The Protection of Russian Investments in the EU Energy Market: A Case in Support of Russia's Ratification of the Energy Charter Treaty

Abstract

Russia’s decision not to ratify the Energy Charter Treaty (‘ECT’) can, to a great extent, be explained by Russia’s perception of this treaty as a legal instrument primarily directed at guaranteeing the security of Europe’s energy supply. As illustrated by the 2012 Arbitral Decision in Electrabel SA v Hungary, Russia’s concerns regarding how centered the ECT is on the European Union (‘EU’) seem to be largely well founded. In the event that Russia ratifies the ECT, the special nature of EU law under that Treaty represents a potential limit to the protection that the ECT could provide to Russian investors in the EU energy market. The objective of the present article is to contribute to the debate on Russia’s possible (but highly hypothetical) ratification of the ECT in the context of the modernization of the Energy Charter process. Mainly focusing on jurisdictional questions, this article aims to evaluate the benefits that ratifying the ECT would represent for the protection of Russian investors abroad. Given the obstacles to arbitration found in many Russian bilateral investment treaties and given the lack of protection that the provisional application of the ECT offers to existing Russian investors in the EU, it is argued that Russia’s ratification of the ECT is necessary to enable Russian investors to sue the EU or its Member States. By ratifying the ECT, Russia would open up the possibility for its investors of launching arbitration proceedings against the Third Energy Package on the basis of the rights that these investors benefited from before Russia terminated its provisional application. However, Russia’s ratification of the ECT would only make sense if Russia’s concerns regarding the EU-centered nature of the Treaty are addressed. The modernization of the ECT process offers a unique opportunity to address these concerns and create a balanced playing field for energy producers and consumers.