09.05.09

Russian President Dmitriy Medvedev stated in Helsinki on 20 April that "Russia intends to change the legal basis of relations between energy consumers and transit countries". The next day, a five-page "conceptual approach to the new legal basis for international cooperation in the energy sphere (aims and principles)" was posted on the Kremlin's official site.

Presidential Aide Arkadiy Dvorkovich, who probably headed the preparation of the "conceptual approach", explained that the document might replace the Energy Charter. "... the Energy Charter, and the documents which are part of the Energy Charter system in its current form, do not suit us ... A new international legal base is needed," Dvorkovich noted, also recalling that Russia had signed the charter but had not ratified it." This means that we do not consider ourselves bound by obligations under the Energy Charter. As for the Energy Charter Treaty, we do not consider ourselves bound by obligations under this treaty either ... To all intents and purposes these documents did apply to us," Mr Dvorkovich said.

Unfortunately, these assertions look vulnerable and may be contested. Fifty-one countries and two collective organizations (the EU and Euroatom) have signed the Energy Charter Treaty (ECT)- a legally binding document. However, Russia and another four countries have not actually ratified the ECT. However, on the basis of article 45 of the ECT ("temporary application"), Russia along with Belarus, is applying the treaty on a temporary basis, that is, "to the extent that such a temporary application does not contravene its constitution, laws or normative acts". The treaty entered into force on 16 April 1998 and it has since then been an integral part of international law, including for Russia as well. To all intents and purposes, the Russia Federation is bound by obligations under the ECT but only partially, only by those clauses, which do not contradict its domestic legislation.

This is obvious, and the proviso that our country does not consider itself bound by the relevant documents can be used by Russia's opponents as an argument to place in doubt the adequacy and legal justification of Moscow's position.

Let us suppose that the possibility is being discussed in Russia of making a declaration in line with article 45 (3b) of the ECT on the cessation of the temporary application of the treaty, that is of its intention not to become a contracting party to the ECT. If such an intention really exists, then the negative consequences of such a statement for Russia and its leaders are obvious, while convincing arguments in favor of such a statement are, in our view, lacking.

Consequences of Leaving the ECT

Firstly, by its statement of intent not to become a contracting party and on moving away from the temporary application of the ECT, Russia will play into the hands of the anti-Russian forces in world politics, who will once again assert that Russia has confirmed its reputation as a country, which does not respect the supremacy of the law.

Secondly, the ECT is the only multi-lateral tool protecting and promoting investment in the most capital-intensive and high-risk sphere of entrepreneurial activity - energy. In the course of time, the ECT has to an ever greater extent protected not only foreign investments in Russia but also (if the ECT is ratified by our parliament) Russian investments abroad, in the first instance from "the risks of liberalization" on the markets of the EU, which have become greater in connection with the emergence of a number of anti-Russian clauses in the "Third Liberalization Package", approved recently by the European parliament in a second reading.

Thirdly, the ECT has been an integral part of international law since 1998. Russia's non-participation in the ECT will not lead to the document being eliminated. It is just that other countries, whose financial costs when implementing energy projects will fall in relation to Russia's and whose competitiveness will increase, will enjoy its positive aspects.

Fourthly, Russia's renunciation of the ECT does not mean that our country will succeed in getting an alternative and more effective tool created within a foreseeable timeframe. The window of political opportunity, which led to the rapid completion of talks and the signing of the ECT at the beginning of the 1990s, has become much smaller today. At the same time, work can and must be done consistently and rationally on the gradual improvement of the multi-faceted process of the Energy Charter and its tools. Any initiatives connected with the ECT must be aimed at this, and the adaptation mechanisms built into the charter process are envisaged for this. The lack of a mechanism in the ECT for the effective prevention of crisis situations and their rapid resolution (this is a just assertion), just like the inaction of the political leaders of the charter secretariat on the threshold of the January Russo-Ukrainian gas crisis, are grounds for launching and heading a process for modernizing this part of the treaty and adding a relevant new agreement to it.

Finally, the system for concluding international treaties between the EU and third countries is structured in such a way that it is extremely difficult, if not impossible, to reach agreement with the EU (in the guise of the European Commission) when the compatibility of the terms with European law is not completely obvious. The EU is conducting the policy of exporting its legislation via the system of its international treaties. Today only the ECT presents an opportunity for resisting this trend. At the beginning of the 1990s, when the negotiations on the ECT were being conducted, the EU's first energy directives were being prepared simultaneously (they were adopted in 1996 and 1998); there are no fundamental differences between the ECT and these directives. Since then, the EU has adopted new, more liberal alternative directives (2003) and even more radical third versions may be adopted in 2009, as a result of which the gap between the ECT and European energy law, in terms of the level of liberalization "of open and competitive markets", has increased sharply. The ECT is however part of EU legislation.

The principle for applying the ECT is the principle of the "minimum standard", that is each country may go further in its own legislation than is required by the ECT with regard to the level of competition, liberalization and non-discrimination, but it cannot demand the same of other ECT member countries - on the basis of the ECT. Renouncing the ECT in these conditions deprives countries that are not EU members of the opportunity to attempt to reach agreement with the Europeans on "the new world energy order", on terms that differ from EU legislation.

Transit: Common Error

The main hobby-horse of opponents to the ratification of the ECT and supporters of leaving the treaty is article 7, concerning transit.

During parliamentary hearings in January 2001 on the matter of ratifying the ECT, the State Duma adopted the pragmatic and legally feasible decision that Russia's well-founded concern regarding the transit clauses of the ECT should be resolved in a special legally-binding protocol to the Energy Charter on transit (talks on it started in the year 2000). During bilateral consultations between experts from Russia and the EU on the draft transit protocol, special mutually acceptable concepts with regard to these articles in the ECT, agreed at a multi-lateral level, were formulated in it.

