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Skip to content Toggle Navigation * HOME * RESOURCES * Stop the ECT * ES * PT * DE Toggle Navigation * ECT 20 years on * ECT and energy transition * ECT expansion * ECT profiteers * ECT emblematic cases * ECT modernisation * Reasons to leave or never join Home Pageevan-clayburg2021-03-08T12:47:16+00:00 WHAT IS THE ENERGY CHARTER TREATY? The Energy Charter Treaty (ECT) is an international agreement from the mid-1990s. Investor rights apply to 53 countries stretching from Western Europe through Central Asia to Japan, plus the EU and the European Atomic Energy Community. It grants corporations in the energy sector enormous power to sue states at international investment tribunals for billions of dollars, for example, if a government decides to stop new oil or gas pipelines or to phase out coal. Negotiations for this treaty mostly took place away from the public eye. This means the ECT has so far largely escaped the global storm of opposition which has otherwise hit investor-state dispute settlement in the past decade. Now many more countries in Africa and the Middle East, Asia, and Latin America are in the process of joining the treaty, often without any public debate. TO EUROPEAN GOVERNMENTS, PARLIAMENTS AND EU INSTITUTIONS: Pull out of the Energy Charter Treaty and stop its expansion to other countries! The treaty allows coal, oil and gas corporations to obstruct the transition to a clean energy system. Disarm fossil fuel firms now, so they can no longer impede urgent climate action!” 1025342 have signed. Let's go to 2000000 First name * Last name Email * Postal Code Country 🇦🇹 Austria🇧🇪 Belgium🇧🇬 Bulgaria🇭🇷 Croatia🇨🇾 Cyprus🇨🇿 Czech Republic🇩🇰 Denmark🇪🇪 Estonia🇫🇮 Finland🇫🇷 France🇩🇪 Germany🇬🇷 Greece🇭🇺 Hungary🇮🇪 Ireland🇮🇹 Italy🇱🇻 Latvia🇱🇹 Lithuania🇱🇺 Luxembourg🇲🇹 Malta🇳🇱 Netherlands🇵🇱 Poland🇵🇹 Portugal🇷🇴 Romania🇸🇰 Slovakia🇸🇮 Slovenia🇪🇸 Spain🇸🇪 SwedenOther Comment Find out more about our campaigns, actions and Energy Charter Treaty progress * Yes, I want Transnational Institute to keep me informed via email No, don't send me emails or keep me updated in future Are you sure? By selecting 'No', you won't be able to find out if this campaign is successful, or if there's more action we need to take together to win it. If you select 'Yes' we'll keep you updated about this and our other urgent campaigns.You can unsubscribe at any time.Yes, I want to keep me informed via email Your personal information will be kept private and held securely. By submitting information you are agreeing to the use of data and cookies in accordance with our privacy policy Sign now! This petition is supported by a wide coalition of organisations, including Avaaz, Campact, Climate Action Network (CAN) Europe, Corporate Europe Observatory, Transnational Institute, WeMove and many others. All information on this website has been extracted from the report “One treaty to rule them all” and the report “Silent Expansion – Will the world’s most dangerous investment treaty take the global south hostage?” However, most data on the site has been updated up to October 2020. Download dataset of ECT cases up to October 2020. “THE ENERGY CHARTER TREATY OFFERS UNPARALLELED OPPORTUNITIES FOR INVESTORS IN THE ENERGY SECTOR TO PROTECT THEIR FOREIGN INVESTMENTS AND ENFORCE THOSE PROTECTIONS THROUGH INTERNATIONAL ARBITRATION.” Lawyers at investment arbitration law firm Skadden Arps Slate Meagher & Flom THE CHRONOLOGY OF AN ECT INVESTMENT ARBITRATION Phase 1. The process starts when a foreign investor sends a notice of arbitration to a state. Unlike in other areas of international law, the claimant does not have to go through local courts first. Both, the investor and the state will be assisted by lawyers (counsel) during the proceedings. Phase 2. The investor and the state jointly select the arbitration tribunal. Usually each party picks one arbitrator and both jointly appoint a third to serve as president. The arbitrators are private, for-profit lawyers, not judges, who are paid by the case. Phase 3. Proceedings last years and mostly take place behind closed doors, with scant or no information at all released to the public, sometimes not even the fact that a case is happening. Phase 4. The arbitrators ultimately determine if the state violated the ECT’s investor rights and the size of the remedy. They also allocate the legal costs of the proceedings. Opportunities to challenge the rulings are extremely limited – even if they appear clearly wrong. Phase 5. States have to comply with arbitral awards. If they resist, the award can be enforced by actual courts almost anywhere in the world by seizing the state’s property elsewhere (for example, by freezing bank accounts or confiscating state aircraft or ships). HOW HAS THE ECT BEEN USED IN THE FIRST 20 YEARS? AN EXPLOSION OF CASES No other international trade or investment agreement in the world has triggered more investor-state lawsuits than the Energy Charter Treaty. In October 2020, the ECT Secretariat listed a total of 134 corporate claims. And the number of claims has exploded in recent years. While just 19 cases were registered during the first 10 years of the agreement (1998-2007), 102 investor lawsuits were filed during this last decade (2010-2019), representing an increase in 437% in the numbers of filed cases. This trend is likely to continue. STATES UNDER ATTACK – A LEGAL NIGHTMARE FOR EAST AND WEST While in the first 15 years of the agreement 89% of ECT-lawsuits hit states in Central and Eastern Europe, and Central Asia, between 2013 and 2020, 62% of the investor claims filed were against countries in Western Europe. 2020 2019 2010 2013 2001 2003 2004 2005 2006 2007 2008 2009 2010 2011 TOTALS 2012 2014 2015 2016 2018 2017 Interactive Map Click on the timeline below to see the cases through the years 2001 2 Hungary 1 Latvia 1 LATVIA HUNGARY LAWSUITS PER YEAR / COUNTRY 2003 2 Bulgaria 1 Kyrgyz Republic 1 LAWSUITS PER YEAR / COUNTRY BULGARIA KYRGYZ REPUBLIC 2004 1 Mongolia 1 MONGOLIA LAWSUITS PER YEAR / COUNTRY 2005 6 Georgia 1 Russia 3 Slovenia 1 Ukraine 1 RUSSIA GEORGIA SLOVENIA UKRAINE LAWSUITS PER YEAR / COUNTRY 2006 4 Azerbaijan 2 Turkey 2 AZERBAIJAN TURKEY LAWSUITS PER YEAR / COUNTRY 2007 4 Hungary 2 Kazakhstan 1 Turkey 1 KAZAKHSTAN TURKEY HUNGARY LAWSUITS PER YEAR / COUNTRY 2008 4 Poland 1 Tajikistan 1 Turkey 1 Ukraine 1 TAJIKISTAN TURKEY POLAND UKRAINE LAWSUITS PER YEAR / COUNTRY 2009 3 Germany 1 Hungary 1 Macedonia 1 GERMANY HUNGARY MACEDONIA LAWSUITS PER YEAR / COUNTRY 2010 3 Kazakhstan 2 Moldova 1 KAZAKHSTAN MOLDOVA LAWSUITS PER YEAR / COUNTRY 2011 4 Albania 1 Kazakhstan 1 Mongolia 1 Spain 1 MONGOLIA KAZAKHSTAN ALBANIA SPAIN LAWSUITS PER YEAR / COUNTRY 2012 4 Germany 1 Moldova 1 Slovakia 1 Spain 1 GERMANY MOLDOVA SLOVAKIA SPAIN LAWSUITS PER YEAR / COUNTRY 2013 16 Albania 1 Bulgaria 1 Croatia 1 Czech Republic 6 Russia 1 Spain 5 Uzbekistan 1 RUSSIA UZBEKISTAN BULGARIA CROATIA ALBANIA SPAIN LAWSUITS PER YEAR / COUNTRY CZECH REP. 2014 12 Germany 1 Moldova 1 Slovakia 1 Spain 1 GERMANY MOLDOVA SLOVAKIA SPAIN LAWSUITS PER YEAR / COUNTRY 2015 29 Bulgaria 1 Italy 5 Kazakhstan 1 Spain 19 Turkey 1 Ukraine 2 KAZAKHSTAN TURKEY BULGARIA UKRAINE SPAIN ITALY LAWSUITS PER YEAR / COUNTRY 2016 13 Bosnia and Herzegovina 1 Bulgaria 1 Croatia 1 Hungary 1 Italy 3 Spain 6 BULGARIA SPAIN BOSNIA AND HERZEGOVINA ITALY LAWSUITS PER YEAR / COUNTRY HUNGARY CROATIA 2017 7 Georgia 1 Italy 1 Spain 4 Turkmenistan 1 TURKMENISTAN GEORGIA SPAIN ITALY LAWSUITS PER YEAR / COUNTRY 2018 7 Bulgaria 1 Italy 1 Mongolia 1 Romania 1 Spain 3 MONGOLIA BULGARIA SPAIN ROMANIA ITALY LAWSUITS PER YEAR / COUNTRY 2019 7 EU 1 Georgia 1 Germany 1 Romania 1 Spain 3 GEORGIA SPAIN GERMANY ROMANIA LAWSUITS PER YEAR / COUNTRY 2020 6 Azerbaijan 1 Italy 2 Poland 1 Romania 2 AZERBAIJAN ITALY POLAND ROMANIA LAWSUITS PER YEAR / COUNTRY 1 claim above 20 claims 2 claims 3-4 claims 5-9 claims 10-20 claims TABLE LATVIA BULGARIA ITALY MONGOLIA KYRGYZ REPUBLIC RUSSIA GEORGIA BOSNIA AND HERZ. UKRAINE AZERBAIJAN TURKEY KAZAKHSTAN SLOVAKIA ROMANIA POLAND MACEDONIA UZBEKISTAN CROATIA ALBANIA LAWSUITS PER YEAR / COUNTRY CZECH REP. HUNGARY SLOVENIA TAJIKISTAN TURKMENISTAN MOLDOVA GERMANY SPAIN MAP “INVESTMENT TREATIES WERE DESIGNED TO PROTECT EUROPEAN INVESTMENTS ABROAD. BUT NOW THEY’VE COME BACK TO BITE EUROPE.” Investment arbitration lawyer Mahnaz Malik THE INVESTORS SUING – WESTERN EUROPEAN