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Andrey Konoplyanik

The Energy Charter Treaty (ECT, signed in 1994, entered into force in 1998) occupies its objective (economically justified) place within the evolving international energy governance system, in particular within the evolving system of ‘investor-state’ investment-protection mechanisms (i.e. for international energy producing companies vs. resource-owning host states). This system has been developing since the Middle Ages, starting from the colonies (which since the beginning of the industrial revolution provided security in raw materials supply for the metropolitan states from their foreign territories), through initially territory-oriented ‘traditional’ concessions (since 1901), which were later modified to project-oriented ‘modernized’ concessions (since 1948), PSAs and risk-service contracts (since the 1960s), etc., which gave birth to different instruments of investment protection/stimulation in the domestic/national law, both in the mother countries of the energy investors and in the resource-owning sovereign host-states. The growth of international trade and investment, including in energy, in the 20th century gave birth to the development of international (first bilateral, then multilateral) instruments of trade and investment protection/stimulation. Firstly, the net of bilateral instruments was evolved (first in trade, then in investment): DTTs (since the 1920s) and BITs (since 1959). The rocketing increase in their numbers due to radical changes in the political map, mostly in Europe, in the 1990s, stimulated the development of multilateral trade and investment treaties as risk-mitigation instruments for international flows of energy trade and investments, mostly between West and East in Eurasia and primarily (at its birth) between the dissolving USSR/FSU and the enlarging EU. The ECT has become the first multilateral treaty of its kind to secure the ongoing cross-border energy flows (with an increase in the importance of its transit component) from the East to the West to be balanced for mutual benefit by the yet-to-be-developed investment flows from the West to the East. Today the Energy Charter Treaty is still the only energy-specific multilateral instrument of international law, being a culmination of the long-run development (evolution) of investment and trade protection mechanisms in international energy. It seems that within the EU the ECT has been always considered as an external energy policy instrument of the EU. Despite the generally widespread perception that it was Russia who had lost its interest in the ECT (especially after the ‘YUKOS case’ from 2004 onwards), which culminated with the withdrawal of Russia from its provisional application to the ECT in 2009 and the accompanying statement of the Russian Government that it had no intention to ratify the ECT, the EU who began to lose interest in the ECT from the time of the adoption of the EU Second Energy Package in 2003 and with the increasing objective legal conflict between the ECT and the EU Energy acquis. This conflict has resulted in an increasing number of investor-state disputes (based on ECT Art. 26) by investors from the EU member states (which are all ECT Contracting Parties) against corresponding EU governments, finally culminating with the withdrawal of Italy from the ECT (2016). So the ECT has passed through different periods of importance in Russia-EU energy relations – from high priority in the 1990s with the peak of mutual interest in 2002 (when the finalization of the draft multilateral Transit Protocol to the ECT – still not reached – had begun), to diminishing importance since then, though for different reasons for both parties, through the 2000s – despite growing interest in the ECT by other participants in the international energy community beyond Russia and the EU, which culminated in the signing of the International Energy Charter (additional and complementary to the European Energy Charter) in May 2015. With the growing importance of the international campaign against energy poverty, and a possible change in the key paradigm of international energy development (from perceived peak supply to peak demand), when the dominant trends in international energy governance will most probably be changing from access to non-renewable energy (natural) resources to access to capital, financial resources, innovations, minimization of the negative environmental impact of energy investments/development, the new role of the ECT and its expanded version on the basis of the International Energy Charter and the following instruments might again attract the practical attention of the political and business elites in both EU and Russia to this energy-specific multilateral instrument of international law, most probably, not yet – but within next political cycles.

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Andrey A. Konoplyanik

The Annex examines transit issues between Russia and the EU and the role of the Energy Charter instruments in minimizing such transit risks. It starts with an analysis of historical development of Soviet/Russian gas supplies to Europe – evolution of its contractual structure based on Groningen (Dutch) model of LTGEC and the role of transit, which has increasingly evolved after dissolution of the COMECON and the USSR. It identifies three major components of transit risk in the cross-border gas value chain: legal/regulatory, technical and political, while the first two have an objective character non-dependent of the name of transit state. It distinguishes two zones of new transit risks – within and outside the EU – in gas value chain of Russian gas supplies to Europe; arguing that new transit risks outside the EU is the result of the move from political to market-based pricing and to ‘European formulas’ within the CIS, while new transit risks within the EU resulted from liberalization trends within and enlargement of the EU energy market. The Annex considers which international law instruments are best available for regulating transit of energy: GATT/WTO or ECT and compares GATT Art V ;Freedom of Transit’ and ECT Art 7 ‘Transit’ (transit through fixed infrastructure), including its intended strengthening through the draft Energy Charter Protocol on Transit. The Annex examines in detail key debated transit issues and draft solutions within Energy Charter framework, including: definition of available capacity; domestic, import/export and transit tariffs; conciliatory procedure; congestion management; contractual mismatch; and draft Transit Protocol implementation inside the EU. Finally, the Annex examines which transit risks ECT does not address and why.