Multilateral Investment Treaties: Is the energy charter treaty an effective instrument for protecting international investments?

Masterarbeit, 2009

67 Seiten







1.2 Historical Background
1.3 Summary

2.1 Introduction
2.2 What is an investment in the Treaty?
2.3 Who is an investor in the Treaty?
2.4 Limits to protection of investments and investors
2.5 Investment protection provisions
2.6 Summary

3.1 Introduction
3.2 Dispute settlement mechanisms in the ECT
3.3 The investment arbitration mechanism
3.4 Summary

4.1 Introduction
4.3 Plama Consortium Limited v. The Republic of Bulgaria
4.4 Petrobart Limited v. Kyrgyz Republic
4.5 Alstom Power Italia SpA and Alstom SpA v. Mongolia
4.6 Yukos v. The Russian Federation
4.7 Summary

5.1 Introduction
5.2 Critique of applicable law
5.3 Critique of definition of investors and investments
5.4 Fork in the Road?
5.5 The Russian Perspective
5.6 Summary

6.1 Conclusions

1.1 International Legal Instruments
1.2 International Decisions
2.1 Books
2.2 Articles


All thanks and Glory belongs to God. He gave me the opportunity to successfully pursue my studies.

My parents and siblings have to be acknowledged for giving me encouragement, solace, support and love.

My thanks also extend to all my friends who are so many to start mentioning names.

To my supervisor, I extend my gratitude for the intellectual advice and excellent supervision.


The end of the cold war signalled an emerging need for economic integration between Western European countries and those countries which comprised the former Soviet Union. The energy sector was considered a perfect starting point for pursuing such cooperation mainly due to the fact that Eastern European countries were considered rich in oil and gas reserves. For this purpose, the Energy Charter Treaty as well as the Energy Charter Protocol were signed in December 1994 and came into effect on 16th April, 1998. The aim of the Treaty was to establish a comprehensive legal framework for promoting long-term cooperation between signatory countries in the energy sector. Indeed, the treaty is considered a powerful tool for investors as it grants direct right to initiate arbitration proceedings against host governments where there are alleged breaches of investment obligations. The purpose of this dissertation is to take a critical look at the effectiveness or otherwise of the treaty as regards the protection of international investments in the energy sector. A historical background leading up to the signing of the charter will be rendered. Also, the provisions of the treaty regarding investment protection and arbitration taking certain case studies of causes of action brought under the treaty will be discussed. Furthermore, a critical look at the shortcomings of the treaty will be attempted. The research findings will show that several successful cases have been concluded under the treaty; but criticisms and limits to the effectiveness of the treaty will be highlighted.


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The Energy Charter dates back to a political initiative in Europe in the early 1990s. The end of the Cold War brought an unprecedented opportunity to overcome economic divisions that have been in existence for decades. The prospects for mutually beneficial cooperation were very potent in the energy sector; there was also a recognised need to ensure that a common foundation was laid out for developing energy cooperation among the states of Eurasia.Based on these considerations, the Energy Charter process was born.[1]

Interdependence between net exporters of energy and net importers is a known fact both in recent times and in the future; the charts below show that international energy investments are very vast and capital intensive ($16 trillion estimated globally between 2001-2030); hence, it is widely appreciated that multilateral rules can provide a balanced framework for international cooperation than can be offered by bilateral agreements. The Energy Charter Treaty was thus initiated as part of international effort to build a legal foundation aimed at providing energy security, based on open, competitive markets and also sustainable development, thereby mitigating the risks associated with energy-related investments and trade.[2]


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The question raised in this discussion is whether the Energy Charter Treaty (hereinafter referred to as the ECT) is an effective mechanism for protecting international energy investments. The importance of the topic cannot be overemphasised since the international energy sector is highly risky and capital intensive. Investors will, therefore, be reluctant to make substantial commitments in foreign countries unless there is security of investments and an avenue for resolving disputes if they arise.

