THE ENERGY CHARTER TREATY: IMPLICATIONS FOR LITHUANIAN ENERGY SECURITY

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THE ENERGY CHARTER TREATY IMPLICATIONS FOR
LITHUANIAN ENERGY SECURITY
I. Martinkute, LL.M.Law firm Smaliukas,
Juodka, Beniuis partnersKonstitucijos pr. 7,
LT-09308 Vilnius, Lithuania37068526252,
inga_at_smaliukas.lt2009-05-29
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• The historical background and development of the
  Treaty
• The structure of the Treaty
• - energy trade
• - energy transit
• - investment into energy sector
• - energy efficiency
• - mandatory disputes resolution
• Drawbacks and limitations of the Treaty
• Future prospects and conclusions

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The historical background and development of the
Treaty

• East West cooperation after the collapse of the
  Soviet Union
• European Energy Charter (1991)
• Energy Charter Treaty (1994)
• Ratification of by the Lithuanian Parliament on
  23rd June, 1998
• was the content and nature of the Treaty fully
  understood?

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Provisional application of the Treaty

• What is the use if Russia refuses to ratify it?
• The Treaty is provisionally applicable even to
  Russia (Art. 45)
• Signatory
• In all material aspects in so far as it is not
  inconsistent with its constitution, laws or
  regulations

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Energy trade

• Initial Treaty provisions on trade are taken from
  the General Agreement on Trade and Tariffs (GATT)
  
• World Trade Organisation (WTO) rules
• - Most Favoured Nation clause
• - National treatment
• - Elimination of the quantitative restrictions
  for the energy materials and products
• Trade Amendment to the Treaty of 1998
• - Energy related equipment
• - Future stand-still on customs and charges
• - Not yet in force

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Treaty definition of the transit

• the carriage of energy materials and products
• originating in one contracting state,
• destined to the second contracting state and
• carried through a third contracting state

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Transit

• Only Soft law obligations
• e.g. the article 7(4) of the Treaty - obligation
  not to place obstacles for the new capacities
• How did the Treaty fail to make transit a
  mandatory right and obligation between the
  contracting states?

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Transit

• Negotiations over additional Transit Protocol
  were initiated in 2000
• But initial contradictions between the EU and
  Russia could not be resolved
• No prospects for the additional Transit Protocol

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Closure of the Druzhba oil pipeline branch to
Lithuania.

• The transit provisions were drafted with the
  interim state in mind, but in Druzhba case it was
  the originating state that closed the pipeline on
  dubious technical reasons immediately after
  unsuccessful Lukoil attempt to buy Mazheikiai oil
  refinery
• The Article 7(1) of the Treaty contracting
  states oblige to take the necessary measures to
  facilitate the transit of energy materials and
  products in consistence with the principle of
  freedom of transit and without distinction as to
  the origin, destination or ownership of energy
  material or products and without imposing any
  unreasonable delays, restrictions or charges

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• The most of the pipelines branch goes through
  the territory of Belarus and only the tiny part
  of the branch is situated in Russia

Has Lithuania a valid claim against Russia?
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Resolution of transit disputes

• Special dispute resolution mechanism Art. 7(7)
• Exhaustion of contractual or other dispute
  resolution remedies agreed between the parties
• Referral to the Secretary General
• The Secretary General appoints the conciliator,
  he decides on interim measures and recommends a
  resolution or procedure

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Investment

• Investment is any kind of assets, including
  tangible and intangible, movable and immovable
  property and any property rights, companies or
  enterprises, shares, stocks, bonds, any form of
  equity or debt, money, intellectual property,
  returns and any contractual or legal rights
• Investments should bear no discrimination
• Investments should enjoy national and / or most
  favoured nations treatment
• The prohibition of nationalisation full
  compensation
• No right to exploration or exploitation

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Dispute resolution

• Applies only to the disputes arising from part
  III of the Treaty Investment promotion and
  protection
• According to the article 26 of the Treaty the
  investor may choose one of the forums
• - International Centre for Settlement of
  Investment Disputes (ICSID)
• - UNCITRAL arbitration
• - Arbitration Institute of the Stockholm Chamber
  of Commerce

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Environment

• Only soft law provisions
• - to make best efforts to minimize harmful
  environmental impacts in an economically
  efficient and cost-effective manner
• - to take precautionary measures to minimize
  environmental degradation
• - to take particular attention to improve energy
  efficiency
• - to develop and use renewable energy sources
• - to promote the use of cleaner fuels and
  technologies

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Environment

• The Energy Charter Protocol on Energy Efficiency
  and Related Environmental Aspects (PEEREA)
  obligation to formulate and implement energy
  efficiency strategies and policies, to create
  appropriate legal, regulatory and institutional
  frameworks, to develop, implement and update
  energy efficiency programmes
• Regular energy efficiency reviews energy
  efficiency legislation, policies and programmes,
  quantitative data on energy and energy efficiency
• In-depth energy efficiency reviews reviews
  voluntary undertaken by countries

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Drawbacks and limitations

• Was the Treaty inadequate and inappropriate from
  the very beginning?
• It was a right effort to try to bring East and
  West closer
• It is still an unique multilateral investment
  protection treaty with mandatory dispute
  resolution provisions
• The political and economical aspirations are very
  different nowadays
• The Treaty provides the tools but if the parties
  are not willing to use them, nobody can force them

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Future prospects and conclusions

• The Energy Charter Treaty will not solve the
  Lithuanian energy security problems
• Transit and environmental provisions are too
  soft
• Trade regulation is overlapping with WTO
• The only practical aspect is investment
  protection and dispute resolution and this will
  lead to the increasing numbers of litigation
• Secure investment environment can lead to better
  and more efficient energy production facilities
  and networks

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• Thank You for Your attention!