1 Vagts, D.F. (1978) ‘Coercion and Foreign Investment Rearrangements’, AJIL 72, 17–36 at 22.
2 The following list is based on the literature on various kinds of energy investments referred to in the footnotes of this book and descriptions of energy projects in the various arbitral awards it examines. Some may argue for the inclusion of other features in the list, such as innovation and national security. Innovation is certainly emphasized in most energy sectors, especially in reducing the carbon footprint. It is also directed at reducing costs and increasing energy efficiency and identifying new or alternative forms of energy (commercialization of hydrogen, and fusion, for example). Nonetheless, this seems to have an optional character rather than being a defining feature of energy investments compared with others, such as telecommunications. National security concerns are also evident in the energy sector, although these vary a great deal from one region to another. They are most evident in countries with import dependence on another or others, and in M&A transactions. The energy-specific character is arguably not unique since such concerns arise in other economic sectors such as IT/telecoms which are central to the workings of a nation-state economy.
3 Whether or not these six features (with or without the two additional contextual features) are sufficient to support a claim that the resulting combination of legal measures, principles and procedures applicable to energy investments constitutes an autonomous or emerging body of law unique to this sector of the international economy—a sort of lex specialis for energy investments, a lex energia—is not the main concern of this book. Individually, these features are not unique to the energy sector, even if collectively they have a presence in this sector that contrasts with most, and perhaps any other. For some, the existence of these features will not be enough to persuade them that this body of ‘energy law’ is any more than a subset, even if an important one, of international investment law in general. Even so, the assumption in this book is that, where there is an energy aspect to international investment law, its specialized usage, practice, or conceptual apparatus is very likely to influence the relevant law and its application to the settlement of disputes.
4 International Energy Agency (IEA) (2019) World Energy Investment, Paris: OECD at 11. This includes all sources of energy from coal, hydropower, solar, and nuclear power to oil and gas. The statistics for global gross domestic product and global gross capital formation are from 2018 (ibid, at 20). As such, they predate the effects of the COVID-19 pandemic.
5 This approach builds upon earlier work done by Cameron, P.D. & Malone, B. (2015) Dispute Resolution in the Energy Sector: Initial Report, Edinburgh: International Centre for Energy Arbitration (ICEA).
6 International Monetary Fund (IMF) (2015), Riding the Commodities Roller Coaster, Washington DC: IMF, 1.
7 The IEA statistics suggest much variation here among the different forms of energy, with overall a very large proportion (90 per cent) of total energy investment concentrated in high- and upper-middle income countries and regions. This category includes Brazil, Mexico, China, parts of the Middle East, and some Southeast Asian countries.
9 There has been a growth of investment by entities based in China, India, Russia, and the Middle East which challenges the north (and largely Western) flows of investment to the global south. However, statistics show that where such flows can be described as ‘south–south’, they remain significantly less than those from the north to the south. Indeed, UNCTAD data reveals that a significant part of the FDI between developing countries is ultimately owned by developed country multinational enterprises. When measured based on ultimate ownership, the share of south–south investment in the total investment (2018 data) falls from 47 to 28 per cent: UNCTAD (2019) World Investment Report 2019, Geneva. Whatever its scale, the south–south axis of investment has impacts on energy disputes: for example, India’s Oil and Natural Gas Corporation (ONGC) registered a claim against Sudan in 2018 to recover funds lost from an oil project when part of Sudan seceded in 2011, the first arbitration claim ever filed by ONGC against a government: GAR, 17 April 2018, ‘Indian state energy company brings claim against Sudan.’
10 This is underlined by the joint work of four international organizations: the IMF, the OECD, the United Nations, and The World Bank in the Platform for Collaboration on Tax, which aims at framing technical advice to developing countries as they seek more capacity support and greater influence in the design and implementation of standards on international tax matters: <https://www.worldbank.org/en/programs/platform-for-tax-collaboration> (accessed 25 May 2021).
11 More than 90 per cent of energy investment is financed from the balance sheets of investors (using retained earnings from business activities, including those with regulated revenues), ‘suggesting the importance of sustainable industry earnings, which are based on energy markets and policies, in funding the energy sector’: IEA (2017) 13. Project finance (which involves external lenders that share risks with the project sponsor and depends on cash flows for a given asset) has a small role but is especially significant in integrated LNG projects, some oil refining projects and a growing amount of power generation investment, including the use of solar PV and wind.