COMPANIES CASHING IN Companies and individuals registered in the Netherlands, Germany, Luxembourg, the UK, and Cyprus, make up 58% of the 171 investors involved in known claims by the end of 2019. THE ECT – A POWERFUL WEAPON FOR MAILBOX COMPANIES Thanks to the ECT’s overly broad definition of “investor” and “investment”, many of the companies suing under the ECT are mere mailbox companies (firms with hardly any employees in those countries but used by large corporations to shift profits and avoid paying taxes). An extraordinary 24 out of the 25 supposedly ‘Dutch’ investors who led ECT-lawsuits by the end of 2020 are such mailbox companies. They include Khan Netherlands (used by Canadian mining company Khan Resources to sue Mongolia even though Canada is not even a party to the ECT), and Isolux Infrastructure Netherlands and Charanne (both used by Spanish businessmen Luis Delso and José Gomis, two of the richest Spaniards, to sue Spain). ECT-ABUSE BY MAILBOX COMPANIES 24 out of 25 ECT cases filed by alleged “Dutch” investors are from mere mailbox companies. “THE ECT HAS BEEN ON THE RADAR SCREEN OF “TREATY SHOPPERS” FOR SOME TIME.” Arbitration lawyer Paul M. Blyschak The ECT is increasingly being used by speculative financial investors such as portfolio investors and holding companies. In 85 per cent of lawsuits filed until 2020 over cuts to support schemes for renewable energy in Spain, the claimant is not a renewable energy firm, but an equity fund or other type of financial investor, often with links to the coal, oil, gas, and nuclear industries. Several of the funds only invested when Spain was already in full-blown economic crisis mode and some changes to the support schemes had already been made (which the funds later argued undermined their profit expectations). Some investors view the ECT not only as an insurance policy, but as an additional source of profit. ECT CLAIMS ARE DOMINATED BY FINANCIAL INVESTORS … of all know ECT lawsuits were filed by private equity funds or other types of financial investors … of the 47 lawsuits over cuts to support schemes for renewables in Spain were filed by financial investors, not renewable energy firms. INVESTORS WIN IN THE MAJORITY OF CASES By October 2020, 39% of known ECT cases remained undecided. But the majority (60%) of resolved lawsuits have favoured the investor. 12 % Settled (9 cases) 40 % Decided in favour of the state (30 cases) 48 % Decided in favour of the investor (36 cases) MORE AND MORE MONEY IS AT STAKE FOR STATES AND TAXPAYERS There are 15 ECT suits in which investors – mostly large corporations or very wealthy individuals – sued for US$1 billion or more in damages. KNOWN BILLION-DOLLAR LAWSUITS UNDER THE ECT ECT case Energy sector Type of investor Money claimed (US$) Hulley Enterprises v. Russia Oil Six Russian oligarchs 93 billion Veteran Petroleum v. Russia Oil Six Russian oligarchs 16 billion Yukos Capital v. Russia Oil Six Russian oligarchs 13 billion Libananco v. Turkey Hydropower Affiliate of one of Turkey’s once richest families (Uzan) 10 billion Vattenfall v. Germany (II) Nuclear One of Europe’s largest utility companies 5.1 billion Littop v. Ukraine Oil & gas Affiliated with Ukrainian billionaire Igor Kolomoisky 5 billion Yukos Universal v. Russia Oil Six Russian oligarchs 4.6 billion Cementownia v. Turkey (I) Hydropower Affiliate of one of Turkey’s once richest families (Uzan) 4.6 billion Europe Cement v. Turkey Hydropower Affiliate of one of Turkey’s once richest families (Uzan) 3.8 billion Cem Uzan v. Turkey Hydropower Turkish millionaire and member of one of Turkey’s once richest families (Uzan) 3.5 billion Ascom and Stati v. Kazakhstan Oil (& gas) Anatole Stati (who sued with his son and some of their firms) was Moldova’s richest man when he filed the case 2.7 billion PV Investors v. Spain Solar Together, the investors (which include Dutch mailbox firm of US-based Fortune 200 company AES) manage over US$30 billion on behalf of other funds and investors 2.2 billion Vattenfall v. Germany (I) Coal One of Europe’s largest utility companies 1.7 billion AES v. Kazakhstan Hydropower & coal US-based Fortune 200 company 1.3 billion EGS v. Bosnia and Herzegovina Coal & thermal power Unclear. Slovenian state owned firm without employees. 1 billion “THIS IS THE PUBLIC’S MONEY AT STAKE…. THE PERSON PAYING FOR IT ISN’T BIG BUSINESS… OR ANYONE WHO COULD AFFORD IT, NO IT’S THE POOR MAN IN THE STREETS.” Arbitration lawyer ECT CASES PENDING AT THE END OF 2020 Claims which could still be won by the investors have a collective monetary value of US$28 billion (information is available for only half of pending cases). The staggering price tags of ECT lawsuits show the potentially disastrous impacts they can have on public budgets. Combined value of ongoing ECT cases (which could be won or lost) until October 2020 Estimated annual amount of money needed for Africa to adapt to climate change GOVERNMENTS HAVE BEEN ORDERED OR AGREED TO PAY MORE THAN US$52 BILLION IN DAMAGES FROM THE PUBLIC PURSE PLUNDERING PUBLIC COFFERS: THE COSTS OF KNOWN ECT AWARDS OR SETTLEMENTS Country Known financial liability in ECT cases (US$) Unhealthy financial implications at the time of the award (based on WHO 2015 data) Russia 50 billion 20 per cent of Russia’s total annual state budget or the equivalent of the public health spending for 95,419,487 people, 65% of Russia’s population. Spain 925 million Public health spending for 392,948 people Kazakhstan 520 million Public health spending for 1,372,032 people Albania 136 million Public health spending for 511,278 people Hungary 133 million Public health spending for 148,770 people Mongolia 80 million Public health spending for 524,590 people Georgia 55 million Public health spending for 195,730 people Italy 24.5 million Public health spending for 9,074 people Slovenia 22 million Public health spending for 12,415 people Ukraine 16 million Public health spending for 128,000 people Moldova 45 million Public education spending for 291,667 Latvia 3 million Public health spending for 3,827 people Kyrgyztan 1 million Public health spending for 10,869 people Total amount of money governments have been ordered or agreed to pay in damages Annual investment needed to provide access to energy for everyone who lacks it globally SOME OF THE MOST EXPENSIVE CLAIMS IN THE HISTORY OF ISDS INCLUDE ECT CASES SUCH AS VATTENFALL’S CHALLENGE TO GERMANY FOR OVER US$5.1 BILLION AS A RESULT OF ITS EXIT FROM NUCLEAR POWER. THE MAJORITY OF ECT CLAIMS ARE INTRA-EU DISPUTES, WHICH SIDELINE EU COURTS 66 per cent of ECT investor lawsuits were brought by an investor from one EU member state against the government of another member state, claiming large sums of public money arguably not available to them under the EU legal system. In March 2018, the European Court of Justice ruled that intra-EU investor-state proceedings under bilateral investment treaties violate EU law as they sideline EU courts – an argument which could also apply to the ECT. Nearly half of all known intra-EU investment disputes were launched under the ECT (the others being based on bilateral treaties). … of all all ECT claims are intra-EU … of all all known intra-EU investor disputes were filed under the ECT “THE ENERGY CHARTER TREATY (ECT) IS BY FAR THE MOST OFTEN INVOKED INVESTMENT TREATY IN INTRA-EU RELATIONS.” Lawyer from law firm Stibbe HOW CORPORATIONS CAN USE THE ENERGY CHARTER TREATY TO KILL THE ENERGY TRANSITION THE FOSSIL INDUSTRY’S FRIEND The ECT is a powerful tool in the hands of big oil, gas, and coal companies to discourage governments from transitioning to clean energy. They have used the ECT and other investment deals to challenge oil drilling bans, the rejection of pipelines, taxes on fossil fuels, and moratoria on and phase-outs of controversial types of energy. Corporations have also used the ECT to bully decision-makers into submission. Vattenfall’s €1.4 billion legal attack on environmental standards for a coal-fired power plant in Germany forced the local government to relax the regulations to settle the case. … of all ECT cases, which were known at the end of 2012, pertained to oil, gas, or coal … share of investors who sued via the ECT by the end of 2012 were fossil fuel companies or otherwise involved in dirty energy projects THE ECT CAN BE USED TO ATTACK GOVERNMENTS THAT AIM TO REDUCE ENERGY POVERTY AND MAKE ELECTRICITY AFFORDABLE. Under the ECT