The Energy Charter Treaty and the Protection of Energy Investments

The Energy Charter Treaty is a multinational treaty that regulates the biggest industry in the world, energy. The Energy Charter process started just over ten years ago with the adoption of the European Energy Charter in 1991. This set out the principles and objectives that were to govern the energy industry in Europe on all issues. The Energy Charter Treaty (ECT) was negotiated at the same time as the Uruguay round of trade negotiations and was heavily influenced by them as a result. It provides significant, and in some cases unprecedented, protections for commercial players in the European energy sector. Surprisingly, to many businessmen and lawyers active in the industry, the ECT remains unknown or enigmatic at best.

Genesis of the Energy Charter Treaty

The ECT is an ambitious multilateral treaty which covers four main areas: investment, trade, transit and dispute settlement. Although the transit provisions were and continue to be somewhat hotly debated, this article will look more at the impact the investor protections and dispute settlement provisions will have on energy companies. (See separate article in this issue on energy transit.) One of the treaty's most important features is that it affords the same type of investment protection to the energy sector as most other investors have benefited from under bilateral investment treaties. It is today the most ambitious project yet seen to set up an international investment (plus trade) regime.

The ECT was signed in 1994 and came into force on 16 April 1998. There are currently 51 signatory parties (46 ratifications) including countries from East and West Europe and the former CIS states. The European Community itself is also a signatory to the ECT, as is Australia, Iceland and Japan. The Russian Federation at present applies the terms of the treaty provisionally. Most recently Tunisia and Morocco have applied for accession. The treaty is no longer exclusively concerned with just European energy issues and in fact the reference to European was dropped at the time the ECT was adopted.

Notable absent signatories to the ECT are the US and Canada as both countries were originally very much involved in the earlier meetings concerning the European Energy Charter. The USA refused to sign the ECT because it felt that the level of protection afforded to investors under its terms did not reach the same level as that found in the US standard form bilateral investment treaty (BIT). Furthermore, there are many of the Middle- Eastern oil-producing states who have not been involved in any way...