TABLE OF CONTENTS
1. INTRODUCTION AND SUMMARY
1.1. THE CLAIMANT HAS FAILED TO PROVE ITS FACTUAL ALLEGATIONS
1.1.1. The Amending Directive pursues legitimate and achievable public policy objectives
1.1.2. The Amending Directive did not involve a "dramatic and radical regulatory change"
1.1.3. The Amending Directive will not have the alleged on NSP2AG's investment
1.1.4. The NS2 pipeline project was not "deliberately excluded" from the Derogation Regime
1.1.5. The Claimant has failed to prove that the Amending Directive underwent an improper legislative process
1.1.6. The European Commission acted transparently
1.2. NSP2AG'S CLAIMS THAT THE EUROPEAN UNION HAS BREACHED THE ECT ARE BASELESS
1.2.1. There is no breach of the Fair and Equitable Treatment (FET) Standard in Article 10(1) of the ECT
The European Union ensured due process and justice
The European Union did not breach legitimate expectations
The European Union acted proportionately
The European Union did not impair the investment by arbitrary or discriminatory measures
The European Union acted transparently
The European Union acted in good faith
1.2.2. The European Union has not breached its obligations under the Constant Protection and Security (CPS) standard in Article 10(1) of the ECT.
1.2.3. The European Union has not breached its obligations under Article 13 of the ECT.
1.3. THE RELIEF SOUGHT BY NSP2AG IS INAPPROPRIATE
2. THE CLAIMANT HAS FAILED TO PROVE ITS FACTUAL ALLEGATIONS
2.1. THE AMENDING DIRECTIVE PURSUES LEGITIMATE AND ACHIEVABLE POLICY OBJECTIVES
The objectives of the Gas Directive
ENSURING SECURITY OF SUPPLY
Key provisions of the Gas Directive
THIRD PARTY ACCESS
The objectives of the Amending Directive
2.1.2. General benefits of the Amending Directive
2.1.3. Specific benefits of the Amending Directive
Third-Party Access (TPA)
Rights related to the connection to the pipeline
Obligations for NSP2AG as a TSO - Article 13 of the Gas Directive
Transparency rules - Article 16 of the Gas Directive
Rules in the Gas Regulation on transparency, congestion management and capacity allocation procedures
2.2. THE CLAIMANT HAS FAILED TO PROVE THAT THE AMENDING DIRECTIVE INVOLVES A "DRAMATIC AND RADICAL REGULATORY CHANGE"
2.2.2. The Claimant could have understood that the Gas Directive applied to gas pipelines importing gas into the European Union from third countries
2.2.3. There were indications that the Gas Directive would apply to the NS2 pipeline
2.2.4. EU competition law prohibits abuses of a dominant position with the result that remedies such as unbundling, tariff regulation and TPA could be imposed prior to the adoption of the Amending Directive
2.3. THE CLAIMANT HAS FAILED TO PROVE THAT THE AMENDING DIRECTIVE WILL HAVE THE ALLEGED ON NSP2AG'S INVESTMENT
2.3.2. Preliminary considerations: identification of the relevant alleged "impacts" for the purposes of this dispute
The effects of the Amending Directive on Gazprom's or on the Financial Investors' investments in NSP2AG are outside the scope of this arbitration
The Claimant seeks to rely on the effects of extraneous factors that are not attributable to the European Union
The delays in the construction of the NS2 pipeline, and the ensuing additional costs for NSP2AG, cannot be attributed to the Amending Directive
2.3.3. The practical "impact" of the Amending Directive, as transposed and implemented by Germany, on NSP2AG's investment remains highly uncertain at this stage
Article 49a derogations
Article 36 exemptions
Article 9(6) of the Gas Directive
IGA between the European Union and Russia
2.3.4. The Claimant has failed to prove that the Amending Directive, as transposed and implemented by Germany, will prevent the operation of the NS2 pipeline
The Claimant has failed to prove that it cannot comply with the unbundling requirements, as transposed and implemented by Germany
126.96.36.199.1. The Claimant has failed to prove that the Amending Directive, as transposed and implemented by Germany, will require NSP2AG to sell the pipeline
188.8.131.52.2. In any event, the Claimant has failed to prove that it cannot sell the NS2 pipeline
184.108.40.206.3. The Claimant has failed to properly consider and assess other options
The Claimant has failed to prove that it cannot comply with the TPA and tariff regulation requirements, as transposed and implemented by Germany
The Claimant has failed to prove that the