Bulgaria and Hungary have already been sued for compensation in the hundreds of millions, in part for curbing big energy’s profits and pushing for lower electricity prices. Investment lawyers were considering similar action against the UK, when the government announced a cap on energy prices to end rip-off bills. “PUBLIC FUNDS SHOULD BE USED TO SUPPORT THE SHIFT TO CLEAN ENERGY NOT TO COMPENSATE POLLUTERS FOR THEIR LOST FUTURE REVENUES WHEN THEY HAVE NOT ADAPTED THEIR BUSINESS MODEL IN A TIMELY AND RESPONSIBLE WAY.” Professor Gus van Harten, Osgoode Hall Law School THE ECT IS CURRENTLY BEING FRAMED AS A SOLUTION TO GLOBAL WARMING. BUT THE TREATY IS HARDLY ACTING AS A CHAMPION OF SMALL-SCALE AND RENEWABLE ENTERPRISES. A prime example are the many cases that have challenged cuts to support for renewable energy in Spain. Almost half of the known ECT-claims against the country (22 out of 47) involve investors with links to the gas, coal, oil, and nuclear industries. THE DIRTY SECRETS OF THE ‘RENEWABLE CLAIMS’ AGAINST SPAIN Almost half of the 47 claims have been filed by investors with links to the coal, oil, gas, and nuclear industries. “ENERGY TRANSITION FROM FOSSIL FUELS TO RENEWABLES WILL REQUIRE STATES AND STATE ENTITIES TO RECONSIDER AND POSSIBLY RECALIBRATE EXISTING LICENSE, CONCESSION AND PRODUCTION SHARING AGREEMENTS, LEADING TO CLAIMS BY INVESTORS.” Global Arbitration Review magazine ECT POWER #1: DISSUADING GOVERNMENTS FROM EFFECTIVE CLIMATE ACTION Details ECT POWER #2: PROTECTING EXISTING AND PUSHING NEW FOSSIL FUEL PROJECTS Details ECT POWER #3: LOCKING IN POLLUTER SUBSIDIES Details ECT POWER #4: DIVERTING PUBLIC MONEY NEEDED TO FUND THE ENERGY TRANSITION Details ECT POWER #5: UNDERMINING AFFORDABLE ELECTRICITY PRICES Details ECT POWER #6: LOCKING IN THE FAILURES OF ENERGY PRIVATISATIONS Details ECT POWER #7: UNDERMINING PUBLIC PARTICIPATION AND DEMOCRATIC DECISION-MAKING Details ECT POWER #8: ENDANGERING A REGULATORY MEGA-TASK Details WHICH COUNTRIES ARE ABOUT TO SIGN ON TO THE ECT AND WHO IS PUSHING FOR THE TREATY’S EXPANSION? Many countries across the world are about to join the ECT, threatening to bind them into corporate-friendly energy policies. Burundi, Eswatini (former Swaziland) and Mauritania are most advanced in the accession process (ratifying the ECT internally). Next in line is Pakistan (where investment arbitration is controversial, but which has already been invited to accede to the ECT), followed by Uganda (waiting for the invitation to join). A number of countries are in different stages of preparing their accession reports (Benin, Serbia, Morocco, Chad, China, Bangladesh, Cambodia, Niger, Gambia, Nigeria, Panama and Senegal). Many more countries have signed the non-binding International Energy Charter political declaration, which is considered the first step towards accession to the legally binding Energy Charter Treaty. LISTEN TO A PODCAST CO-PRODUCED BY CEO, SEATINI AND TNI, WITH PIA EBERHARDT, FAITH LUMONYA AND CECILIA OLIVET DISCUSSING THE DANGERS OF THE ECT EXPANSION. THERE IS AN ALARMING LACK OF AWARENESS ABOUT THE ECT’S POLITICAL AND FINANCIAL RISKS IN THE ECT’S POTENTIAL NEW SIGNATORY STATES. Officials from ministries with experience in negotiating investment treaties and defending investor-state arbitrations are largely absent from the process, which is being led by energy ministries. This is worrying as many of these countries already have disastrous experience with investor lawsuits under other investment agreements, which could multiply if they sign on to the ECT. This is reminiscent of the 1990s when developing countries signed heaps of bilateral investment treaties hoping they would bring investment whilst remaining largely unaware of the risks. “THE ENERGY CHARTER SECRETARIAT IS IN EXPANSION MODE, WANTING TO GAIN ACCESS TO ENERGY RESOURCES IN AFRICA AND ASIA FOR ITS CURRENT – MOSTLY DEVELOPED – COUNTRY MEMBERS.” Nathalie Bernasconi-Osterwalder, International Institute for Sustainable Development (IISD) THE EXPANSION PROCESS IS AGGRESSIVELY PROMOTED BY THE ECT SECRETARIAT, THE EU, AND THE ARBITRATION INDUSTRY, who are eager to gain access to the rich energy resources in the global South and to expand their own power and profit opportunities. While they downplay or dismiss the risks to states of acceding to the ECT, they promote the agreement as a necessary condition for the attraction of foreign investment, and in particular clean energy investment for all. But there is currently no evidence that the agreement helps to reduce energy poverty and facilitate investment, let alone investment into renewable energy. THE ECT ACCESSION RISKS AN AVALANCHE OF EXPENSIVE LAWSUITS – FOR DECADES Today no other trade and investment agreement has triggered more investor-state lawsuits than the ECT. By October 2020 a total of 134 ECT investor lawsuits were listed on the website of the ECT Secretariat. Both the number of cases and the amount of money at stake for public budgets and taxpayers is on the rise. UNDOING REFORM WITH AN OLD TREATY THAT BITES The United Nations Conference on Trade and Development (UNCTAD) has warned about ECT-like “old generation” investment treaties, which“are not ‘harmless’ political declarations, but do ‘bite’”. The EU, too, has recently stated that while the ECT is “outdated provisions are no longer sustainable or adequate for the current challenges”. Remarkably, several countries which are terminating or reforming their existing investment treaties over concerns about being able to maintain their policy space, still seem ready to undermine these reforms by signing up to the ECT. Tanzania and Uganda, for example, have both started terminating old investment treaties such as with the Netherlands that had been criticised as “biased”. Also, Nigeria and Morocco signed an investment treaty with each other which differs significantly from the ECT. So, while many countries are seeing the dangers inherent in an overempowered investors’ rights regime and rolling back commitments from past investment treaties, the dangers of the ECT do not yet appear to be on their radar. DRIVING THE CLIMATE CRISIS BY LOCKING-IN FOSSIL FUELS Climate scientists agree that three quarters of the world’s remaining fossil fuels (coal, oil, and gas) need to stay in the ground if we do not want to cause dangerous, runaway global heating. But governments which halt dirty power plants or drilling rigs could be held liable for millions if not billions of damages under the ECT. The treaty could also be used to put significant pressure on governments to allow new projects which would accelerate climate change and further lockin fossil fuel dependence. This danger is illustrated by several existing cases, such as Rockhopper’s ongoing legal challenge to Italy’s ban on new off-shore oil drilling projects, as well as ECT litigation threats against laws to put an end to fossil fuel extraction (in France), and to ban the use of coal for electricity production (in the Netherlands). LOCKING-IN THE FAILURES OF ENERGY PRIVATISATIONS In many parts of the world communities and governments are reversing failed privatisations and taking energy distribution systems back into public hands. Often such energy privatisations have led to higher prices for consumers, poorer service, underinvestment in infrastructure, workers being fired, harsher conditions on the job – and the list goes on. But reversing failed energy privatisations can trigger investor-state lawsuits with potential damages claims running into millions. This happened, for example, to Albania after it revoked the electricity distribution license of Czech energy giant ČEZ. Also, When in 2019 the opposition British Labour Party planned to take the energy industry back under public control, arbitration lawyers predicted a “flood of claims” under the ECT and other investment deals. UNDERMINING EFFORTS TO MAKE ELECTRICITY AFFORDABLE FOR ALL Energy poverty is a reality across the globe. It is estimated that 600 million people still don’t have access to electricity in Africa. A key to address this problem is the ability of governments to regulate electricity prices, and impose a cap when needed. But the ECT could be used to undermine government action to reduce energy poverty. Several Eastern European countries have already been sued under the ECT because they took steps to curb big energy’s profits and lower electricity prices for