2017

In November 2017, the Energy Charter Conference confirmed in Ashgabat the launching of a discussion on the potential modernisation of the Energy Charter Treaty (ECT). Within the framework set out by the Conference (CCDEC2017 23), it was also agreed to establish a subgroup of the Strategy Group to centralise and conduct the discussions in the most effective way.

2018

At its first meeting of 2 February 2018, the Subgroup confirmed the nominations of Ms. Sofía Sanz Estébanez (Spain) and of Mr. Sunao Orii (Japan) as Chair and Vice-Chair of the Subgroup. The Subgroup further convened five more times: on 23 March, 14 May, 15 May, 5 July and 6 of September. In addition, the Subgroup reported to the Strategy Group both on 22 March (when some procedural issues were considered) and 25 October (when final list of topics was recommended for approval by the Conference).

Following the mandate of the Conference (CCDEC2017 23), some of the meetings of the Subgroup took the format of consultation with the Observers (2 February) and the industry – through the Industry Advisory Panel – (14 May). Particular reports were prepared with the conclusions of those consultations. In addition, the Industry Advisory Panel circulated a position paper on the potential modernisation of the ECT, which was considered by the Subgroup and that is also annexed to the Report of the Industry Advisory Panel to the Conference (CCDEC2018 23).

On 27 November 2018, the Conference approved the list of topics for the modernisation of the ECT (CCDEC2018 21).

  • Pre-investment

  • Definition of ‘charter’

  • Definition of ‘economic activity in the energy sector’

  • Definition of investment

  • Definition of investor

  • Right to regulate

  • Definition of Fair and Equitable Treatment (FET)

  • MFN Clause

  • Clarification of ‘most constant protection and security’

  • Definition of indirect expropriation

  • Compensation for losses

  • Umbrella clause

  • Denial of benefits

  • Transfers related to investments

  • Frivolous claims

  • Transparency

  • Security for costs

  • Valuation of damages

  • Third party funding

  • Sustainable development and corporate social responsibility

  • Definition of ‘transit’

  • Access to infrastructure (including denial of access and available capacities)

  • Definition and principles of tariff setting

  • REIO

  • Obsolete provisions

2019

On 6 October 2019, the Conference approved some suggested policy options for modernisation of the ECT (CCDEC2019 08).

On 6 November 2019, the Conference established and mandated the Modernisation Group to start negotiations on the modernisation of the Energy Charter Treaty, with a view to conclude negotiations expeditiously, as well as approved several procedural issues to be followed during the negotiations (CCDEC2019 10). The Conference also invited the Modernisation Group to report to the next meeting of the Conference on progress made in fulfilling the negotiations mandate.

The Chairpersons of the Modernisation Group are: 

Chair: Mr. Lukas Stifler (Austria)

Vice-Chair: Mr. Orii Sunao (Japan)

Vice-Chair: Mr. Guy Lentz (Luxembourg)

Vice-Chair: Mr. Samir Abdurahimov (Azerbaijan)

Vice-Chair: Mr. Felix Imhof (Switzerland)

2020

On 6 November 2019 (see Conference Decision CCDEC 2019 10), the Energy Charter Conference established and mandated the Modernisation Group to start negotiations on the modernisation of the Energy Charter Treaty, with a view to conclude negotiations expeditiously.  

The First Negotiation Round on the Modernisation of the Energy Charter Treaty took place on 6-9 July 2020 by videoconference. 

Initial proposals and discussion papers were presented and discussed in detail by the delegations. The Modernisation Group took note of the comments and positions of the delegations as well as the progress made at the meeting. Taking into account the list of topics for modernisation of the Energy Charter Treaty (see Conference Decision CCDEC 2018 18), the discussion was based on the following agenda: 

  • Definitions 
    •         Definition of ‘charter’ 
    •         Definition of ‘economic activity in the energy sector’
  • Investment protection 
    •         Definition of investment 
    •         Definition of investor
    •         Clarification of ‘most constant protection and security’ 
    •         Compensation for losses 
    •         Definition of Fair and Equitable Treatment 
    •         Definition of indirect expropriation 
    •         Denial of benefits 
    •         MFN clause 
    •         Right to regulate 
    •         Transfers related to investments 
    •         Umbrella clause 

The Second Negotiation Round is taking place by videoconference on 8-11 September. The Modernisation Group envisages to address the following topics:

  • Dispute settlement 
    •         Frivolous claims 
    •         Security for costs 
    •         Third party funding
    •         Transparency 
    •         Valuation of damages 
  • Transit 
    •         Access to infrastructure (including denial of access and available capacities) 
    •         Definition and principles of tariff setting 
    •         Definition of ‘transit’ 
  • Sustainable development and corporate social responsibility 
  • Remaining topics from previous negotiation round 

 

Public communication in English

Публичное сообщение на русском 

On 8-11 September 2020, the Second Negotiation Round on the modernisation of the Energy Charter Treaty (ECT) was held by videoconference.1 

Taking into account the list of agreed topics for modernisation of the Energy Charter Treaty (see Conference Decision CCDEC 2018 18) and the suggested policy options for modernisation of the ECT (see Conference Decision CCDEC 2019 08), the Modernisation Group has discussed this Round the following topics:

  • Transit 
    • Definition of ‘transit’ 
    • Access to infrastructure (including denial of access and available capacities) 
    • Definition and principles of tariff setting 
  • Sustainable development and corporate social responsibility 
  • Dispute settlement 
    • Frivolous claims 
    • Security for costs 
    • Third party funding
    • Transparency 
    • Valuation of damages 
  • Remaining topics from the previous negotiation round  

The Modernisation Group discussed the aforementioned issues on the basis of text proposals submitted by the delegations. The goal of this Round was to explain and clarify the proposals and find common ground for the discussion without prejudice to any delegation’s final position. 

The discussion on ‘Transit’ was based upon comments submitted by delegations pertaining to possible amendments of Article 7 ECT. These initial considerations focused in particular on the possible modification of the definition of “transit” with a view to reflecting recent developments. It was also suggested to introduce new language to clarify the main principles of tariff setting for the transit of energy resources, and on access to existing infrastructure, as well as grounds for denying this access.

In connection with ‘Sustainable development and corporate social responsibility’, delegations considered objectives related to sustainable development, environment, climate change and corporate social responsibility. The discussions included comments and proposals on the right to regulate, relevant multilateral environmental agreements, climate change and the clean energy transition such as the Paris Agreement, international standards of labour protection, responsible business practices, the conduct of environmental impact assessment and good governance (transparency).

During the deliberations on ‘Dispute Settlement’, several delegations took the view that a modernised ECT should reflect modern trends in treaty practice pertaining to the topics encompassed in the list of topics for modernisation of the Energy Charter Treaty (CCDEC2018 18), including discussions taking place in UNCITRAL and ICSID. Some delegations presented proposals to ensure the expedited disposal of unmeritorious and/or abusive claims and to avoid costs linked to the litigation of such claims. An initial discussion took place on proposals to regulate the issues of Security for costs and Third Party Funding in the context of the Energy Charter Treaty. It was generally felt that the Modernisation Group should further explore the possibility of increasing transparency in investor-State dispute settlement. The Group discussed if and to what extent the UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration could be integrated. Some delegations stressed the need for maintaining a balance between transparency on the one hand, and other legitimate interests on the other. Discussions also took place on a proposal to regulate interventions by non-disputing parties and third parties to cases under the ECT. The Modernisation Group also had a preliminary discussion on questions relating to the valuation of damages. 