If the Treaty will accord investors most favoured nation treatment, national treatment, assurance of adequate compensation upon expropriation or nationalisation; if the treaty can empower investors to pursue their rights via arbitration against host governments, then the Treaty can be said to have a positive impact. Even though the ECT is a European document, many non-European countries maintain observer status in the Treaty. There are even talks in recent times of negotiating a global energy investment charter similar to the ECT.

The methodology to be adopted in tackling the question raised is a critical analytical approach looking at the ECT provisions on investment protection and international arbitration. This will be done in order to determine their origins, scope, effectiveness, rationale, nature and limitations in comparison to other international BITs.

Chapter one introduces the topic and considers the historical background of the ECT. The political intrigues as well as the negotiating strategies adopted by the parties will be explored. Important dates leading to the eventual ratification of the Treaty will also be highlighted.

Chapter two will consider the definition of what constitutes an investment and who is considered an investor under the ECT. The investment protection mechanism inbuilt into the Treaty will also be discussed in this chapter. These will be done taking a comparative analysis between the ECT and other BITs such as NAFTA.

In chapter three, the arbitration provisions in the ECT will be analysed based on Treaty specifications and scholarly interpretation of same. A very positive view of arbitration under the ECT will be rendered in this chapter.

Chapter four will analyse decided cases brought pursuant to the ECT provisions on arbitration. We shall see in this chapter how the Tribunals have so far tended to interpret the investment and arbitration provisions of the Treaty.

Chapter five will critically discuss some of the shortcomings and criticisms of the provisions of the ECT. The Russian objections to the ECT will also be stated looking at both sides of the argument regarding Russia’s views and recommendations for a new international Energy Charter document.

Our conclusions will show that in spite of its shortcomings, the Energy Charter Treaty provides the best multi –lateral legal framework of rules regarding investment protection and arbitration in Euro-Asia.

1.2 Historical Background

The Energy Charter Treaty is rooted in history and its provisions are largely derived from existing precedents. The desire of the foreign investor for protection of its investments and the need of the host state to assert control over state economic policy has been an issue in the energy sector for decades.[3]

Fluctuations in the balance of power between investors on one hand and host states on the other can be seen in a long line of codes, treaties and national legislation. The origins of the Treaty can thus be traced back to some of these existing agreements such as ICSID and NAFTA. The Treaty is a logical progression to create a comprehensive legal order for international investment from a synthesis of previous agreements. BITs such as those negotiated by the US invoked certain concepts such as ‘most favoured nation’, national treatment’ and fair and equitable treatment’.[4]

The beginning of the Energy Charter Treaty can be traced back to the European Council meeting in Dublin in June 1990. A proposal was made by the Dutch government under its Prime Minister Ruud Lubbers that a kind of European Energy Community in partnership with Eastern European countries should be established. This can be said to be the beginning of the Energy Charter process.[5]

Pursuant to the suggestion of Prime Minister Ruud Lubbers, the European Energy Charter was signed in December, 1991 by fifty six (56) states as a non-binding political statement to support and facilitate trade between the Western and Eastern European countries in the energy sector.[6]

It was hoped that intensifying co-operation in trade relating to the energy sector could ensure successful democratic re-organisation of the FSU countries and thus act as an engine for economic revival in these countries. Furthermore, gaining access to Western expertise, capital and technology could enhance the performance of the economies of the FSU countries in environmental standards and improvements in safety in all economic activities in the Energy sector was envisaged.[7] Many of the concepts suggested for inclusions in the Treaty were derived from Western BIT and OECD practice; such concepts founded in the market economies and international economic laws from which they were derived made the former Socialist countries uncomfortable.

On the side of the Western countries, the new proposed co-operation was intended originally to give opportunity to the EU states to invest in the massive energy resources of the FSU countries. At that period, the gas imports of the EU countries were heavily dependent on non-European sources.[8] Furthermore, oil and gas accounted for about 44% of the EU main energy balance at that period.[9] The Western countries expected extensive privileges as well as guarantees for their investments which they themselves did not offer to foreign investors such as contract stabilisation and state/contractor arbitration.