consumers. In the UK investment lawyers predicted “more regulatory disputes” under the ECT when the former Conservative government under Theresa May announced a cap on energy prices for consumers. RESTRICTING SOVEREIGNTY OVER ENERGY RESOURCES Many countries and regions on the ECT accession road are significant fossil-fuel producers and/or on the verge of multiplying production: China is the world’s biggest producer of coal as well as the world’s fifth producer of oil ; Nigeria is Africa’s largest producer of oil and gas; both Bangladesh and Pakistan are building new coal power plants expected to triple their coal power generation capacity; the East African Community is actively advertising fossil fuel investments, aiming to fully “develop Partner States’ petroleum potential”. The ECT would significantly boost the power of foreign energy investors in these and other accession countries, not only risking locking in fossil fuel dependency and further driving the climate crisis, but also restricting countries’ policy-space. Under the ECT large energy companies can sue governments if they, for example, decide to apply taxes on windfall profits, force companies to hire local workers, transfer technology, or process raw materials before they are exported. THE ECT EMPTY PROMISES THE ECT WILL NOT SOLVE ENERGY POVERTY Many countries hope that by joining the ECT they will attract investment to end energy poverty. This hope is nurtured by the Secretariat and other ECT advocates who repeatedly assert “the Treaty’s potential… to attract foreign investments to the energy sector” to “eradicate energy poverty”. A PR text on Africa and the ECT suggests: “Perhaps the key to unlocking Africa’s investment potential in order to guarantee universal access to energy and to overcome energy poverty is the Energy Charter Treaty.” The ECT’s investment rules, however, do not live up to these promises: as with other similar agreements, there is no hard evidence that it actually encourages investment. THE ECT WILL NOT ADVANCE THE ENERGY TRANSITION Proponents of the ECT – and ISDS more broadly – sometimes claim that they are effective tools to combat climate change. They argue that by reducing investment risks, the ECT helps to attract capital into clean energy and that its ISDS enforcement mechanism is a way to put strong pressure on states to keep their climate promises, as in cases in which investors have sued countries for cutting support to renewable energy projects. However, there is no evidence that the ECT actually has a positive impact on flows of investment in any sector, including into clean energy. The agreement neither discourages climate-wrecking oil, gas, and coal investments, nor does it encourage a transition to genuine renewable energy from wind, wave, and solar. More importantly the ECT might not just fail to facilitate a transition away from fossil fuels and towards renewables, but could actively impede it . According to a former employee at the ECT Secretariat, “investments in fossil fuels represented at least 61% of total investments protected by the ECT”. ECT MODERNISATION WILL NOT FIX THE PROBLEMS In 2017, ECT member states began assessing “the potential need and/or usefulness of updating, clarifying or modernising” the agreement’s investor rights and in November 2018 approved a list of topics for discussion. ECT proponents like the European Commission argue that this will make the agreement climate-friendly and costly lawsuits against legitimate regulation less likely. The modernisation agenda, however, does not live up to these promises. Meaningful reform options are missing from the list of topics that will be discussed: the exclusion of carbon-intensive energy investments from the scope of the ECT, and the exclusion of ISDS. Both would prevent polluters from challenging climate change mitigation actions of states outside of their legal systems, limiting the risk of a chilling effect on climate action. Every treaty amendment would require a unanimity vote by the ECT parties and parties such as Japan have already stated that they see no need for any amendments. This is why, even the European Commission considered it “not realistic” that the ECT will really be amended and why more and more experts and a large number of civil society organisations argue for a withdrawal from the treaty entirely. “ENERGY INVESTMENT WOULD OF COURSE TAKE PLACE IF THERE WAS NO TREATY.” Howard Chase, chairman of the Energy Charter’s Industry Advisory Panel WHO ARE THE ECT PROFITEERS? A SMALL NUMBER OF ARBITRATORS DOMINATE ECT DECISION-MAKING Until end of 2017, 25 arbitrators had captured the decision-making in 44 per cent of the ECT cases while two-thirds have also acted as legal counsel in other investment treaty disputes. Acting as arbitrator and lawyer in different cases has led to growing concerns over conflicts of interest, particularly because this small group of lawyers have secured extremely corporate-friendly interpretations of the ECT, paving the way for even more expensive claims against states in the future. SOME OF THE BUSIEST ECT ARBITRATORS WITH A TRACK RECORD OF SIDING WITH CORPORATIONS DETAILS Total number of ECT claims Role in ECT claims Law firm What you should know about the arbitrator Gary Born (US) 9 Exclusively nominated by investors. Wilmer Hale ECT cases against Spain and the Czech Republic boosted his rather recent career as super-arbitrator. A real go-to arbitrator for investors who appointed him in 18 of his total 20 ISDS cases. In the infamous Philip Morris suit over anti-smoking laws in Uruguay, Born was the only arbitrator who sided with the tobacco giant. Yves Fortier (Canada) 7 Nominated by investors in 3 cases; sat 4 times as President. 20 Essex Street Chambers (2011-) Norton Rose (1992-2011) All concluded ECT cases, which involved Fortier, were investor-wins, including Yukos where he billed a staggering €1.7 million for his services as tribunal chair. For many years Fortier sat on company boards, including those of mining giants Alcan Inc. and Rio Tinto, where he developed a corporate world view. Charles Poncet (Switzerland) 6 Exclusively nominated by investors Poncet Law(2017-) CMS (2014-2017) ZPG Avocats (1986-2014) A prime example of a corporate lawyer turned arbitrator. ECT cases make up 60 per cent of his arbitrator caseload, but he has also acted as counsel for energy giants like Repsol. He was the investor-appointed arbitrator in the Yukos cases where he billed €1.5 million. This seems to have earned him a pro-investor reputation: when Rockhopper choose Poncet as arbitrator in its ECT challenge against Italy, investors celebrated, saying the claim would now be “a walk in the park” Poncet is also on the board of financial services company London Capital Group. Stanimir Alexandrov (Bulgaria) 5 Nominated by investors in 4 cases, as President in another. Sidley Austin (2002-17); continues to co-counsel with the firm A prominent “double hatter” and revolving door case. After being Vice Minister for Foreign Affairs and investment treaty negotiator with the Bulgarian Government in the 1990s, he moved to law firm Sidley Austin where he sued countries in ISDS proceedings, acting as lawyer for major corporations like Vivendi, Bechtel, Veolia, Philip Morris, and TransCanada, the pipeline developer that sued the US after the government halted the dirty Keystone XL pipeline. He continues on-the-side-lawyering with Sidley. Many states have questioned his arbitrator independence over different conflicts of interest, including in ECT cases. Charles Brower (US) 5 Exclusively nominated by investors 20 Essex St Chambers (2005-) White & Case (1961-2005) The “reigning king of international arbitrators” and the ultimate pro-corporate arbitrator who sat in 45 known ISDS tribunals, but was never nominated by a state. He is well-known for his investor-friendly interpretation of vaguely worded treaty clauses and as being an ardent defender of the status quo in investment arbitration. He opposes reforms to ISDS, for example, to improve the independence of the system, and has attacked reform-oriented colleagues for “bringing termites into our wooden house of investor state dispute settlement”. FIVE ELITE LAW FIRMS HAVE BEEN INVOLVED IN NEARLY HALF OF ALL KNOWN ECT INVESTOR LAWSUITS Law firms have been key drivers of the surge in ECT cases, relentlessly advertising the treaty’s vast litigation options