Article 5 on TRIMs, a provision-by-provision analysis 87D. The Australian Declaration: exceptions and jurisdictional issues 94ARTICLE 6 COMPETITION 98Aubin Nzaou-KongoCOMMENTARY 99A. Introduction 99B. The obligation of alleviation – Article 6(1) 101C. Enforcement of competition provisions by the Contracting Parties – Article 6(2) 103D. Obligation of cooperation between Contracting Parties and between nationalcompetition authorities – Article 6(3), (4) and (6) 104E. Infringement, cooperation and dispute resolution – Article 6(5) and (7) 104F. Conclusion 105ARTICLE 7 TRANSIT 106Cătălin Gabriel StănescuCOMMENTARY 108ARTICLE 8 TRANSFER OF TECHNOLOGY 123Aubin Nzaou-KongoCOMMENTARY 123A. Introduction 123B. Transfer of technology 125C. Context of Article 8 126D. Non-discriminatory access to and transfer of energy technologies 130E. Removing barriers to technology transfer 136F. Conclusions 139ARTICLE 9 ACCESS TO CAPITAL 140Aubin Nzaou-KongoCOMMENTARY 141A. Introduction 141B. Context of ECT Article 9 142C. Promoting access to capital markets 149D. Access to funds for trade or foreign investments 153E. Implementation of economic programs in the energy industry Activity in theEnergy Sector 153F. Surviving prudential regulations: ‘Nothing in this Article shall prevent […]’ clause 154G. Conclusions 155PART III INVESTMENT PROMOTION AND PROTECTIONARTICLE 10 PROMOTION, PROTECTION AND TREATMENT OF INVESTMENTS 157Diego Mej.a-LemosCOMMENTARY 159A. Part III 162B. Article 10 181ARTICLE 11 KEY PERSONNEL 220Diego Mej.a-LemosCOMMENTARY 220ARTICLE 12 COMPENSATION FOR LOSSES 224Diego Mej.a-LemosCOMMENTARY 224ARTICLE 13 EXPROPRIATION 226Diego Mej.a-LemosCOMMENTARY 227ARTICLE 14 TRANSFERS RELATED TO INVESTMENTS 248Francesco Montanaro and Tanya ShaarCOMMENTARY 249A. Introduction 249B. The monetary transfer clause in the Energy Charter Treaty in light of the investmenttreaty practice 251ARTICLE 15 SUBROGATION 256Apurva Mudliar and Tanya ShaarCOMMENTARY 256ARTICLE 16 RELATION TO OTHER AGREEMENTS 259Vishakha Joshi and Francesco MontanaroCOMMENTARY 259A. Introduction 259B. Clauses governing conflicts with other treaties in the IIAs and in the ECT 261C. Dispute governing the compatibility of ECT and other IITs with EU law 262ARTICLE 17 NON-APPLICATION OF PART III IN CERTAIN CIRCUMSTANCES 264Apurva Mudliar and Vishakha JoshiCOMMENTARY 264A. Introduction 264B. Title: Non-application of Part III in certain circumstances 265C. Application of Article 17(1) of the ECT 266D. Denial of benefits to an investment under Article 17(2) 272E. Conclusion 272PART IV MISCELLANEOUS PROVISIONSARTICLE 18 SOVEREIGNTY OVER ENERGY RESOURCES 274Contributions by Peter Vajda and Varvara Aleksić, and Tina HunterCOMMENTARY 274COMMENTARY 276ARTICLE 19 ENVIRONMENTAL ASPECTS 283Contributions by Peter Vajda and Varvara Aleksić, and Tina HunterCOMMENTARY 284COMMENTARY 292ARTICLE 20 TRANSPARENCY 294Gloria AlvarezCOMMENTARY 294A. Structure and scope 294B. Notion of transparency in the ECT 295C. Transparency in ECT Secretariat Model Agreements 298ARTICLE 21 TAXATION 299Gloria