ENERGY SECURITY: THE ROLE OF INTERNATIONAL LEGAL FRAMEWORK Dr. - - PowerPoint PPT Presentation

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ENERGY SECURITY: THE ROLE OF INTERNATIONAL LEGAL FRAMEWORK Dr. - - PowerPoint PPT Presentation

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ENERGY SECURITY: THE ROLE OF INTERNATIONAL LEGAL FRAMEWORK Dr. Andrei Konoplianik Deputy Secretary General Energy Charter Secretariat International Conference The Role of Governments and International Organisations in Promoting Energy

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SLIDE 1

ENERGY SECURITY: THE ROLE OF INTERNATIONAL LEGAL FRAMEWORK

  • Dr. Andrei Konoplianik

Deputy Secretary General

Energy Charter Secretariat

International Conference «The Role of Governments and International Organisations in Promoting Energy Security»

Energy Charter Secretariat, International Energy Agency, Organisation for Security and Cooperation in Europe 25 October 2006, Palais d’Egmont, Brussels

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SLIDE 2

GLOBAL ENERGY TRENDS: WHY NON-OECD IMPORTANT

Increase in World Energy Production and Consumption

(Source: IEA WEIO 2003)

2001-2030:

  • Increase in energy

production: 95% outside of OECD

  • Increase in energy

consumption: 70% outside of OECD

  • Cumulative energy

investment:

  • 50% from non-OECD to

non-OECD markets, and

  • 10% from non-OECD to

OECD markets

1,000 2,000 3,000 4,000 5,000 6,000 7,000 Production Consum ption Production Consum ption Mtoe OECD Transition econom ies Developing countries 1,000 2,000 3,000 4,000 5,000 6,000 7,000 Production Consum ption Production Consum ption Mtoe OECD Transition econom ies Developing countries

1971-2000 2001-2030 www.encharter.org

  • Dr. A. Konoplianik, ECS-IEA-OSCE Conference, Brussels, 25.10.2006 - Figure 1
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SLIDE 3

ENERGY SECURITY AND DIVERSIFICATION

Diversification :

  • of supply routes (“multiple pipelines”)
  • of sources of supplies (“multiple suppliers”)
  • of markets and routes to access them

to be based on balance of interests of all players throughout whole energy value chain

www.encharter.org

  • Dr. A. Konoplianik, ECS-IEA-OSCE Conference, Brussels, 25.10.2006 - Figure 2
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SLIDE 4

ECONOMIC “CIRCLE OF LIFE” OF ENERGY PROJECTS

INVESTMENT ENERGY REVENUE

www.encharter.org

  • Dr. A. Konoplianik, ECS-IEA-OSCE Conference, Brussels, 25.10.2006 - Figure 3
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SLIDE 5

ENERGY ECONOMY: DEMAND FOR QUALITY OF REGULATORY FRAMEWORK

Energy projects (compared to other industries):

– Highest capital intensity (absolute & unit CAPEX per project), – Longest project life-cycles, – Longest pay-back periods, – Geology risks (+ immobile infrastructure, etc.), – Highest demand for legal & tax stability, – Role of risk management.

=> Higher demand for “quality” of legal and regulatory framework compared to other industries

www.encharter.org

  • Dr. A. Konoplianik, ECS-IEA-OSCE Conference, Brussels, 25.10.2006 - Figure 4
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SLIDE 6

ENERGY MARKETS DEVELOPMENT: EVOLUTION OF CONTRACTUAL STRUCTURES

“Physical energy” markets = Long-term contracts + Short-term contracts + Spot + Forward + “Paper energy” markets = + Forward + Futures + Options + …

www.encharter.org

  • Dr. A. Konoplianik, ECS-IEA-OSCE Conference, Brussels, 25.10.2006 - Figure 5
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SLIDE 7

Multilateral Trade Investments

+

WTO/ GATT

TRIMs

+

Transit

+

Dispute settlement

+

TRIPs GATS ECT Energy Efficiency

+

DEVELOPMENT OF ENERGY MARKETS AND MECHANISMS FOR INVESTORS PROTECTION / STIMULATION

www.encharter.org

Mechanisms for investors protection / stimulation

Stability zones in unstable environment Domestic legislation Concessions, PSAs (incl. LTCs)

End of 2004:

2392 BITs 2559 DTTs International legal mechanisms Bilateral BITs, DTTs

+

Increasing of general level of investment attractiveness

+

Tax, investment, subsoil legislation

Energy Markets

World energy market Local Internationalisation Regional Globalisation World markets

  • f certain

energy resources

Oil

  • Dr. A. Konoplianik, ECS-IEA-OSCE Conference, Brussels, 25.10.2006 - Figure 6
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SLIDE 8

SELECTED INTERNATIONAL INVESTMENT-RELATED AGREEMENTS

Organisation (member- states/CPs) Legal Status Scope Investment Trade Transit Energy Efficiency Dispute Settlement

