​The global energy crisis is a hot topic for today’s debate and currently raises many questions not only about how it will end, but also about how the victims can recover their losses.

Energy consumers have not actually been affected by the current crisis, as they benefit from the protection measures offered by all European states, including Romania. Energy suppliers and distributors, however, bear the consequences of aid measures introduced for the benefit of consumers.

The aid measures and compensation schemes introduced by the Romanian government through numerous emergency decrees adopted from 2020 until now have caused significant losses for suppliers and distributors of electricity or gas. Market players who invested foreign capital in Romania were also affected.

While consumers pay a capped price for the energy consumed, energy suppliers were promised to be reimbursed by the Romanian state for the difference between the price they paid for the purchased energy and the price received from their customers (end users). But the compensation scheme introduced in Romania also limits the amount suppliers can recover from the state, favoring market operators who act speculatively and not accepting those who showed diligence and bought more energy under long-term contracts signed before the energy outbreak. crisis. In addition, delays in receiving sums related to the compensation scheme promised by the Romanian state are significant.

However, this article aims to present some mechanisms by which energy market participants, especially foreign investors, can act against the Romanian state to redress losses incurred as a result of discriminatory and unfair capping and compensation schemes.

What is the Energy Charter Agreement?

Agreement to the Energy Charter (“Contract») is an international instrument that provides a multilateral basis for cooperation in the field of energy, unique in international law. The agreement is designed to promote energy security through the functioning of more open and competitive energy markets, respecting the principles of sustainable development and sovereignty over energy resources.

The Energy Charter Treaty was signed in December 1994 and entered into force in April 1998. There are currently 53 signatories and parties to the Treaty. Among them are the European Union and Euroatom. In addition, Romania is a signatory to the Treaty.

The provisions of the agreement focus on four broad areas:

• Foreign investment protection based on the extension of national treatment or most favored nation treatment (whichever is more favorable) and protection against key non-trade risks;
• Non-discriminatory terms of trade in energy materials, energy products and equipment in accordance with the rules and regulations of the WTO (World Trade Organization) to ensure reliable cross-border transit flows of energy through pipelines, networks and other means of transport;
• Settlement of disputes between participating states – and in the case of investments – between investors and host states;
• Promoting energy efficiency and trying to minimize the environmental impact of energy production and use.

The agreement was preceded by a political declaration, the European Energy Charter, adopted in The Hague on December 17, 1991. The European Energy Charter contained an obligation to conduct negotiations in good faith regarding the binding Treaty to the Energy Charter and its protocols. The International Energy Charter is an additional political declaration adopted and signed in The Hague on May 20, 2015. This recent political declaration reflects global challenges in the field of modern energy and outlines general principles and areas of international energy cooperation for the 21st century. high level demonstrated by the international community. The Energy Charter process has been expanded to include more than 90 countries on all continents. The Energy Charter is poised to play a key role in international energy governance in the 21st century.

What are the obligations of the signatory states towards foreign investors?

Part III of the Agreement entitled Encouragement, protection and attitude towards investors regulates the obligations of the signatory states of the Treaty in relation to foreign investors on their territory. Within the meaning of the Treaty, each contracting state undertook a firm commitment to encourage and create stable, fair, favorable and transparent conditions for investors from other contracting states to make investments in the territory of the former.

The conditions to be created by the Contracting States include the obligation to give fair treatment to investments and investors from other Contracting States in all situations. According to the Treaty, such investments will enjoy the most permanent protection and security, and no contracting party will prevent, by unreasonable or discriminatory means, the management, holding, right to use or disposal of the investors’ investments.

In addition, the Treaty requires that under no circumstances should these investments receive less favorable treatment than that provided for by international law, including treaty obligations. Each Contracting State fulfills all obligations taken before the investor or investment of another Contracting State.

How are disputes between investors and the host country resolved?

The Treaty governs the settlement of disputes in its Part V, which deals with three types of disputes: (i) disputes between investors and host States, (ii) disputes between Contracting States, and (iii) disputes to which the dispute provisions between Contracting States do not apply.

