Nord Stream 2 seeks arbitration in dispute with EU Commission.
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.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.
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Some observers deem that the ECT litigation could be a shot in the foot of the pipeline operator:
"A further problem for NS2 is that the EU is permitted, under ECT rules, to raise legitimate objective justifications for its legislation in its defense. Contrary to NS2’s claims, the EU clearly has legitimate policy objectives in play. For instance, by imposing the same rules on import pipelines as it does domestic pipelines, it aims to create a single regulatory playing field.
Equally, EU liberalization rules on ownership unbundling regulation, third party access, and tariff regulation, combined with the express supply security assessment required under Article 11 of the Directive, protect legitimate EU interests. These include ensuring additional natural gas supplies, enhancing competition, functioning of the single market, and supply security. They already apply to pipelines within the EU, so it is difficult to make a compelling case that import pipelines are being targeted or expressly discriminated.
Furthermore, NS2 clearly threatens these legitimate EU interests. The pipeline does not provide any additional gas supplies to the EU; it merely shifts gas flows from the Ukrainian Brotherhood pipeline to NS2. By flooding the west-to-east EU pipeline interconnectors, gas flows from NS2 split the EU gas market in two. With gas flows from NS2 running through CEE states on pipelines controlled by Gazprom and its allies, the company’s market power will be increased across the region. The CEE states currently have some transit security as gas flows from the Brotherhood pipeline flow further west into Western Europe. NS2 removes that transit security.
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Another difficulty with NS2’s ECT litigation is that it invites additional unfortunate (from NS2’s perspective) responses from the EU, particularly that EU law already applied to import pipelines. The underlying argument of NS2 by contrast is that there has been ‘radical change’ in EU legislation: that import pipelines were not subject to EU energy law, and then unexpectedly were. The reality is somewhat different. The EU did adopt an amendment to the Gas Directive 2009, formally extending the Directive to imported pipelines. However, EU law clearly applied to import pipelines before the amendment came into force: the Yamal pipeline, which flows through Russia and Belarus before flowing into Poland, was subject on Polish territory to the full application of the Gas Directive 2009.
NS2 is an offshore pipeline and Yamal is an onshore import pipeline, but it is difficult to see what turns on this point. Domestic law (absent a lex specialis) applies equally to the soil of the nation, its inland waters, and territorial sea. The new legislation itself makes no distinction between offshore and onshore pipelines, saying in the new Article 2(17) that EU law applies “between a Member State and a third country up to the territory of the Member States… or the territorial sea of that Member State.” Clearly, the Gas Directive applies to both onshore and offshore pipelines."
You can read the rest of the piece via the below link:
https://www.europeangashub.com/wp-content/uploads/2019/12/Nordstream-2-ECT-Challenge.pdf
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