to their corporate clients, encouraging them to sue countries. THE 10 BUSIEST LAW FIRMS IN KNOWN ECT CLAIMS DETAILS Law firm Total number of ECT cases (until 2017) Role in ECT claims What you should know about the firm Allen & Overy (UK) 16 Works for investors (with very few exceptions). Brought the first-ever ECT-based arbitration in 2001 (of US energy giant AES vs. Hungary). Today suing Spain is their main asset: 10 out of the firm’s 16 total known ECT engagements are against Spain. The firm also represented AES when it challenged Hungarys attempt to curb excessive profits of energy generators in 2007. King & Spalding (US) 15 Has only represented investors. If there is one Big Oil law firm, this is it. But in the ECT world they are mainly engaged in the renewable claims against Spain and Italy. Also representing UK oil company Rockhopper in a claim that hit Italy after its exit from the ECT, challenging a ban on offshore oil drilling. Arnold Porter Kaye Scholer (US) 10 Has only represented states, but acts on both sides in ISDS more generally. No firm has been appointed more often by states in ECT disputes. Several of its lawyers are on the ICSID list of arbitrators (and can be picked as tribunal presidents when parties can’t agree). Freshfields Bruckhaus Deringer (UK) 10 Represented mostly investors. The world’s busiest ISDS firm with involvement in 45 investment treaty cases in April 2018. Represents EVN challenging Bulgaria’s decision to lower escalating energy prices. Weil Gotshal & Manges (US) 9 Represented mostly states, but acts on both sides in ISDS disputes more generally. Represents the Czech Republic in its six ECT cases (together with Arnold Porter). Also acted as counsel for Czech energy behemoth ČEZ, which won a €100 million settlement after a failed energy privatisation in Albania. Cuatrecasas, Gonçalves Pereira (ES) 8 Has only represented investors. All its arbitrations are against Spain, including the first known claims by Japanese investors. The top lawyer at the ECT Secretariat joined the institution after nearly 13 years with Cuatrecasas – a notable revolving door case. White & Case (US) 7 Represented mostly states, but acts on both sides in ISDS disputes more generally. Another veteran ISDS law firm with over 100 cases which it handled at ICSID in total and 35 ongoing investor-state lawsuits in April 2018. Latham & Watkins (US) 7 Has represented both states & investors. The world’s second richest law firm by revenue has a knack for Spanish elites: amongst others, it represented Spanish businessmen Luis Delso and José Gomis in their suits against Spain while hiring Spain’s former Prime Minister José María Aznar as political advisor in early 2018. ArBLit – Radicati di Brozolo Sabatini (IT) 6 Has only represented investors. A small boutique with a near exclusive focus on international arbitration. Nearly all cases relate to changes in the Czech renewables sector. Shearman & Sterling (US) 6 Has only represented investors. The US$1,065 per hour lawyers from the Yukos mega arbitrations. Elite arbitrator Emmanuel Gaillard is the firm’s figurehead, attracting vast amounts of work as counsel in ISDS cases. THIRD PARTY FUNDERS ARE BECOMING MORE AND MORE ESTABLISHED IN ECT ARBITRATIONS. These investment funds finance the legal costs in investor-state disputes in exchange for a share in any granted award or settlement. This is likely to further fuel the boom in arbitrations, increase costs for cash-strapped governments, and make them more likely to cave in to corporate demands. “THIRD PARTY FUNDING IS POORLY REGULATED INTERNATIONALLY. THE IDENTITY OF THIRD PARTY FUNDERS IS RARELY PUBLIC INFORMATION AND IS SOMETIMES EVEN WITHHELD FROM COUNTRIES BEING SUED.” Trade Justice Movement UK PUTTING POLLUTERS IN THE DRIVING SEAT The Secretariat has close links with energy companies and forprofit lawyers who make money when investors sue states under the ECT. This is strikingly illustrated by the advisory bodies which the Secretariat has set up: the Industry Advisory Panel and the Legal Advisory Task Force. MORE THAN 80 PER CENT OF THE COMPANIES ON THE ECT’S INDUSTRY ADVISORY PANEL MAKE MONEY WITH OIL, GAS, AND COAL. MEMBERS OF THE ECT INDUSTRY ADVISORY PANEL (Click on image to view) TWO THIRDS OF THE LAWYERS ON THE ECT’S LEGAL ADVISORY TASK FORCE HAVE A FINANCIAL STAKE IN INVESTOR LAWSUITS AGAINST STATES. MEMBERS OF THE ECT LEGAL ADVISORY TASK FORCE Both advisory groups are given ample opportunities to influence the Secretariat, ECT member states, and the wider Charter process in their own interest. Several high-ranking officials at the ECT Secretariat were with arbitration law firms before and/or after they worked at the Secretariat. ECT EMBLEMATIC CASES VATTENFALL V. GERMANY II PITTING PARLIAMENT AGAINST NUCLEAR PROFITS Details ROCKHOPPER V. ITALY HOW AN OIL COMPANY COULD MAKE MILLIONS WITH WELLS IT NEVER BUILT Details YUKOS V. RUSSIA CASES BONANZA FOR LAWYERS AND INVESTORS! Details EVN, ENERGO-PRO AND ČEZ V. BULGARIA CORPORATIONS VERSUS AFFORDABLE ELECTRICITY Details INVESTORS V. SPAIN HOW SPAIN MIGHT HAVE TO PAY BILLIONS FOR IMAGINARY CORPORATE PROFITS Details ECT MODERNISATION THE ECT MODERNISATION PROCESS IS BOUND TO FAIL; PULLING OUT IS THE ONLY OPTION The clock is ticking on climate change, but ECT parties are wasting time with potentially endless negotiations to ‘modernise’ the dangerous treaty. In November 2018 a list of topics for modernisation negotiations was approved. Negotiations are now underway with a stocktaking planned for 16-17 December 2020, when the Energy Charter Conference will meet in Baku, Azerbaijan. The agenda for the modernisation talks does not live up to the promise of making the ECT climate-friendly. Two of the most obvious and effective reform options are missing from the list of topics that will be discussed: firstly, the exclusion of carbon-intensive energy investments from the scope of the ECT, and secondly, the exclusion of investor-state dispute settlement or ISDS. Both options would prevent polluters from challenging climate change mitigation actions by states outside of their national legal systems, limiting the risk of a chilling effect on climate action. Cosmetic changes such as those proposed by the European Commission, will not prevent ECT lawsuits against climate action. While the EU proposal for the ECT modernisation contains nice-sounding formulations on states’ right to regulate and the Paris Agreement, they will not shield climate response measures from ISDS challenges. As environmental law group ClientEarth argues: “The ECT, even if revised according to the Commission’s proposal, would still lead to a dangerous chilling effect on environmental and social regulation. The fossil fuel industry does not need to win on the legal arguments. The threat or initiation of an ISDS claim can be enough to delay or undermine policy action, even across borders, regardless of the arbitration’s outcome.” > “It is unlikely that Contracting Parties would reach an agreement to align the > Treaty with the Paris Climate Agreement.” > Masami Nakata, former assistant to the ECT Secretary General, on the ECT > modernisation A revised ECT may never see the light of day: members have clashing interests and any change requires unanimity. ECT parties such as Japan have already stated that they see no need for any amendments. An internal European Commission report from 2017 already considered it “not realistic” that the ECT will really be amended. As energy expert Yamina Saheb, a former employee at the ECT Secretariat, put it in a scathing report on the ECT modernisation in February 2020: > “The potential outcomes of ECT modernisation, if any, will be rather marginal > compared to the challenges raised in more than two decades of the existence of > the ECT…. Withdrawing from the ECT is, therefore, the only option left.” Civil society calls on states to withdraw from the ECT if negotiations fail to deliver a fossil fuel-free and climate friendly ECT within a reasonable timeline. Rather than waste time and effort on a process that won’t improve the ECT and is unlikely to succeed, we need to focus on the real flaws. The ECT has no chance to be compatible with the Paris Agreement, unless, at the very least it: 1- Excludes fossil fuels from any treaty protection; 2- Removes the investor-state dispute settlement provisions from the agreement. Anything short of these will