The Claimant has failed to prove that it cannot obtain
2.3.5. The Claimant has not shown that the operation of the pipeline in compliance with the Amending Directive, as transposed and implemented by Germany, will have a let alone the alleged
2.3.6. NSP2AG could have avoided the alleged by exercising due diligence when negotiating the GTA and the finance agreements
2.4. THERE WAS NO "DELIBERATE EXCLUSION" OF THE NS2 PIPELINE PROJECT FROM THE DEROGATION REGIME NOR ANY "SPECIFIC TARGETING"
2.4.2. The Amending Directive is of a general and abstract nature
2.4.3. The eligibility criterion for Article 49a derogations is objective and appropriate
2.4.4. There is no "gap" between Articles 36 and 49a of the Gas Directive: these provisions form part of a coherent system of rules and flexibilities
2.4.5. The Amending Directive does not have as "practical effect" that only the NS2 pipeline will be affected
2.5. THE AMENDING DIRECTIVE UNDERWENT A PROPER LEGISLATIVE PROCESS
2.5.1. The Amending Directive was not tabled with haste
2.5.2. The Amending Directive underwent an 18-month negotiation process
2.5.3. The Explanatory Memorandum illustrates the rationale of the Amending Directive
2.5.4. An impact assessment was not required
2.5.5. A separate ex-post evaluation was not needed
2.5.6. The Amending Directive provided legal certainty
2.6. THE EUROPEAN UNION INFORMED NSP2AG ABOUT THE DIVISION OF COMPETENCES BETWEEN THE EUROPEAN UNION AND ITS MEMBER STATES
2.7. THE CLAIMANT'S LEGAL ACTIONS BEFORE THE EU COURTS
3. NSP2AG'S CLAIMS ARE BASELESS
3.1. THERE IS NO BREACH OF THE FET STANDARD UNDER ARTICLE 10(1) ETC
3.1.1. The European Union ensured due process and did not deny justice
Due process was ensured and justice was not denied
3.1.2. There is no impairment by arbitrary or discriminatory measures
3.1.3. The European Union has acted in good faith
The European Union has acted in good faith
3.1.4. The European Union has acted proportionately
The allegation that the European Union has acted disproportionately is premised on unproven factual allegations with regard to both the effects and the objectives of the Amending Directive
3.1.5. The European Union did not breach legitimate expectations
Legitimate expectations require specific commitments inducing investments
Expectations need to be reasonable, legitimate and justifiable as well as actually been relied upon
Legitimate expectations do not guarantee a stable legal or business environment
3.1.6. The European Union has acted transparently
The European Union acted transparently
3.1.7. There is no impairment by unreasonable or discriminatory measures
The Amending Directive does not constitute an arbitrary/unreasonable measure
The Amending Directive does not constitute a discriminatory measure
220.127.116.11.1. Standard of comparison
18.104.22.168.2. No differential treatment
22.214.171.124.3. Justification of alleged differential treatment
126.96.36.199.4. The Amending Directive does not significantly impair NSP2AG's investment
3.2. THERE IS NO BREACH OF THE CPS STANDARD UNDER ARTICLE 10(1) OF THE ECT
3.2.1. Legal Standard
3.2.2. The European Union did not breach the CPS standard
A) THE CLAIMANT ARGUES THAT THE EUROPEAN UNION HAS FAILED TO PROVIDE INVESTORS WITH
THE FRONTIER PETROLEUM TRIBUNAL,
3.3. THERE IS NO BREACH OF THE NATIONAL TREATMENT AND MFN TREATMENT STANDARDS UNDER ARTICLE 10(7) ECT
3.3.1. Legal standard
3.3.2. The Amending Directive does not violate the national treatment or MFN treatment obligations in Article 10(7) of the ECT
3.4. THE EUROPEAN UNION HAS NOT BREACHED ITS OBLIGATIONS UNDER ARTICLE 13 OF THE ECT
3.4.2. The Amending Directive is a regulatory measure aimed at a public welfare objective applied in a non- discriminatory and proportionate manner and enacted in accordance with due process requirements
The Gas Directive and the Amending Directive are designed to pursue legitimate public welfare objectives of fundamental importance for the European Union
The Amending Directive is not discriminatory
The Amending Directive is not disproportionate
The Amending Directive has been enacted in accordance with the rules of due process
3.4.3. In any event, the Claimant cannot show that the Amending Directive has an "equivalent effect" to expropriation
Directive, as transposed and implemented by Germany, would constitute indirect expropriation
4. THE RELIEF SOUGHT BY THE CLAIMANT IS INAPPROPRIATE