Russia's statement of intent not to become a contracting party to the ECT will halt the completion of the transit protocol without prospects of a return to its resumption. Russia as a result will not gain the multi-lateral legally-binding tool on transit matters that it needs, in a form acceptable to it, and on which it insisted itself, and on the preparation of which ten years were spent.

Some politicians regularly express fears with regard to the ECT, that if direct contracts are concluded by Central Asian producers and European purchasers for gas to be supplied to Europe, the ECT will allegedly oblige Russia to grant these companies access for cheap Central Asian gas to the Russia Federation's gas-transportation system for transit at low domestic transport tariffs. As a result, Central Asian gas passing through Russia's territory will start to compete with Russian gas on the European market and it will have a competitive (price) advantage.

This is a common error. The ECT does not speak about an obligation to provide access to transit capacities for third parties. The treaty indicates that "each contracting party takes the necessary measures to facilitate transit" (article 7-1) - that is, current and not new transit, and also "promotes cooperation between the appropriate entities" in the sphere of transit (article 7-2). "The contracting parties should not impede the creation of new capacities, with the exception of cases when something different may be stipulated ... in the legislation applied" (article 7-4), and for a country applying the ECT on a temporary basis, domestic legislation has priority over the ECT in the case of a conflict between their regulations. A transit country participating in the treaty is not obliged to permit the construction or modification of transit systems or to permit new or additional transit if it presents evidence to interested contracting parties that this "could threaten the reliability or effectiveness of its energy systems, including reliability of supply" (article 7-5). In article 7 of the ECT ("Transit") alone, five levels of conclusive defense of its interests by the transit country are stipulated, if it does not want to grant new transit to third parties.

Thus, the ECT does not oblige Russia tog rant access to the Gazprom gas transportation system but, on the contrary, provides internationally recognized mechanisms for a justified refusal of access to the national gas transportation system for new (potential) transit. Moreover, the question of the correlation between transit and internal tariffs is decided within the framework of the Energy Charter at an appropriate level within the framework of the preparation of the Transit Protocol (its consolidation at a political level is required).

Nor should it be forgotten that Central Asian gas is now no longer "cheap". From 2009, price setting for all gas exports both in the EU and on the post-Soviet space, will be carried out according to a single methodology - according to the net back (given in English) principle, from the cost of replacing gas on the EU market to gas transfer and acceptance points. The sale of Central Asian gas in accordance with the formula of the price at its external border is an export scenario which is more advantageous for these countries than transit supplies to Europe. In the first case, transit via Russia is absent. On the contrary, Gazprom completes the transit of gas it has purchased in Central Asia via the territory of Uzbekistan and Kazakhstan. In the second case, the Central Asian countries incur additional risks and expenditure connected with transit, in the absence of additional advantages.

Criticism of the ECT because of the Yukos case has also been heard: people have said the Energy Charter provided an opportunity for proceedings to be brought against Russia with regard to this case, based on the ECT, and such opportunities should be excluded in the future by "leaving the ECT". However, in line with article 45 (3-b), the intention not to become a contracting party of the ECT does not free Russia from obligations to apply part III "promoting and protecting capital investments" and part V "resolving disputes" of the ECT with regard to all investments made on the territory of Russia during the period of the temporary application of the ECT by investors from other signatory parties, for 20 years from the entry into force of the cessation of the temporary application of the ECT by Russia. So let us assume that Russia wants to "leave the ECT" in 2009 - and for the next 20 years (to 2029) the country's obligations to protect the investments, and the possibility of arbitration proceedings with Russia for the violation of investment clauses in the ECT, will remain in force.

Destroying Makes It Impossible to Modernize

The "conceptual approach to the new legal basis for international cooperation in the energy sphere (aims and principles)" should not be seriously considered as an alternative to the ECT and the documents connected with it, but, in my view, it may be accepted by the international community as a suggestion for the further improvement of the process of the Energy Charter as the only universal mechanism for the legal regulation of international relations in energy.

On the one hand, the published document contains virtually nothing that would make it possible to see substantial originality and a fundamental difference in the document to clauses from the Energy Charter document. It would be expedient to see these suggestions not as an alternative but as a list of questions in line with which it is suggested that the international community of the Energy Charter consider its effectiveness in spheres of its multi-faceted operation. This will enable the negative effects of the statements and suggestions made by the Russian side to be reduced and the discussion of the matter to be placed on a constructive and positive footing.

The point is that a review of the operation of the Energy Charter is conducted once every five years and the process of adapting the charter process and clauses in the charter documents to the new conditions is discussed (this occurs within the framework of the special group for strategy). The next decisions on adapting the charter process should be adopted by the conference for the Energy Charter at the end of 2009, in line with the results of the review of the Energy Charter's operation, conducted this year.

This is a great opportunity to make a whole series of well-founded changes and additions to the process of the Energy Charter and its documents, which will enable Russia's demonstrative concerns to be eliminated. But for this to happen, effective work by the country's delegation is needed, within the framework of the "adaptation" process, including the regular and full-scale presence of the Russian delegation at all the sessions and painstaking preparation for these sessions.

Amongst other things, it would be quite logical to suggest to the charter community an agreement on transit, as outlined in the "Conceptual Approaches", with a mechanism which enables crises like the Russo-Ukrainian dispute in January to be prevented, as one of the elements in the comprehensive Russian initiatives on adapting the Energy Charter to the new conditions for the development of energy markets.

It should be noted that the draft agreement was prepared by Gazprom experts as a document supplementing the ECT and the Transit Protocol and not replacing them. The text of the agreement itself contains just one but an important innovative element - a system of international commissions authorized to sort out emergency situations with transit if there is a threat of them arising.

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Source: Vremya Novostey