Under the item ‘Remaining topics from previous negotiation round’, delegations availed themselves of the possibility to seek clarifications on comments and proposals discussed during the first round of negotiations (6-9 July 2020; see Public Communication). In this context, inter alia, a provision on Public Debt was discussed.

The Third Negotiation Round will take place by videoconference on 3-6 November 2020. The Modernisation Group envisages to address the following topics:

  • Pre-investment
  • REIO
  • Obsolete provisions 
  • Remaining topics from previous negotiation rounds. 

After the third round, the Modernisation Group will present a first progress report to the Energy Charter Conference. 

No consensus was reached on a request by one delegation to discuss a broader reform of ISDS beyond the list of topics for modernisation (CCDEC2018 18).


                                             

On 6 November 2019 (see Conference Decision CCDEC 2019 10), the Energy Charter Conference established and mandated the Modernisation Group to start negotiations on the modernisation of the Energy Charter Treaty, with a view to conclude negotiations expeditiously. The First Negotiation Round on the Modernisation of the Energy Charter Treaty took place on 6-9 July 2020.

 

Public communication in English

Публичное сообщение на русском 

On 3-6 November 2020, the Third Negotiation Round on the modernisation of the Energy Charter Treaty (ECT) was held by videoconference.[1]

Taking into account the list of agreed topics for modernisation of the ECT (see Conference Decision CCDEC 2018 18) and the suggested policy options (see Conference Decision CCDEC 2019 08), during the Third Negotiation Round held by the Modernisation Group, the following topics were addressed:

  • Pre-investment;
  • REIO;
  • Obsolete provisions;
  • Remaining topics from the previous negotiation rounds. 

The Modernisation Group discussed the aforementioned topics on the basis of submissions and comments provided by the delegations before and during the negotiation round. The goal of this round was to explain and clarify the positions and find common ground for the discussion without prejudice to any delegation’s final decision.

The discussion on ‘Pre-investment’ was based on a discussion paper as well as positions expressed by delegations during the meeting, taking into account that the current Energy Charter Treaty provides that Contracting Parties shall endeavor to provide non-discriminatory treatment to investors from other Contracting Parties in the making of investments.

In connection with Regional Economic Integration Organisation (REIO), delegations considered whether it was necessary to clarify the legal relationship between members of a REIO under the ECT. Currently, one REIO – the European Union – is a member of the Energy Charter Conference. Some ECT Contracting Parties and Signatories are members of other REIOs.

Further, the delegations addressed the potential ‘Obsolete provisions’ included in the policy options approved by the Conference in 2019 (CCDEC 2019 08), such as Article 32 on transitional arrangements, and requested the Secretariat to provide some text proposals.

The Modernisation Group availed itself of the possibility to revert to the ‘Remaining topics from the previous negotiation rounds’ to seek clarifications on comments and proposals discussed during the first and the second round of negotiations. In particular, the Modernisation Group discussed the following topics: definition of investment, definition of investor, right to regulate, most constant protection and security, frivolous claims, third party funding, security for costs. The Group discussed the possible consolidation of proposals on, for example, the definition of investment and investor, most constant protection and security, and the right to regulate, as there appears to be common ground between the texts proposed. Some Contracting Parties expressed support for the textual proposals made by other delegations. One Contracting Party presented a proposal for a possible combined format of the texts tabled at previous rounds on the issues of frivolous claims, security for costs and third-party funding. The Group had an initial discussion on the possible future format of the negotiation texts. Different Contracting Parties welcomed this proposal as a possible basis for discussion at future rounds but indicated that they would need more time to review and assess it in detail, and pointed out that the format of future proposal should not be restricted. Some delegations who submitted text proposals signalled their willingness to discuss ahead of the next round the possibility to find a possible format on how to combine their respective text proposals on these issues.

Finally, an initial discussion took place on the reporting to the Energy Charter Conference. The mandate for negotiations on modernisation of the ECT (point n of Conference Decision CCDEC2019 10) envisages that in December 2020 “the Conference should take stock of the progress made”. This year, the Energy Charter Conference will take place on 16-17 December 2020 under the Chairmanship of Azerbaijan.

On 18 December 2020, the Modernisation Group will hold a meeting to consider and adopt the agenda for the negotiations to be held in 2021.

 


[1] On 6 November 2019 (see Conference Decision CCDEC 2019 10), the Energy Charter Conference established and mandated the Modernisation Group to start negotiations on the modernisation of the Energy Charter Treaty, with a view to conclude negotiations expeditiously. The First Negotiation Round and the Second Negotiation Round on the Modernisation of the Energy Charter Treaty took place on 6-9 July and 8-11 September 2020 respectively. 

 

Public communication in English

Публичное сообщение на русском

The Energy Charter Conference at its 31 st Statutory Meeting held on 16 December 2020 took note of the Report of the Modernisation Group on Progress Made in Fulfilling the Negotiations Mandate (CCDEC 2020 16). 

Following the meeting of the Energy Charter Conference, on 18 December, the Modernisation Group discussed plan for negotiations in 2021. It is expected that in 2021 the Modernisation Group will hold five rounds of negotiations (CCDEC 2020 17). 

2021

From 2-5 March 2021, the Fourth Negotiation Round on the modernisation of the Energy Charter Treaty (ECT) was held by videoconference.[1] All parties present engaged in fruitful discussions on all topics covered.

The following topics were addressed:

  • Definitions
    • Definition of ‘charter’
    • Definition of ‘economic activity in the energy sector’
  • Investment protection
    • Definition of investment
    • Definition of investor
    • Clarification of ‘most constant protection and security’
    • Compensation for losses
    • Definition of Fair and Equitable Treatment
    • Definition of indirect expropriation
    • Denial of benefits
    • MFN clause
    • Right to regulate
    • Umbrella clause

The Modernisation Group discussed the aforementioned topics on the basis of the progress made last year,[2] as well as submissions and comments provided by the delegations before and during the Fourth Negotiation Round.

In their deliberations, Contracting Parties continued to clarify similarities and differences in their positions with a view to advance negotiations to the drafting of compromise proposals.

Good progress was made and the Modernisation Group mandated the Energy Charter Secretariat, and the Chair and Vice-Chairs, with the drafting of draft compromise proposals to be considered during one of its next negotiation rounds in 2021.

With respect to the topic of ‘definition of ‘economic activity in the energy sector’, text-based discussions were held for the first time. The Modernisation Group decided to intensify discussions on this topic before the next negotiation round.

