Slide no 1 APEC Energy, 1 Oct 2008 APEC Energy Trade and Investment Cairns, 1 October 2008 A multilateral approach to energy security: the Energy Charter.

APEC Energy, 1 Oct 2008Slide no 1

APEC Energy Trade and InvestmentCairns, 1 October 2008

A multilateral approach to energy security: the Energy

Charter

Pascal LaffontOffice of the Secretary-General

Energy Charter Secretariat


Objective

Access to reliable energy supplies for all

A multilateral framework encouraging state-to-state relations and confidence-building


Energy Charter

• Multilateral treaty (“Energy Charter Treaty”)

• Forum (“Energy Charter Process”)


Energy Charter ProcessENERGY CHARTER CONFERENCE

(governing body)

Budget Committee

Energy Charter Secretariat(HQs: Brussels)

Trade & Transit Group

Investment Group

Energy Efficiency Group

Industry Advisory Panel


Energy Charter Constituency

■ Signatory

■ Observer


Energy Charter in context 1/2

• Energy Charter Secretariat (Brussels)

• International Energy Forum (Riyadh)

• OPEC (Vienna) (some oil producers)

• International Energy Agency (Paris) (OECD based)

• (WTO Geneva)


Energy Charter in context 2/2

• “G8” 2007: “global energy security principles”

• “ASEAN + 3” Declaration 2006

• “ASEM” Heads of States 2006


Energy Charter: why use it? To attract private capital (ECT) To facilitate cross-border projects (ECT) To promote energy efficiency policies (ECT) To develop technology transfer (ECT) To encourage amicable settlements of disputes

(ECT/ECP) For capacity building (ECP) To be part of a constant and composite dialogue on

cross-border energy issues among producer, transit and consumer countries (ECP)


Energy Charter: how to use it?

• observer (limited use of ECP)

• Member (ECP/ECT)



ECT Trade Provisions




ECT vs. WTO

ECT• applies WTO rules to energy trade

– NDS: national treatment, MFN– investments

• broadens energy sovereignty• develops WTO rules on cross-border transit • Adapts dispute resolution mechanisms

membership complementarities


Complementarities: example

between two WTO members – C closes its borders to S imports of oil bound

for B– Potential breach of WTO and ECT– S and C are both WTO and ECT members– S and C choose ECT



ECT Investment Provisions




Underlying Principles

• Promotion: attracting cheaper FDIs by sending signals that: – risk is reduced– country prepared to abide by their contractual

commitments to investors (“pacta sunt servanda”)

• Protection: of investments abroad (DSM)


Prohibition on discrimination: limitations

• Of “existing investors” ie do not apply to entry

• “Discrimination” = not only different treatment but different treatment without legitimate reason for the distinction


Definitions of « investment » and « investor »

Protection of individual investment contracts

Freedom of investment-related capital transfers

Compensation in case of expropriation and losses due to war and similar events

Employment of key personnel

Prohibition of TRIMs: only for those countries which are not WTO members or which are exempted from WTO TRIMS agreement and which pursue an “infant industry” policy

Protection


Exceptions

• In case of – Short supply– measures designed to benefit aboriginal or

socially disadvantaged– the protection of the country’s essential

security interests incl. the maintenance of public order (Art 24)

– no diplomatic relations (Art 17)



ECT responses to risks associated with cross-border

trade




Challenges to energy transit

Why on-shore, multi-country transit is needed? Demand is rising Diversification of supply sources Makes more economical sense on short to medium distances =>

cheaper price to the end-user but

political: energy link is “as strong as its weakest link” => strengthen that link as much as possible

physical: paucity of the existing infrastructure => more is needed to avoid existing bottlenecks

financial: unprecedented level of investments required => cost


BTC Project


Challenges to energy transit: the IPI Gas Pipeline Project

Common challenges: The legal structure of the project Regional Volatility: political vicissitudes among the countries

India’s concerns Interruption of transit Interruption of supply (reserve production downgrades, termination of production licenses, …) Over-dependence on Pakistan Project financing (Public/Private) (for the Indian segment) Protection of the Indian investment in Pakistan and Iran

Pakistan’s concerns Interruption of supply (reserve production downgrades, termination of production licenses, …) Promote foreign investment Securing recovery of transit fee Protection of the Pakistan investment in Iran Creation of economic imbalance in the region

Iran’s concerns Depletion of indigenous resources Project financing (Public/Private) (for the Iranian wells and pipe segment) Protection of the Iranian investment in Pakistan Securing best possible price


Responses

a multilateral framework/forum which – enshrines sovereignty while reducing political risks– gives minimum enforceable legal guarantees thus encouraging

multi-country cross border projects and investments at a lower cost

– leaves the parties free to work out their detailed contractual arrangements

– encourages amicable settlement

– provides a composite and constant dialogue thus minimising “tit-for-tat” responses

– share best practices and knowledge

confidence building process


Thank you

Slide no 1 APEC Energy, 1 Oct 2008 APEC Energy Trade and Investment Cairns, 1 October 2008 A multilateral approach to energy security: the Energy Charter.

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