12 Royal Dutch Shell Annual Report and Form 20-F for the year ended 31 December 2018, 9.
13 ‘World’s Biggest Sovereign Wealth Fund To Ditch Fossil Fuels’, The Guardian, 12 June 2019.
14 The term of a typical energy or natural resource project will normally be much longer than the term of office of the host state government that welcomed the initial investment and committed the state to its terms and conditions. Achievement of the investor’s objective is therefore vulnerable to the effects of a change of policy by a successor government, or a broader political realignment in the host country, perhaps following some dramatic economic change of circumstances, prolonged conflict, or even an abrupt regime change.
15 OECD Development Centre Policy Dialogue on Natural Resource-based Development (2019), p. 4.
17 IMF (2015) The Commodities Roller Coaster: A Fiscal Framework for Uncertain Times, 2. Oil price volatility has attracted research interest among energy economists. For overviews of the trends in research, see Kilian, L. (2010) ‘Oil Price Volatility: Origins and Effects’, Staff Working Paper ERSD-2010-02, World Trade Organization, January 2010; Stevens, P. (2005) ‘Oil Markets’, Oxford Review of Economic Policy 21, 19–42; Energy Charter Secretariat, Putting a Price on Energy: International Pricing Mechanisms for Oil and Gas, 2007.
18 For example, see the literature cited in chapter 1 of Cameron, P.D. & Stanley, M.C. (2017) Oil, Gas and Mining: A Sourcebook for Understanding the Extractive Industries, Washington DC: World Bank Group, 3–17; and BGR (Bundesanstalt fuer Geowissenschaften und Rohstoffe/Federal Institute for Geosciences and Natural Resources), CCSI (Columbia Centre for Sustainable Investment), and Kienzler, D. (2015) Natural Resource Contracts as a Tool for Managing the Mining Sector, Hannover: BGR.
19 Karl, J. (2014) ‘FDI in the Energy Sector: Recent Trends and Policy Issues’, in de Brabandere, E. & Gazzini, T. (eds) Foreign Investment in the Energy Sector: Balancing Private and Public Interests, Leiden: Brill/Nijhoff.
20 The International Renewable Energy Agency (IRENA) describes it in these terms: ‘The energy transition is a pathway toward transformation of the global energy sector from fossil-based to zero-carbon by the second half of this century. At its heart is the need to reduce energy-related CO2 emissions to limit climate change’: <https://www.irena.org/energytransition> (accessed 25 May 2021).
22 Further, energy-related claims can also extend to the various minerals such as lithium and cobalt that are essential to modern batteries to run electric vehicles. Mining disputes no longer fall neatly into a different, largely unrelated category, and are more obviously part of an energy supply chain.
23 Jenkins, P. (2020) ‘Energy’s Stranded Assets are a Cause of Financial Stability Concern’, Financial Times, 2 March 2020 (based on FT data).
24 Ibid. The year was 2018. The report also notes that if traditional private capital investors such as banks and large asset funds withdraw from the sector, ‘non-banks’ (less regulated and less accountable) may fill the gap if the cash flow is attractive. The capital flow need not simply cease altogether.
25 For example, many of the contributions in Leal-Arcas, R. (ed) (2018) Commentary on the Energy Charter Treaty, Cheltenham: Edward Elgar; see also citations in the footnotes in chapter 4 below.
26 The most robust claims in defence of a sui generis discipline have been around the notion of a ‘lex petrolea’ or international oil and gas law. See Bishop, R.D. (1998) ‘International Arbitration of Petroleum Disputes: The Development of a Lex Petrolea’, YB Comm Arb 23, 1131; Childs, T.C.C. (2011) ‘Update on Lex Petrolea: The Continuing Development of Customary Law relating to International Oil and Gas Exploration and Production’, JWEL&B 4, 1; Talus, K., Looper, S. & Otillar, S. (2012) ‘Lex Petrolea and the Internationalization of Petroleum Agreements: Focus on Host Government Contracts’, JWEL&B 5, 181–93; Martin, T. (2012) ‘Lex Petrolea in the International Oil and Gas Industry’, in King, R. (ed) Dispute Resolution in the Energy Sector: A Practitioner’s Handbook, London: Globe Law and Business.
