International Arbitration in the Energy Sector

1. International Arbitration in the Energy Sector Maxi Scherer Queen Mary University of London & WilmerHale Vilnius 21 November 2013

2. Overview • Importance of Energy Disputes • Specificities of Energy Disputes • Energy Charter Treaty Disputes

3. i. Importance of Energy DISPUTES

4. WhyisEnergy Arbitration Important ? • Energy is one of the most important sectors in International Arbitration in terms of • number of disputes • amounts in dispute • Complex Issues • High-profile disputes • Growing sector

5. Number of Disputes (1) • Institutional Caseloads: • ICC: 13% (2010), 12.5% (2011), 15% (2012) • ICSID: 37% of all cases ever (2013); 30% of new cases (2013) • UNCTAD: Energy Charter Treaty (ECT) second most used investment treaty in Investor-State Dispute Settlement • Investment treaty arbitration: 9% of all new cases yearly over the last decade concern energy

6. Number of Disputes (2) Percentage of cases involving States Source: ICC Statistical Report 2010

7. Number of Disputes (3) Source: ICSID Statistical Report 2013

8. Amounts in Dispute • AAA:600% increase in largest energy claim in just three years, from $60 million (2008) to $360 million (2011) • Mega Cases: • $100 billion: The “Yukos Cases” • $10 billion: Libananco Holdings Co. Ltd. v. Turkey • €1.4 billion: Vattenfall v. Germany

9. Satisfaction of Users • How well adapted is arbitration to the energy sector? • 78% well-suited • 56% preferred dispute resolution mechanism “Construction and Energy are industries where arbitration is perceived as the preferred mechanism of dispute resolution. It is often said that the enhanced technical nature of disputes in these sectors favours a process where the parties can select the person who will decide the claims.” Source: Corporate Choices in International Arbitration, Queen Mary / PWC 2013 Survey http://www.arbitrationonline.org/research/2013/

10. Satisfaction of Users Source: Corporate Choices in International Arbitration, Queen Mary / PWC 2013 Survey http://www.arbitrationonline.org/research/2013/

11. iI. Specificities of Energy Disputes

12. Common Features of Energy Disputes • Large amount in dispute • Complex legal and factual issues • Long-term contracts (heavy investment in capital and technology) • Highly political (sovereignty of national resources) • Cyclical market-dependent environment • Role of the State in ownership and regulation of natural resources

13. Typology of Energy Disputes • State v State: boundary disputes (maritime and land) • Company v State: investment disputes • Company v Company: commercial disputes • Individual v Company: tort, negligence, etc in particular human / environmental rights

14. iII. Energy Charter Treaty Disputes

15. Historical Background European Energy Charter signed in 1991 • Sets out principles and objectives to govern East/West negotiations on energy issue • Political declaration • Context: End of Cold War • Originally European focus but now global interest • Currently 58 signatory parties Energy Charter Treaty (ECT) signed in 1994 • Entry into force 16 April 1998 • Currently 53 signatory parties 15

16. Purpose of ECT • One of the most significant multilateral investment treaties in force • Economically important industry sector • Politically sensitive area • Purpose: Article 2: “to establish a legal framework in order to promote long-term cooperation in the energy field.” Preamble: encourage economic growth through the adoption of “measures to liberalise investment and trade in energy.” 16

17. Signatories / Observers of the ECT Countries marked in green are signatories to the Energy Charter Treaty, and members of the Energy Charter Conference. The countries marked in blue are observers.   17

18. Structure ECT (1) “Untidy, user-unfriendly package” Treaty: Preamble, 8 Parts, 14 Annexes 5 Decisions, 22 Understandings, 8 Declarations (adopted at the same time than the Treaty to assist in its interpretation and application) Institutional Structure Energy Charter Conference Energy Charter Process Energy Charter Secretariat 18

19. Structure ECT (2) Trade Provisions (Part II) Develop open and competitive international market Transit (Art 7) Investment Promotion and Protection (Part III) Pre-Investment: best endeavour Post-Investment: enforceable obligations including: Fair-equitable treatment (Art 10(1)) Non-discriminatory treatment (Art 10(1)) Umbrella Clause (Art 10(1)) Full compensation following expropriation (Art 13) Dispute Settlement (Part V) 19