The Fifth Round of negotiations will take place from 1-4 June 2021.[3]

 


[1] On 6 November 2019 (see Conference Decision CCDEC 2019 10), the Energy Charter Conference established and mandated the Modernisation Group to start negotiations on the modernisation of the Energy Charter Treaty, with a view to conclude negotiations expeditiously. For the previous negotiation rounds, please consult https://www.energychartertreaty.org/modernisation-of-the-treaty/.

[2] The Energy Charter Conference at its 31st Statutory Meeting held on 16 December 2020 took note of the Report of the Modernisation Group on Progress Made in Fulfilling the Negotiations Mandate (CCDEC 2020 16). 

[3] It is expected that in 2021 the Modernisation Group will hold five rounds of negotiations (CCDEC 2020 17).

 

Public Communication in English

Публичное сообщение на русском

On 1-4 June 2021, the Fifth Negotiation Round on the modernisation of the Energy Charter Treaty (ECT) was held by videoconference.

The following topics were addressed:

  • Remaining topic from previous negotiation round
    •      Transfers related to investments
  • Transit
    •       Definition of ‘transit’
    •       Access to infrastructure (including denial of access and available capacities)
    •       Definition and principles of tariff setting
  • Sustainable development and corporate social responsibility
  • Dispute settlement
    •       Frivolous claims
    •       Security for costs
    •       Third party funding
    •       Transparency
    •       Valuation of damages
  • Definition of Economic Activities in the Energy Sector

 

The Modernisation Group discussed the aforementioned topics on the basis of the progress made in the previous negotiation rounds,[1] as well as submissions and comments provided by the delegations before and during the Fifth Round of Negotiations.

Contracting Parties engaged to clarify and aligned some of their positions. In particular, they advanced the degree of consensus on transfers as well as on certain issues related to Sustainable Development (notably CSR/RBP and impact assessment).

With respect to Transit, it was decided to explore outstanding issues in a dedicated informal workshop in order to facilitate a draft compromise.

In relation to Dispute Settlement, Contracting Parties advanced the discussion on the prevention and the early disposal of frivolous claims in investor-state proceedings.

With respect to security for costs, third party funding and valuation of damages, common ground was identified as regards the introduction of relevant provisions.

Furthermore, Contracting Parties considered to what extent the UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration should be incorporated. 

Delegations exchanged positions on “Definition of Economic Activities in the Energy Sector”, including on the need to amend the relevant provisions in light of the Contracting Parties’ individual climate goals and their specific energy mixes. Support was expressed for a continuation of the discussion in the course of the sixth round of negotiations with a view to analyse compromise options. 

With the view to conclude the negotiations expeditiously and to solve the divergences in their positions, the discussion of the topics of this negotiation round will be continued on the basis of compromise proposals to be drafted by the Energy Charter Secretariat. The Contracting Parties will informally meet in between the negotiating rounds to discuss the draft compromise proposals.

The Sixth Round of negotiations will take place on 6-9 July 2021 by videoconference.[2]

 


[1] For public communications with respect to the previous negotiation rounds, please consult https://www.energychartertreaty.org/modernisation-of-the-treaty/.

[2] It is expected that in 2021 the Modernisation Group will hold five rounds of negotiations (CCDEC 2020 17).

 

Public Communication in English

Публичное сообщение на русском

On 27 June 2021, the Energy Charter Conference approved the appointment of Mr. Akiyoshi Kawabata as Vice Chair of the Modernisation Group with effect as of 1 July 2021 (CCDEC 2021 11), thereby replacing Mr. Sunao Orii who informed about his resignation as Vice-Chair of the Modernisation Group on 29 June 2021. 

 

The Chairpersons of the Modernisation Group are: 

Chair: Mr. Lukas Stifler (Austria)

Vice-Chair: Mr. Akiyoshi Kawabata (Japan)

Vice-Chair: Mr. Guy Lentz (Luxembourg)

Vice-Chair: Mr. Samir Abdurahimov (Azerbaijan)

Vice-Chair: Mr. Felix Imhof (Switzerland)

 

On 6-9 July 2021, the Sixth Negotiation Round on the modernisation of the Energy Charter Treaty (ECT) was held by videoconference.

The following topics were addressed:

  • Pre-investment
  • Regional Economic Integration Organization (REIO)
  • Obsolete provisions
  • Definition of Economic Activity in the Energy Sector
  • Investment protection provisions

The Modernisation Group discussed the aforementioned topics on the basis of the progress made in the previous negotiation rounds,[1] submissions and comments provided by the delegations before and during the Sixth Round of Negotiations, as well as draft compromise proposals which were prepared on some of the topics.

On “Pre-investment”, further discussions may take place on the basis of the comments made and subject to the availability of text proposals. Regarding “REIO”, the Contracting Parties further clarified their positions and agreed to address this topic also during the informal workshop on transit issues in September. In addition, it was tentatively agreed to conclude the discussion of “Obsolete provisions”.

The Modernisation Group continued discussions on the “Definition of “economic activity in the energy sector”. Recalling the benefits of differential implementation and taking into account Contracting Parties’ individual climate goals and energy mixes, multiple approaches should be considered to address this topic. In this respect, some initial options to implement such flexibility were presented to the Contracting Parties by the Secretariat. As a result of the constructive discussions, the Secretariat was mandated to further elaborate on these options with a view to continue discussions at the next Round.

With respect to the topics on investment protection, the Contracting Parties considerably progressed on definitions of “investment” and “investor”, on the “Definition of indirect expropriation” as well as on “Denial of benefits”.

A high degree of convergence on the “Clarification of “most constant protection and security”, “Compensation for losses”, the “MFN Clause” and “Transfers related to investments” was reached.

The Modernisation Group continued to consider the introduction of treaty language preserving the “Right to regulate”. 

On “Definition of Fair and Equitable Treatment (FET)”, the Contracting Parties reached a common view that this topic will be subject to further detailed discussion.

With the view to conclude the negotiations expeditiously, the Secretariat will reflect the discussions of this negotiation round in draft compromise proposals, which are based on the original text proposals submitted by the Contracting Parties.

The Seventh Round of negotiations will take place on 28 September -1 October 2021 by videoconference.[2]

 


[1] For public communications with respect to the previous negotiation rounds, please consult https://www.energychartertreaty.org/modernisation-of-the-treaty/.

[2] It is expected that in 2021 the Modernisation Group will hold five rounds of negotiations (CCDEC 2020 17).

 

Public Communication in English

Публичное сообщение на русском

On 28 September – 1 October 2021, the Seventh Negotiation Round on the modernisation of the Energy Charter Treaty (ECT) was held by videoconference.

The following topics were addressed:

  • Remaining topic from the previous negotiation round
    • Umbrella clause
  • Transit
    • Definition of ‘transit’
    • Access to infrastructure (including denial of access and available capacities)
    • Definition and principles of tariff setting
  • Sustainable development and corporate social responsibility
  • Dispute settlement
    • Frivolous claims
    • Security for costs
    • Third party funding
    • Transparency
    • Valuation of damages
  • Definition of Economic Activities in the Energy Sector

The Modernisation Group discussed the aforementioned topics on the basis of the progress made in the previous Negotiation Rounds, submissions and comments provided by the delegations during this Negotiation Round, as well as draft compromise proposals which were prepared on some of the topics.