27 For different kinds (and tones) of criticism, see Bowman, J.P. (2015) ‘Lex Petrolea: Sources and Successes of International Petroleum Law’, Texas State Bar Oil, Gas & Energy Res L Sec Rep 39, 81–94; Wawryk, A. (2015) ‘Petroleum Regulation in an International Context: The Universality of Petroleum Regulation and the Concept of lex petrolea’, in Hunter, T. (ed) Regulation of the Upstream Petroleum Sector: A Comparative Study of Licensing and Concession Systems, Cheltenham: Edward Elgar, 3–35; Daintith, T. (2017) ‘Against “lex petrolea”’, JWEL&B 10, 1–13.
28 Redgwell, C. (2016) ‘International Regulation of Energy Activities’, in Energy Law in Europe (3rd edn), Oxford: OUP, 13–144. At an even further remove from investment law is the focus on energy justice that fits into and builds on the energy transition discussion: For example, Benjamin K. Sovacool and M.H. Dworkin (2014), Global Energy Justice: Problems, Principles and Practices, Cambridge: CUP.
29 This contrasts with the perspective offered by Stephan Schill who argues that energy investment law ‘epitomizes a regulatory approach to investment relations, embedding them in a broader governance framework of economic, environmental and social governance’: Schill, S. (2014) ‘Concluding Observations: Foreign Investment in the Energy Sector: Lessons for International Investment Law’ in De Brabandere, E. & Gazzini, T. (eds) Foreign Investment in the Energy Sector: Balancing Private and Public Interests, 259–282 at 261. Indeed, one can find evidence of this governance framework in the ECT, for example, but it is striking how much of the non-investment provisions of the ECT that can be taken to support its governance aspiration have become irrelevant (trade and transit) or are very weak in their content (competition, environment). The ECT is on stronger ground when it provides for protection of pro-market measures such as access to capital markets, and investment promotion. Even then, such provisions have a uniqueness that is explicable more in terms of the context from which the ECT emerged than an attempt at ‘economic governance’.
30 cf. Schill (2014) 267. The most influential definition of energy law sees it as the ‘allocation of rights and duties concerning the exploitation of all resources between individuals and the government, between governments and between states’: Bradbrook, A. (1996) ‘Energy Law as an Academic Discipline’, J En Nat Res L 14, 194. This is implicitly nation-based (there are few international bodies that allocate rights, except under the Law of the Sea Convention and various Joint Development Zones), regulatory in approach (it does not capture international gas contracts, for example) and public law in orientation, understating the extensive role of international commercial law in energy transactions (oil trading, for example). Since this definition was offered, ‘energy law’ has become highly internationalized in some areas (EU energy law, energy investments under international treaties, for example), limiting further the definition’s ability to capture its subject matter. More recent work has taken a consciously consolidationist approach, represented largely by the work of R. J. Heffron (2021) Energy Law: An Introduction (2nd edn), New York: Springer, and especially R.J. Heffron, A. Ronne, J.P. Tomain, A. Bradbrook and K. Talus (2018), ‘A Treatise for Energy Law’, JWEL&B 11(1), 34-48.
31 In this context, the comprehensive overview of model contracts in the hydrocarbons sector may be noted: Martin, A.T. & Park, J.J. (2010) ‘Global Petroleum Industry Model Contracts Revisited: Higher, Faster, Stronger’, JWEL&B 3, 4.
32 For example, Bamberger, C. (1996) ‘The Energy Charter Treaty and Beyond’ in Waelde, T.W. (ed) The Energy Charter Treaty and Beyond: An East–West Gateway for Investment & Trade, London: Kluwer Law International.
33 Recital (5) of the Preamble: ‘Wishing to implement the basic concept of the European Energy Charter initiative which is to catalyse economic growth by means of measures to liberalize investment and trade in energy.’
34 United Nations (2009) ‘The Role of International Investment Agreements in Attracting Foreign Direct Investment to Developing Countries’, UNCTAD Series on International Investment Policies for Development, Geneva: UNCTAD/ DIAE/IA/2009/5, 24.
35 However the UNCTAD Report goes on to add that ‘[i]n competitive and less regulated industries, foreign investors have to rely on the host country’s overall laws and regulations, its track record and general reputation as regards predictability and stability of key policies that matter for FDI’: ibid, at 24–25.
36 A leading light in the early drive by international organizations to support investment in developing countries was the late Ibrahim Shihata, General Counsel to the World Bank. In one of his many publications, (1987) ‘Factors Influencing the Flow of Foreign Investment and the Relevance of a Multilateral Investment Guarantee Scheme’, Int’l L 21, 671 at 686–687, he noted: ‘There are quantitative and qualitative costs attached to perceptions of instability in developing countries. Quantitatively, if the risk profile is perceived to be too high, the projected investment would not be made, thus decreasing the overall volume of capital inflows into the host country … Investments will also be carried out at a higher cost, to the detriment of the host country, for a premium will be charged for the added risks, and anticipated returns will have to be much higher to compensate for such risks’.
