Abstract
The EU–Russia energy partnership is a highly strategic relationship that has profound implications for the international arena as far as energy security and stability are concerned. The Ukraine crisis and subsequent sanctions brought this realization to the fore, with the future of this partnership hanging in the balance. Bilateral relations have come under increasing pressure in recent years, following a series of trade disputes and supply disruptions, bringing Russia’s reliability as a trade partner into question. Tensions have been further exacerbated by Russia’s withdrawal from the ECT which has effectively rendered energy cooperation based on political dialogues and commitments that lack legally binding norms. With the unlikelihood of a revised Partnership and Cooperation Agreement following the EU’s suspension of all talks in response to Russia’s annexation of Crimea, the basis of legal ties between these two powers has been brought into question. However, with Europe heavily dependent on Russian energy resources, the EU has a vested interest in keeping Russia firmly entrenched in the global trading system. This Chapter will assess the role of international law in EU–Russia relations; in particular, whether the ECT and WTO provide an appropriate legal framework in the context of energy trade from an investment protection perspective.
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Notes
- 1.
Cameron (2009), p. 20.
- 2.
Pirani et al. (2009), p. 4.
- 3.
Petrovic et al. (2009), p. 91.
- 4.
Cameron (2009), p. 26.
- 5.
Leal-Arcas (2009a), p. 409.
- 6.
Mandelson (2008).
- 7.
Marhold (2011).
- 8.
De Jong and Wouters (2011), p. 47.
- 9.
http://eeas.europa.eu/delegations/russia/eu_russia/political_relations/legal_framework/index_en.htm (accessed 8 March 2015).
- 10.
The EU and Russia have both changed substantially since the signing of the PCA as a result of internal developments—the EU has undergone enlargement and institutional reform whilst Russia has developed into a market economy and has acceded to the WTO.
- 11.
The Energy Charter Treaty and the Energy Charter Protocol on Energy Efficiency and Related Environmental Aspects were signed in December 1994 and entered into legal force in April 1998. The ECT aims at strengthening the rule of law on energy issues, by creating a level playing field and in so doing, mitigating risks associated with energy-related investment and trade.
- 12.
Selivanova (2010b), p. 61.
- 13.
Ibid.
- 14.
Art 45 of the ECT states that despite non-ratification, the ECT is provisionally applicable provided that it is not inconsistent with existing domestic legislation.
- 15.
Carlson et al. (2009).
- 16.
European Commission, External Energy Relations—From principles to Action, COM (2006) 590, 12 October 2006; European Commission, Review of EU–Russia Relations, COM (2008) 740, 5 November 2008.
- 17.
Lukyanov (2008), p. 1110.
- 18.
The ECT includes provisions confirming the principle of national sovereignty over energy resources in art 18. The contracting parties are therefore free to decide the extent to which they wish to open their energy sector to foreign investment. See also Selivanova (2010a).
- 19.
Konoplyanik (2009), p. 23.
- 20.
Ibid.
- 21.
The Yukos case, which was believed to be politically motivated, is arguably the most controversial investment arbitration case of all time. As CEO of Russia’s largest oil firm, Mikhail Khodorkovsky was arrested for alleged tax fraud and Yukos was subsequently dismantled and auctioned off. See also Youngs (2009), p. 61.
- 22.
ECT provisions on arbitration and investment protection remain valid for 20 years from the date of Russia’s withdrawal, until 2029. This follows from art 45.3(b) ECT. See also Yukos Universal Limited (Isle of Man) v. The Russian Federation, PCA Case no. AA 227, Interim Award on Jurisdiction and Admissibility, 30 November 2009, para 339.
- 23.
Konoplyanik (2009), p. 23.
- 24.
Ibid.
- 25.
In April 2009, President Medvedev launched an alternative to the ECT, inviting Europe to join a new charter. See President of Russia, Conceptual Approach to the New Legal Framework for Energy Cooperation (Goals and Principles), 21 April 2009, http://archive.kremlin.ru/eng/text/docs/2009/04/215305.shtml (accessed 8 March 2015). Medvedev’s proposal was too broad and incompletely structured to be seen as a credible alternative to the ECT. See Nappert (2010), p. 11. Having dismissed Medvedev’s proposal, the Commission upheld that any new proposal should be considered within the ECT framework and any deviation benchmarked against the Charter. See De Jong and Wouters (2011), p. 32.
- 26.
This is arguably due to the fact that the major energy exporting countries at the time were not founding Members of the GATT. See Selivanova (2010a).
- 27.
Leal-Arcas and Abu Gosh (2014), p. 18.
- 28.
Cossy (2009).
- 29.
Marhold (2013), p. 1.
- 30.
Leal-Arcas and Abu Gosh (2014), p. 18.
- 31.
Selivanova (2010a).
- 32.
Selivanova (2010b), p. 53.
- 33.
Cossy (2009).
- 34.
Selivanova (2010a).
- 35.
Ibid.
- 36.
Marhold (2013), p. 1.
- 37.
http://ec.europa.eu/trade/creating-opportunities/bilateral-relations/countries/russia (accessed 8 March 2015).
