fdi in the energy sector: challenges for iia negotiators
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FDI in the Energy Sector: Challenges for IIA negotiators. Workshop on the Role of Intergovernmental Agreements in Energy Policy Geneva, April 29, 2013. Dr. Joachim KARL Chief, Investment Policy Research Section UNCTAD. Power 52% US$13.6. Oil 24% - PowerPoint PPT PresentationTRANSCRIPT
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FDI in the Energy Sector: Challenges for IIA negotiators
Dr. Joachim KARLChief, Investment Policy Research Section
UNCTAD
Workshop on the Role of Intergovernmental Agreements
in Energy PolicyGeneva, April 29, 2013
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US$ 26 trillion will be required in the energy sector until 2030
Transmission and Distribution
50%
Power Generation
50%
Biofuels <1% US$0.2
Coal 3% US$0.7
Power 52% US$13.6
Oil 24% US$6.3
Gas 21% US$5.5
Refining 16%
Shipping4% Exploration
and Development
80%
Mining91%
Port and Shipping
9%
IEA: World Energy Outlook
Investment needs in the energy sector
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Greenfield FDI in the energy sector, 2003-2011– The annual FDI flows continue to remain below pre-crisis peak
0
20
40
60
80
100
120
140
160
180
200
2003 2004 2005 2006 2007 2008 2009 2010 2011
Mining, quarrying and petroleum Coke, petroleum products and nuclear fuel Electric, Gas, and Water Distribution
UNCTAD Database
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Factors that discourage FDI in the energy sector:
1. “Cash overhang” in TNCs
2. Resource nationalism among energy producing countries
3. Unstable political and legal environment
4. Deficiencies in the international policy framework
5. Local resistance to new investment projects6. Increasing investment costs
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The dichotomy of investment policies in the energy sector
On the one hand, many countries seek to promote FDI in the energy sector in light of pressing investment needs;
On the other hand, many countries seek to keep control over natural sesources and a strategically important sector.
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Policies with regard to FDI in the energy sector
The energy sector is more prone to State intervention than most other economic activities
0%
20%
40%
60%
80%
100%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Liberalisation/facilitation in energy sector
Restriction/Regulation in energy sector
Liberalisation/facilitation in all
sectors
Restriction/Regulation in all
sectors
Source: UNCTAD
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Recent examples of new investment liberalisation and promotion measures
in the energy sector
Approval of large-scale foreign acquisitions; Relaxation of approval requirement for FDI in
subsoil resources; Privatisation of state-owned power generation and
gas distribution companies; Granting of incentives to investments in
unconventional energy resources.
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Recent examples of new investment regulations and restrictions in the
energy sector
Tightened screening requirements; Expropriations and nationalizations;
Increases in taxes or royalties; Renegotiation of investment contracts;
Exit from nuclear energy.
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International investment arbitration on the rise
0
5
10
15
20
25
30
35
40
45
50
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 20110
50
100
150
200
250
300
350
400
450
500
Energy Disputes Other Disputes
Cumulative Energy Disputes Cumulative Number of Disputes
UNCTAD Database
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Investment arbitration in the energy sector (I)
29%
2%
25%
44%
Power Generation Oil and Gas Distribution and Transmission Others
UNCTAD Database
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Most FDI in the energy sector is covered by at least one type of IIAs
BITs: More than 2,800. However, most of them are limited to post-establishment protection.
Regional IIAs: Increasing in number and importance.
ECT: Broad coverage of all policy aspects. However, many important oil and gas producer countries are absent.
WTO (GATS, TRIMS): Cover (1) investment in services and (2) prohibit certain trade-related performance requirements.
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Strengthening the development dimension of IIAs
Balancing the rights and obligations of states and investors
Managing the systemic complexity of the IIA regime
• Safeguarding policy space for sustainable development needs• Making investment promotion provisions more concrete and
consistent with sustainable development objectives
• Reflecting investor responsibilities in IIAs• Learning from and building on CSR principles
• Dealing with gaps, overlaps and inconsistencies in IIA coverage and content and resolving institutional and dispute settlement issues
• Ensuring effective interaction and coherence with other public policies and systems
1
2
3
How to balance private and public interests- A key challenge for IIA negotiators
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Crucial policy issues for IIAs
Entry rights – yes or no? Need for reservations and exceptions? Respect clause – yes or no? Interpretation of fair and equitable treatment clause; Issue of indirect expropriation; Access to international arbitration; Promoting non-binding standards on investor behaviour, such
as the UN Global Compact, “Ruggie Principles”, ILO, OECD Guidelines, CSR codes.
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UNCTAD’s Investment Policy Framework for Sustainable Development helps policymakers address
these challenges
Core Principles"Design criteria" for investment policies
and for the other IPFSD components
National investment policy guidelines
Concrete guidance for policymakers on how to formulate investment policies and regulations and on how to ensure their effectiveness
IIA elements: policy options
Clause-by-clause options for negotiators to strengthen the sustainable development dimension of IIAs
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Thank you
For more information, please visit:
http:// www.unctad.orghttp://
investmentpolicyhub.org