not address the risks the ECT poses to climate policies and a just energy transition. REASONS TO LEAVE OR NEVER JOIN ECT After 20 years of the ECT in action, it is clear that the dangers of its foreign investor rights outweigh any potential gains that states might have expected from signing the agreement. In summary, here are eight key reasons for leaving – or never joining – the ECT. Reason #1: The ECT is a tool for big business to make governments pay when they regulate to fight climate change, make energy affordable, and protect other public interests. It has been used to attack environmental restrictions on dirty power plants, bans on climate-wrecking new fossil fuel projects, cuts to soaring electricity prices, rectifications to failed energy privatisations – and the list goes on. Reason #2: Under the ECT governments can be forced to pay out billions in taxpayers’ money to compensate corporations, including for missed future profits that they could have earned in theory. The value of the ECT lawsuits pending at the end of 2020 – US$28 billion – exceeds the GDP of many countries and the estimated annual amount needed for Africa to adapt to climate change. Due to the opacity of ECT arbitrations, the actual figure is likely to be much higher. Reason #3: The ECT is an instrument to undermine democracy and bully decision-makers, acting as a brake to desirable policy-making. This is particularly worrying for the rapidly-needed transition off fossil fuels and to wind, wave, and solar energy, which requires bold regulations by governments and will curtail the profits of some of the world’s largest oil, gas, and coal corporations. Reason #4: Investor-state arbitration under the ECT is highly flawed. It is not fair and independent, but dominated by a self-serving, multi-million dollar industry of elite law firms, arbitrators, and speculative funds. At the expense of states and taxpayers, they have used their power to secure extremely corporate-friendly interpretations of the ECT and a steady flow of costly lawsuits. Reason #5: The ECT’s investor privileges do not bring the economic benefits claimed for them. There is currently no evidence that the agreement helps to reduce energy poverty and facilitate investment, let alone investment into renewable energy. The ECT can even be used to undermine the clean energy transition and measures to guarantee affordable access to electricity for all. Reason #6: The rules for settling investor disputes under the ECT undermine domestic legal systems and are at odds with the rule of law as they discriminate, being an exclusive legal channel for foreign investors alone. Following a recent ruling by the EU’s highest court, it is questionable whether the ECT’s investor privileges are even compatible with EU law. Reason #7: It is highly unlikely that the ECT modernisation process, which started in 2017 will change the fundamental flaws of the agreement’s parallel justice system for corporations. Even minor reforms such as making investor lawsuits less secretive seem to be controversial within the ECT membership. Reason #8: Due to its wide geographical reach and the near limitless rights it grants to investors in the energy sector, the ECT is arguably more dangerous for the public purse, public interest policies and democracy than other international investment treaties. Globally, no other agreement has triggered more investor attacks against states than the ECT. All information on this website has been extracted from the report “One Treaty to rule them all: The ever-expanding Energy Charter Treaty and the power it gives corporations to halt the energy transition” and the report “Silent Expansion – Will the world’s most dangerous investment treaty take the global south hostage?. Download dataset of ECT cases up to October 2020. CONTACT THE AUTHORS: Pia Eberhardt: Pia@corporateeurope.org Cecilia Olivet: ceciliaolivet@tni.org THIS WEBSITE WAS PRODUCED BY Corporate Europe Observatory (CEO), a research and campaign group working to expose and challenge the disproportionate influence that corporations and their lobbyists exert over EU policy-making. The Transnational Institute (TNI), an international research and advocacy institute committed to building a just, democratic and sustainable planet. × * Afghanistan * Albania * Armenia * Austria * Azerbaijan * Belgium * Bosnia and Herzegovina * Bulgaria * Croatia * Cyprus * Czech Republic * Denmark * Estonia * Finland * France * Georgia * Germany * Greece * Hungary * Iceland * Ireland * Japan * Jordan * Kazakhstan * Kyrgyzstan * Latvia * Liechtenstein * Lithuania * Luxembourg * Macedonia * Malta * Moldova * Mongolia * Yemen * Montenegro * The Netherlands * Poland * Portugal * Romania * Slovakia * Slovenia * Spain * Sweden * Switzerland * Tajikistan * Turkey * Turkmenistan * Ukraine * United Kingdom * Uzbekistan The European Union as a whole is also a signatory. Countries in special situation: * Belarus (signed but didn’t ratified-provisional implementation) * Italy (which left the ECT in 2016, but can still be sued under certain conditions) * Russia (which never ratified the ECT and withdrew its provisional application in 2009, but has still been sued many times). Close × ASIA * Bangladesh * Bhutan * Cambodia * China * Pakistan * Philippines * South Korea * Vietnam EASTERN EUROPE * Serbia LATIN AMERICA * Chile * Colombia * Ecuador * Guatemala * Guyana * Panama MIDDLE EAST * Egypt * Iraq * Lebanon * Palestine * Oman * United Arab Emirates AFRICA * Algeria * Benin * Botswana * Burkina Faso * Burundi * Chad * Eswatini (former Swaziland) * Kenya * Mali * Mauritania * Morocco * Niger * Nigeria * Rwanda * Senegal * Sierra Leone * South Africa * South Sudan * Tanzania * Tunisia * The Gambia * Uganda * Zambia Close × OUT OF 97 CASES FILED BETWEEN 2013– 2020, 60 CASES WERE AGAINST WESTERN EUROPEAN COUNTRIES: -------------------------------------------------------------------------------- Spain 45 cases -------------------------------------------------------------------------------- Italy 13 cases -------------------------------------------------------------------------------- Germany 1 case -------------------------------------------------------------------------------- EU 1 case -------------------------------------------------------------------------------- Close × In the context of the energy transition, arbitration lawyers openly encourage their multinational clients to use the threat of a costly lawsuit as a way to scare governments into submission. Pulitzer Prize winning journalist Chris Hamby explained the conundrum that policy makers face: “ISDS is so tilted and unpredictable, and the fines the arbitrators can impose are so catastrophically large, that bowing to a company’s demands, however extreme they may be, can look like the prudent choice.” × Governments which halt dirty power plants or pipelines to keep fossil fuels in the ground, could be held liable for millions if not billions in damages under the ECT. The risk is illustrated by Vattenfall’s €4.3 billion lawsuit against Germany over the shut down of two nuclear power plants. The ECT can also be used to put significant pressure on governments to allow new projects which would accelerate climate change and further lock-in fossil fuel dependence. This is illustrated by Rockhopper’s ECT challenge to Italy’s ban on new off-shore oil drilling projects. × Cutbacks to state support for fossil fuels would likely trigger expensive investor lawsuits under the ECT. What would happen if today’s “favourable regulatory regime” for big oil, coal, and gas (read: billions in fossil fuel subsidies) was replaced by an “entirely new regime” (read: zero fossil fuel subsidies)? × To reach the goals of the Paris Climate Accord clean energy investments need to be scaled up significantly above current levels – to an average of more than US$700 billion per year. The far-reaching investor privileges in the ECT and other agreements threaten to divert public monies from the critical task of financing the energy transition. × According to the International Energy Agency, 1.1 billion people – 14 per cent of the world population – lack access to electricity, while many more receive poor and inadequate service. Government action to reduce energy poverty could well trigger investor challenges under the ECT. Several Eastern European countries have already been sued for hundreds of millions of