As at February 1991, the European Commission had drawn up a draft text for the new proposed Energy Charter. The EU also made an offer to host an international conference, in which the precise contents and character of the Charter could be put under debate. There were disagreements preceding the conference amongst the EU member states as to which countries should be invited to attend. The USA had viewed the Charter as an attempt by the Western European countries to have a monopoly over Eastern European Energy resources. The USA was concerned about the creation of a privileged EU/FSU trade and investment area which could exclude the United States. The USA then lobbied for an expansion of the framework of the Charter, putting into consideration its financial strength and technological expertise.[10]

Countries such as Belgium and France insisted that the Charter should maintain its European framework; whereas many other countries welcomed the participation of the USA as a trade partner with a thriving and important energy industry. Spain even suggested that North African countries should be invited as significant energy suppliers to the EU countries. In the end, the USA, Canada, Japan, New Zealand and Australia were invited to the conference so that the Charter will not be viewed as a form of European protectionism. OPEC and Maghreb countries sent representatives as observer countries to the conference.[11]

At the first Charter Conference of July, 1991, a policy statement reflecting the main elements of the Charter was drawn up. Co-operation was to be enhanced in the Charter itself, a Charter Treaty, which was to transform the political intentions of the Charter into a formal set of provisions and finally several binding protocols were all included in the statement. It was also specified that energy efficiency, hydrocarbons and nuclear energy were the main priorities of the Charter and the Treaty protocols.[12]

The Energy Charter was eventually concluded within a period of five (5) months and signed in 1991 as a non-binding agreement.[13] But the translation of political intentions into a legally binding document was met with some hurdles along the way. Firstly, the multi-lateral nature of the Charter meant its provisions were also applicable to West to Western trade. This led to disputes in trying to tally the Treaty with other Western Agreements in existence. As per the other Protocols, the Energy Efficiency Protocol was concluded with no difficulties; the Hydro-Carbons Protocol also ran into hitches as the Norwegians objected to the Charter principle of non-discrimination since they were used to granting a major part of oil and gas production licences to Statoil, a state company.[14]

On the issue of National Treatment, its introduction as a guiding concept for investment in the negotiations was done because in the US, the concept forms part of the prototype bilateral investment treaty.[15] The USA viewed the concept as vital; thus, it was included in the draft Treaty so as to encourage the participation of the USA in the Charter negotiations. Russia and other FSU countries did support the National Treatment principle, but Russia wanted to put in place national legislation before undersigning the commitment so as to guarantee compliance with the Charter. This position rendered negotiations deadlocked in the summer of 1993.

Negotiations continued and in September, 1994, final amendments were done and a final text of the Charter Treaty was dispatched to the parties for acceptance or rejection. It is worth noting that by this period, the ambitious plans earlier envisaged for the charter in 1991 had by now shrunk considerably. The main flaw of the Charter was that it was assumed to be an overall solution to all East-West trade barriers.[16] Eventually, in December 1994, the Energy Charter Treaty and the Energy Charter Protocol on Energy efficiency and Related Environmental Aspects were signed. In April 1998, these instruments came into force. Presently, as the table below shows, fifty three countries have signed the Treaty. Forty five states and the European Union have ratified the Treaty. Twenty three countries maintain observer status.[17]


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SOURCE: www.en -Cached - Similar

1.3 Summary

In the early 1990’s, the idea of developing energy co-operation between Western and Eastern Europe was discussed. The Western European countries were at this period attempting to diversify their sources of energy supplies. Therefore, the need to form a foundation for energy co-operation between the Western countries and the FSU countries led to the commencement of the Energy Charter process and negotiations for an Energy Charter Treaty.

The first step in this direction was the adoption and signing in December, 1991 of the European Energy Charter. This Charter did not, however, constitute a binding Treaty. It did nonetheless, contain guidelines for negotiating a binding treaty afterwards; this culminated into the signing of the Energy Charter Treaty and its Protocols in 1994 and its subsequent coming into force in 1998.

Having taking a background analysis of the ECT, the next chapter will commence a detailed scrutiny of the mechanisms put in place to protect investments thus encouraging investors to make financial commitments in the energy sector as envisaged in the negotiation process of the Treaty.


