WILL THE NEW EU INSTITUTIONS ADDRESS THE CONCERNS OF THE INDUSTRY? Ana Stanič English Solicitor Advocate Honorary Lecturer at Centre for Energy Petroleum and Mining Law and Policy, University of Dundee
Scope of Presentation 1. Recent Developments in EU Law 2. What Law is in the Pipeline? 3. Legal Actions relating to Energy Sector 4. Investment Treaty Framework 5. EU Law v. International Investment Law 6. Recent Investment Treaty Arbitrations 7. Court of European Justice Approach 8. Legal Uncertainty re. Application of EU Law 9. Minimising Regulatory Risk 1
1. Recent Developments in EU Energy Law Guidelines on State aid for environmental protection and energy 2014-2020 Entered into force 1/7/2014 Applied to projects notified prior to 1/7/2014 No retrospective effect re. individual aid granted under approved aid scheme Member States should amend environmental and energy schemes no later than January 2016, exceptions: Whenever a beneficiary has received confirmation from a MS that it will benefit from State aid under such a scheme for a predetermined period Legal status of guidelines White paper on EU climate change and energy policy Binding EU decarbisation target of 40% compared to 1990 by 2030 Binding EU renewables target of at least 27%, without binding target on MS giving them flexibility to set objectives BUT further EU action to be taken to ensure delivery of EU target Energy efficiency target to be set after review of Energy Efficiency Directive is concluded EC to issue guidance on national energy and environmental plans and to assess them 2
2. What law is in the pipeline? Post 2014- implementation of Internal Energy Market (IEM) Report on the Internal gas market by ACER on 20/10/2914 Fourth Energy Package unlikely in the next 12 months Infringement proceedings expected Monitor activities of DSO Revision of Regulation on Gas Supply Security Revision of ACER Regulation CEER/ACER Bridge 2025: Enhanced regulatory oversight of ENTSOs Oversight of bodies that have pan European functions like power exchanges and trading and capacity allocation platforms Decisions of ACER to be subject to approval of Board of Regulators EC to prepare Guideline on competence re. adoption of energy regulation Energy Union collective purchasing mechanism" of the Euratom Supply Agency 3
3. Legal Actions relating to the Energy Sector Actions by the Commission Competition Action against Gazprom pursuant to Article 101 and 102 Long Term Contracts Take-or-Pay Clauses Oil-indexation Infringement proceedings against numerous Member States re. IEM Infringement proceedings against Bulgaria re. South Stream Actions against EU and EU MS Energy companies challenging EU energy law in BITs an ECT claims Russia filed claim in WTO against EU 4
4. Investment Treaty Framework Rights Accorded to Investors under Energy Charter Treaty (ECT) and BITs Fair and Equitable Treatment ( FET ) National Treatment: accord treatment no less favourable than that which it accords to its own investors Most Favoured Nation Treatment: accord treatment no less favourable than that accorded to investors from other states Right to prompt and adequate Compensation in case of Expropriation and Nationalisation Right to commence Arbitration in case of breach of the above-mentioned rights 5
4. Investment Treaty Framework BIT/ECT Free transfer of capital Fair and equitable treatment Indirect expropriation Full security and protection Free transfer of capital Arbitration Clause EU Law Free movement of capital Prohibition of discrimination Freedom of establishment Freedom of establishment Free movement of capital Damage claim against the state before national courts NB. EU law re. legitimate expectation, non-discrimination etc IS NOT THE SAME AND, IN FACT, MAY BE INCOMPATIBLE with rights accorded to investors under BIT ( See VEWM, Slovakia and Extra- BITs ECJ cases, C149/96 Portugal v. Council ) 6
5. EU Law v. International Investment Law Case C-17/03 VEMW Preliminary reference to ECJ, [2005] Facts: Contracts provided for the reservation of a portion of capacity on the cross-border system for the importation of electricity into the Netherlands to certain companies Contracts concluded prior to entry into force of EC Directive 96/92 Held: Directive prohibits [all discrimination] between system users or classes of system users re. allocation of capacity 7
5. EU Law v. International Investment Law These requirement of non-discrimination are specific expressions of the general principle of equality Preferential access granted pursuant to contract and by law The Netherlands could have sought derogation under provisions of Directive from requirement but did not Principle of the protection of legitimate expectations is one of the fundamental principles of EU law However, if a prudent and circumspect trader could have foreseen that the adoption of a Community measure is likely to affect his interests, he cannot plead that principle if the measure is adopted 8
6. Recent Investment Treaty Arbitrations Eureko v. Slovak Republic PCA (BIT), 2010 (jurisdiction) and 2012 (merits) Facts: BIT between the Netherlands and Slovakia Eureko, a Dutch company, invested in the Slovak Republic s health insurance Alleged that systematic reversal of the 2004 liberalisation of the Slovak health insurance market that prompted Eureko to make the investment amounted to expropriation, breach of FET, full protection and free transfer of profits Held: BIT establishes extensive legal rights and duties that are neither duplicated in EU law nor incompatible with EU law The protections afforded to investors by the BIT are, at least potentially, broader than those available under EU law Awarded compensation 9
