Energy Charter Treaty : Multilateral Framework for Energy Investments in Africa

Dr. Matteo BARRA Investment Expert Officer Energy Charter Secretariat, Brussels

UNCTAD ITAP ECS Training Program Casablanca, 12 January 2015

THE CALL FOR ENERGY INVESTMENTS IN AFRICA 2014 IEA AFRICA ENERGY OUTLOOK

ACCELERATING : an AFRICAN CENTURY in the ENERGY SECTOR

n  Three actions in the energy sector, if accompanied by more general

governance reforms, could boost the sub-Saharan economy by 30% in 2040, an extra decade’s worth of growth in per-capita incomes:

n  An additional $450 billion in power sector investment, reducing power outages by half and achieving universal electricity access in urban areas. -> private sector

n  Deeper regional co-operation and integration, facilitating new large-scale generation and transmission projects and enabling a further expansion in cross-border trade. -> intergovernmental organisations

n  Better management of resources and revenues, adopting robust and transparent processes that allow for more effective use of oil and gas revenues. -> national governments

PARADIGM SWITCH : FROM DEVELOPMENT COOPERATION

TO PRIVATE INVESTMENT RESOURCES n  The Africa Europe Energy Partnership (AEEP) Addis Ababa

communiqué concludes with the recommendation to implement the “reforms on policy and regulatory frameworks in Africa in order to provide an enabling environment and enhanced capacities for increased private sector investments … to achieve[…] the AEEP 2020 Targets”.

n  “Classic” goals for promoting private investment: ¨  reduced political and regulatory risks (towards regulatory stability) ¨  enhanced market confidence

n  “Classic” objectives : ¨  Domestic energy law and policies ¨  Regional projects for integrated electricity and gas markets ¨  Dialogue with private sector, including small and medium companies

n  “Classic” tools: ¨  International Investment Agreements (IIAs)

AN EXISTING IIA TOOL: MULTILATERAL INVESTMENT AGREEMENT IN THE ENERGY SECTOR

n  1994 ENERGY CHARTER TREATY, entered into force in 1998 n  Multilateral International Investment Agreement (IIA) : replaces

the need for circa two thousand BITS between the 54 contracting parties

n  IIA in the Energy Sector : contains specific provisions on:

n  sovereignty over energy resources (18), environmental concerns (19), energy transit (7)

n  An instrument for external energy relations depending on geopolitical scenario :

n  an east-west gateway for investment and trade for economies in transition after dissolution of USSR

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Energy Charter MEMBERS and OBSERVERS

This map is without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area

54 Contracting Parties (Afghanistan, 2013) and OPEN to any consuming, producing and transit countries regardless whether industrialised, developing and transition

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25 Years Later : Same Concept for Renewed Scenario

n  COMMON RULES for GLOBAL ENERGY SECURITY

n  Link between energy security (supply and demand) and security of investments in the energy sector (level playing field) (Energy Charter)

n  Collective responsibility of the international community (G7 2014) and global energy architecture (G20 2014)

n  Responding to growing global energy needs : IEA call for 4 trillion USD energy investments by 2035 (WEIO 2014)

n  Sustainable Development Goal No. 7 : “Access to affordable, reliable, sustainable and modern energy for all” (UN Post 2015 Development Agenda)

SHARED INTEREST : AFRICAN ENGAGEMENT IN THE ENERGY CHARTER

n  Cooperation withs African Union meeting of the Energy Ministers (CEMA)

n  2007 ECOWAS Energy Charter Protocol n  Algeria, Egypt, Nigeria, Morocco, Tunisia, Mauritania are

observers n  2012 Morocco and Mauritania signed the Energy Charter

Declaration n  2014 review of the investment climate and market

structure in the energy sector of Morocco n  2014-2015 secondees from the Ministry of Energy of

Mauritania, Mozambique, Nigeria and Tanzania

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LOOKING FORWARD: International Energy Charter

n  Algeria, Egypt, Ethiopia, Sudan, South Sudan and South Africa participating to the negotiations in 2014

n  Open for signature on 21 and 22 May 2015 in The Hague

n  Global rules linking between energy security and security of investments

n  Reaching out to new countries and regional organisations n  Political declaration supporting the Energy Charter as a model for

international cooperation in energy n  Domestic and regional activities, dialogue with private sector and

complementary international organisations n  100 participating countries

2015 International Energy Charter Preamble

n  Recognising the global challenge posed by the trilemma between energy security, economic development and environmental protection, and efforts by all countries to achieve sustainable development;

n  Recognising the importance of energy security of energy producing, transit and consuming countries, regardless of their state of economic development, as well as access to modern energy services, which needs to be based on environmentally sound, socially acceptable and economically viable policies, with emphasis on mutual responsibilities and benefits;

n  Willing to develop cooperation with regional and international organisations for sharing experience and specific examples from national practice in the area of sustainable development, access to modern energy services, energy poverty reduction, green economy, clean energy, energy efficiency, as well as development, introduction and broader use of new clean technologies;