Of interest to this article are the provisions of Article 26 of the Treaty, which regulate the procedure for resolving disputes between investors and host states.

The first paragraph of Article 26 requires that disputes between a contracting party and an investor from another contracting state regarding investments made in the territory of the former, in violation of the host state’s obligations under the Treaty, be resolved as far as possible. , peaceful way. The article refers to the provisions of Part III of the Treaty, which regulates the encouragement, protection and treatment of investors.

If such disputes cannot be settled amicably within 3 months from the date on which any of the parties to the dispute requested amicable settlement, the Investor, the party to the dispute, has the right to submit its dispute for settlement at its option. :

1. judicial or administrative courts in a contracting state that is a party to the dispute;
2. to any applicable dispute resolution procedure previously agreed upon;
3. methods of resolution provided for in Clause 3 of Article 26.

With regard to dispute settlement procedures agreed in advance (paragraph b) above) and dispute settlement procedures governed by Article 26, the Contracting States shall, in accordance with paragraph (3) of Article 26 of the Treaty, unconditionally agree to submit disputes for resolution to international arbitration or conciliation , described in Article 26 of the Agreement. Annex ID to the Treaty lists the States that have signed the Treaty, which have given their unconditional consent that disputes may be settled by international arbitration or conciliation. Among these states is Romania.

If the investor decides to refer his dispute to international arbitration or conciliation procedure, the investor must give written consent to the transfer of the dispute to one of the following institutions, of his choice:

1. (i) the International Center for Settlement of Investment Disputes (ICSID), if the parties to the ICSID Convention are both the Contracting State that is a party to the dispute and the State of origin of the investor; or

(ii) ICSID established in accordance with the provisions of the ICSID Convention on the Additional Facility for the Administration of Proceedings by the ICSID Secretariat (Additional Organization Rules) if the State of origin of the Investor or the Contracting State participating in the dispute is a party to the ICSID Convention, but not both.

2. to a single arbitrator or an ad hoc arbitral tribunal established under the UNICITRAL Rules;
3. Arbitration proceedings of the Arbitration Institute of the Stockholm Chamber of Commerce (SCC).

Consent to refer a dispute to the above-described international arbitration procedures, given in accordance with Article 26 of the Agreement, is considered a valid consent to refer a dispute to arbitration to any institution or in the forms described earlier.

Further, clause 26 of Art. (6) of the Treaty stipulates that the arbitration court, established in accordance with Article 26 of the Treaty, resolves the dispute in accordance with the provisions of the Treaty and the applicable norms and principles of international law.

Finally, the last paragraph of Article 26 of the Treaty emphasizes this arbitral awards, which may include interest, will be final and binding on the parties. An arbitral award in respect of an action by a subnational government or the involvement of the authorities of a contested Contracting State provides that the Contracting State may pay monetary compensation in exchange for another remedy granted by the arbitral tribunal. Each Contracting State shall promptly comply with any such decision and ensure the effective enforcement of such decisions in its territory.

What do the statistics show about disputes resolved under the Treaty?

Given that arbitrations are generally confidential, the information on cases initiated under the Treaty and the statistics are based on information collected from open sources (in other words, the statistics are based on those cases that have been made public by the parties).

Statistics indicate that 150 cases have been opened on the basis of the Treaty. There were four cases involving Romania (as defendant) and three cases where the claimant was an investor from Romania.

The statistics also show that the vast majority of disputes were settled under the ICSID Rules (94), followed by the SCC Rules (29). Cases involved both fossil fuels and renewables (with a reported increase in cases in 2015-2016).

In our opinion, the number of cases is reasonable, and the low number of disputes resolved on the basis of the Treaty with the participation of Romania is caused by insufficient popularization of these dispute resolution mechanisms and lack of promotion of the provisions of the Treaty.

The article was signed by Laura Câmpureanu – Senior Associate and Alexandru Oană – Managing Associate (Manager), Băncilă, Diaconu si Asociatii SPRL

Article supported by EY Romania