Nord Stream 2 seeks arbitration in dispute with EU Commission

Two overlapping pipe ends of a pipe string have to be raised and cut on a pipelay ship before they can be welded together. [© Nord Stream 2 / Axel Schmidt]

The Russian-owned Nord Stream 2 pipeline consortium filed a notice on Thursday (26 September), asking a tribunal of private arbiters to determine whether the European Union is in breach of its obligations under the Energy Charter Treaty (ECT).

The move marks an escalation in the dispute opposing Nord Stream 2 and the European Commission, which carries risks for both sides. Settlements under the Energy Charter Treaty are sometimes in the billions of dollars.

Nord Stream 2, EU drifting towards legal arbitration

The European Commission and the Nord Stream 2 gas pipeline company are heading toward legal arbitration in their dispute, with a risk of huge fines for EU taxpayers and uncertainties for the Gazprom-led company that are even more difficult to evaluate.

 

By amending its Gas Directive, Nord Stream 2 believes the EU has breached its obligations under Articles 10 and 13 of the Energy Charter Treaty, a legally-binding treaty originally signed in 1991 after the collapse of the Soviet Union.

In particular, the consortium argues that the amended directive discriminates against Nord Stream 2, in breach of the EU’s Article 10(1) obligation not to take such discriminatory action, and in breach of the EU’s general obligation to guarantee fair and equitable treatment for investors.

The European Commission has come under pressure from Poland and the Baltic states to legislate on Nord Stream and tabled an amendment to the EU Gas Directive in November 2017.

While the amendments – relating to third-party access, tariff regulation, ownership unbundling and transparency – aren’t officially directed against any particular project, they were obviously designed to stop Nord Stream 2.

Legal experts have recently argued that the amendment is drafted in such a way that all existing pipelines can enjoy a derogation from EU gas market rules under the updated Gas Directive, except Nord Stream 2.

The derogation is indeed available for pipelines that are “completed before the date of entry into force of this Directive,” which is 23 May 2019.

According to them, the discriminatory treatment of Nord Stream 2 stems from the fact that it is the only import pipeline which cannot benefit from the derogation, because the final investment decision was made before this date, even though significant capital was committed.

Nord Stream 2 also announced it will go ahead with a legal procedure to annul the amended gas directive, for breaches of EU law before the Court of Justice of the European Union, which was submitted in July.

Nord Stream 2 takes unusual legal step against the Commission

The Nord Stream 2 pipeline company has taken an unusual legal step in its dispute with the European Commission by asking the Court of Justice of the EU (CJEU) to annul the amendments to the Gas Directive which the Gazprom-led …

Treaty critics

The Energy Charter Treaty has attracted criticism in recent months. Environmental groups say it provides excessive legal protection for oil and gas companies, which can claim uncapped reparations from governments who frustrate investments in fossil fuel projects.

”These cases prove that the Energy Charter Treaty impedes the EU and its Member States from complying with the Paris Agreement,” said Lora Verheecke, trade campaigner with Friends of the Earth Europe.

“The Energy Charter Treaty is a clear and present danger to the urgently needed fossil fuel phase-out,” she said in reaction to the move by Nord Stream 2.

The European Commission has partly sided with the critics. In a reform proposal tabled earlier this year, it said the treaty was “outdated”, notably when it comes to investor protection clauses, climate change and the clean energy transition.

In July, EU member states have given the Commission a mandate to revise the treaty, saying the legally-binding charter must reinstate Europe’s “right to regulate” in areas like climate change and workers’ rights.

Luxembourg leads EU push to climate-proof Energy Charter Treaty

Luxembourg will push for a deep reform of the Energy Charter Treaty at EU level in order to align it with global climate objectives, said the country’s energy minister Claude Turmes, who did not rule out scrapping the treaty altogether if reform talks don’t progress fast enough.

[Edited by Frédéric Simon]

Friends of the Earth stated on Thursday: Today's news that Nord Stream II, the Gazprom-owned gas mega-pipeline is suing the European Union under the Energy Charter Treaty is another instance of the use of Investor-State Dispute Settlement (ISDS) by fossil fuel companies to resist the transition to renewable energy.

Other examples include the case against the Obama administration in the United States to halt the Keystone XL tar sands pipeline and the threat earlier this month by the German company Uniper to bring an ISDS case against the government of the Netherlands for its proposal to phase-out coal as a source of electricity.

''These cases prove that the Energy Charter Treaty impedes the EU and its Member States from complying with the Paris Agreement. The Energy Charter Treaty is a clear and present danger to the urgently needed fossil fuel phase-out." said Lora Verheecke, trade campaigner with Friends of the Earth Europe.

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