Contracting Parties discussed the Umbrella Clause and agreed to continue the discussion together with other provisions.

After holding an informal workshop in the beginning of September, the Modernisation Group had a constructive discussion with respect to the topics pertaining to Transit. The Contracting Parties were able to further clarify available text proposals and expressed diverging positions, in particular regarding the broadening of the scope of the transit provisions. Consequently, the Secretariat was instructed to draft a compromise proposal for further discussions.

The Modernisation Group advanced the discussion on Sustainable Development and Corporate Social Responsibility. In this context, the Contracting Parties considered compromise drafts on possible references to international instruments and agreements in the field of sustainable development and responsible business conduct. Discussions also covered environmental impact assessments, a proposed amendment of the ECT provisions on transparency as well as a proposal on climate change and clean energy transition.

The discussions on dispute settlement topics (Frivolous claims, Security for costs, Third-Party Funding, Transparency and Valuation of damages) made progress on the basis of compromise proposals.

The Modernisation Group continued discussions on the definition of “Economic Activity in the Energy Sector”. In this context, Contracting Parties discussed draft provisions on options to bring about the flexibility considered necessary by individual Contracting Parties, taking into account their individual energy security and climate goals.

Taking into account the common goal of Contracting Parties to finalise negotiations expeditiously, the Modernisation Group will focus on the most advanced topics in the context of the Eighth Negotiation Round scheduled for the second week of November 2021.

 

Public Communication in English

Публичное сообщение на русском

 

On 9-12 November 2021, the Eighth Negotiation Round on the modernisation of the Energy Charter Treaty (ECT) was held by videoconference.

The following topics were addressed:

  • Investment protection
    • Definition of investment
    • Definition of investor
    • Clarification of ‘most constant protection and security’
    • Definition of Fair and Equitable Treatment (FET)
    • Definition of indirect expropriation
    • Denial of benefits
    • MFN clause
    • Right to regulate
    • Transfers related to investments
    • Umbrella clause
  • Dispute settlement
    • Frivolous claims
    • Security for costs
    • Third party funding
    • Transparency
    • Valuation of damages
  • Sustainable development and corporate social responsibility

The Modernisation Group discussed the aforementioned topics on the basis of draft compromise proposals and submissions and comments provided by the delegations, taking into account the progress made in the previous Negotiation Rounds.[1]

The Modernisation Group tentatively concluded discussions on the “Definition of investor”, “Clarification of ‘most constant protection and security’” and “Transfers related to investments”.

Good progress was achieved by the Modernisation Group with respect to the “Definition of investment”, “Definition of indirect expropriation”, “Denial of benefits”, “Right to regulate”, “MFN clause”, “Frivolous claims”, as well as “Security for costs” and “Third party funding”.

In particular, the Modernisation Group advanced on several aspects of “Sustainable Development and Corporate Social Responsibility” and built on previous discussions on a draft article on the relation between the Energy Charter Treaty and the Paris Agreement.

The Modernisation Group agreed to continue the discussion on the “Definition of Fair and Equitable Treatment (FET)” and on “Umbrella clause” at one of its next meetings.

The Contracting Parties reaffirmed their commitment to make further progress in coming rounds with a view to overcome remaining divergences on the abovementioned topics

Taking into account the common goal of Contracting Parties to finalise negotiations expeditiously, the Modernisation Group will hold an additional ninth negotiation round on 13 December 2021 before the annual meeting of the Energy Charter Conference, which will be held online on 14-15 December 2021. In addition, a meeting dedicated to the Modernisation Group’s work plan for 2022 is scheduled for 25 November 2021.

 

Public Communication in English

Публичное сообщение на русском


[1] For public communications with respect to the previous Negotiation Rounds, please consult https://www.energychartertreaty.org/modernisation-of-the-treaty/.

 

On 13 December 2021, the Ninth Negotiation Round on the modernisation of the Energy Charter Treaty (ECT) was held by videoconference.

The following topics were addressed:

  • Transit
    • Definition of ‘Transit’
    • Access to infrastructure (including denial of access and available capacities)
    • Definition and principles of tariff setting
  • REIO (in the context of transit)
  • Definition of ‘Economic Activity in the Energy Sector’
  • Definition of ‘Fair and Equitable Treatment ‘

The Modernisation Group discussed the aforementioned topics on the basis of available draft compromise proposals and submissions and comments provided by the delegations, taking into account the progress made in the previous Negotiation Rounds.[1]

Deliberations on transit topics were held on the basis of a draft compromise proposal drafted by the Secretariat for this round.

The Modernisation Group continued its discussion regarding the “Definition of Fair and Equitable Treatment (FET)” on the basis of a new text proposal.

In the context of the definition of ‘Economic Activity in the Energy Sector’, the Contracting Parties concluded to continue the discussion based on the options prepared by the Secretariat to implement the flexibility considered necessary by individual Contracting Parties, taking into account their individual energy security and climate goals.

The Modernisation Group will update its report to the Energy Charter Conference on the progress made in 2021 based on deliberations of the Ninth Round.

The next Round of Negotiations is scheduled to take place on 18-21 January 2022 via Zoom videoconference.

 

Public Communication in English

Публичное сообщение на русском


[1] For public communications with respect to the previous Negotiation Rounds, please consult https://www.energychartertreaty.org/modernisation-of-the-treaty/.

On 25 November, the Modernisation Group discussed plan for negotiations in 2022. It is expected that in 2022 the Modernisation Group will hold four rounds of negotiations followed by an ad hoc meeting of the Energy Charter Conference aimed at reaching the agreement in principle. 

The Energy Charter Conference at its 32nd Statutory Meeting held on 14 December 2021 took note of the Progress Report of the Modernisation Group 2021 (CCDEC 2021 21).

2022

On 18-21 January 2022, the Tenth Negotiation Round on the modernisation of the Energy Charter Treaty (ECT) was held by videoconference.

The following topics were addressed:

  • Investment protection
    • Definition of ‘Investment’
    • Definition of ‘Fair and Equitable Treatment’
    • Definition of indirect expropriation
    • Denial of benefits
    • MFN clause
    • Right to regulate
    • Umbrella clause
  • Definition of ‘Economic Activity in the Energy Sector’
  • Transit
    • Definition of ‘Transit’
    • Access to infrastructure (including denial of access and available capacities)
    • Definition and principles of tariff setting
  • Regional Economic Integration Organization (REIO)

 

The Modernisation Group discussed the aforementioned topics on the basis of draft compromise proposals, submissions and comments provided by the delegations, taking into account the progress made in the previous Negotiation Rounds.[1]

The Modernisation Group made good progress on the “Definition of Investment”, “Definition of indirect expropriation”, “Denial of benefits” and “MFN clause”. Further discussions with respect to the “Definition of Fair and Equitable Treatment (FET)” will continue based on a compromise text. Against this backdrop, delegations decided that the “Umbrella clause” would be discussed in one of the next meetings given its close connection to FET. The Modernisation Group advanced its discussions on the “Right to regulate” taking into account relevant text proposals for  related articles. In addition, proposals regarding general and security exceptions under Article 24 of the ECT were considered.

