© Hogan & Hartson LLP. All rights reserved. Second CIS Local Counsel Forum Park Inn Azerbaijan Hotel, Baku, Azerbaijan Tomasz Dobrowolski, Partner June 2007

© Hogan & Hartson LLP. All rights reserved. 2 Energy Charter Treaty – Investment Disputes Settlement Rules (Outline) Introduction Energy Charter Treaty and its contracting States 1. Treaty principal goals to emphasize the rights of sovereign states to decide within their jurisdiction on exploration scope and exploitation of energy resources; to contribute to liberalization of international trade and removal of barriers affecting the trade in energy materials, technologies and services; to secure transparent and non-discriminative treatment of investors in host countries (investments treated neither less favorably than required by the international law, including treaty obligation nor less favorably than states own investors or investors of any other state whichever is the most favorable); to promote and protect foreign investment; and in consequence to decrease level of risks involved in investments by way of fair and equitable treatment. 2. Protection umbrella for violation of Part III provisions of the Treaty The umbrella is primarily aimed to extend for: political risks including nationalization, expropriation and discrimination; breach of investment contracts; damages due to war; unjustified restrictions on transfer of funds.

© Hogan & Hartson LLP. All rights reserved. 3 Energy Charter Treaty – Investment Disputes Settlement Rules (Outline) 3. Protection measures against investment risks (i) Four vital definitions: Energy materials and products; Economic Activity in the Energy Sector; Investments; Investor; (ii) Certain protection measures MFT formula (limitation of exceptions, progressive removal of existing restriction); obligation of contracting states to ensure effective measures under domestic law for ascertation of claims and enforcement of rights in relation to investments; (ii) Treatment of key personnel good faith examination by a contracting state of requests for investors employees entrance and stay in its territory; free choice of personnel to be seconded;

© Hogan & Hartson LLP. All rights reserved. 4 Energy Charter Treaty – Investment Disputes Settlement Rules (Outline) (iii) Compensation principle: Case 1 – war or other armed conflict, state of national emergency, civil disturbance or similar act: if loss suffered by investor of one contracting state in the other contracting state, he should be accorded, as regards restitution, indemnification, compensation or others, most favorable treatment which that latter state accords to any other investor, whether its own or from any third state. Case 2 – if the above situations loss results from requisitioning of investment by forces or authorities of latter state or the investment was destroyed by the same which was not required by the necessity of situation – the investor should be accorded prompt adequate and effective restitution or compensation. (iv) Expropriation No investment of investor of a contracting state shall be nationalized, expropriated or subjected to measure equivalent to nationalization or expropriation except where such expropriation is: for the public interest purpose; non-discriminatory; carried out under due process of law; accompanied by prompt, adequate and effective compensation (at fair market value). (v) Freedom of transfers related to investments including: initial capital; returns; payments under contracts; proceeds arising out of sale or liquidation; payments arising from settlement of disputes; payments of compensation.

© Hogan & Hartson LLP. All rights reserved. 5 Energy Charter Treaty – Investment Disputes Settlement Rules (Outline) 4. Dispute Settlement in Part V of the Treaty (i) One more international arbitration without privacy - is this different? wide and diversified mechanisms for settling disputes between -investors and contracting states (article 26) -contracting parties themselves (article 27) investors options (ii) If no amicable settlement of alleged breach by contracting state is reached within 3 months form the requested to amicably settle, the investor may choose to submit it for resolution: to the courts or administrative tribunals of contracting state; in accordance with the applicable dispute settlement formula previously agreed; in accordance with provisions of the Treaty; unconditional consent given in Treaty by a contracting state for submission of the dispute to international arbitration or conciliation in accordance with Article 26 (with certain exceptions in case of some contracting states);

© Hogan & Hartson LLP. All rights reserved. 6 Energy Charter Treaty – Investment Disputes Settlement Rules (Outline) in case investor is willing to arbitrate, it should consent to submit the dispute to: (i) – International Centre of Investment Disputes established under 1965 Convention on Settlement of Investment Disputes between the States and National of other States (if the contracting state of investor and contracting state to the dispute are parties to ICSID Convention); – International Centre of Investment Disputes under the rules of Additional Facility for Administration of Proceedings by the Secretariat (if one of the states above, but not both, is a party to ICSID Convention); (ii) Sole arbitrator or ad hoc arbitration tribunal established under the Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL); (iii) Arbitral Proceeding under the Arbitration Institute of the Stockholm Chamber of Commerce. states consent given in the EC Treaty satisfies the written consent requirement under ISCID Convention, 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards and UNCITRAL Arbitration Rules. treatment of corporate persons domiciled in the contracting state party to the dispute awards final and binding.

© Hogan & Hartson LLP. All rights reserved. 7 Energy Charter Treaty – Investment Disputes Settlement Rules (Outline) 5. Cases falling under article 26 (based on the list of 15 published by EC Secretariat) 1.AES Summit Generation Ltd. (UK subsidiary of US-based AES Corporation) v. Hungary 2.Nykomb Synergetics Technology Holding AB (Sweden) v. Latvia 3.Plama Consortium Ltd. (Cyprus) v. Bulgaria 4.Petrobart Ltd. (Gibraltar) v. Kyrgyzstan 5.Alstom Power Italia SpA, Alstom SpA (Italy) v. Mongolia 6.Yukos Universal Ltd. (UK – Isle of Man) v. Russian Federation 7.Hulley Enterprises Ltd. (Cyprus) v. Russian Federation 8.Veteran Petroleum Trust (Cyprus) v. Russian Federation 9.Ioannis Kardossopoulos (Greece) v. Georgia 10.Amto (Latvia) v. Ukraine 11.Hrvatska Elektropriveda d.d. (HEP) (Croatia) v. Republic of Slovenia 12.Libananco Holdings Co. Limited (Cyprus) v. Republic of Turkey 13.Azpetrol International Holdings B.V, Azpetrol Group B.V. and Azpetrol Oil Services Group B.V (Netherlands) v. Azerbaijan 14.Cementownia Nowa Huta S.A. (Poland) v. Republic of Turkey 15.Europe Cement Investment and Trade S.A. (Poland) v. Republic of Turkey Different fora (ICSID-9, SCC-3, UNCITRAL-3)

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