6. Recent Investment Treaty Arbitrations Electrabel v. Hungary, ICSID (ECT), November 2012 Facts: MVM, a Hungarian state-owned entity entered into power purchase agreement ( PPA ) with Dunamenti, a Hungarian generator Capacity fee payable until 2010 (extended to 2015) Electrabel (a Belgium company) acquired shares in Dunamenti over 1995-2001 period Hungary joined EU May 2004 EC started investigating whether PPA amounted to state aid in 2005; issued decision in 2008 Hungary reintroduced regulated prices in 2006 MVM terminated PPA in 2009 Dunamenti brought a claim against EC in CJEU (case still pending) 10
6. Recent Investment Treaty Arbitrations Electrabel s claim: PPA was lawful when it was entered into in 1995; Hungary cannot rely on its internal law to justify a breach of international law Termination of PPA breach of FET + expropriation under ECT Change in PPA pricing breach of FET and expropriation under ECT Claim against Hungary only Hungary s claim: Jurisdictional challenge re. EU law EU competition law is part of international public order and that therefore termination of PPA cannot be treated as a violation of ECT Commission submitted amicus curia brief challenging jurisdiction CJEU sole jurisdiction to determine claims concerning EU law [Wrongly] invoked Art. 344 TFEU 11
6. Recent Investment Treaty Arbitrations Held: Rejected EC s submission re. jurisdiction Tribunal noted the is a special relationship between EU and the ECT and that if possible, ECT should be interpreted.. in harmony with EU law [?] EU law on state aid is EU mandatory rule and rule of international public policy (!?) Foreign investor have not acquired legitimate expectations that ECT would shield it from EU law regarding anti-competitive behaviour Where Hungary is required to act in compliance with a legally binding decision of an EU institution [this] cannot (by itself) entail international responsibility for [it]. Under international law, Hungary can be responsible only for its own wrongful acts. 12
7. EU Law and Investment Treaty Framework: CJEU s Approach C-264/09 Commission v. Slovakia, ECJ, 2011 Facts: In 1997 ATEL, a Swiss company, entered into a contract with a Slovak Stateowned network operator (SEPS) ATEL paid over half of the construction costs of the yet-to-be-constructed Lemesany-Krosno transmission line from Poland to Slovakia in return for priority access to the line for a non-renewable period of 16 years Contract governed by Austrian law; ICC arbitration in Paris Slovakia joined the EU in 2004 Issue: What is the relationship between Slovakia s obligations (i) to ensure nondiscriminatory access to the electricity transmission network pursuant to Directive 2003/54/EC and (ii) to protect investments pursuant to Swiss/Slovak BIT and ECT? 13
7. EU Law and Investment Treaty Framework: CJEU s Approach Commission s position: By failing to ensure non-discriminatory access to transmission network Slovakia failed to fulfil its obligations pursuant to Articles 20(1) and 9(e) of SEP No investor can legitimately expect the regulatory framework to remain immutable. An informed investors knew, or ought to have known, that the legal repercussions of Slovakia s accession to the EU would be significant Slovakia s position: Breach of ECT and Swiss/Slovak BIT and, in particular F&E treatment and expropriation Advocate General s observation: Failure to include a stabilisation clause may lead to conclusion that an investor has taken a calculated risk to accept risk of possible change in the law 14
7. EU Law and Investment Treaty Framework: CJEU s Approach Held: Preferential access granted to ATEL is an investment Article 351(1) TFEU makes clear, in accordance with the principles of international law (Article 30(4)(b) of VCLT), that EU law does not affect the duty of MS to respect the rights of non-member countries under prior agreements Even if Slovakia declared the privileged access to the transmission system invalid and inapplicable, SEPS would remain bound by the contract at issue Only way for Slovakia to comply with its obligation would be to enact legislation which targets SEPS, BUT THAT would be tantamount to an INDIRECT EXPROPRIATION of ATEL s right of transmission 15
8. Legal Uncertainty re. Application of EU Law Interconnector is defined in Gas Directive: transmission system line which crosses or spans a border between Member States for the sole purpose of connecting the national transmission systems of those Member States TAP exemption: gas pipelines which span the borders of (at least) two MS, regardless as to whether the territory of an non-eu MS is crossed in between Albania granted TAP an exemption under Third Energy Package which not yet law in Albania Socar purchase of DESFA and Article 11 of the Gas Directive (Gazprom clause) 16
9. Minimising Regulatory Risk 1. CONTRACTUAL MECHANISM TO MINIMISE RISK 1. Stabilisation / Change of Law Clauses 2. Governing Law 3. Arbitration as a mechanism of Dispute Resolution 4. Seat of Arbitration 2. STRUCTURE INVESTMENTS TO TAKE ADVANTAGE OF BITS AND ECT 3. CARE SHOULD BE TAKEN WHEN BRINGING CLAIMS UNDER ECT 4. IF DECIDE TO BRING CLAIM, CONSIDER BRINING A CLAIM AGAINST EU AND MS 17
Thank you for your attention Ana Stanič anastanic@ealaw.eu 18