dollars in compensation under the ECT – all because they took steps to curb big energy’s profits and lower electricity prices. × In many parts of the world communities and governments, particularly on the local level, are reversing failed privatisations and taking energy distribution systems back into public hands. But reversing failed energy privatisations can trigger investor-state lawsuits with potential damages claims running into millions. × The public right to participate in environment-related decisions is a core principle of international environmental law. It is also included in the Paris Agreement. The energy transition is already largely driven by citizens, municipalities, and cooperatives. But, investors’ large financial ECT claims can put pressure on governments to cave in to corporate demands and circumvent public opposition and democratic decision-making. × The energy transition is a regulatory mega-task. Moving away from carbon-intensive fuels and towards an economy that relies solely on renewable energy sources requires dramatically new policy frameworks. But such policy-making is severely limited by the investor privileges in ECT-style agreements – and by the legal industry who treats regulatory changes in the energy sector like a petri-dish for expensive investor lawsuits. × Countries that have started the accession process: AFRICA * Benin * Burkina Faso * Burundi * Chad * Eswatini (former Swaziland) * Kenya * Mali * Mauritania * Morocco * Nigeria * Niger * Rwanda * Senegal * Sierra Leone * Tanzania * The Gambia * Uganda ASIA * Bangladesh * Cambodia * China * Pakistan * South Korea * Vietnam LATIN AMERICA * Chile * Colombia * Guatemala * Guyana * Panama MIDDLE EAST AND EASTERN EUROPE * Iraq * Palestine * United Arab Emirates * Serbia Other countries approached by the Secretariat but that have not started accession process yet: Algeria, Bhutan, Botswana, Ecuador, Egypt, Lebanon, Oman, South Africa, South Sudan, the Philippines, Tunisia and Zambia Close × VATTENFALL V. GERMANY II – PITTING PARLIAMENT AGAINST NUCLEAR PROFITS Following its first ECT success, (Vattenfall sued Germany again in 2012, seeking €4.3 billion plus interest for lost profits related to two of its nuclear power plants. The legal action came after the German Parliament decided to speed up the phase-out of nuclear energy following the Fukushima disaster in 2011 and countrywide anti-nuclear protests. Amongst other things parliamentarians ordered the immediate and permanent shutdown of Germany’s oldest reactors, including Vattenfall’s Krümmel and Brunsbüttel plants. Due to several breakdowns, both had already been out of service for several years. The case is ongoing at the time of writing (June 2018). > “The… case demonstrates the potential for claims arising out of a state’s > decision fundamentally to change its energy policy for environmental reasons”, > > Wendy Miles & Nicola Swan of law firm Debevoise & Plimpton THE CASE IS INTERESTING BECAUSE IT SHOWS HOW THE ECT… … puts a lot of taxpayers’ money at stake: Vattenfall’s €4.3 billion claim – the equivalent of one quarter of Germany’s entire 2017 health budget– is one of the largest in the history of investor-state arbitration. By April 2018 the German Government had spent more than €15 million in legal and administrative costs to defend the case. Furthermore, Vattenfall has spent €26 million on its lawyers which it also claims from Germany. … leaves citizens in the dark: Experts have slammed the German Government for “intentionally leaving the German public out in dark” about the details of Vattenfall’s claim. Despite billions in taxpayers’ money at stake, not a single case document has been publicly released. A small group of elected parliamentarians have access to Germany’s arguments in the proceedings, but only in a high-security building and they are not allowed to reveal anything they see to anyone. While the Government did agree to livestream a 10-day hearing in October 2016, experts questioned the usefulness of that exercise: permanent recordings were only made available for two days while notes were not prepared at all (so people had to watch 8 hours per day for 10 successive days) and viewers had to follow the complex oral arguments without any of the written materials. … creates VIP rights for foreign investors: Together with German energy giants E.ON and RWE, Vattenfall also sued Germany in its constitutional court. In 2016 the latter upheld the nuclear exit, but condemned the fact that its acceleration did not allow the companies to use formerly allocated electricity output allowances, ordering Germany to find a solution for this problem. Even though Vattenfall obtained justice in German courts, it still continues its parallel ECT claim – possibly counting on a much larger amount of taxpayer money in compensation than would ever be available under German law. Germany’s largest association of judges and public prosecutors has criticised parallel justice systems such as those found in the ECT, which are exclusively available to foreign investors, stating that “the creation of special courts for certain groups of litigants is the wrong way forward”. Close × ROCKHOPPER VS ITALY – HOW AN OIL COMPANY COULD MAKE MILLIONS WITH WELLS IT NEVER BUILT Since May 2017 UK-based oil and gas company Rockhopper has been suing Italy over the state’s refusal to grant a concession for oil drilling in the Adriatic Ombrina Mare field. The refusal came after the Italian Parliament banned all new oil and gas operations near the country’s coast in 2016 amidst concerns over the environment, high earthquake risks, and strong opposition to the projects from residents. Rockhopper claims compensation for its sunk costs of about US$40 to $50 million – and for the US$200 to $300 million which it could have made with the oil field had it not been banned. THE CASE IS INTRIGUING BECAUSE IT SHOWS HOW THE ECT CAN BE USED TO… … circumvent public opposition to dirty energy projects: The Italian Parliament’s ban on new drilling projects near the Italian shore followed a decade of protests and campaigning by residents in many coastal regions of Italy. In April 2013 around 40,000 people – “from the Catholic church to rasta-haired youth groups, from the local tourist industry to coastal mayors, regardless of their political affiliation” as campaigners described it – took to the streets in Pescara to protest against the Ombrina Mare project. They could now pay a high price for having pushed the Italian Parliament to halt new climate-wrecking oil drilling. … sue countries after they have left the agreement: After being hit by its first multi-million euro claim under the ECT, Italy announced it was leaving the treaty at the end of 2014. Rockhopper led its ECT claim against the country 27 months later. This is possible because of the deeply anti-democratic survival or ‘zombie’ clause, which allows the ECT investor rights to live on even after a country has pulled out of the treaty. For investments made before Italy’s withdrawal took effect (on 1 January 2016) the country can still be sued for two more decades under the ECT, ie until 1 January 2036. So while the country is already the second most sued state under the ECT, and despite having left, Italy could still be subject to many more claims. … let deep-pocketed financiers put extra litigious heat on countries: Rockhopper’s legal costs are funded by an unknown litigation financier who will cash in a share of the eventual award.29 This allows the company to draw out the proceedings, increasing Italy’s defence costs and making the country more likely to cave in to corporate demands. As such funding arrangements do not have to be disclosed in ECT- proceedings, potential conflicts of interest an arbitrator might have due to ties with the funder might never be un-earthed. For more details of this case, vist http://10isdsstories.org/cases/case9/ Close × BONANZA FOR LAWYERS AND INVESTORS! MULTI-BILLION DOLLAR PAYOUTS IN THE YUKOS V. RUSSIA CASES In 2014 the arbitrators in three related ECT claims (commonly referred to as the Yukos cases) ordered Russia to pay a whopping US$50 billion in compensation to former shareholders of now defunct oil giant Yukos. The tribunal held that measures by the Russian Government which had led to the dismantling of Yukos in 2006/07 amounted to an illegal indirect expropriation. The ruling was annulled by a