How the Energy Charter Treaty Works

n  Substantial Rules of the Energy Charter Treaty : GOOD GOVERNANCE of CROSS BORDER ENERGY INVESTMENT

n  IMPLEMENTING the Common Rules : Effective DIALOGUE with Public and Private Stakeholders

n  In particular, Regional Cooperation : FACILITATING Energy INFRASTRUCTURES AND TRADE

n  ENFORCEABLE Common Rules : EMPOWERING the Investor against Host State

n  Exploiting COMPLEMENTARY Roles : Activities with INTERNATIONAL ORGANISATIONS

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Substantial Rules : GOOD GOVERNANCE of CROSS BORDER ENERGY INVESTMENT

n  Creating a climate favourable to cross border enterprises and investment flows ¨  Good governance of energy investments : market confidence and

regulatory stability (non discr., transfer of capital, key personnel) ¨  Protection against breaches of international standards (rule of law;

losses ; direct and indirect expropriation) ¨  General exception : to protect essential security interests and to

maintain public order n  Within State sovereignty over energy resources

¨  No interference with the public/private energy market structure; no privatisation nor liberalisation ; no market access

¨  Political commitment to open and efficient market n  Taking into account environmental concerns

¨  Technologically neutral : including low carbon and energy efficiency

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IMPLEMENTING Common Rules : Effective DIALOGUE with Public a. Private Stakeholders

n  Empowering governments’ sovereignty over energy resources ¨  Technical assistance : secondment, training, legal a. policy analysis ¨  Peer review of domestic law a. policy on foreign energy investments ¨  Policy recommendations by the Energy Charter Conference

n  Regional cooperation between governments for cross border projects ¨  Regional studies for integration of energy markets ¨  Model agreements for cross border pipelines (Baku-Tbilisi-Ceyhan)

and cross border electricity projects n  Solid and constant dialogue with the private sector (Energy Charter

Industry Advisory Panel IAP) ¨  Energy companies and industry associations reporting to the

Energy Charter Conference and to other international organisations ¨  Financial institutions to support ratification of the Energy Charter

Treaty in target countries for energy projects

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Regional Cooperation : FACILITATING Energy INFRASTRUCTURES AND TRADE

n  Central and Southern Asia ¨  Task Force on Regional Cooperation (Afghanistan, China,

Kazakhstan, Korea, Kyrgyzstan, Mongolia, Pakistan, Tajikistan, Turkmenistan, Uzbekistan)

¨  Price of Electricity Transit in Transition Countries n  North East Asia

¨  Gobitec and the Asian Supergrid (Russia, Mongolia, China, South Korea and Japan)

¨  Integration of energy markets n  East and Central Africa

¨  African Clean Energy Corridor (ACEC) with IRENA ¨  Enabling Frameworks for Markets and Investments

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ENFORCEABLE Common Rules : EMPOWERING the Investor against Host State

n  Directly enforceable by the investor against the host state ¨  Before domestic courts or administrative tribunals ¨  Before international arbitration under ICSID, UNCITRAL and SCC

rules ¨  As opposed to state to state diplomatic protection

n  Investor state dispute settlement ¨  Equivalent to an investment insurance against political and

regulatory risks ¨  Compensates damages arising from breaches of international

standards (non discrimination; direct and indirect expropriation) n  Reform integrating criticism against investment dispute settlement

¨  UNCITRAL Transparency Rules ¨  Mediation and conciliation

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Exploiting COMPLEMENTARY Roles : Activities with INTERNATIONAL ORGANISATIONS

n  With UNCTAD, promoting investment for sustainable development ¨  Investment country reviews and training programs

n  Enabling Frameworks for Markets and Investments with IRENA ¨  Africa Clean Energy Corridor

n  Promoting Low Carbon Investment with OECD ¨  Achieving a Level Playing Field for International Investment in

Green Energy ¨  Promoting, with OECD, Low Carbon Investment

n  Reducing investment risks with International Financial Institutions (WB, ADB, EBRD, IDB)

Recommendations towards Promoting Energy Investments

n  Goal : Assess the International Energy Charter and the Energy Charter Treaty as the political and the legal tools for enabling environment and enhanced capacities for increased private sector investments in the energy sector ¨  Reduced political and regulatory risks (towards regulatory

stability) and enhanced market confidence n  Tool : approach the Energy Charter and technical assistance

¨  Government capacity building : secondment, training, analysis and peer review, model agreements

¨  Supporting regional cooperation ¨  Advancing private sector dialogue ¨  Integrating international cooperation (IEA, IRENA, UNCTAD,

OECD, IFIs)

1991 Energy Charter Declaration Preamble

n  The signatories are desirous of improving security of energy

supply and of maximising the efficiency of production, conversion,

transport, distribution and use of energy, to enhance safety and to

minimise environmental problems, on an acceptable economic

basis.

n  (…)

n  They are determined to create a climate favourable to the

operation of enterprises and to the flow of investments and

technologies by implementing market principles in the field of

energy.

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An EGREGIOUS and Recent Case : The Former Yukos Shareholders vs. the Russian Federation

n  Since 2001 : 60 known cases (16 cases in 2013) ; 17 arbitral decisions ; 7 settlements ; 6 awards of damages in compensation ; 24 disputes sitll pending

n  Russian Federation to compensate USD 50 billion an unlawful and indirect expropriation consisting in tax assessments, harassement and interference with the management leading to bankrupcy

n  The Energy Charter Treaty is a powerful instrument to scrutinise host state measures and to protect foreign investments but magnitude of the award raise concerns regarding its enforcement

n  Announcement of attempts to seize Russian oil companies’ assets in Germany, according to ‘equivalence’ to assets owned by the Russian Federation; and of Russian countermeasures against Germany