Energy Investments in EU and Russia: Regulation & Certification Overview

Energy investments in the EU and Russia Investment regulation under the Third Energy Package First Groningen-Moscow Conference on EU-Russian Energy Law "Legal Aspects of Guaranteeing EU-Russian Security of Energy Demand and Supply" Groningen, May 30-31 2013

Overview of presentation Q: does (the certification clause in the) Third Package actually regulate investment? 1. Investment regulation in the EU 2. Third Energy Package Unbundling requirements Certification for third countries 3. Alleged contentious issues: compatibility with international obligations

Investment Regulation I Q: where do we typically find investment regulation relavant for operations in EU/MS? Multilateral Investment/post-establishment commitments (in GATS) Rules on pre-establishment post-establishment in GATS Bilateral Investment Treaties (BIT's) - Majority (24) of EU Member States concluded with Russia

Investment Regulation II Q: where do we typically find investment regulation relavant for operations in EU/MS? Pipeline-specific Investment Agreements (IGA's, Host Government Agreements) e.g. South Stream Investment in bilateral trade agreements between EU and third-countries EU competence, but Granfathering Regulation: Canada, China, others (ASEAN)

Third Energy Package Unbundling Why? - Increase competition - Guarantee security of supply Different modes: - Ownership Unbundling (OU) - Independent System Operator (ISO) - Independent Transmission Operator (ITO) Unbundling rules implemented by MS;

Third Energy Package Certification: - Article 10 GD, Certification - Article 11 GD, Certification in relation to third countries

Third Energy Package Article 11 GD, Certification in relation to third countries 3. The regulatory authority shall adopt a draft decision on the certification of a transmission system operator within four months from the date of notification by the transmission system operator. It shall refuse the certification if it has not been demonstrated: (a) that the entity concerned complies with the requirements of Article 9; and (b) to the regulatory authority or to another competent authority designated by the Member State that granting certification will not put at risk the security of energy supply of the Member State and the Community. In considering that question the regulatory authority or other competent authority so designated shall take into account: (i) the rights and obligations of the Community with respect to that third country arising under international law, including any agreement concluded with one or more third countries to which the Community is a party and which addresses the issues of security of energy supply; (ii) the rights and obligations of the Member State with respect to that third country arising under agreements concluded with it, insofar as they are in compliance with Community law; and (iii) other specific facts and circumstances of the case and the third country concerned. 4. The regulatory authority shall notify the decision to the Commission without delay, together with all the relevant information with respect to that decision. 7. When assessing whether the control by a person or persons from a third country or third countries will put at risk the security of energy supply to the Community, the Commission shall take into account: (a) the specific facts of the case and the third country or third countries concerned; and (b) the rights and obligations of the Community with respect to that third country or third countries arising under international law, including an agreement concluded with one or more third countries to which the Community is a party and which addresses the issues of security of supply.

Assessment under certification clause I Two fold assessment - standard check on unbundling rules (Art 9 GD) - additional check on meeting essential security interests Novel situation: can unbundled TSO provide security of supply? - in addition: Rights and obligations of EU and MS Specific facts and circumstances

Assessment under certification clause II Practice so far: 71 notifications OU most popular option Majority from Germany/UK Recent Communication on control by Financial Investors

Alleged inconsistencies of certification clause with int'l obligations Art 11 GD refers to respect for international obligations: - EU level - Member State level Clause is non-discriminatory and very transparent: - All operators active in EU have to fulfill unbundling requirements - All foreign controlling entities are subject to security interest test EU can: agree on security issues in bilateral agreement take into account all facts and circumstances

Putin slams Barroso: You know you are wrong, you re guilty My friend from many years, Mr Barroso, has for so long and so emotionally spoken, because he knew that he is not right, he is guilty, Putin said, amidst laughter from the sizeable Russian delegation. Turning to the press, he added: Open article 34 of our basic treaty with the EU and read for yourselves. "Article 34 of the EU-Russia Partnership and Cooperation Agreement, in force since December 1997, reads: The Parties shall use their best endeavours to avoid taking any measures or actions which render the conditions for the establishment and operation of each other's companies more restrictive than the situation existing on the day preceding the date of signature of the Agreement. EU-Russia Summit, December 2012 http://www.euractiv.com/energy/putin-barroso-right-guilty-news-516827

Conclusions - certification clause closely connected with unbundling requirements - assessment serves clear purpose - procedure non-discriminatory and transparent - clause stresses respect for international commitments

Thank you for attention! Jan Gerrit Westerhof Negotiator for trade related energy issues DG TRADE European Commission jan-gerrit.westerhof@ec.europa.eu 0032 2 299 36 45