ECT (51/52) LB Energy Yes Yes Yes Yes Yes

WTO (149) LB General (Yes?) (Services) Yes Yes/No* No Yes NAFTA (3) LB General Yes Yes No No Yes MERCOSUR (4) LB General Yes Yes No No Yes OECD (30) LB General Yes No No No No APEC (21) Non- LB General Yes Yes No No No * application of GATT Art.V to grid-bound transportation systems is under debate Plus specialised energy-related organisations: OPEC, IEA, IEF, UN ECE (partly), IAEA, … Plus specialised “regional” organisations: BSEC, BASREC, …

www.encharter.org

  • Dr. A. Konoplianik, ECS-IEA-OSCE Conference, Brussels, 25.10.2006 - Figure 7
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SLIDE 9

ENERGY CHARTER SPECIFIC ROLE

  • Energy Charter Treaty:

– Unique coverage of different areas for energy cooperation:

  • investment, trade, transit, energy efficiency, dispute settlement,
  • energy materials & products + energy-related equipment,
  • 51 member-states (52CPs) + 19 observer-states + 10 observer
  • rganisations

– First and only one multilateral investment agreement with high standard of investment protection, incl. dispute settlement

  • Energy Charter process:

– Specialized forum for “advanced” discussion of the issues of energy markets evolution that might create new risks for development of energy projects in ECT member-states, – Platform for preparation of new legally binding instruments to diminish such risks within ECT member-states.

www.encharter.org

  • Dr. A. Konoplianik, ECS-IEA-OSCE Conference, Brussels, 25.10.2006 - Figure 8
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SLIDE 10

ECT = THE FIRST MULTILATERAL INVESTMENT AGREEMENT (1)

  • Based on:
  • well-established practice of BITs (about 500 BITs as of

early 1990’s - around 2400 BITs as of today)

  • investment chapter XI of NAFTA (US, Canada, Mexico)
  • some interaction with then proposed “Multilateral

Agreement for Investment” (MAI – aborted in 1998)

  • Within 51 ECT member-states equal to 1275 BITs
  • MFN and National Treatment for investors:
  • binding guarantee of non-discriminatory treatment for post-

establishment phase,

  • soft-law obligations for pre-establishment phase (stage of

making investment)

www.encharter.org

  • Dr. A. Konoplianik, ECS-IEA-OSCE Conference, Brussels, 25.10.2006 - Figure 9
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ECT = THE FIRST MULTILATERAL INVESTMENT AGREEMENT (2)

  • Protection against key political/regulatory risk:
  • expropriation and nationalisation,
  • breach of individual investment contracts,
  • unjustified restrictions on transfer of funds
  • Reinforced by access to binding international arbitration

in case of dispute:

  • State-to-state, and (NOVELTY!) investor-to-state => direct

dispute settlement at investor’s choice at ICSID, UNCITRAL or ICC Stockholm,

  • Awards:

final and enforceable under NY convention, usually as entitlement to payment (no risk of vicious circle for retaliating measures), retroactive to start of dispute, may include interest (no incentive to delay process)

www.encharter.org

  • Dr. A. Konoplianik, ECS-IEA-OSCE Conference, Brussels, 25.10.2006 - Figure 10
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ECT EXPANSION PROCESS: ASIAN DIMENSION DOMINATES

  • New ECT members:

Mongolia - 1999

  • New ECT observers:

China – 2001 Korea Rep. – 2002 Iran – 2002 Nigeria – 2003 ASEAN – 2003 Pakistan – 2005 Afganistan – 2006

www.encharter.org

  • Dr. A. Konoplianik, ECS-IEA-OSCE Conference, Brussels, 25.10.2006 - Figure 11
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ENERGY CHARTER PROCESS: GEOGRAPHICAL DEVELOPMENT

■ Energy Charter Treaty Signatory States ■ Other Observer States ECT current expansion trends

1. From trans-Atlantic political declaration to broader Eurasian single energy market 2. ECT expansion - objective and logical process based on clear economic and financial reasoning

www.encharter.org

  • Dr. A. Konoplianik, ECS-IEA-OSCE Conference, Brussels, 25.10.2006 - Figure 12
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SLIDE 14

SOME ENERGY-RELATED INTERNATIONAL ORGANISATIONS (approximation)

ECT EU IEF OPEC IEA GCC

Political cooperation Nature of Cooperation Legally binding

  • bligations

Membership profile Producers / Net exporters Transit / Transportation Consumers / Net importers

www.encharter.org

  • Dr. A. Konoplianik, ECS-IEA-OSCE Conference, Brussels, 25.10.2006 - Figure 13
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SLIDE 15

COMPLIMENTARITY OF ENERGY-RELATED INTERNATIONAL ORGANISATIONS (IN PROTECTING ENERGY INVESTMENTS)

Investor protection

I F I s

World Bank (IBRD+MIGA+ICSID) Regional Development Banks: EBRD, ADB, EIB, …

I E F I E A E C S R e g i

  • n

a l , b i l a t e r a l

BSEC, BASREC, EU-SEE Energy Community Treaty, EU ENP, … Bilateral (energy) dialogues: Russia => EU, USA, individ. CIS states, … EU => Russia, Norway, Algeria, Turkey, …

www.encharter.org

  • Dr. A. Konoplianik, ECS-IEA-OSCE Conference, Brussels, 25.10.2006 - Figure 14
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SLIDE 16

Thank you for your attention! www.encharter.org

www.encharter.org