20. Dispute Settlement Options Disputes between Contracting States, Art 27 Disputes between Investor and State, Art 26 Cooling-Off period: 3 months Investor’s choice of forum: National courts Previously-agreed dispute settlement procedure Treaty arbitration: ICSID Stockholm Chamber of Commerce (SCC) ad hoc arbitration under UNCITRALRules 20

21. Decided & Pending Cases • AES Summit Generation Ltd. (UK subsidiary of US-based AES Corporation) v. Hungary • Nykomb Synergetics Technology Holding AB (Sweden) v. Latvia • Plama Consortium Ltd. (Cyprus) v. Bulgaria • Petrobart Ltd. (Gibraltar) v. Kyrgyzstan • Alstom Power Italia SpA, Alstom SpA (Italy) v. Mongolia • Yukos Universal Ltd. (UK – Isle of Man) v. Russian Federation • Hulley Enterprises Ltd. (Cyprus) v. Russian Federation • Veteran Petroleum Trust (Cyprus) v. Russian Federation • Ioannis Kardassopoulos (Greece) v. Georgia • Amto (Latvia) v. Ukraine • Hrvatska Elektropriveda d.d. (HEP) (Croatia) v. Republic of Slovenia • Libananco Holdings Co. Limited (Cyprus) v. Republic of Turkey • Azpetrol International Holdings B.V., Azpetrol Group B.V. and Azpetrol Oil Services Group B.V. (the Netherlands) v. Azerbaijan • Barmek Holding A.S. (Turkey) v. Azerbaijan • Cementownia "Nowa Huta" S.A. (Poland) v. Republic of Turkey • Europe Cement Investment and Trade S.A. (Poland) v. Republic of Turkey • Liman Caspian Oil B.V. (the Netherlands) v. Republic of Kazakhstan • Electrabel S.A. (Belgium) v. Republic of Hungary • AES Summit Generation Limited and AES-Tisza Erőmű Kft. (UK) v. Republic of Hungary • Mohammad Ammar Al-Bahloul (Austria) v. Tajikistan • Mercuria Energy Group Ltd. (Cyprus) v. Republic of Poland • Alapli Elektrik B.V. (the Netherlands) v. Republic of Turkey • Remington Worldwide Limited (UK) v. Ukraine • Vattenfall AB, Vattenfall Europe AG, Vattenfall Europe Generation AG & Co. KG (Sweden) v. Federal Republic of Germany • EDF International S.A. (France) v. Republic of Hungary • EVN AG (Austria) v. The Former Yugoslav Republic of Macedonia • AES Corporation and Tau Power B.V. (the Netherlands) v. Kazakhstan • Ascom S.A. (Moldova) v. Kazakhstan • Khan Resources B.V. (the Netherlands) v. Mongolia • Türkiye Petrolleri Anonim Ortaklığı (Turkey) v. Kazakhstan • The PV Investors v. Spain • Slovak Gas Holding B.V. (the Netherlands) et al v. Slovak Republic • Vattenfall AB (Sweden) et al v. Germanyan Caspian Oil B.V. (the Netherlands) and NCL Dutch Investment --- 21 21

22. ECTStatistics (1) Total of 37 cases brought under ECT 6 settlements 15 final awards 16 pending Claimant successful in approx. 20% of cases Other cases: Settlement (approx. 30%) Denied on jurisdiction Denied on the merits Clear preference for ICSID (> 50%) 22

23. ECT Statistics (2) Cases according to industry sectors: Generation and sale of electricity 14 Oil and gas exploration and production 10 Downstream petroleum industry 3 Nuclear energy 4 Mining 1 Others or not publicly available 5 TOTAL 37 23

24. 24 ECT Statistics (3) Red designates Claimants’ countries Blue designates Respondents’ countries Greendesignates countries that are both Claimant and Respondent

25. Manythanks ! Dr Maxi Scherer PhD (Sorbonne), LLM (Cologne), MA (Sorbonne) (Hons) Senior Lecturer in International Arbitration and Energy Director Paris LLM Queen Mary, University of London 67-69 Lincoln's Inn Fields, London WC2A 3JB, UK http://www.ccls.qmul.ac.uk/staff/scherer.html Wilmer Cutler Pickering Hale and Dorr LLP 49 Park Lane, London W1K 1PS, UKhttp://www.wilmerhale.com/maxi_scherer/ maxi.scherer@wilmerhale.com