- 38.
http://eeas.europa.eu/russia/index_en.htm (accessed 8 March 2015).
- 39.
Van Elsuwege (2012), p. 6.
- 40.
http://eeas.europa.eu/russia/index_en.htm (accessed 8 March 2015).
- 41.
Westphal (2006), p. 45.
- 42.
Boncourt (2014).
- 43.
Van Elsuwege (2012), p. 23.
- 44.
Ibid., p. 24.
- 45.
The TEP included rules on energy unbundling which entailed the separation of networks from production and supply activities. See European Commission, Proposal for a Directive of the European Parliament and of the Council amending Directive 2003/55/EC concerning common rules for the internal market in natural gas, COM (2007) 529, 19 September 2007.
- 46.
Van Elsuwege (2012), p. 24.
- 47.
EU Observer, Putin and Barroso in Public Scrap on EU Energy Law, 24 February 2011, https://euobserver.com/foreign/31869 (accessed 10 March 2014).
- 48.
Cameron (2009), p. 23.
- 49.
Leal-Arcas (2009b), p. 348.
- 50.
Romanova (2008), p. 226.
- 51.
Belyi (2009), p. 123.
- 52.
Woehrel (2009), p. 9.
- 53.
Belyi (2009), p. 128.
- 54.
Ibid., p. 124.
- 55.
Sakhalkin II, an oil and gas development project on Sakhalin Island in Russia, was governed by a Partnership Sharing Agreement (PSA) which meant that the Russian State could not receive any profit until all costs incurred by the foreign company had been recovered. Shell was criticised for cost overruns which brought about massive losses to the State, including serious environmental damages to the region. All environmental concerns regarding the project were later resolved when Shell agreed to sell a majority stake in the project to Gazprom. See New York Times, Shell Cedes Control of Sakhalin-2 to Gazprom, December 2006, http://www.nytimes.com/2006/12/21/business/worldbusiness/21iht-shell.3981718.html (accessed 8 March 2015).
- 56.
Shtokman is one of the world’s largest gas fields, for which Gazprom was in need of a partner as it lacked the necessary advanced technology to extract gas from this field. A short list of candidates was announced in September 2005 for which lengthy negotiations ensued until a decision was finally made in 2007 when Total, Statoil and Norsk Hydro agreed to become partners with Gazprom. See Romanova (2008), p. 224.
- 57.
The Law on Foreign Investments in Strategic Companies (Law No. 57–FZ) adopted in April 2008, set out the oil and gas sector as a strategic sector for which investment now required government approval. As a result, foreign investors were required to obtain consent for any acquisition in excess of 50 % in companies deemed to be strategic, which enabled the designated authority to monitor the activities of foreign investors in the energy sector. See Law No. 57–FZ ‘On the Procedure for Contributing Foreign Investments in Legal Entities which are of Strategic Importance for the Defence of the Country and Security of the State’ (Law on Foreign Investments in Strategic Companies), http://www.russland.no/filestore/57FZ.27.html (accessed 8 December 2010).
- 58.
Law No. 58–FZ amended and repealed certain legislative provisions including the Law on the Subsurface, which was the fundamental legislative act and general framework for licensing, exploration and development of activities relating to natural resources in Russia. The amendment enabled the Russian government to grant approval to terminate the right to mineral exploration and production whether the foreign entity had a license or not. See Hóber (2009), p. 438. Significantly, the license to use subsoil parcels of federal significance on the Russian continental shelf could only be granted to Russian entities controlled by the State, with at least a 5-years’ experience in this sort of exploration. As a result of these limitations, only Gazprom and Rosneft qualified for the licenses. See Seliverstov (2009), p. 17.
- 59.
Nappert (2010), p. 12.
- 60.
Russia views its laws on foreign investment as a necessity for the purpose of protecting its strategic industry, which is a lifeline of the Russian economy. However, Moscow views the EU’s TEP as detrimental to the investment climate between the EU and Russia, vital to the internal energy market and the EU’s energy policy. See EU Observer, EU and Russia to Sign Trade Memo Amid US Mockery, 7 December 2010, http://euobserver.com/9/31442 (accessed 8 March 2015).
- 61.
European Commission, Trade–Russia (EUROPA, 9 September 2014), http://ec.europa.eu/trade/creating-opportunities/bilateral-relations/countries/russia (accessed 8 March 2015).
- 62.
Ibid.
- 63.
WTO agreements prohibit investment measures that are inconsistent with obligations of national treatment and the prohibition of quantitative restrictions. These prohibitions concern trade in goods, not services, whereas the GATS covers investments linked to trade through mode 3 (commercial presence). See Selivanova (2010b); Selivanova (2009), p. 7.
- 64.
Under art 26 ECT an investor can litigate directly against a government. See Konoplyanik and Wälde (2006), p. 523.
- 65.
Selivanova (2009), p. 7.
- 66.
Lehavi and Licht (2011), p. 115.
- 67.
See http://unctad.org/sections/dite_pcbb/docs/bits_russia.pdf (accessed March 2014).
- 68.
The Treaty of Lisbon entered into force on 1 December 2009 as the latest landmark in the Union’s evolved constitutional architecture. It amended the EU treaties and renamed them into the current Treaty on the European Union (TEU) and the Treaty on the Functioning of the European Union (TFEU).
