Summary

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I. INTRODUCTION

1. This Memorial (the "Memorial") is filed by the Claimant, Nord Stream 2 AG (the "Claimant" or "NSP2AG"). This Memorial is being submitted pursuant to the procedural timetable set out in Procedural Order No. 1 dated 24 April 2020. It is accompanied by two witness statements, submitted by and , one expert report submitted by Professor Peter Cameron, 162 factual exhibits (Exhibits C-21 to C-182) and 141 legal exhibits (Exhibits CLA-16 to CLA-156).

2. Factual and legal exhibits are referred to using the same numbering as in the Claimant's Notice of Arbitration dated 26 September 2019 (the "Notice"), in the form C-* for factual exhibits, with additional factual exhibits starting at C-21, and in the form CLA-* for legal exhibits, with additional legal exhibits starting at CLA-16. Unless otherwise defined, the capitalised terms used herein bear the meaning defined in the Notice.

3. This Memorial contains ten sections in addition to this Introduction, and three Appendices:

i. Section II sets out a summary of the Claimant's claim.

ii. Section III sets out an overview of the key protections guaranteed by the EU under the Energy Charter Treaty (the "ECT").

iii. Section IV explains the key features of the EU Third Gas Directive (or the "Gas Directive") and the concept of the EU's internal market for gas.

iv. Section V describes the background to the Nord Stream 2 project and sets out NSP2AG's investment in the EU, including the process by which this investment was made.

v. Section VI describes the EU's concerted attempts to obstruct and frustrate the Nord Stream 2 project, including through the drafting and adoption of the Amending Directive and the flawed, unfair and discriminatory process by which this occurred, also explaining that the Amending Directive cannot contribute to its stated policy objectives in any event.

vi. Section VII sets out the catastrophic impact of the Amending Directive on the Nord Stream 2 project.

vii. Section VIII explains how the EU's adoption of the Amending Directive, and its actions connected therewith, constitute breaches of the ECT.

viii. Section IX explains the restitutionary relief requested by the Claimant and why the Tribunal is entitled to and justified in granting the relief sought.

ix. Section X explains that the Claimant's claim fulfils the relevant jurisdictional requirements under the ECT.

x. Section XI addresses the relief claimed by the Claimant in this arbitration.

xi. Appendix 1 contains a chronology of the key events relating to this dispute.

xii. Appendix 2 contains a glossary of key terms used in this Memorial.

xiii. Appendix 3 contains maps showing the European gas infrastructure, including offshore import pipelines into the EU.

II. SUMMARY OF CLAIM

4. NSP2AG brings this claim against the European Union (the "EU") in respect of the EU's discriminatory adoption of the Directive (EU) 2019/692 (the "Amending Directive"), amending Directive 2009/73/EC of 13 July 2009 concerning common rules for the internal market in natural gas (the "Gas Directive" or the "Third Gas Directive"). The Amending Directive fundamentally undermines NSP2AG's investment in the Nord Stream 2 pipeline project (an investment made in large part in the EU), and threatens its very future as a company.

5. In particular, the adoption of the Amending Directive, and the EU's conduct in connection with it, constitute violations of the EU's obligations under the ECT, the purpose of which, as described in its Article 2, is to promote long-term co-operation in the energy field in accordance with the objectives and principles of the European Energy Charter. As is set out in this Memorial, the EU has in particular breached Article 10(1) of the ECT, including the duty to accord fair and equitable treatment and the prohibition against unreasonable and discriminatory measures, Article 10(7) on national and most favoured nation treatment, as well as Article 13 prohibiting expropriation and equivalent measures. In this Memorial, NSP2AG therefore requests that the arbitral tribunal right the wrongs committed by the EU, and order the EU to place NSP2AG in the same situation that existed before the Amending Directive was adopted, by removing the application to NSP2AG and Nord Stream 2 of specifically identified articles of the Third Gas Directive.

6. NSP2AG was incorporated in Zug, Switzerland in July 2015 to plan, construct, and in due course to operate, a major gas pipeline - Nord Stream 2 - transporting natural gas from Russia into the EU.