The Modernisation Group achieved good progress on the “Definition of Economic Activity in the Energy Sector” by narrowing down the options prepared by the Secretariat to implement the flexibility considered necessary by individual Contracting Parties, including with respect to the scope of investment protection for fossil fuels in their territories, taking into account their individual energy security and climate goals.

Within the context of REIO, the Modernisation Group continued to consider transit obligations and the application of dispute settlement under the ECT. The topics related to Transit were discussed taking into account a new text proposal.

The next Round of Negotiations is scheduled to take place on 1-4 March 2022 via videoconference. In accordance with the work plan of the Modernisation Group, further negotiation rounds are scheduled for 19-22 April and 17-20 May 2022 before the ad hoc Energy Charter Conference in June 2022 aiming at reaching the agreement in principle.[2]

On 1-4 March 2022, the Eleventh Negotiation Round on the modernisation of the Energy Charter Treaty (ECT) was held by videoconference.

At the beginning of the negotiation round, the Modernisation Group expressed its solidarity with and offered its help to the Ukrainian colleagues, who could not fully participate in the discussions.

Several Contracting Parties, including the European Union and its Member States, Japan, the United Kingdom and Switzerland, condemned in the strongest possible terms the unprecedented military aggression of the Russian Federation against the ECT’s Contracting Party Ukraine. By its unprovoked and unjustified military actions, the Russian Federation is grossly violating international law and undermining European and global security and stability. Delegates further stressed that they hope for a swift diplomatic resolution of the current situation.

The delegate from Ukraine informed the participants of the 11th round of modernization of the ECT about the current catastrophic results of the Russian military invasion of the sovereign territory of Ukraine on 24 February 2022: about the Russian attacks on social facilities, residential buildings, social and energy infrastructure facilities, and about the numerous victims of the population. He also informed about the possible threats of the Russian invasion of Ukraine for the whole of Europe and the world, including in the field of energy security, which may be caused by the seizure of nuclear power plants in Ukraine, the destruction of gas transportation and other oil and gas infrastructure, as well as the further purchase of Russian energy resources, and the sale of new energy projects of the Russian Federation (for example, the Nord Stream-2 gas pipeline), which cast doubt on the efforts of the delegates participating in the rounds of negotiations on the modernization of the ECT and the development of other international legislation. He also added that against the backdrop of international assistance provided to Ukraine, the further purchase of Russian energy resources (oil and gas) enables the Russian Federation to continue to ignore the implementation of international treaties with the possibility of their further escalation of aggression against any participant in international relations. Finally, he concluded that otherwise, Europe may become a witness to a large-scale technogenic disaster, as well as an object to which the threat of a military invasion of the Russian Federation will spread.

The delegate from Ukraine called for consolidating the efforts of the delegates and the Energy Charter Secretariat, as soon as possible, to adopt a resolution that would allow identifying quick solutions to reduce the number of victims, stop the military operations of the Russian Federation on the territory of Ukraine and de-escalate the conflict exclusively through negotiations.

The Energy Charter Secretariat assured its full support, within its mandate, and referred to a communication inviting the Russian Federation to seek resolution of the current emergency.

The following topics were addressed:

  • Investment protection
    • Definition of ‘Investment’
    • Definition of ‘Fair and Equitable Treatment’
    • Definition of indirect expropriation
    • Denial of benefits
    • MFN clause
    • Right to regulate
    • Umbrella clause
  • Dispute settlement
    • Frivolous claims
    • Security for costs
    • Third party funding
    • Transparency
    • Valuation of damages
  • Sustainable development and corporate social responsibility
  • Definition of ‘Economic Activity in the Energy Sector’

 

In the course of the eleventh Negotiation Round, the Modernisation Group discussed the aforementioned topics on the basis of draft compromise proposals, submissions and comments provided by the delegations, taking into account the progress made in the previous Negotiation Rounds.[1]

In relation to the “Definition of Investment”, the Modernisation Group addressed the outstanding issue of public debt. Good progress was made on the “Definition of indirect expropriation”, “Denial of benefits” and “MFN clause”. The “Definition of Fair and Equitable Treatment (FET)” will be further discussed together with the “Umbrella clause”.

Concerning the “Right to regulate”, the Modernisation Group advanced its discussions on the introduction of a self-standing article in the ECT. In addition, progress was made on General Exceptions (Article 24 ECT) and a new article addressing Security Exceptions.

The Modernisation Group substantially advanced discussions on “Security for Costs” and “Valuation of damages”. The Modernisation Group also had some discussions topic on “Transparency”, which will continue to be addressed in the following round.

Discussions on the topics of “Frivolous Claims” and “Third Party Funding” were tentatively concluded.

In the context of Sustainable Development and Corporate Social Responsibility, progress was made on provisions referring to relevant international instruments and agreements and on Environmental Impact Assessment. Furthermore, delegations considered the article on climate change and clean energy transition as well as a proposal for the resolution of disagreements between Contracting Parties concerning sustainable development.

On the “Definition of Economic Activity in the Energy Sector”, delegations continued to exchange views on the proposal of the Secretariat to implement the principle of flexibility. This principle is considered necessary by individual Contracting Parties to determine the scope of the gradual exclusion of investment protection for fossil fuels in their territories under consensus of ECT Contracting Parties. Delegations shared their general views, taking into account current international energy security crisis created by Russian aggression against Ukraine and climate goals, and discussed relevant questions since a delegation raised concerns about retroactivity and reciprocity on the proposal.

 

The next Round of Negotiations is scheduled to take place on 19-22 April 2022.

 

Public communication in English

Публичное сообщение на русском

Public Coomunication in English

Публичное сообщение на русском


[1] For public communications with respect to the previous Negotiation Rounds, please consult https://www.energychartertreaty.org/modernisation-of-the-treaty/.

On 19-22 April 2022, the Twelfth Negotiation Round on the modernisation of the Energy Charter Treaty (ECT) was held in the Energy Charter Secretariat in Brussels (supplemented with videoconference).

The following remaining topics were addressed:

  • Definition of ‘Economic Activity in the Energy Sector’
  • Transit
    • Definition of ‘transit’
    • Access to infrastructure (including denial of access and available capacities)
    • Definition and principles of tariff setting
    • REIO
  • Sustainable development and corporate social responsibility
  • Dispute settlement
    • Security for costs
    • Transparency
    • Valuation of damages
  • Investment protection
    • Right to regulate
    • Denial of benefits
    • MFN clause
    • Definition of indirect expropriation
    • Definition of ‘Investment’
    • Definition of ‘Fair and Equitable Treatment’
    • Umbrella clause

In the course of the Twelfth Negotiation Round, the Modernisation Group discussed the aforementioned topics on the basis of draft compromise proposals, submissions and comments provided by the delegations, taking into account the progress made in the previous Negotiation Rounds.[1]

The Modernisation Group welcomed the participation of Ukraine and expressed its solidarity. The delegation of Ukraine took the opportunity to express its positions on the aforementioned topics and informed the Group about the current situation in Ukraine.