4.1. THE CLAIMANT'S REQUESTED RELIEF IS NOT ESTABLISHED IN GENERAL INTERNATIONAL LAW
4.1.1. Chorzow Factory in no way imposes a final injunctive remedy as a "primary remedy" in investor-State cases
4.1.2. The ILC Articles on the Responsibility of States expressly apply to the State-to-State context only
Remedial provisions of the ILC Articles on their face are limited to the State-to-State Context
ILC remedial principles can only be extended to the investor-State context on the basis of consistent State practice and opinio juris
The ILC Articles in any event incorporate important reservations regarding the availability of specific remedies
4.2. THE CLAIMANT'S REQUESTED RELIEF IS NOT ESTABLISHED UNDER ARTICLE 26(8) OF THE ECT
4.2.1. The ECT does not expressly provide for a final injunctive remedy either as an alternative or in priority
4.2.2. Investor State tribunals have failed to order cessation or discontinuance of an allegedly wrongful State measure as a final remedy
4.2.3. The Claimant's heavy reliance on Chevron v. Ecuador simply demonstrates a contrario the absence of any support for its requested relief
The concrete circumstances of Chevron (judicial corruption) are significantly different from those at issue here
The remedy issued in Chevron differs substantially from that requested here
The relief granted in Chevron was akin to an anti-suit injunction
The Chevron remedy amounts to an order enjoining a Court-ordered financial penalty
The Chevron tribunal in effect recognized it lacked a general power to reverse State action
4.3. THE CLAIMANT FAILS TO MEET THE STANDARD FOR ANY TYPE OF INJUNCTION
4.3.1. The Claimant is in fact requesting that the Tribunal grant a permanent injunction against the exercise of a sovereign right to regulate
4.3.2. The Claimant seeks to substitute its own self-serving test for granting injunctive relief
4.3.3. The ECT provides no guidance on when or how injunctions may appropriately be granted
4.3.4. The threshold for obtaining even an interim injunction is high
4.3.5. Domestic courts similarly subject injunctive relief to a high threshold
4.3.6. The high threshold for granting injunctive relief reflects Public International Law's caution on
restricting the exercise of State sovereignty
4.3.7. The Claimant's cryptic, self-serving justifications fail to meet any standard for granting injunctive relief
4.4. MEASURES ADOPTED BY GERMANY IN ANY EVENT AMOUNT TO "MEASURES OF A SUB-NATIONAL GOVERNMENT OR AUTHORITY" WITHIN THE MEANING OF ARTICLE 26(8) OF THE ECT.
5. RELIEF SOUGHT
1. INTRODUCTION AND SUMMARY
1. This Counter-Memorial provides the response of the European Union (EU) to the Memorial of Nord Stream 2 AG (the Claimant or NSP2AG) dated 3 July 2020.
Section 1 provides a summary of the Counter-Memorial1. Section 2 sets out the rebuttal to the Claimant's factual allegations. Section 3 contains the rebuttal to the Claimant's legal claims under the Energy Charter Treaty (ECT) based on those factual allegations. Finally, Section 4 sets out the EU's objections to the remedy sought by the Claimant.
2. This Counter-Memorial is without prejudice to the EU's position that the present dispute falls outside the Tribunal's jurisdiction for the reasons set out in its Memorial on Jurisdiction of 15 September 2020. Nothing in this Counter- Memorial should be construed as an admission that this dispute is properly before this Tribunal, or that the European Union may legitimately be held responsible for the breaches of the ECT alleged by the Claimant.
3. The present dispute is unprecedented in a number of fundamental respects, which set it apart from previous disputes under the ECT.
4. First, the Claimant is a Swiss based company (NSP2AG), fully owned by Gazprom, a Russian company, which is in turn owned and controlled by the Russian State. In practice, Gazprom is but a trade and political instrument of the Russian Government. The Claimant accuses the European Union of failure to respect certain standards relating to the treatment of foreign investments in the energy sector, as set out in the ECT. Ironically, Russia, which owns and controls Gazprom, has refused to become bound by the same standards vis-à- vis the European Union and its investors, despite being among the original signatories of the ECT. It would be difficult to conceive of a more egregious instance of double standards and free riding.