7. Nord Stream 2 consists of two individual pipelines of approximately 1,235km in length each, with a total capacity of 55 bcm per year. Its route passes through the Baltic Sea from Ust- Luga in Russia, making landfall at Lubmin in Germany, where it connects into the German gas transportation system through upgraded and newly-built downstream transport pipelines (in particular, the North European Natural Gas Pipeline (NEL) and the European Gas Pipeline Link (EUGAL)).[1]

8. The inception of Nord Stream 2 followed the successful construction and entry into operation of the first Nord Stream pipeline, built with a similar capacity and along a similar route ("Nord Stream 1"). Nord Stream 1 began operation in November 2011 and was hailed by the EU as a "priority project", and "very important for [...] the security of energy supply" in Europe.[2]

9. The plan for Nord Stream 2 was to repeat this success, a success intended also to have very substantial benefits for the EU. Nord Stream 2 was assessed as at the end of 2018 to have added a total of EUR 4.74 billion to the GDP of over 10 EU Member States and created work equivalent to 57,450 year-long full-time jobs over a five-year period.[3]

10. In the two years following its incorporation, NSP2AG achieved a number of important milestones essential for the implementation of the Nord Stream 2 project, notably the conclusion and execution of the necessary major contracts. These included the key construction contracts for the supply of line pipes, their weight coating, and pipelay, which formed the foundation of NSP2AG's very considerable investment in the EU. By April 2017, NSP2AG had concluded key construction contracts and made contractual commitments of over out of an expected total capital expenditure of , many of which were with EU companies or for works within the EU.

11. In early 2017, NSP2AG concluded the long-term Gas Transportation Agreement (or "GTA") with Gazprom Export LLC ("Gazprom Export"), providing NSP2AG with a secure revenue stream upon which it could rely in securing financing and making the necessary investment.

12. This financing was secured in 2017, after challenging, lengthy and complex negotiations. Of the over project cost, has been financed by PJSC Gazprom ("Gazprom"), with the remaining financed in equal proportions by five multinational energy companies: Engie, OMV, Shell, Uniper and Wintershall (the "Financial Investors").[4] Crucially, of the project cost is financed by loans which are to be serviced and repaid from the tariffs under the GTA, .

13. As at 23 May 2019, when the Amending Directive came into force, a total of 1,323 km of pipeline had been laid in the territorial waters and / or exclusive economic zones of Finland, Germany, Russia and Sweden (amounting to over 50% of Nord Stream 2), and the construction of the German territorial waters' section of Nord Stream 2 and the onshore facilities was substantially complete. In particular, works of the value of had already been completed out of a total expenditure of approximately , of which had been carried out in Germany.

14. Throughout most of its planning, development and construction, there was no reason to expect that Nord Stream 2 would be treated by the EU any differently from Nord Stream 1. It was clear that the Third Gas Directive, and its requirements of unbundling, third party access, and tariff regulation, did not apply to third country offshore import pipelines such as Nord Stream 1 and 2, and deliberately so.[5 ]

15. Despite the clarity of the legal position, parts of the European Commission ­ one of the institutions of the EU - had nevertheless sought to argue that the Third Gas Directive did apply to Nord Stream 2, a position that became untenable as the Council and Commission Legal Services (among others) confirmed that it did not.[6] Encouraged by a group of Member States, the European Commission then sought other ways of targeting Nord Stream 2: first, in the summer of 2017, by seeking a mandate to negotiate an international agreement with Russia to seek to define Nord Stream 2's legal framework in accordance with EU priorities, and second, when that was ruled outside the EU's competence by the Council Legal Service, to introduce the proposal for the Amending Directive, put forward on 8 November 2017.

16. The underlying reasons for this are set out in more detail in Section VI.7 But they can only be described as political and discriminatory: a combination of political hostility towards the Russian Federation, which is identified with the Nord Stream 2 project, and support for Ukraine, of which a key aspect was the objective of maintaining the transit of Russian gas through Ukraine (for commercial reasons, as the pipelines through Ukraine also cross certain East European Member States resulting in the receipt of transit fees by the companies owning and operating the transportation networks in those countries, several of which are state owned, as well as geopolitical reasons). NSP2AG however is a Swiss company, protected by the Energy Charter Treaty, a treaty designed to protect investors such as NSP2AG from precisely this form of political interference with investments it has made.

17. To avoid scrutiny over its intention and motivations, the proposal for the Amending Directive was introduced summarily and without an impact assessment[8] - a decision described by the EU's own European Economic and Social Committee as "regrettable",[9] and contrary to the view of the EU's European Committee of the Regions that such an assessment was "necessary [...] in accordance with the Interinstitutional Agreement on Better Law-Making".[10]

18. There was nevertheless considerable support for the Nord Stream 2 project among EU Member States within the EU Council, and NSP2AG remained confident that the Amending Directive would not pass. That changed on February 2019, when a France-Germany compromise removed the blocking minority in the Council that had existed since the proposal was introduced. Adoption swiftly followed, with the Amending Directive entering into force on 23 May 2019.