On the “Definition of Economic Activity in the Energy Sector”, delegations continued their discussion on the proposal of the Secretariat to implement the principle of flexibility.

The Modernisation Group continued its discussion on Transit on the basis of a revised draft compromise proposal.

Under REIO, Contracting Parties considered a clarification regarding the application of certain provisions of the ECT among members of a REIO being a Contracting Party to the ECT.

Some progress was made with respect to general provisions of Sustainable Development and Corporate Social Responsibility. In this context, the Modernisation Group further elaborated on a dedicated mechanism for the resolution of disputes between Contracting Parties.

On Transparency, the Modernisation Group advanced its discussion on the application of the UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration to the investor-state arbitration proceedings under the ECT.

The Modernisation Group made progress in the context of “Right to Regulate” and Denial of Benefits.

After having achieved substantive progress on the Definition of “Investment”, the Modernisation Group advanced on outstanding questions regarding a proposed Annex clarifying the treatment of public debt under the ECT.

The Modernisation Group tentatively concluded the negotiations on the topic on Valuation of Damages and Definition of Indirect Expropriation.

On Fair and Equitable Treatment and the Umbrella Clause, the Group considered that further discussions need to be held before agreeing on the outstanding issues.

At the end of this negotiation round, the Modernisation Group considered procedural aspects regarding the entry into force of the modernised ECT and a tentative date for the ad hoc meeting of the Energy Charter Conference for the agreement in principle (24 June 2022).

 

The next Round of Negotiations is scheduled to take place in Brussels on 16-20 May 2022.

 

 

Public Communication in English

Публичное сообщение на русском


[1] For public communications with respect to the previous Negotiation Rounds, please consult https://www.energychartertreaty.org/modernisation-of-the-treaty/.

On 16-20 May 2022, the Thirteenth Negotiation Round on the modernisation of the Energy Charter Treaty (ECT) was held in the Energy Charter Secretariat in Brussels (supplemented with videoconference).

A representative of Ukraine provided an update on the Russian military aggression against Ukraine. The Secretary-General of the Energy Charter Secretariat expressed support for Ukraine and informed about further steps in that regard that are already underway.

The following remaining topics were addressed:

  • Transit
    • Definition of ‘transit’
    • Access to infrastructure (including denial of access and available capacities)
    • Definition and principles of tariff setting
  • Regional Economic Integration Organisation (REIO)
  • Definition of ‘Economic Activity in the Energy Sector’
  • Sustainable development and corporate social responsibility
  • Investment protection
    • Definition of ‘Investment’
    • Definition of ‘Fair and Equitable Treatment’ (FET)
    • Denial of benefits
    • MFN clause
    • Right to regulate
    • Umbrella clause
  • Dispute settlement
    • Security for costs
    • Transparency

 

In the course of the Thirteenth Negotiation Round, the Modernisation Group discussed the aforementioned topics on the basis of draft compromise proposals, submissions and comments provided by the delegations, taking into account the progress made in the previous Negotiation Rounds.[1]

The Modernisation Group tentatively concluded the negotiations on the topics related to Transit.

With respect to REIO, the Modernisation Group tentatively agreed on a clarification regarding the application of certain provisions of the ECT among members of a REIO.

On the “Definition of Economic Activity in the Energy Sector”, delegations continued their discussions including on the scope and the implementation of flexibility.

Progress was made with respect to general provisions of Sustainable Development and Corporate Social Responsibility. In this context, the Modernisation Group progressed on its discussion on a dedicated mechanism for the resolution of disputes between Contracting Parties.

On Investment Protection, the Modernisation Group achieved substantial progress on FET and Umbrella Clause. It also tentatively concluded the negotiations on the topic of Denial of Benefits. On the Definition of “Investment”, the Modernisation Group advanced on outstanding questions regarding a proposed Annex clarifying the treatment of public debt under the ECT. In the context of “Right to Regulate”, discussions focused on Exceptions.

On Dispute settlement, the Modernisation Group tentatively concluded the discussion on Security for Costs. With respect to Transparency, progress was made on the application of the UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration to the investment arbitration proceedings under the ECT. In addition, transparency provisions applicable to State-to-State disputes were considered.

In sum, delegations reached a high degree of convergence in the negotiations. It was agreed to conclude outstanding aspects in dedicated online meetings on 8, 9 and 10 June 2022, in addition to the already confirmed in-person meeting on 23 June 2022, before the ad hoc meeting of the Energy Charter Conference for the agreement in principle (24 June 2022).

INTERIM PUBLIC COMMUNICATION ON THE FOURTEENTH NEGOTIATION ROUND OF THE MODERNISATION OF THE ENERGY CHARTER TREATY

Delegations decided to extend the Fourteenth Negotiation Round for one day, Tuesday 14 June 2022, while taking Monday 13 June for informal consultations and bilateral discussions.

During the first days of the negotiation round, 8-10 June 2022:

A representative of Ukraine provided an update on the Russian war against Ukraine. The Modernisation Group reiterated its support for Ukraine.

The following remaining topics were addressed:

  • Text proposals of one delegation on Transit and REIO
  • Definition of ‘Economic Activity in the Energy Sector’
  • Sustainable development and corporate social responsibility
  • Dispute settlement
    • Transparency
  • Investment protection
    • Definition of ‘Investment’
    • Right to regulate
    • Definition of ‘Fair and Equitable Treatment’
    • Umbrella clause
    • MFN clause

In the course of the Fourteenth Negotiation Round, the Modernisation Group discussed the aforementioned topics on the basis of draft compromise proposals, submissions and comments provided by the delegations, taking into account the progress made in the previous Negotiation Rounds.[1]

On the “Definition of Economic Activity in the Energy Sector”, the Modernisation Group tentatively concluded the discussions on an updated list of Energy Materials and Products and tentatively agreed to introduce a periodical review mechanism. With respect to the introduction of a potential flexibility mechanism, proposals of individual Contracting Parties were considered in combination with rules on reciprocity among Contracting Parties as well as transition periods.

With respect to Sustainable Development and Corporate Social Responsibility, delegations tentatively concluded discussions on a dedicated dispute settlement mechanism as well as on a standalone article on sustainable development.

In the context of “Right to Regulate”, discussions focused on Security Exceptions.

The Modernisation Group tentatively agreed on the application of the UNCITRAL Rules on Transparency in Treaty-based Investor-State arbitration to the cases under the ECT with some additions. Furthermore, the introduction of transparency provisions applicable to State-to-State disputes was tentatively confirmed.

The Modernisation Group tentatively concluded the discussion on FET and umbrella clause, and made progress on the outstanding issues on the Definition of Investment and the MFN clause.

During the Modernisation Group’s additional meeting on 14 June 2022 in the context of the 14th round of negotiations, delegations continued discussions on outstanding topics.

The Modernisation Group tentatively concluded negotiations on the Definition of Investment by introducing provisions on disputes regarding public debt instruments as well as a clarification on the applicable law.