AlvarezCOMMENTARY 301A. Introduction, structure and scope 301B. Bona fide taxation measures according to the ECT 301C. Structure and the general rule on Article 21 302D. Exceptions to the General Rule on Article 21 303E. Article 21 in practice and jurisdictional issues 306ARTICLE 22 STATE AND PRIVILEGED ENTERPRISES 309Contributions by Costantino Grasso and Tina HunterCOMMENTARY 309COMMENTARY 320ARTICLE 23 OBSERVANCE BY SUB-NATIONAL AUTHORITIES 322Contributions by Costantino Grasso and Sara AlmeshariCOMMENTARY 322COMMENTARY 327ARTICLE 24 EXCEPTIONS 333Contributions by Costantino Grasso and Gloria AlvarezCOMMENTARY 334COMMENTARY 340ARTICLE 25 ECONOMIC INTEGRATION AGREEMENTS 342Contributions by Costantino Grasso and Gloria AlvarezCOMMENTARY 342COMMENTARY 346PART V DISPUTE SETTLEMENTARTICLE 26 SETTLEMENT OF DISPUTES BETWEEN AN INVESTOR AND ACONTRACTING PARTY 349Fernando Dias Sim.esCOMMENTARY 351A. Article 26(1) 351B. Article 26(2) 355C. Article 26(3) 356D. Article 26(4) 360E. Article 26(5) 362F. Article 26(6) 363G. Article 26(7) 365H. Article 26(8) 366ARTICLE 27 SETTLEMENT OF DISPUTES BETWEEN CONTRACTING PARTIES 368Crina BaltagCOMMENTARY 369ARTICLE 28 EXCLUSION OF CERTAIN PROVISIONS OF THE ECT FROM THESETTLEMENT OF DISPUTES BETWEEN CONTRACTING PARTIES 378Crina BaltagCOMMENTARY 378PART VI TRANSITIONAL PROVISIONSARTICLE 29 INTERIM PROVISIONS ON TRADE-RELATED MATTERS 381Max BaumgartCOMMENTARY 383A. Introduction 383B. Temporal scope of application (para 1) 384C. Incorporation of the WTO Agreement’s rights and obligations (para 2) 384D. Full transparency obligation (para 3) 385E. Best-endeavour commitment (paras 4 and 5) 386F. Stand still clause (paras 6, 7 and 8) 386G. Dispute settlement (para 9) 387ARTICLE 30 DEVELOPMENTS IN INTERNATIONAL TRADING ARRANGEMENTS 388Silke Goldberg, Naomi Lisney and Anne EckenrothCOMMENTARY 388ARTICLE 31 ENERGY-RELATED EQUIPMENT 391Silke Goldberg, Naomi Lisney and Anne EckenrothCOMMENTARY 391ARTICLE 32 TRANSITIONAL ARRANGEMENTS 393Silke Goldberg, Naomi Lisney and Anne EckenrothCOMMENTARY 394A. Review of the transitional arrangements 395B. The AES Corporation and Tau Power B.V. v. Republic of Kazakhstan (ICSID CaseNo. ARB/10/16) 396COMMENTARY ON THE ENERGY CHARTER TREATYPART VII STRUCTURE AND INSTITUTIONSARTICLE 33 ENERGY CHARTER PROTOCOLS AND DECLARATIONS 400Silke Goldberg, Naomi Lisney and Anne EckenrothCOMMENTARY 401A. The PEEREA 401B. The Transit Protocol 404ARTICLE 34 ENERGY CHARTER CONFERENCE 410Cătălin Gabriel StănescuCOMMENTARY 412A. Members and observers 412B. Meetings of the Charter Conference 413C. The powers and functions of the Charter Conference 413D. Subsidiary bodies 424E. Conclusions 426ARTICLE 35 SECRETARIAT 427Cătălin Gabriel StănescuCOMMENTARY 428A. The staff of the Secretariat 428B. The role and functions of the Secretariat 429C. The appointment of the Secretary General 435D. The Secretary General’s role in ECT’s Dispute Resolution Mechanisms 436E. Conclusions 439ARTICLE 36 VOTING 440Cătălin Gabriel StănescuCOMMENTARY 441A. Who can vote 441B. Exercising the right to