19. This hurried adoption was quite deliberately consistent with the EU's targeting of Nord Stream 2, a fact explicitly noted by the European Parliamentary Research Service.[11] Indeed, Director-General Ristori of the Commission's Directorate General for Energy (or "DG Energy") emphasised in the context of a March 2019 meeting of EU energy ministers that the Amending Directive would hopefully enter into force "quickly, i.e. in any case before the completion of Nord Stream 2".[12]

20. The reason for this haste is explained by the two principal changes introduced by the Amending Directive. The first was that the Amending Directive amended the definition of "interconnector" contained in Article 2(17) of the Gas Directive, to extend that definition beyond only transmission lines that connected the systems of two Member States, to those between a Member State and a third country (up to the territorial limit of the Member State including its territorial sea). The effect was to extend the application of the Third Gas Directive to third country offshore import pipelines such as Nord Stream 2.

21. The second was the inclusion in the Amending Directive of a device, inserted into the Third Gas Directive in the form of new Article 49a, to ensure that in practice only Nord Stream 2 would be negatively affected, and not other offshore import pipelines. Article 49a introduced a new derogation mechanism, available only to offshore import pipelines "completed before 23 May 2019". While some five other offshore import pipelines existed,[13] Nord Stream 2 was the only such pipeline that had not completed construction (and was not scheduled to have done so) by that date.

22. Accordingly, although the Amending Directive is dressed up as a measure of general application applying EU internal market rules to offshore import pipelines, in fact this does not bear the slightest scrutiny. Nord Stream 1 has been granted a derogation and, as described in Section VI.11, all other offshore import pipelines will also receive a derogation in due course. As was specifically intended by the EU, therefore, Nord Stream 2 is the only pipeline upon which the Amending Directive has practical effect.

23. As set out in Section VII below, as matters stand the impact of the application of the Amending Directive to Nord Stream 2 is catastrophic. Without a derogation, the Amending Directive applies the Gas Directive's requirements of unbundling of pipeline ownership/operatorship from gas supply functions, third party access and tariff regulation, to Nord Stream 2. These requirements will prevent NSP2AG from operating Nord Stream 2 as intended, fundamentally undermining the basis on which NSP2AG made its investment, and the economic and financial value thereof.

24. In particular, NSP2AG is part of a vertically integrated undertaking (i.e. an operator of transmission infrastructure whose shares are owned by Gazprom which also, primarily through its subsidiaries, supplies gas to the EU). The unbundling requirement of the Gas Directive, as now amended by the Amending Directive, requires separation of the operation of transmission infrastructure from supply, and so precludes NSP2AG being the operator of the whole Nord Stream 2 pipeline.

25. Further, the requirements of third party access and regulated tariffs are fundamentally incompatible with the GTA - the agreement on which the entire financing structure of the project is based.

26. [....]

27. As is fully set out in this Memorial and argued in detail in Section VIII, the adoption by the EU of the Amending Directive and the EU's actions in connection therewith amount to breaches of the EU's obligations under the Energy Charter Treaty, in particular its obligations under Article 10(1), Article 10(7) and Article 13.

28. These breaches, and their political motivation, are summarised in the following Section III. It will only be added here that it is difficult to think of a clearer form of discrimination cloaked in legislation of general application than that contained in the Amending Directive. Since the project was initiated the EU has made little effort to hide its targeting of Nord Stream 2 ­ this Memorial contains many examples of clear, public statements from EU representatives to this effect.[14] And the purported objectives included in the Amending Directive, around completion of the internal market and so on, are mere legislative fig leaves, readily exposed as specious and self-serving.[15]

29. Compounding its breaches, the EU has refused to explain in pre-action correspondence or discussions the proper interpretation and application of its own legislation, in particular in relation to the Article 49a derogation. In recent days, its own courts have similarly declined to hear NSP2AG's application seeking annulment on grounds of illegality under EU law of the Amending Directive, declaring the application inadmissible and thereby raising serious questions of access to, and denial of, justice.[16]

30. NSP2AG seeks relief from this arbitral tribunal in respect of these breaches of the ECT. In particular, NSP2AG requests that the Tribunal order that the EU, by means of its own choosing, remove the application of Articles 9, 10, 11, 32, 41(6), 41(8) and 41(10) of the Third Gas Directive (i.e. those provisions which became applicable to Nord Stream 2 as a result of the Amending Directive and from which derogations are permissible pursuant to Article 49a) to NSP2AG and Nord Stream 2, thus restoring the position that would have existed but for the EU's breaches of the ECT.

