The Energy Charter Treaty: Protection Through Arbitration Right

1
The Energy Charter Treaty Protection Through
Arbitration Right

• Energy Bar Association
• January 23, 2007
• Edna Sussman
• Hoguet Newman Regal, LLP

2
Energy Charter Treaty (ECT)

• Signed 1994 entered into force 1998
• Signed or acceded to by 51 countries (mainly
  European, Australia, Japan, EU and former
  U.S.S.R. countries) Russia on a provisional
  basis many observers including U.S., India,
  Pakistan, China, Saudi Arabia, Iran, Venezuela,
  Tunisia, United Arab Emirates, ASEAN
• Main areas of coverage trade, transit,
  investment, energy efficiency and dispute
  resolution
• Provides protections for foreign investments
  against discrimination, expropriation and
  nationalization, unjustified restrictions on the
  transfer of funds and more
• Provides for choice of dispute resolution
  mechanisms including arbitration at the election
  of the investor
• Only multilateral investment treaty dealing with
  intergovernmental cooperation on energy covers
  whole energy value chain
• Increases confidence by investors and financial
  community and promotes investment and trade flow
  among members

3
Treaty arbitration

• Treaty enables investor to make claims against
  host country in case of a breach of an obligation
  of the host country relating to investment
  protection
• Mandatory conciliation as a first step
• If fails, investor can choose forum for dispute
  resolution
• Domestic court
• International arbitration
• Treaty creates arbitration without privity
  i.e. host country need not be a party to the
  investment contract to be subject to the claim
  treaty an offer which can be accepted by the
  investor

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Sovereign vs. Investor Rights

• Treaty confirms sovereignty over energy resource
  development decisions
• Once development made in line with sovereign
  decisions, Treaty intended to provide reliable
  and stable interface between the investment and
  the host country
• Issues that can arise particularly acute because
  energy projects tend to be very long term and
  highly capital intensive

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Investors Protected

• Must be an investor from a country which has
  acceded to the Energy Charter Treaty to have
  rights under the Treaty
• U.S. not a signatory
• U.S. companies cannot invoke the Treaty
• Consider the nationality of the contracting party
  in deal structure if want Treaty protection
  choose a company in an ECT country?

6
Cases under the Treaty

• Few cases to date, but more and more several
  awards rendered
• Petrobart won claim against Kyrgyz Republic for
  states decision to transfer assets out of KGM to
  which Petrobart had delivered gas to the
  detriment of Petrobart as a creditor
• Nykomb Synergetics won a claim against Latvia for
  changing government policy which had the effect
  of changing incentive system and depriving
  claimant of double tariffs promised
• Yukos case pending - Group Menatep seeking 30
  billion against Russia claiming virtual
  expropriation (arguing Russia bound by Treaty
  even though it has not ratified because signed
  Treaty and there a provisional application clause
  in the Treaty)
• For an excellent discussion of issues under the
  Treaty see Thomas Walde, Investment Arbitration
  under the Energy Charter Treaty in the Light if
  New NAFTA Precedents Towards a Global Code of
  Conduct for Economic Regulation,
• http//www.transnational-dispute-management.com/
  samples/freearticles/tv1-2-article224b.htm

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Future Application of the Treaty

• More and more counties considering becoming party
  to the Treaty e.g. Pakistan recently joined
  pressure by EU on Russia to ratify Russia
  resisting
• G-8 Summit, St. Petersburg 2006, Statement on
  Global Energy Security states We support the
  principles of the Energy Charter Treat and the
  efforts of participating countries to improve
  international energy security and urges clear,
  stable and predictable national regulatory
  frameworks and transparent, equitable, stable and
  effective legal and regulatory frameworks,
  including the obligation to uphold contracts
• Host country may be governed by Treaty even if
  had not acceded to the treaty at the time the
  contract was entered into if had done so before
  the time of the dispute result less clear as to
  a dispute that arose before accession to Treaty

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• Edna Sussman is an experienced arbitrator and
  mediator and has served in over 70 arbitrations
  and mediations. She serves on several preeminent
  domestic and international commercial arbitration
  and mediation panels, including the energy
  arbitration and mediation panels of the ICDR/AAA
  and CPR as well as the Emissions Trading Panel of
  the Permanent Court of Arbitration in the Hague
  and is a registered panelist with the ICC. She is
  a court certified mediator and serves on the
  mediation panels of federal, state and bankruptcy
  courts in New York.
• Hoguet Newman Regal LLP 10 East
  40th Street, New York, NY 10016 Tel
  212-689-8808 Email esussman_at_hnrlaw.com