ARBITRATION TYPES SERIES – 6 / ENERGY ARBITRATION

It is obvious that the energy sector is one of the sectors that is most reflected in this period due to the increased need for energy due to the impact of globalization. Since each actor in the energy sector on an international scale owes its existence to another actor who has something else that it does not have, it is also predictable that disputes will arise from various activities that occur as a result of this cooperation.

This structure has led to going beyond the known “arbitration types” and to the emergence of special arbitration types such as “energy arbitration”.

The term energy arbitration refers to international arbitration processes used in the resolution of commercial disputes in the energy sector. Energy projects usually require large investments, involve long-term commitments and involve companies operating in different countries. Due to these complexities, arbitration is widely preferred in the resolution of disputes between the parties.

The main issues subject to energy arbitration are as follows:

• Investment disputes: Disputes between states and investors in oil, natural gas and renewable energy projects.
• Commercial disputes: Disputes arising from energy trade, infrastructure projects or service contracts.
• State interventions: Situations such as expropriation, license cancellation or contract changes.

Energy arbitration is generally conducted within the framework of the following institutions and rules:

1. ICSID (International Centre for Settlement of Investment Disputes)
2. ICC (International Chamber of Commerce Arbitration)
3. LCIA (London Court of International Arbitration)
4. UNCITRAL Arbitration Rules

Energy arbitration has a strategic importance due to the high costs and long-term commitments in the energy sector. It is frequently preferred by international investors because it provides predictability and impartiality for the parties.

Country strategies in energy arbitration include the policies and approaches developed by states to protect their energy investments, use energy resources as a strategic element and minimize possible legal risks. Since the energy sector is of great strategic and economic importance, countries may adopt different strategies when approaching arbitration processes.

Each country’s energy arbitration strategy is shaped by the following elements:

• Type and amount of energy resources (oil, natural gas, renewable energy, etc.)
• Foreign investment policies
• Geopolitical risks and regional Dynamics
• Being a party to international agreements (e.g. Energy Charter Treaty – ECT)
• Environmental and sustainability policies

At this point, we can list the main strategies for “energy arbitration” in the world as follows;

1. European Union (EU) Countries: EU countries have long acted within the framework of the Energy Charter Treaty (ECT) in order to protect energy investments. However, in recent years, in line with climate change and sustainability goals, some EU countries (e.g. Germany, France and Spain) have decided to withdraw from the ECT. These countries are pursuing a strategy of protecting their environmental policy priorities against lawsuits filed by energy companies within the scope of the ECT. The EU has tended to encourage internal mechanisms such as the European Court of Justice in resolving disputes in the energy sector.
2. Russia: Russia has frequently been a party to energy arbitration due to its wealth of energy resources. In high-profile cases such as the Yukos case, Russia has pursued a strategy of protecting its nationalization policies in the energy sector. Despite being a party to the ECT, Russia has withdrawn its ratification of the treaty in 2009 and has developed a more protective stance against energy arbitration.
3. Middle East and Gulf Countries: Countries in this region (e.g. Saudi Arabia, Qatar, UAE) have economies based on energy resources and pursue a strategy of attracting investors in energy projects. States generally adopt international arbitration rules (ICC, LCIA, etc.) in energy arbitration, while also attaching importance to the protection of Islamic finance principles and local legislation.
4. Latin American Countries: Countries such as Argentina, Venezuela and Bolivia have adopted a strategy of nationalization and protection of national interests in the energy sector. These countries adopt a harsher stance against energy arbitration and may resort to non-compliance with arbitration decisions or delaying their implementation. Venezuela, in particular, is one of the countries that is a party to the most cases in energy arbitration.
5. African Countries: Energy investments in the African continent are generally aimed at renewable energy, oil and natural gas projects. Countries are looking more favorably on international arbitration mechanisms by adopting ICSID and UNCITRAL rules in order to attract foreign investors. However, some countries aim to gain more control over energy projects by increasing the authority of local courts.
6. Asia-Pacific Countries: Countries such as China, India and Indonesia follow a strategy of both protecting investors and prioritizing national interests in energy arbitration. China has adopted a more proactive strategy in energy arbitration, especially within the scope of the Belt and Road Project, and has encouraged the use of institutions such as the China International Economic and Trade Arbitration Commission (CIETAC). Financial centers such as Singapore and Hong Kong play an important role in energy arbitration with powerful arbitration centers such as SIAC and HKIAC.
7. Turkey: Turkey has adopted international arbitration rules and has become a party to various international agreements in order to encourage energy investments. ICC, ICSID and UNCITRAL rules are generally used in energy projects in Turkey. Turkey follows a balanced policy in energy arbitration that protects investor rights while also prioritizing energy security and national interests.
8. United States of America (USA): While the US generally follows investor-friendly policies in energy projects, it can be aggressive in protecting energy companies. The US has aimed to establish stricter control over trade disputes by determining arbitration rules for energy projects within the scope of USMCA (United States-Mexico-Canada Agreement), which replaced NAFTA.

As a result, energy-rich countries generally pursue a strategy of protecting their resources and prioritizing national interests, while investor countries try to minimize risks by relying on international arbitration rules in energy projects. Factors such as the transition to renewable energy, climate policies and energy supply security are constantly shaping countries’ strategies for energy arbitration. Energy arbitration is a frequently used resolution mechanism in the energy sector worldwide and has become an important part of international investment and trade law, especially due to large-scale energy projects. Practices in different countries are shaped around various legal frameworks, rules and institutions.

However, energy arbitration is increasingly on the agenda due to state policies, environmental regulations and the strategic importance of energy projects. In particular, platforms such as ECT, ICSID and ICC are the most commonly used mechanisms in energy arbitration.

Sources

http://energyarbitration.org/

https://globalarbitrationreview.com/guide/the-guide-energy-arbitrations/sixth-edition

https://arbitrationcenter.org/enerji-tahkim-kurallari/

https://www.lexisnexis.co.uk/legal/guidance/arbitration-in-the-energy-sector

https://dailyjus.com/world/2024/06/sanctions-and-energy-arbitration-a-practical-guide-to-managing-supply-chain-issues

https://dailyjus.com/world/2024/06/sanctions-and-energy-arbitration-a-practical-guide-to-managing-supply-chain-issues

https://www.cliffordchance.com/briefings/2023/02/energy-arbitration-trends-2023.html

https://www.swissarbitration.org/events/energy-arbitration-at-times-of-climate-change/

https://www.africanlawbusiness.com/news/20762-energy-arbitration-inequities-affect-africa-deeply/

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