31. As NSP2AG sets out in Section IX below, the granting of such relief is entirely warranted in the circumstances, and indeed is the most appropriate form of relief. Given that the practical impact of the Amending Directive lies on NSP2AG alone, it cannot be disproportionate to require the EU to remove that impact. The granting of such relief is also clearly permitted under the ECT.

32. Fundamentally, NSP2AG should not, as a result of the EU's breach of the ECT, be required to undertake the irreversible and highly prejudicial actions necessary to comply with the Amending Directive, even if this were possible which is highly uncertain, and in circumstances where even the best outcome would be substantially different from that which would apply in the absence of the breach. While NSP2AG reserves its right to seek damages as necessary in due course, the relief requested by NSP2AG can prevent the application of the unbundling, third party access and tariff regulation requirements to it, and thereby provide it with the full reparation required under international law.

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III. OVERVIEW OF ECT PROTECTIONS BREACHED BY THE EU

IV. THE EU GAS DIRECTIVE AND THE INTERNAL MARKET FOR GAS: LEGAL AND FACTUAL BACKGROUND

V. THE NORD STREAM 2 PROJECT AND NSP2AG'S INVESTMENT IN THE EU

VI. THE AMENDING DIRECTIVE IS TARGETED AT, AND DESIGNED TO OBSTRUCT, NORD STREAM 2

VII. THE AMENDING DIRECTIVE WILL BE CATASTROPHIC FOR NORD STREAM 2 AG'S INVESTMENT

VIII. THE EU HAS BREACHED THE ENERGY CHARTER TREATY

IX. THE RELIEF SOUGHT BY NSP2AG IS THE MOST APPROPRIATE TO PROTECT NSP2AG'S INVESTMENT FROM THE CATASTROPHIC HARM CAUSED BY THE EU'S CONDUCT

XI. RELIEF SOUGHT

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Footnotes

[1] Map of the Nord Stream 2 Route below, accessible at https://www.nord-stream2.com/en/pdf/document/125/

[2] Exhibit CLA-16, Decision 1364/2006/EC of the European Parliament and of the Council of 6 September 2006 laying down guidelines for trans-European energy networks and repealing Decision 96/391/EC and Decision No 1229/2003/EC, OJ L262/1, 22 September 2006, Recital (8) and Annex I point NG.1.

[3] Exhibit C-21, Arthur D Little report, "Nord Stream 2 Economic Impact on Europe: Follow-up analysis of effects on job creation and GDP during the construction phase", May 2019. This study was commissioned by NSP2AG.

[4] As further defined in paragraph 133.ii. Further detail of the financing arrangements is provided in Section V.3.

[5] See further Section IV.5.

[6] See further Sections VI.4 and VI.6.

[7] See, in particular, Section VI.3.

[8] See further paragraph 250.i.

[9] Exhibit C-22, Opinion of the European Economic and Social Committee on the proposal for a Directive of the European Parliament and of the Council amending Directive 2009/73/EC concerning common rules for the internal market in natural gas, OJ C 262/64, 25 July 2018, pp 64 ­ 68, para 1.7.

[10] Exhibit C-23, Opinion of the European Committee of the Regions -- Proposal for a Directive of the European Parliament and of the Council amending Directive 2009/73/EC concerning common rules for the internal market in natural gas, OJ C 361/72, 5 October 2018, pp 72 ­ 77, para 13.

[11] The briefings prepared by the European Parliamentary Research Service explain that: "The urgency for the European Commission to adopt this legislative proposal can largely be attributed to political controversy surrounding the Gazprom-led project to double the capacity of the Nord Stream underwater pipelines delivering natural gas from Russia to Germany. This project is known as `Nord Stream 2', to differentiate it from the two original Nord Stream pipelines (in operation since 2011-2012)". See Exhibit C-24, European Parliamentary Research Service, "Common rules for gas pipelines entering the EU internal market", Briefing: EU Legislation in Progress (editions 1 to 4), PE 614.673, 23 January 2018, 3 July 2018, 27 March 2019, 27 May 2019.

[12] As reported in Exhibit CLA-17, Bundesnetzagentur decision on NSP2AG's Derogation Application (German original and English translation), 15 May 2020, p 29. The relevant passage has been translated from the German original: "schnell, das heißt auf jeden Fall vor der Fertigstellung von Nord Stream 2".

[13] See further Section VI.11.

[14] See, for example, in Section VI.3, paras 190, 194, 196 and 199 to 201.

[15] See further Section VI.12, and the First Expert Report of Professor Cameron, paras 1.9 and 6.32-6.61.

[16] See further paras 388 to 393.

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