Energy investments are, because of their strategic nature, exposed to considerable regulatory and political risks. The recent nationalisation of foreign energy assets in Venezuela, Bolivia and Argentina provides an actual example of measures that deprive investors of control of their investments and transfer property to the state. Given the capital intensity and long term nature of energy investments, the risk of state intervention affects the transfer of capital and technology to the energy sector and therefore negatively influences security of energy supply. Conversely, measures which provide investor protection against these risks are generally considered to stimulate investment and thereby contribute towards achieving energy security. With this in mind, the EU has supported the conclusion of the Energy Charter Treaty (ECT) – a multilateral investment treaty that specifically aims to protect investments in the energy sector. With the ECT, EU member states initially aimed to stabilise investment conditions in the energy sector of the former Soviet Union in order to improve the security of Europe's energy supply. Twenty years after the initiation of the Energy Charter process, the contracting parties of the ECT have recognised the need to modernise the Treaty. The current geopolitical, economic and regulatory conditions for energy investment are very different to the energy landscape that existed when the ECT was negotiated. The ongoing debate on the modernisation of the ECT provides a timely opportunity to review the investment protection regime of the Treaty.
The Settlement of Investment Disputes under the Energy Charter Treaty provides a well articulated and thorough analysis of the ECT investment regime. Roe and Happold discuss the investment protection and dispute resolution provisions of the Treaty by reviewing arbitral decisions under the ECT, as well as general arbitral practice and leading academic literature on international investment law. This is a challenging task since, in the absence of a doctrine of precedent in investment arbitration, arbitral tribunals have not always interpreted and applied investment protection standards in a coherent way. The investment law literature has criticised this interpretative incoherence for the uncertainty that it creates – a flaw that undermines the fundamental objective of investment treaties: investment stability. Diverging interpretative approaches in arbitral practice can often be explained by differences in the formulation of bilateral investment treaties or by the specific circumstances of the cases and different characteristics of the investments concerned. Because of its multilateral and sector-specific nature, the ECT reduces the risks of interpretative incoherence. In this respect, a systematic analysis of the ECT investment regime provides a great opportunity to clarify the meaning of investment standards and examine their application to the specific characteristics of energy investments.
After an introduction to the origins and main characteristics of international treaty arbitration and the ECT in Chapter One, Chapter Two discusses the law applicable to investment disputes arising out of the ECT. Chapter Three analyses the availability of the various methods of dispute resolution available under the ECT with a focus on the admissibility of investment claims before independent investor state tribunals and the jurisdiction of these arbitral tribunals. The chapter then goes on to discuss the specific scope of the ECT and, in particular, its limitation to foreign direct investments in the energy sector. This analysis includes a most interesting discussion of Petrobart v Kyrgyz Republic (Award of 29 March 2005, SCC Case No. 126/2003) – a case dealing with whether a foreign investor can raise a claim of breach of contract in the supply of energy resources on the basis of the investment regime of the ECT. Roe and Happold critically examine the decision of the arbitral tribunal ruling that the energy contract in question was an “investment” within the meaning of the ECT. The tribunal's decision broadens the scope of application of the ECT investment regime to encompass contractual transactions that are not necessarily associated with a continuous engagement in energy activities (e.g. exploration and extraction). Based on a thorough discussion of the provisions of the ECT, Roe and Happold argue that this interpretation goes beyond the meaning of the dispute resolution regime provided by the Treaty. Given the key role of contracts in the energy industry, this analysis could have a significant bearing in future ECT arbitration cases.
Chapter Three also examines the issue of provisional application of the ECT. This question is of key importance for foreign energy investments in Russia. Russia has signed the ECT but never ratified it. In 2009, Russia officially announced that it would not ratify the Treaty. In the famous Yukos cases (e.g. Yukos Universal Limited v The Russian Federation (Interim Award, 30 November 2009, PCA No. AA 227 UNCITRAL)), the arbitral tribunal ruled that Russia is bound by the provisional application regime of the ECT. Foreign investors that entered the Russian energy sector before October 2009 are protected by the investment regime of the ECT. This decision is of particular relevance for the EU given the large investments that EU energy companies made in the Russian energy sector.