Good progress was made on outstanding details regarding the right to regulate, the MFN clause, the “Definition of Economic Activity in the Energy Sector” and Sustainable Development and Corporate Social Responsibility.

Delegations agreed to continue informal consultations before the meeting on 23 June to prepare the ad hoc meeting of the Energy Charter Conference for the agreement in principle (24 June 2022).

 

Interim Public Communication in English  

Промежуточное публичное сообщение на русском

 


PUBLIC COMMUNICATION ON THE FOURTEENTH NEGOTIATION ROUND OF THE MODERNISATION OF THE ENERGY CHARTER TREATY

During the Modernisation Group’s additional meeting on 14 June 2022 in the context of the 14th round of negotiations (see the Interim Public Communication of 10 June 2022), delegations continued discussions on outstanding topics.

Good progress was made on outstanding details regarding the right to regulate, the MFN clause, the “Definition of Economic Activity in the Energy Sector” and Sustainable Development and Corporate Social Responsibility.

Delegations agreed to continuei nformal consultations before the meeting on 23 June to prepare the ad hoc meeting of the Energy Charter Conference for the agreement in principle (24 June 2022).

 

Public Communication in English  

Публичное сообщение на русском

 


[1] For public communications with respect to the previous Negotiation Rounds, please consult https://www.energychartertreaty.org/modernisation-of-the-treaty/.

On 15 June 2022, the Energy Charter Conference approved the appointment of Mr. Elshan Abdulazimov as Vice-Chair of the Modernisation Group (CCDEC 2022 06), thereby replacing Mr. Samir Abdurahimov. 

The Chairpersons of the Modernisation Group are: 

Chair: Mr. Lukas Stifler (Austria)

Vice-Chair: Mr. Akiyoshi Kawabata (Japan)

Vice-Chair: Mr. Elshan Abdulazimov (Azerbaijan)

Vice-Chair: Mr. Felix Imhof (Switzerland)

On 23 June 2022, the Fifteenth Negotiation Round on the modernisation of the Energy Charter Treaty (ECT) was held in the premises of the Energy Charter Secretariat. The Modernisation Group tentatively concluded discussions on all the remaining topics and recommended to the Energy Charter Conference to confirm the agreement in principle at its Ad Hoc meeting on 24 June 2022, thus concluding the negotiations for a modernised ECT.

 

Public Communication in English  

Публичное сообщение на русском

Finalisation of the negotiations on the Modernisation of the Energy Charter Treaty

Brussels 24 June 2022

 

The Contracting Parties of the Energy Charter Treaty (ECT) have today reached an agreement in principle, thus concluding the negotiations for a modernised ECT. After the completion of an editorial and legal review, the  draft text will be communicated to the Contracting Parties by 22 August 2022 for adoption by the Energy Charter Conference on 22 November 2022. Thereafter, the modernised ECT will enter into force 90 days after the ratification by three-fourths of the Contracting Parties. The agreement in principle is without prejudice regarding its final assessment by the Contracting Parties. 

 

How the Agreement in Principle was reached

In November 2017, the Energy Charter Conference confirmed in Ashgabat, Turkmenistan, the launching of a discussion on the potential modernisation of the ECT. After consultations in early 2018, Contracting Parties agreed to address a specific list of topics (CCDEC2018 18).

In Autumn 2019, the Conference approved (CCDEC2019 08) some suggested policy options for each of the agreed topics and the mandate for the Modernisation Group to conclude negotiations expeditiously (CCDEC2019 10).

After the formal start of the negotiations in July 2020, the Modernisation Group held 15 rounds of negotiations, 12 of which were held via videoconference, 2 in hybrid mode and one in person due to pandemic-related travel restrictions (for public summaries of each round see here).

 

Summary of the main achievements of the negotiations

Pending the completion of an editorial and legal review of the text, the following summary presents, in a non-exhaustive manner, the main outcome of the negotiations but does not by any means constitute a legal text. Once the final text for the modernisation of the ECT is confirmed by the conference on 22 November 2022 (see above), it will be immediately published. 

 

1. Definitions 

Regarding the meaning of “Charter” (Article 1(1) ECT), it was decided to include a reference to the 2015 International Energy Charter.

Under the topic “Definition of Economic Activity in the Energy Sector”, negotiations focused on the scope of the modernised ECT in terms of business activities and sources of energy covered. The definition is now extended to cover the capture, utilisation and storage of carbon dioxide (CCUS) in order to decarbonise the energy systems. The revised provisions now envisage how investments in different sources of energy will be protected under the ECT against the backdrop of clean energy goals of Contracting Parties.

The result of these intense discussions builds on three pillars:

  

Pillar 1: Updated list of Energy Materials and Products 

Some Energy Materials and Products are introduced and covered by the investment protection provisions, such as:

    • Hydrogen;
    • Anhydrous Ammonia;
    • Biomass;
    • Biogas; and
    • Synthetic fuels.

Additional Energy-Related Equipment is introduced and covered by the trade provisions, such as wool, rock-wool and similar mineral wools;and Multiple-walled insulating units of glass.

 

Pillar 2: Flexibility

A novel “flexibility mechanism” allows Contracting Parties, based on a Conference decision, to exclude investment protection for fossil fuels in their territories, considering their individual energy security and climate goals. For example, the EU and the UK have opted to carve-out fossil fuel related investments from investment protection under the ECT, including for existing investments after 10 years from the entry into force of the relevant provisions and for new investments made after 15 August 2023 as of that date with limited exceptions. 

The envisaged exclusions will not, as a matter of principle, affect investment protection in the territory of other Contracting Parties, unless they opt to apply them vis-à-vis investors from the aforementioned Contracting Parties reciprocally.

 

Pillar 3: Review mechanism

Five years after the entry into force of the modernised ECT and thereafter at intervals of five years, or on an earlier date as determined by the Charter Conference, the list of Energy Materials and Products covered under the ECT as well as the application of the Flexibility Mechanism will be reviewed. This will give Contracting Parties the possibility to react to technological as well as political developments.

 

2. Investment Protection  

Definition of Investment: In order to be covered by the Treaty, an investment must, inter alia, explicitly be made or acquired in accordance with the applicable laws[1] of the host Contracting Party, and fulfil an indicative list of characteristics, such as the commitment of capital, the expectation of gain or profit, a certain duration or the assumption of risk. The new definition excludes the coverage of judicial and administrative decisions and arbitral awards as well as limits the coverage of claims to money and credit arising solely from commercial transactions for the sale of goods and services. Specific public debt instruments are excluded from the coverage of the dispute settlement provisions.

Definition of Investor: The new provision excludes the coverage of individuals who hold the nationality, or are permanent residents, of the host Contracting Party at the time of making an Investment. It is now moreover necessary to meet the requirement of substantial business activities by demonstrating the circumstances from the indicative list included in the Treaty (such as physical presence, employment of staff, turnover generation or payment of taxes in the Area of a host Contracting Party).

Clarification of ‘most constant protection and security’: It is clarified that this provision concerns the physical security of Investors and Investments.

