Another round of ECT negotiations

From March 1 to 4, 2022, the contracting parties of the ECT met for their 11th round of negotiations for a possible reform of the treaty. The meeting was overshadowed by rising energy prices and the Russian invasion of Ukraine, which is likely to have significant consequences for the European energy market.

In deviating from its usually formal public communication on each negotiation round, the Energy Charter Secretariat reported that several contracting parties, “including the European Union and its Member States, Japan, the United Kingdom and Switzerland, condemned in the strongest possible terms the unprecedented military aggression of the Russian Federation against the ECT’s Contracting Party Ukraine.” The Ukrainian delegate, who was able to participate despite the current circumstances, specifically warned about the consequences of Russia’s invasion for civilian energy infrastructure in Ukraine and energy security throughout Europe in general.

Focusing on the “modernization” itself, the negotiating contracting parties discussed the definition of investment, as well as absolute and relative standards such as direct and indirect expropriation and most-favoured nation treatment. The modernization group also dwelled on controversial issues related to investor–state dispute settlement such as security for costs and valuation techniques applied by arbitral tribunals when calculating damages.

Moreover, the definition of “economic activity in the energy sector,” which determines the type of energy investments—including in the fossil fuel sector—that will remain protected under a modernized treaty, appears to remain particularly controversial. With an ad hoc Energy Charter Conference scheduled for June, it is likely that at least some contracting parties are aiming to reach some form of reform agreement by then.