2.1 Introduction

In the previous chapter, the historical circumstances leading up to the signing of the Energy Charter Treaty were discussed. This chapter will commence the discussion of the provisions of the ECT relating to investment protection. The aim in this chapter is to demonstrate that the ECT has a very comprehensive and pro-active investment protection regime.

The ECT takes a balanced approach to investors’ access to natural resources. On the one hand, the Treaty explicitly confirms sovereignty over energy resources; each state is thus free to decide how its national resources will be developed, and the extent to which its energy sector will be available to foreign investments. On the other hand, it is required that rules on the exploration and development of resources are publicly available, transparent and non-discriminatory.[18]

In an attempt to answer the question whether the ECT is an effective instrument for protecting investments, it is pertinent to discuss the provisions of the Treaty on the issue of investment safeguards. This chapter will thus discuss the definition of who is an investor, what constitutes an investment as well as the investment protection mechanisms found in the treaty, in comparison with other international BITs.

2.2 What is an investment in the Treaty?

Article 1(6) of the ECT Treaty lists the types of assets which can be termed investments in the Treaty. It goes further to specify the date from which ‘an investment’ can benefit from the Treaty’s investment protection provisions. The Article stipulates that investment refers to any form of investment relating to economic activity in the energy sector, which is consistent with the sectoral nature of the ECT.[19] Economic activity in the energy sector has two classes of definition: products and materials on one hand and the nature and character of activity on the other.

Included in the list of investments in the Treaty[20] are property or property rights such as mortgages, leases, liens, pledges, a company or business enterprises, stock, shares or other kinds of equity participation; also included are intellectual property rights, returns, rights conferred by law or through contracts by virtue of licences and permits aimed at undertaking economic activities in the Energy Sector etc. Such economic activities concerns the exploration, refining, production, transportation, distribution and marketing of energy materials and products.[21]

The term investment in the Treaty includes all investments, whether made or existing as at the time of entry into force of the Treaty.[22] The Treaty has thus adopted a similar approach to many other BITs and thereby extended its coverage to all kinds of assets.[23]

The wide nature of investments as provided in the ECT has been taken into cognisance in Plama v. Bulgaria[24] which is the premier decision reached under the auspices of ICSID regarding the issue of jurisdiction under the ECT. It was held in that case that Article 1(6) of the ECT is a broad and non-exhaustive list comprising different forms of assets including any property rights , interest in money or rather money’s worth.[25]

It can thus be seen from the above analysis that the ECT Treaty went to great lengths so as to ensure that all valid investments enjoy Treaty protection so as to build investor confidence.

2.3 Who is an investor in the Treaty?

Article 1(7) of the ECT Treaty renders us with a definition of who is an investor under the Treaty. An investor is therein defined as a natural person possessing the citizenship or nationality of a Contracting Party or is a permanent resident; also, a company or other form of organisation formulated in consonance with the relevant applicable law in that Contracting Party is considered an investor.[26]

It is a trite principle of international law that the definition of nationality is based on each country’s domestic laws. Natural persons covered by the ECT are thus defined based on each state’s domestic laws regarding citizenship or nationality. The Treaty also includes permanent residents as investors which is quite in agreement with other BITs[27] and the notion of the ECT which aims to create a single energy zone or area.

Legal entities are also defined by reference to the domestic law applicable in each Contracting State with regards to the organisation of legal entities in each state. In this vein, the ECT takes a different approach from some other multilateral investment treaties which tend to restrict their coverage by including additional requirements which may include place of effective management[28] or rather the place where the headquarters of the company in question is situated.[29] These treaties, unlike the ECT, extend their range of coverage to companies which are incorporated in third countries as long as the controlling shares are vested in investors located in a Contracting State.[30] The coverage provided by the ECT is broader as it only requires that a legal entity be organised in a manner consistent with the laws of a Contracting State.[31]

It should be noted that under the ECT, a legal entity defined as an investor in Article 1(7) is considered a national of the host state. Where such an entity decides to bring a claim under the Washington Convention, the requirement of Article 25(2) (b) that of the Convention that such entity be considered a national of another contracting state has to be met. The ECT resolves this situation in Article 26(7) which stipulates that a legal entity which is incorporated in the host state is to be treated as a national of another Contracting State so as to meet the requirements of Article 25 (2) (b) of the Washington Convention where such a legal entity is controlled by investors of another Contracting State.