38 Studies have been carried out into the impacts of policy-related economic uncertainty: Baker, S.R., Bloom, N. & Davis, S.J. (2013) ‘Measuring Economic Policy Uncertainty’, Chicago Booth Research Paper No 13-02: <https://dx.doi.org/10.2139/ssrn.2198490> (accessed 27 May 2021) (the authors developed an aggregate index to measure the overall level of policy uncertainty in an economy); Gulen, H. & Ion, M. (2016) ‘Policy Uncertainty and Corporate Investment’, The Review of Financial Studies 29, 523–564 (empirical support provided to the notion that policy uncertainty can depress corporate investment by inducing precautionary delays due to investment irreversibility); Fabrizio, K.R. (2012) ‘The Effect of Regulatory Uncertainty on Investment: Evidence from Renewable Energy Generation’, The Journal of Law, Economics and Organization 29, 765–798 (a US-focused study, following the implementation of Renewable Portfolio Standard policies; perceived regulatory instability reduces new investment and undermines policy goals).
39 The notion of the obsolescing bargain was developed by Raymond Vernon, a former Professor at Harvard Business School and Director of Harvard University’s Centre for International Affairs: Vernon, R. (April 1967) ‘Long-Run Trends in Concession Contracts’, Proceedings of the American Society for International Law. It denotes ‘the process that leads governments repeatedly—almost predictably—to reopen the issues involved in the exploitation of raw materials’: Vernon, R. (1971) Sovereignty at Bay: The Multinational Spread of US Enterprises, New York: Basic Books, 53–60 at 53. It has been used extensively as a model of investor-state relations: for example, Wells, L.T. Jr. & Gleason, E. (1995) ‘Is Investment in Foreign Infrastructure Still Risky?’, Harvard Business Review (Sept/Oct), 1–12; Post, A.E. & Murillo, M.V. (2014) ‘Revisiting the Obsolescing Bargain in Post-Crisis Argentina: Investor Portfolios and Regulatory Outcomes’: <https://leitner.yale.edu/sites/default/files/files/resources/papers/PostMurilloYaleJan.7.2014.pdf>; Becker, E. (2018) ‘Saudi Arabian Oil: The Obsolescing Bargaining Model’, TCNJ Journal of Student Scholarship, 20. For applications of the idea to energy infrastructure investment, especially ‘greenfield’ independent power generation, see Woodhouse, E.J. (2006) ‘The Obsolescing Bargain Redux? Foreign Investment in the Electric Power Sector in Developing Countries’, NY J Int’l L & Policy 38, 121; Gould, J.A. & Winters, M.S. (2007) ‘An Obsolescing Bargain in Chad: Explaining Shifts in Leverage between the Government and the World Bank’, Business and Politics 9(2): http://www.bepress.com/bap/vol9/iss2/art4; and Wells, L. & Ahmed, R. (2007) Making Foreign Investment Safe: Property Rights and National Sovereignty, Oxford: OUP, 66–74.
40 Vernon (1971) at 59–60 is emphatic that a change of government can add a decisive momentum to this process: ‘even when the original agreement between foreign investors and the government is modern and well balanced, this fact adds only marginally to the security of the investor’. Changes in policy usually have a reactive character; they presuppose a prior, effective policy in persuading investors to make significant commitments, at which time the obsolescing bargain process kicks in, creating the conditions that a later, incoming government may choose to characterize as unsatisfactory and requiring remedial action.
41 Eden, L., Lenway, S. & Schuler, D.A. (2005) ‘From the Obsolescing Bargain to the Political Bargaining Model’, in Grosse, R. (ed) International Business and Government Relations in the 21st Century, Cambridge: CUP, 251–272. For a less critical appraisal, see Serik Orazgaliyev’s study, Orazgaliyev, S. (2018) ‘Reconstructing MNE-Host Country Bargaining Model in the International Oil Industry’, Transnational Corporations Review 10, 30–42.
42 Daniel, P. & Sunley, E.M. (2010) ‘Contractual Assurances of Fiscal Stability’, in Daniel, P., Keen, M., McPherson, C., et al. (eds) The Taxation of Petroleum and Other Minerals: Principles, Problems and Practice, New York: Routledge.