5. Second, by bringing this dispute, the Claimant's primary goal is not to obtain compensation for any damage allegedly caused by any EU measure. Rather, the Claimant's stated goal is to secure, with regard to the Nord Stream 2 pipeline (the NS2 pipeline), immunity from the generally applicable regulatory regime for gas applied by the European Union within its own territory.
6. The EU regulatory regime for gas pursues legitimate public policy objectives prescribed by the EU Treaties, including ensuring the functioning of a competitive and efficient market for gas and ensuring the security of gas supply.
It is applicable to all transmission operators, regardless of their origin, and without any discrimination.
7. The EU's regulatory regime for gas is among the most advanced, fair and efficient regulatory regimes in the world, and it has provided a model for other countries, including many other Parties to the ECT.
8. The core component of the EU's regulatory regime for gas is Directive 2009/73/EC (the Gas Directive), which provides inter alia for the separation (unbundling) between production and transmission activities, third-party access (TPA), and tariff regulation.
9. Unbundling is a common regulatory approach to address the anti-competitive practices to which all network-bound industries are prone. Like the European Union, many other countries around the world, apply unbundling measures in the energy sector. In turn, TPA constitutes the cornerstone of network industry regulation. Tariff regulation is one of the most usual tools for regulating any industry supplying essential goods or services. Together, these three measures promote effective competition, fair access and rate setting and avoid abuse of dominant position.
10. The specific measure at issue in this dispute, the Amending Directive, clarifies that the Gas Directive applies to interconnectors between the European Union and third countries, such as the NS2 pipeline. By doing so, the Amending Directive makes a material contribution to the legitimate public policy objectives pursued by the Gas Directive, by ensuring that all market participants in the EU Single Market for gas - including those with a point of origin outside of EU territory - take part in that market on a level playing field and are equally bound by EU public policy on security of supply. The Amending Directive was adopted in accordance with the usual and proper legislative process. It did not involve "a dramatic and radical" regulatory change, but rather confirmed longstanding EU policy to apply the referenced disciplines on all market actors. The Amending Directive applies to the NS2 pipeline in the same way as to any other pipeline in like circumstances and, therefore, does not discriminate against the Claimant.
11. It is obvious, however, that the regulatory disciplines the EU imposes on participants in the Single Market for gas fail to accord with Gazprom's preferred business model. Gazprom currently enjoys an exclusive legal right over exports of pipeline gas from Russia. Gazprom and its owner (Russia) are used to extract monopoly rents from that situation. Understandably, Gazprom and Russia would like to prevent the application of the Gas Directive to the NS2 pipeline and import into the EU the preferential status it enjoys in Russia. But the EU's confirmation that its generally applicable regulatory regime applies equally to all interconnectors, including the NS2 pipeline, cannot possibly constitute a breach of any of the EU's obligations under the ECT. If Gazprom wishes to sell its gas within the European Union, it is for Gazprom to adapt its business model to the EU's generally applicable regulatory regime, rather than the other way around.
12. Third, the Claimant's allegations that the Amending Directive will have a on its investment are manifestly speculative and [...] premature.
13. As of the time of filing, it remains uncertain whether and when the NS2 pipeline ever will be operational for reasons that have nothing to do with the European Union. Even if the NS2 pipeline were eventually to become operational, any potential implications the Amending Directive might have on the operation or profitability of NSP2AG's investment will depend on the specific measures which the German authorities may or may not adopt with regard to the NS2 pipeline within the wide margin of discretion the Amending Directive accords to them, as well as on choices to be made by NSP2AG itself within the framework of any such measures.
14. The Claimant is well aware that its claims are speculative and premature. For that reason, the Claimant insists that the Tribunal should bifurcate its determinations on merits and damages and that the Tribunal should rule on the unprecedented injunctive relief it seeks as a first option, before establishing damages.
15. For the same reason, the Claimant has asserted the right to complete its case at a later stage, by introducing new evidence as the situation evolves. The European Union reserves the right to object to the production of such new evidence, as well as the right to produce new evidence in response. The European Union further reserves the right to request modifications to the timetable of the proceedings, should the Claimant produce new evidence, so as to ensure the equality of arms between the parties and safeguard the EU's defence rights.