Key Issues (and Concerns) of Foreign Investors in the Energy Sector Protection under Investment Treaties Willibald Plesser 9 June 2008, Tirana

I. Typical Investment Risks Risks economical micro-economics macro-economics foreign exchange risk legal changes in the legal framework political governmental interventions discriminatory measures cultural communication traditions different mentalities

II. Classic Investment Protection

III. The Energy Charter Treaty of 1994 A legally binding, multilateral framework for energy cooperation on the basis of international law. The scope covers inter-governmental cooperation in the energy sector, including the whole energy value chain and all energy products and energy- related equipment. The ECT’s aim is to promote energy security through the operation of more open and competitive energy markets, while respecting the principles of sustainable development and sovereignty over energy resources. The Treaty has currently 53 signatories. Austria ratified on 16 December 1997; Albania on 19 February 1998.

1. Investors covered by the ECT (a) with respect to a Contracting Party: any natural person having the citizenship or nationality of or who is permanently residing in that Contracting Party in accordance with ist applicable law a company or other organization organised in accordance with the law applicable in that Contracting Party. (b) with respect to a third State, a natural person, company or other organization which fulfils, mutatis mutandis, the conditions specified in subparagraph (a) for a Contracting Party. exception: if the owner of an entity does not fulfil the conditions specified above and the entity does not pursue an effective economic activity in another Contracting State („letter-box company“), a Contracting Party can agree to exclude the entity from the range of Investment protection.

2. Investments covered by the ECT „Investment“ means every kind of asset, owned or controlled directly or indirectly by an Investor and includes:  tangible and intangible, movable and immovable, property, and any property rights such as leases, mortages, liens, and pledges;  a company or business enterprise, or shares, stock, or other forms of equity participation in a company or business enterprise, and bonds and other debt of a company or business enterprise;  claims to money and claims to performance puruant to contract having an economic value and associated with an Investment;  Intellectual Property;  Returns  any right conferred by law or contract or by virtue of licences and permits granted pursuant to law to undertake any Economic Activity in the Energy Sector.

3. Investments covered by the ECT Confined to the Energy Sector: The investment must be associated with an "Economic Activity in the Energy Sector"  an economic activity including exploration, extraction, refining, production, storage, land transport (i.e. not marine), transmission, distribution, trade, marketing or sale of energy material and products;  excluding fuel wood/charcoal and the distribution of heat to multiple premises. The investment is registered as "Charter efficiency projects"  obligation for the host State to register certain projects with the Secretariat.

4. The Four Pillars of the ECT Dispute Settlement Provisions Trade Energy Efficiency Investment Protection Transit

5. Substantive Protections under the ECT Trade Protection Provisions, Art. 5  Non-discriminatory conditions for trade in energy materials, products and energy- related equipment (based on WTO rules)  Transit Protection Provisions, Art. 7  Principles of freedom of transit and non-discrimination ensure security and non- interruption or reduction of transit (based on WTO rules)  Obligation for the host state to faciliate transit of energy  Energy Efficiency Promotion, Art. 19  Commitment to minimise in an economically efficient manner, harmful environmental impacts arising from energy use  Investment Promotion and Protection, Art. 10  Warranty of National treatment  Most Favoured Nation clause  Protection against key non-commercial risks

6. The Dispute Settlement Mechanisms of the ECT The ECT provides for a three months „cooling-off“ period to enable the parties to settle their dispute amicably. Subsequently the Parties can submit the investment dispute to Arbitration under the 1965 Convention on the Settlement of Investment Disputes between States and Nationals of Other States, which established the International Centre for Settlement of Investment Disputes („ICSID“) (which Austria ratified on 25 May 1971; Albania on 15 October 1991). A sole arbitrator or ad hoc arbitral tribunal established under the Arbitration Rules of the United Nations Commission on International Trade Law („UNCITRAL“) Arbitral proceedings under the Arbitration Institute of the Stockholm Chamber of Commerce

IV. Investment Protection under a Bilateral Investment Treaty  The Bilateral Investment Treaty between Austria and Albania („Austrian-Albanian BIT“) was ratified on 2 May  „Investment“ comprises all assets linked to business activities, particularly  movable and immovable property  shares and other types of participations in legal entities;  claims to money or performance having an economic value;  intellectual and industrial property rights  business concessions under public law to search for or exploit natural resources  „Investors“ may either be  nationals of a Contracting Party, or  legal entities or partnerships constituted under the law of one Contracting Party, having their seat in the territory of the same Contracting Party making an investment in the other Contracting Party‘s territory.

1. Substantive Protections under the Austrian-Albanian BIT Promotion and Protection of Investments, Art. 2  Fair and Equitable Treatment  Full Protection and Security for the investment National Treatment Clause and the Most Favoured Nation Clause, Art. 3  The Host State guarantees to treat investors of the other Contracting State not less favourable than its own investors and their investments.  The Host State guarantees to treat investors of the other Contracting State not less favourable than investors of any third state and their investments. Limitation of Expropriation, Art. 4  only for a public purpose and by due process of law  against prompt, adequate and effective compensation Free Transfer, Art. 5 Umbrella Clause, Art. 7

2. Dispute Settlement Mechanisms under the Austrian-Albanian BIT Three months „cooling-off“ period for an amicable settlement of the dispute. The „fork in the road“ clause requires investors to either commence a state court action or an international arbitration proceeding, not both. The Parties can submit the investment dispute to arbitration under the ICSID Convention. The arbitral award is final and binding.

Thank you for your kind attention! © Freshfields Bruckhaus Deringer 2008 This material is for general information only and is not intended to provide legal advice.