Transfers related to investments: An exception for serious balance-of-payments difficulties is introduced, together with a specific provision for the safeguard measures in case of serious difficulties in the operation of the economic and monetary union of the European Union or in monetary and exchange rate policies of other Contracting Parties.

Definition of Fair and Equitable Treatment: To increase legal certainty, the new article providing for fair and equitable treatment’ under the ECT will provide for a list that designates certain measures or series of measures that constitute a violation of this protection standard. Among such measures or series of measures, the new provision specifies the frustration of Investor’s legitimate expectations and it describes circumstances that give rise to Investor’s legitimate expectations and the conditions under which legitimate expectations may be considered.

Definition of Indirect Expropriation: The new provision clarifies the notion of ‘Direct Expropriation’ and further introduces a definition of ‘Indirect Expropriation’ together with a list of factors that are required to be considered for the determination of the existence of an indirect expropriation in each case (such as economic impact and character of the measure). As a general rule, non-discriminatory measures that are adopted to protect legitimate policy objectives, such as public health, safety and the environment (including with respect to climate change mitigation and adaptation), do not constitute indirect expropriation.

Denial of benefits: To ensure effectiveness of the provision, the Treaty envisages the timeline for invoking the denial-of-benefits clause, including possibility to invoke it after the commencement of an arbitral proceeding. The denial-of-benefits clause will not be subject to an advance formal notification. The new provision clarifies the situations when the protection to an Investment may be denied, notably for maintenance of international peace and security, including the protection of human rights.

MFN clause: For greater legal certainty, it is clarified that the most-favoured-nation treatment clause shall not extend to dispute settlement procedures in other international agreements and the substantive provisions in other international agreements in and of themselves do not constitute “treatment” to be accorded under this clause.

Right to regulate: Additional wording in the preamble and throughout the Treaty are introduced to reiterate and strengthen the right of Contracting Parties to regulate within their territories. For legal certainty, a new stand-alone article on the right to regulate is introduced in Part III of the Treaty to reaffirm the Contracting Parties’ right to regulate vis-a-vis Investments and Investors in the interest of legitimate public policy objectives. Such objectives may include the protection of the environment, including climate change mitigation and adaptation, protection of public health, safety or public morals. A new structure is introduced in provisions on the exceptions from the Treaty to complement the existing general exceptions building on the provisions of GATT and GATS and clarify a possibility of taking measures  for the maintenance of international peace and security.

Umbrella clause: Only a breach of specific written commitments through the exercise of governmental authority will be covered.

 

3. Dispute Settlement

Transparency. The UNCITRAL Rules on Transparency in Treaty-based Investor-State arbitration of 1 April 2014 will apply to arbitral proceedings in disputes between Investors and Contracting Parties with further additions envisaged in the Treaty. A greater transparency is introduced in dispute settlement procedures for disputes between the Contracting Parties ensuring that procedural documents in such disputes are publicly available and that the hearings may be publicly accessible.

Frivolous claims. To ensure efficiency of arbitral proceedings and reduce the costs of litigation, mechanisms are established for (i) dismissal of claims that are manifestly without legal merits as a matter of substance or jurisdiction at the outset of proceedings and (ii) expedited dismissal of claims unfounded as a matter of law on merits. A special provision is envisaged for dismissal of claims submitted as a result of investment restructuring for the sole purpose of submitting a claim under the Treaty.

Security for costs. A new provision is introduced giving a Contracting Party the possibility to request a claimant to post security for costs in certain cases, such as risks of not honouring an adverse decision on costs.

Third-party funding. The new provision will require both disputing parties to disclose information on a third party financing its litigation costs.

Valuation of damages. The new provision clarifies that an arbitral award may provide for monetary damages or restitution in case of expropriation. Monetary damages are limited to the loss suffered by an Investor and may not include punitive damages. As a general rule, the costs of the proceedings and other reasonable costs shall be borne by the unsuccessful party to the dispute.

 

4. Transit 

Some general principles are introduced with respect to:

  • facilitation of transparent and non-discriminatory access to existing and future Energy Transport Facilities;
  • circumstances when the access could be denied, in which case the reasons should be duly substantiated;
  • capacity allocation mechanisms and congestion management procedures for Energy Transport Facilities;
  • the objective, transparent and non-discriminatory application of tariffs required for access to or the use of Energy Transport Facilities for transit purposes, as well as the methodologies used for their calculation.

For transit of natural gas and oil, the definitions of “Access to Energy Transport Facilities” and “Available Capacity” were introduced.

Furthermore, the transit provisions were updated with reference to virtual flows and international swap operations, which could be used by Contracting Parties to organise their energy systems.

 

5. Sustainable development and corporate social responsibility  

Contracting Parties recognised the urgent need to effectively combat climate change.

A number of provisions were introduced that reaffirm the respective rights and obligations of the Contracting Parties under multilateral environmental and labour agreements, such as the UNFCCC, the Paris Agreement and ILO fundamental conventions, as relevant for the energy sector. They also reiterated their commitment to promoting international trade and investment in the energy sector in a manner that would contribute to the objectives of sustainable development and responsible business practices.

Moreover, the Contracting Parties shall not encourage international trade and investment in energy by lowering their respective environmental and labour protection laws and standards. The Contracting Parties will promote adherence to international standards and principles of responsible business conduct among the Investors operating within their Areas.

The new provisions on sustainable development and corporate social responsibility further clarify and strengthen the provisions on environmental impact assessment of energy investment projects in accordance with respective laws and regulations of Contracting Parties ensuring higher level of environmental protection and wider public participation.

The Contracting Parties reaffirmed their commitment to clean energy transition, promotion of low-carbon technologies in energy trade and investment, and cooperation in implementing climate change-related policies, where appropriate. A dedicated dispute settlement mechanism will be applicable to disputes between the Contracting Parties regarding the interpretation and application of the new provisions on sustainable development. Such dispute settlement mechanism will include a possibility to refer the matter to a conciliator.

 

6. Regional Economic Integration Organisation (REIO)

An article has been introduced that clarifies that Articles 7 (Transit), 26 (Investment dispute settlement), 27 (disputes between Contracting Parties), 29 (trade with non-WTO members) shall not apply among Contracting Parties that are members of the same Regional Economic Integration Organisation in their mutual relations. Currently, the European Union is the only REIO Contracting Party.

 

7. Obsolete provisions

The ECT will also be modernised by the removal of provisions and Annexes that either are no longer applicable due to their transitional nature and updating some references (e.g. in relation to the European Communities).

 

8. Pre-investment

It was decided to remove the obligation to negotiate the supplementary treaty to provide protection to pre-investment (current Article 10.4), while keeping the existing voluntary (Article 10.6) and best endeavour (Articles 10.2 and 10.5) provisions regarding pre-investment as well as the obligation to notify the Secretariat of any discriminatory measure applied to pre-investment (Article 10.9).

 


[1] The modernised ECT clarifies that the domestic law of a Contracting Party shall not be part of the applicable law and may only be considered as a matter of fact.

For any further queries on modernisation of the Energy Charter Treaty please contact modernisation@encharter.org