Background
(EnergyAsia, April 7, Monday) — The policies adopted by the Russian Federation in dealing with its energy resources, notably in its gas pricing dispute with Ukraine and, more recently, its draft law on foreign investment in strategic industries , are the subject of worldwide publicity and comment. Russia has signed the Energy Charter Treaty (ECT), but to date has no intention of ratifying it. The advent of Dmitry Medvedev as President Putin’s successor later this year is not expected to herald a change in Russia’s stance on this matter.
The continued non-ratification of the ECT by one of its key signatories, in geopolitical terms, places Russia in a unique position. This position will no doubt be tested in the arbitration proceedings started against Russia by Yukos’ majority shareholders Group Menatep, Hulley Enterprises, Yukos Universal and Veteran Petroleum Trust, for the alleged expropriation of their investment in Yukos.
This article outlines some of the issues raised by the ‘provisional application’ of the ECT by Russia. Several questions remain unanswered, notably on what provisional application means where ratification is not anticipated in future, and whether, by law, there are limits in time placed on the provisional application of the ECT by Russia.
The Energy Charter Treaty
The ECT is the first multilateral instrument aimed at promoting and protecting investment, security of supply and transit in the energy sector. It advocates transparency and non-discrimination in the treatment of foreign investment, freedom of transit and a commitment to the progressive liberalisation of international trade in the energy sector.
Fifty-two states, including Ukraine and the EU as a unit, have signed the ECT and twenty more are observers. In addition to Russia, other signatory States which have not ratified the ECT are Australia, Belarus, Iceland and Norway.
The effect of signature without ratification, in public international law terms, is that Russia is “provisionally applying” the ECT. Having signed the treaty places Russia under an obligation at international law not to act in a manner contrary to the ECT’s aims and terms.
The ‘domestic exception’ clause in Article 45
A crucial aspect of Article 45 lies in its ‘domestic exception‘ clause, to the effect that provisional application must not be inconsistent with the signatory State’s constitution, laws or regulations.
However, Article 23 of the 1995 Federal Law on International treaties of the Russian Federation specifically recognises the provisional application by Russia of international treaties to which it is a party, if so provided by the treaty or by agreement with the other signatories.
Time scope of provisional application: How provisional is ‘provisional’?
There is little precedent on how provisional application affects the other substantive provisions of a treaty. This may be because provisional application is usually followed by ratification in fairly short order.
As regards the ECT, a key issue is whether Article 45 affects the capacity of an investor to invoke the ECT’s dispute resolution provisions at Article 26 ECT against Russia. In other words, does provisional application shield Russia from investor-to-State arbitration pursuant to the ECT?
This is one of the central issues in the pending arbitration proceedings against Russia concerning Yukos. Whilst this issue remains to be decided in the case of Russia, another tribunal in the recent case of Kardassopoulos v Georgia, faced with similar arguments on the part of Georgia, made the following findings:
• Provisional application of the ECT is not aspirational in character; it is a matter of legal obligation.
• It is the ECT as a whole and in its entirety which is to be applied ‘pending its entry into force’.
• The language at Article 45(1) is to be interpreted as meaning that each signatory State is obliged, even before the ECT has formally entered into force in that State, to apply the whole ECT as if it had already done so.
Another central question to Russia’s current stance under the ECT is whether the period of provisional application is limited in time or indefinite.
No express limitation in time is stipulated in Article 45 ECT. According to Article 45, provisional application comes to an end either through express termination via written notification, or by the entry into force of the ECT.
As things presently stand, it would appear that the provisional application of the ECT may be maintained indefinitely.
*Sophie Nappert is a dual-qualified lawyer in the UK and in Canada, and a member of the International Centre for Dispute Resolution’s Energy Arbitrator’s List. She is an arbitrator in independent practice, based in London. Before becoming a full-time arbitrator, she was Head of International Arbitration at a global law firm. Sophie is trained and has practiced in both civil law and common law jurisdictions. In her capacity as counsel, she advised on issues of international arbitration, particularly in energy and infrastructure projects, and disputes involving state parties. In her capacity as arbitrator, she is sought for her trans-systemic and cross-cultural legal training and expertise. Sophie is ranked in Global Arbitration Review’s Top 30 List of Female Arbitrators Worldwide.