- 69.
Strik (2014), p. 2.
- 70.
Regulation (EU) No 1219/2012 of the European Parliament and of the Council of 12 December 2012 establishing transitional arrangements for bilateral investment agreements between Member States and third countries, OJ L 351/40.
- 71.
Bungenberg (2010), p. 143.
- 72.
Leal-Arcas (2009b), p. 346.
- 73.
Barysch (2010), p. 4.
- 74.
Petrovic et al. (2009), p. 91.
- 75.
Nord Stream is an existing 55 bcm/y pipeline that connects Russia to Germany via the Baltic Sea. It is to be extended to double its capacity following an agreement between Gazprom, Royal Dutch Shell, E.ON and OMV.
- 76.
Turkish Stream is a 63 bcm/y pipeline connecting Russia to Turkey via the Black Sea, intended to carry Russian gas to South East Europe.
- 77.
Turkish Stream is considered a rival to the Western-backed Trans Adriatic Pipeline (TAP) pipeline project which will carry Azeri gas to European markets. TAP is part of the Southern Gas Corridor and is seen as Europe’s alternative to its reliance on Russia. See Raszewski (2015), p. 4.
- 78.
EurActiv, Barroso Warns Bulgaria on South Stream, 28 May 2014, http://www.euractiv.com/sections/energy/barroso-warns-bulgaria-south-stream-302467 (accessed 10 July 2014).
- 79.
The Commission confirmed that the breach of EU law related to three major issues which included: firstly, the EU’s network ownership unbundling which prohibits Gazprom as both producer and supplier of gas to simultaneously own production capacity and its transmission networks; secondly, non-discriminatory third party access to the pipelines which means that Gazprom does not have exclusivity as the only shipper; thirdly, the tariff structure which needs to be addressed. See EurActiv, South Stream Bilateral Deals Breach EU Law, Commission Says, 4 December 2013, http://www.euractiv.com/energy/commission-south-stream-agreemen-news-532120 (accessed 1 December 2014).
- 80.
De Jong and Wouters (2011), p. 38.
- 81.
Rosner (2009), p. 166.
- 82.
Alcaro and Alessandri (2010), p. 191.
- 83.
Gawlikowska-Fyk et al. (2015), p. 14.
- 84.
EurActiv, Cameron: EU–Russia Relations Should Be More Positive, 9 April 2008, http://www.euractiv.com/en/foreign-affairs/Cameron-eu-russia-relations-positive/art-171457 (accessed 1 April 2014).
- 85.
European Commission, Communication from the Commission to the European Parliament and the Council on the Short Term Resilience of the European Gas System. Preparedness for a Possible Disruption of Supplies from the East during the Fall and winter of 2014/2015, COM (2014) 654, 16 October 2014.
- 86.
Lorca (2009), p. 108.
- 87.
De Jong and Wouters (2011), p. 41.
- 88.
Ibid.
- 89.
Article 194 TFEU states that the aims of the Union’s energy policy shall be pursued “in a spirit of solidarity” between Member States.
- 90.
De Jong and Wouters (2010), p. 533.
- 91.
On 25 February 2015 the European Commission put forward a proposal for an Energy Union with the aim of achieving a “sustainable, low-carbon and climate-friendly economy that is designed to last”. The Commission’s Energy Union initiative calls on Member States to move away from a fragmented system of uncoordinated national policies, market barriers and energy-isolated areas having identified an inherent need for a common European approach in the energy sector. See below, n. 101.
- 92.
Ibid., p. 525.
- 93.
De Jong and Wouters (2011), p. 41.
- 94.
Leal-Arcas (2009a), p. 351.
- 95.
Riley (2010), p. 37.
- 96.
Selivanova (2010a).
- 97.
Selivanova (2010b), p. 61.
- 98.
De Jong and Wouters (2011), p. 46.
- 99.
Ibid.
- 100.
The signing of bilateral deals with suppliers such as Gazprom, are repeatedly seen as undermining the development of a coherent external energy policy. See Barysch (2010), p. 4.
- 101.
European Commission, Energy Union: Secure, Sustainable, Competitive, Affordable energy for Every European, 25 February 2015, http://europa.eu/rapid/press-release_IP-15-4497_en.htm (accessed 5 April 2015); European Commission, A Framework Strategy for a Resilient Energy Union with a Forward-Looking Climate Change Policy, COM (2015) 80, 25 February 2015; European Commission, Road map for the Energy Union, COM (2015) 80 Annex I, 25 February 2015.
- 102.
Barysch (2008), p. 7.
- 103.
Leal-Arcas (2009a), p. 351.
- 104.
Van Elsuwege (2014), p. 459.
- 105.
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Georgiou, N.A. (2017). Energy Regulation in International Trade: Legal Challenges in EU–Russia Energy Relations from an Investment Protection Perspective. In: Adinolfi, G., Baetens, F., Caiado, J., Lupone, A., Micara, A. (eds) International Economic Law. Springer, Cham. https://doi.org/10.1007/978-3-319-44645-5_9
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