vote – voting by correspondence 442C. Voting rules 443D. Conclusions 445ARTICLE 37 FUNDING PRINCIPLES 446Cătălin Gabriel StănescuCOMMENTARY 446A. Types of costs 446B. Determination of financial contributions 447C. Voluntary contributions 448D. Conclusions 449PART VIII FINAL PROVISIONSARTICLE 38 SIGNATURE 451Odysseas G. RepousisCOMMENTARY 451A. Introduction 451B. Scope 451C. Eligibility and temporal issues 452D. State practice 452E. Succession cases 453ARTICLE 39 RATIFICATION, ACCEPTANCE OR APPROVAL 454Contributions by Odysseas G. Repousis and Dyuti PandyaCOMMENTARY 454A. Introduction 454B. State practice 455COMMENTARY 455A. Modernisation of the Energy Charter Treaty: Article 39 455ARTICLE 40 APPLICATION TO TERRITORIES 456Contributions by Odysseas G. Repousis and Dyuti PandyaCOMMENTARY 457A. Introduction 457B. Territories for the international relations of which a contracting party is responsible 457C. Territorial declarations and the ECT ‘Area’ 458D. Temporal issues 458E. State practice 459F. Territorial declarations and provisional application 460COMMENTARY 469A. Modernisation of the Energy Charter Treaty: Article 40 469ARTICLE 41 ACCESSION 471Contributions by Odysseas G. Repousis and Dyuti PandyaCOMMENTARY 471A. Introduction 471B. Scope 472C. State practice 472COMMENTARY 472A. Modernisation of the Energy Charter Treaty: Article 41 472ARTICLE 42 AMENDMENTS 473Antonio MorelliCOMMENTARY 473ARTICLE 43 ASSOCIATION AGREEMENTS 477Antonio MorelliCOMMENTARY 477ARTICLE 44 ENTRY INTO FORCE 479Antonio MorelliCOMMENTARY 479ARTICLE 45 PROVISIONAL APPLICATION 482Antonio MorelliCOMMENTARY 484ARTICLE 46 RESERVATIONS 487Antonio MorelliCOMMENTARY 487ARTICLE 47 WITHDRAWAL 489Antonio MorelliCOMMENTARY 489ARTICLE 48 STATUS OF ANNEXES AND DECISIONS 494Leonardo Borlini and Marina PetriCOMMENTARY 494A. Purpose and function 494B. Relevance of the article 495ARTICLE 49 DEPOSITARY 500Leonardo Borlini and Marina PetriCOMMENTARY 500A. Purpose and function 500B. Content of the article 501ARTICLE 50 AUTHENTIC TEXTS 504Leonardo Borlini and Marina PetriCOMMENTARY 504A. Purpose and function 504B. Content and interpretative implications of the article 505APPENDIX: GAS INFRASTRUCTURE IN EURASIA AND THE ROLE OF THEENERGY CHARTER 507Andrey A. Konoplyanik1. Three Major Components of Transit Risk in the Cross-Border Gas Value Chain(Konoplyanik’s ‘Pyramid of Transit Risks’) 5092. Soviet/Russian Gas Supplies to Europe: Transit Risks Upstream of Delivery Points 5103. Soviet/Russian Gas Supplies to Europe: Transit Risks Downstream of Delivery Points 5124. GATT/WTO vs. Energy Charter (ECT and Draft Transit Protocol) Framework 5145. Different Purpose of Russia and the EU on Prospective Implementation of EnergyCharter Transit Provisions (Why the Balanced Solution on Transit Was Not Reached) 5166. Energy Charter: A Gradual Shift from an Instrument of Trans-Atlantic Europe Towards aEurasian Instrument Beyond the EU? 5197. The Fight Against ‘Energy Poverty’ as the Main Consolidating Vehicle in Eurasia – ATrigger of ECT Re-Emergence in This Region? 522Index 523