Chapter Four turns to on another issue of key importance for the EU Russian energy relation: the interaction between EU law and the ECT. Russian energy companies (e.g. Gazprom) have made important investments in EU member states and are increasingly critical of the impact that the completion of the internal energy market has on their investments. Investment arbitration is a potential tool for Russian investors to influence EU decision-making in the energy sector. A central issue in this respect is the extent to which Members States can plead compliance with EU law as a defence to allegations of violations of the ECT investment protection regime. Another crucial question relates to the possibility for foreign investors (e.g. Gazprom) to sue the EU directly, the EU being a contracting party to the ECT. Roe and Happold analyse these jurisdictional questions by thoroughly reviewing the provisions of the ECT in the light of previous arbitral decisions on the interaction between EU law and international investment law. The actual relevance of these questions has recently been highlighted by the Judgment of the European Court of Justice in Commission v Slovakia (Case C-264/09, 15 September 2011) where the Court ruled that Slovakia's international investment law obligations could justify non-compliance with the internal energy market.
Chapter Five deals with the substantive investment protection standards set out in the ECT and, in particular, the standards relating to fair and equitable treatment, most constant protection and security, national treatment, and the most favoured nation. It also deals with the “umbrella clause” of the Treaty. The expropriation clause is excluded from the scope of the analysis. Following a similar methodological approach to that adopted in the previous chapters, the authors discuss these substantive provisions of the Treaty in light of ECT cases and general arbitral practice. Disappointingly, the analysis remains largely limited to general issues of investment law, such as the diverging interpretations that arbitral tribunals have given to umbrella clauses. The book misses a unique opportunity to systematise the application of the substantive investment protection regime of the ECT to the specific characteristics of energy investments. By remaining limited to general (i.e. non-sector specific) questions of investment law, the book does not contribute to the discussion on the effectiveness of the ECT in providing adequate investment protection in the new energy landscape of the 21st century – an issue of particular importance in the context of the ongoing debate on the modernisation of the ECT. Recent experience of public interference in the energy sector shows that states can affect the value of energy investments in ways more subtle than the traditional political risks (e.g. outright expropriation) that were the primary targets of the ECT. Cuts to subsidies for renewable energy investments in Spain, Germany and the UK are illustrative of contemporary forms of regulatory risks in the energy sector. A key question today is whether the ECT investment regime provides adequate protection against these new regulatory risks. Unfortunately, this book does not attempt to answer that question.
Chapter Six examines the procedure that applies to dispute resolution under the ECT, including the delicate issues surrounding challenges to arbitral awards and challenges to the enforcement of arbitral decisions. In a logical sequence, Chapter Seven analyses the international responsibility of the contracting parties, particularly in relation to the issue of the attribution of breaches of the ECT to the respondent state. This question is of central importance for investment arbitration in the energy sector because states tend to delegate regulatory tasks in the energy market to independent regulatory entities or state companies thereby raising the question of responsibility of the state for the acts of these “parastatal” entities. Although the book does not pay particular attention to the specific structure and role of independent regulatory entities in the energy sector, Roe and Happold make a most useful contribution to the investment law literature by reviewing the relevant arbitral practice in this field. Their discussion of the International Law Commission's Articles on Responsibility of States for Internationally Wrongful Acts (GA res. 56/83 2002) is particularly enlightening. Chapter Eight – the final chapter of the book – discusses the specific treatment of taxation measures under the ECT. The authors examine how the ECT excludes taxation from the scope of certain investment disciplines, especially in relation to Regional Economic Integration Organisations.
Settlement of Investment Disputes under the Energy Charter Treaty convincingly succeeds in the task of providing a coherent overview of access to arbitration and the arbitration process under the ECT. Roe and Happold's analysis will prove to be most useful to the academic community in the field of international economic law and to practitioners – the priority target group of the book given its publication in the CUP Law Practitioner Series. However, it is essential to highlight that the book is limited to a discussion of non-sector specific arbitration issues. Despite the focus on the ECT, the book does not discuss the application of investment standards to the specific characteristics of energy investments. A systematic overview of energy-related arbitral decisions could have provided some much needed insight into the interpretation and application of investment disciplines to the energy sector.
