Introduction

December 2018 - The year 2018 is an important landmark: twenty years after the entry into force of the Energy Charter Treaty (ECT or Treaty), countries still continue acceding to the Treaty (the most recent ones being Jordan and Yemen) while the Energy Charter Conference identified a list of topics for potential modernisation of the Treaty.

Modernisation was my primary goal since I took office as the Secretary General of the Energy Charter Secretariat in 2012. The understanding that the Energy Charter Process has to be updated came from the developments which I witnessed in 2009. Back then, I was an Extraordinary and Plenipotentiary Ambassador of the Slovak Republic to Ukraine. The discontinuation of Russian gas supplies through Ukraine to the European Union in January 2009[1] was followed in October by Russia's withdrawal from the provisional application of the Energy Charter Treaty[2] (very close in time to the notification of the interim award holding the admissibility and jurisdiction in relation to the Yukos cases[3] under the ECT). At that time, no one thought about invoking the transit provisions of the ECT, which oblige parties not to interrupt transit of energy resources in case of a dispute.

The first phase of modernisation of the Energy Charter Process was finalised successfully in 2015 with the adoption of the International Energy Charter.[4] It updated the initial political declaration signed in 1991. As of today, 90 countries and international organisations have signed the International Energy Charter (the latest being Guyana and Vietnam), thus, enlarging and diversifying the Charter family.

The second phase of modernisation consisted in developing important tools beneficial for both the governments and the industry, but without touching the Treaty. These tools aim at preventing transit and investment disputes under the ECT, which is considered to be the international investment agreement most frequently invoked by investors in investor-State arbitration, with 120 publicly known cases.[5] Since 2013 we multiplied our efforts towards dispute prevention, investment mediation, transparency and the adoption of different soft law tools.

Some of the most relevant achievements should be pointed out in this regard:

• the early warning mechanism, called to address emergency situations related to transit;[6]
• the Conflict Resolution Centre to assist with good offices, mediation and conciliation, as well as to provide neutral, independent legal advice and assistance in dispute resolution;[7]
• the guide on investment mediation, aiming to promote amicable dispute settlement in investor-state disputes;[8]
• the investment facilitation toolbox, aiming at removing barriers to the establishment of energy investment;[9]
• the handbook on General Provisions Applicable to Investment Agreements in the Energy Sector, expected to help government officials to better understand the different policies and clauses available when negotiating an investment agreement;[10]
• the Energy Investment Risk Assessment or EIRA publication which aims to assist governments improve investment conditions for foreign investors in the energy sector;[11]
• the Model Instrument on Investment Dispute Management, which aims to provide a clear framework for managing investment disputes for states who have no similar framework in their domestic legislation or for those who want to update the existing framework. Next year, we will focus on dispute prevention tools;
• While the Secretariat is currently working on a digest of publicly available awards under the ECT, the first publication of the summaries of those awards is being released in 2018;
• last but not least, transparency efforts should be underlined, such as the de-restriction of Conference decisions and clear access to travaux preparatoires of the Energy Charter Treaty.[12] In addition, the Legal Department of the Secretariat will launch on 17 December 2018 the new web-site dedicated exclusively to the Energy Charter Treaty.

Now is the time to start the third phase of modernisation the potential revision of the Energy Charter Treaty. The Contracting Parties of the ECT share these sentiments and joined the general trend to assess updating existing international investment agreements (even if the ECT is much more than just an investment agreement).

In November 2017, the Energy Charter Conference confirmed in Ashgabat the launching of a discussion on the potential modernisation of the Treaty.[13] Within the framework set out by the Conference, it was also agreed to establish a subgroup to centralise and conduct the discussions in the most effective way.

The Subgroup on Modernisation convened six times in 2018 (including consultations with Observers and the industry) under the leadership of its Chair, Ms. Sofía Sanz Estébanez.

After several substantial discussions and full consideration of all the provisions of the Treaty, in November 2018, the Conference approved the list of topics, which include:

• Pre-investment
• Definition of "charter"
• Definition of "economic activity in the energy sector"
• Definition of investment
• Definition of investor
• Right to regulate
• Definition of Fair and Equitable Treatment (FET)
• MFN Clause
• Clarification of "most constant protection and security"
• Definition of indirect expropriation
• Compensation for losses
• Umbrella clause
• Denial of benefits
• Transfers related to investments
• Frivolous claims
• Transparency
• Security for costs
• Valuation of damages
• Third party funding
• Sustainable development and corporate social responsibility
• Definition of "transit"
• Access to infrastructure (including denial of access and available capacities)
• Definition and principles of tariff setting
• REIO[14]
• Obsolete provisions.

The Subgroup will continue working in order to identify the potential policy options for each of the topics listed (including the context and the potential instrument to be used clarification by a declaration of the Conference or an amendment to the ECT). With the aim of properly considering available policy options and to better frame discussions, it is expected that the current main international trends will be used as a primary reference.

Once the policy options have been identified, Members of the Conference will be invited to confirm (if possible during the 2019 review under article 34.7 of the ECT) their political will to start negotiations based on the identified list of topics and their specific policy options.[15]

Urban Rusnák
Secretary General, International Energy Charter
December 2018