[1] www.en -Cached - Similar (last visited on 20/07/09).

[2] Clive, J., Energy Charter Treaty, 7(5-6), Intl. Journ. of Glob. En. Iss., p.314-316 (1995).

[3] Speed, C.P.A., Waelde, T.W., Will the Energy Charter Treaty Help International Energy Investors? p. 4-6, Discussion Paper DP3, CEPMLP (Dundee, Scotland, CEPMLP, 1996).

[4] Salacuse, J.W., The Energy Charter Treaty and Bilateral Investment Treaties Regimes, in The Energy Charter Treaty : an East-West Gateway for Investment and Trade, p. 321-348 (Waelde,T.W. (ed) London, UK: Kluwer law International, 1996).

[5] Coop, G., the Energy Charter Treaty: More than a MIT, in Investment Arbitration and the Energy Charter Treaty, p. 4-9 ( Ribeiro, C. (ed), New York, USA: JurisNet, LLC publishing, 2006).

[6] Dore, J., the Negotiating History of the European Energy Charter Treaty, in Energy Charter Treaty: Selected Topics,. p 1.2 (Waelde, T.W., Christie, K.M. (ed), Dundee, UK: Centre for Energy, Petroleum and Mineral Law and Policy, 1995).

[7] Ibid.

[8] Supra, note 5

[9] -Cached - Similar (last visited on 02/07/09).

[10] Supra, note 6, at p. 1.3.

[11] European Energy Report (EER), East European Supplement 9:2, May, 1991.

[12] Supra, note 6, at p. 1.4.

[13] Supra, note 5.

[14] Petroleum Economist, p.5, November (1993).

[15] US Council for Intl. -Cached - Similar (last visited on 03/07/09).

[16] Supra note 6, at p. 1.14

[17] Swartling, K.H.M., the Energy Charter Treaty: Recent Developments, 5(2), OGEL, p. 1-41 (2007). (last visited on 20/07/09).

[18] Supra, note 1

[19] Supra, note 17.

[20] Under Article 1(6), (a)-(f), of the ECT Treaty.

[21] Supra, note 17.

[22] Parra, A.B., Investments and Investors Covered by the ECT and other Investment Protection Treaties, in Investment Arbitration and the Energy Charter Treaty, p. 59 ( Ribeiro, C., (ed), New York, USA: Jurisnet LLC, 2006).

[23] See for example Article 1(1) of the Protocol of Colonia for the Promotion and Reciprocal Protection of Investments. -Cached - Similar (last visited on 23/07/09).

[24] ICSID Case No. ARB/09/24.

[26] Article 1(7) (a)(i) and (ii) of the ECT Treaty.

[27] See Article 201 of NAFTA (entered into force on 1st January, 1994).

[28] See Article 1(2) FRAMEWORK AGREEMENT ON THE ASEAN INVESTMENT AREA , Agreement %20on%20AIA.doc -Similar (last visited on 23/07/09).

[29] See Article 1(2) of the Protocol of Colonia for the Promotion and Reciprocal Protection of Investment .

[30] See Article 1 of the Swedish –India BIT of July, 2000.

[31] Supra, note 22, at page 68.

Ende der Leseprobe aus 67 Seiten


Multilateral Investment Treaties: Is the energy charter treaty an effective instrument for protecting international investments?
University of Abertay Dundee  (Centre for energy, petroleum and mineral law and policy)
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Multilateral, Investment, Treaties
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Shamsu Yahaya (Autor), 2009, Multilateral Investment Treaties: Is the energy charter treaty an effective instrument for protecting international investments?, München, GRIN Verlag,


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