Dutch court in 2016, which found that the arbitrators had lacked jurisdiction. This decision is currently under appeal while a second wave of Yukos claims is ongoing (by the company’s former management). THE CASE IS REMARKABLE BECAUSE… … of the colossal amount of money at stake: The US$50 billion order against Russia – roughly equivalent to the GDP of Slovenia – is the largest award in the history of investment arbitration. The total legal costs related to the case – US$124 million, out of which Russia was ordered to pay nearly US$103 million – are as remarkable. Yukos’ lawyers (from Shearman and Sterling, subsequently named “the $1,065 per hour lawyers” by the media) alone billed over US$81 million for legal representation and assistance. Together, the tribunal’s three arbitrators put over €5.3 million into their own pockets; their assistant walked away with nearly €1 million – about 10 times the annual salary of a judicial clerk for a US Supreme Court Judge. > “How could the tribunal’s assistant walk away with US$1 million? How much do > ordinary people have to work to make that much money?”, > > Arbitration specialist … Russia lost despite never having ratified the ECT: Russia signed the ECT in 1994, but the Russian Duma never ratified it. Still, the arbitrators accepted the claim, arguing that the ECT applied provisionally to Russia from the date of its signature (until its subsequent withdrawal). While the Dutch court later scrapped this reasoning (arguing that the ECT’s dispute resolution provisions were at odds with the Russian Constitution and therefore not part of the provisional application), this decision does not bind future tribunals. Some have already ignored it and – again – accepted jurisdiction over ECT disputes against Russia. > “When we started the arbitration, everybody told us we were nuts… we were > trying to sue Russia under a treaty that Russia had not ratified”, > > Yas Banifatemi of law firm Shearman & Sterling, who represented the Yukos > shareholders. … of the abuse by shell companies: It is notable how easily the tribunal accepted the Yukos shareholders as non-Russian foreign investors that could sue Russia under the ECT. The arbitrators had “some sympathy” for Russia’s claim that the investors were mere shell companies, owned and controlled by Russian oligarchs and hence not foreign investors. But they refused to lift the corporate veil of the companies, considering it enough that they were incorporated elsewhere (ie in Cyprus and the UK). In the words of one investment lawyer: “The Energy Charter Treaty – which was designed to protect the interests of foreign investors in host states – was in fact used to protect interests of national investors against their own state.” … the ECT’s inconsistency with the rule of law, which rests on the idea of equal treatment – that every individual, regardless of wealth and power, has an equal right to bring a case to court. The ECT however creates a parallel justice system which is exclusively available in practise to certain wealthy investors. This creates the absurd situation where in a repressive regime like Russia, rich tycoons have an extra track for legal redress not available to say, victims of torture or other human rights violations. Rather than advancing the rule of law, this unequal treatment can undermine it even further, for example, by reducing incentives to improve host states’ laws and court systems. Close × CORPORATIONS VERSUS AFFORDABLE ELECTRICITY – EVN, ENERGO-PRO AND ČEZ V. BULGARIA Bulgaria had to battle three investor claims by energy companies from Austria (EVN, filed in 2013 for €850 million) and the Czech Republic (Energo-Pro and ČEZ filed 2015 and 2016). Among other things the companies challenged a government decision to reduce skyrocketing energy prices. Following protests against high utility bills across the EU’s poorest member state in 2013, Bulgaria’s regulators cut electricity costs for consumers by an average of seven percent. The investors argue that “these actions reduce the proceeds from the sale of electric energy”. Exactly how much money Energo-Pro and ČEZ are claiming is unknown, but ČEZ speaks of “hundreds of millions of euros”. Even though the case of EVN was resolved in favour of the investor, the other two cases are still pending. Close × HOW SPAIN MIGHT HAVE TO PAY BILLIONS FOR IMAGINARY CORPORATE PROFITS TO RENEWABLES INVESTORS Since 2011 Spain has been hit by 47 ECT lawsuits over cuts to renewable energy subsidies. In the midst of a harsh financial crisis and succumbing to lobbying from large utilities such as Endesa, the conservative government had rolled back price guarantees for renewable energy producers, for which costs had surged. One claim has been discontinued and three dismissed, but Spain, so far, lost 18 cases (with one later annulled). Until now, the government has been ordered to pay €958 million in total: * OperaFund € 26,7 million * 9REN Holding €41,8 million * Greentech/Foresight €39 million * Novenergia €53,3 million * Cube Infrastructure €33,7 million * InfraRed and others €28,2 million * SolEs Badajoz €41 million * Watkins Holdings €77 million * Antin €112 million * Masdar Solar €64,5 million * RREEF €59,6 million * NextEra €290 million * The PV Investors €91,100,000 * Cavalum SGPS n/a * BayWa r.e. n/a * Hydro Energy 1 and Hydroxana n/a * RWE Innogy n/a * Eiser Award of €128 million annulled (due to a conflict of interest of one of the arbitrators) In the 25 cases yet to be decided, investors are demanding over US$2.8 billion in compensation. Similar cases have been filed against the Czech Republic, Italy, and Bulgaria. THE CASES ARE INTERESTING BECAUSE THEY SHOW HOW THE ECT… … can be abused by speculative funds trying to make windfall profits: In 85 per cent of the lawsuits, the claimant is a private equity fund or other type of financial investor. Examples include Masdar (an Abu Dhabi Government-owned fund, which also finances oil and gas drilling) and RREEF (part of DWS, a fund of German financial giant Deutsche Bank, which also invests in coal, gas, and airports). Several of the funds only invested in Spain after 2008 and/ or increased their investments in 2010/11 – ie when it was clear the country was already in full-blown crisis mode and some changes to the solar support schemes had already been made. Out of the more than 110 companies involved in the ECT claims until 2017, at least 63 invested after 2008 (sometimes just purchasing existing solar plants); at least 8 more later continued investing despite the changes. Afterwards, these funds argued that their profit expectations were undermined by the change in government policy. > “Some in the select group of investors that can access ISDS view it not only > as an insurance policy, but also as an additional source of profit”, > > Kyla Tienhaara and Christian Downie, Australian National University … can make taxpayers pay for corporations’ imaginary future profits: The tribunal in the Eiser case ordered Spain to pay €128 million in compensation for “lost future cash flows”. These are imaginary profits that the fund might have earned with its solar power plants over an assumed 25-year-life in a hypothetical scenario without any subsidy cuts. The Spanish Supreme Court has rejected similar damages claims for extrapolated future profits as absolutely speculative. But ECT tribunals regularly hand out public monies on the basis of such corporate pipe dreams. Who will foot the bill? Ordinary Spaniards who have already been hit by harsh austerity measures, some of whom are also struggling to repay loans which they borrowed to build once-promising solar roofs and fields. There is no compensation bonanza for them. … could also be used to challenge subsidy cuts for climate-wrecking fossil fuels: In the Eiser case the tribunal found that Spain violated the ECT when it “radically altered” its support scheme for renewables. According to the arbitrators Spain “crossed the line” and “violated the obligation to accord fair and equitable treatment… when the prior regulatory regime”, which had attracted the Eiser fund, “was definitively replaced by an entirely new regime”. This reasoning could easily be applied if the current regulatory regime, which globally subsidises oil, coal, and gas energy in the trillions, was replaced by various governments by an “entirely new regime” which abolishes fossil fuel subsidies. Close