handbook on general provisions applicable to investment agreements in the energy sector

108 Pages·2017·1.26 MB·English

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Disclaimer

Information contained in this work has been obtained from sources believed to be reliable.

However, the Energy Charter Secretariat does not guarantee the accuracy or completeness of any
information published herein, and therefore shall not be responsible for any losses or damages
arising from the use of this information or from any errors or omissions therein . This work is
published on the understanding that the Energy Charter Secretariat supplies the information but
does not attempt to render legal or other professional services.
This Handbook is published without prejudice to the position of Contracting Parties/Signatories of
the Energy Charter Treaty or to their rights or obligations under the Energy Charter Treaty or any
other international investment agreement.
© Energy Charter Secretariat
Boulevard de la Woluwe, 46
B-1200, Brussels, Belgium
Reproduction of this work, save where otherwise stated, is authorized, provided the source is
acknowledged. All rights otherwise reserved.
ISSN: 2593-1466
CONTENTS
PREFACE ................................................................................................................................................................................................................. 1
ACKNOWLEDGEMENTS ............................................................................................................................................................................... 2
SCOPE AND TERM ............................................................................................................................................................................................ 3
I. Entry into Force ............................................................................................................................................................................... 3
1. Overview ............................................................................................................................................................................ 3
2. Types of Entry into Force clauses.............................................................................................................................. 3
3. Information to be assessed ........................................................................................................................................... 3
4. Model clause options...................................................................................................................................................... 5
II. Amendment clause ......................................................................................................................................................................... 5
1. Overview ............................................................................................................................................................................ 5
2. Types of amendment clauses ....................................................................................................................................... 6
3. Model clause options...................................................................................................................................................... 6
III. Termination Clause........................................................................................................................................................................ 6
1. Overview ............................................................................................................................................................................ 6
2. Types of termination clauses ....................................................................................................................................... 7
3. Information to be assessed ........................................................................................................................................... 7
4. Model clause options...................................................................................................................................................... 8
THE PARTIES ..................................................................................................................................................................................................... 11
1. Overview ......................................................................................................................................................................... 11
2. Terminology ................................................................................................................................................................... 11
3. Purpose and objective ................................................................................................................................................. 11
4. Information to be assessed ........................................................................................................................................ 12
5. Inputs of additional specialists ................................................................................................................................. 14
6. Negotiation goals .......................................................................................................................................................... 15
7. Model clause options................................................................................................................................................... 15
8. Contract management ................................................................................................................................................. 19
GOVERNING LAW ......................................................................................................................................................................................... 21
I. Legal Nature....................................................................................................................................................................................21
1. Overview ......................................................................................................................................................................... 21
2. Terminology ................................................................................................................................................................... 21
3. Purpose and objective ................................................................................................................................................. 21
4. Information to be assessed ........................................................................................................................................ 22
5. Negotiation goals .......................................................................................................................................................... 23
6. Current trends................................................................................................................................................................ 24
7. Interaction with other relevant provisions ........................................................................................................... 24
8. Model clause options................................................................................................................................................... 24
II. Applicable Law ...............................................................................................................................................................................26
1. Overview ......................................................................................................................................................................... 26
2. Terminology ................................................................................................................................................................... 26
3. Purpose and objectives ............................................................................................................................................... 26
4. Negotiation goals .......................................................................................................................................................... 26
5. Interaction with other relevant provisions ........................................................................................................... 26
6. Model clause options................................................................................................................................................... 27
7. Contract management......................................................................................................................................... 29
III. Relationship with Public International Law ....................................................................................................................29
1. Overview..................................................................................................................................................................... 29
2. Terminology.............................................................................................................................................................. 29
3. Purpose and objective ........................................................................................................................................ 29
4. Negotiation goals .................................................................................................................................................. 31
5. Current trends, strange practices and relevant arbitral decisions ......................................... 31
6. Interaction with other relevant provisions .......................................................................................... 31
7. Model clause options................................................................................................................................................ 31
8. Contract Management................................................................................................................................................. 33
IV. Stabilisation Clauses ....................................................................................................................................................................33
1. Overview ......................................................................................................................................................................... 33
2. Types of Stabilization clauses ................................................................................................................................... 33
3. Purpose and objective ................................................................................................................................................. 34
4. Issues to be assessed .................................................................................................................................................... 34
5. Negotiation goals .......................................................................................................................................................... 35
6. Current trends, strange practices, relevant arbitral decision(s)....................................................................... 35
7. Interaction with other provisions ............................................................................................................................ 36
8. Model clause options................................................................................................................................................... 37
STANDARDS ....................................................................................................................................................................................................... 41
1. Overview ......................................................................................................................................................................... 41
2. Types of standards ....................................................................................................................................................... 41
3. Purpose and objective ................................................................................................................................................. 41
4. Information assessment checklist............................................................................................................................ 41
5. Negotiation goals .......................................................................................................................................................... 42
6. Current trends................................................................................................................................................................ 43
7. Model clause options for different standards ...................................................................................................... 45
OBLIGATIONS .................................................................................................................................................................................................. 54
1. Overview ......................................................................................................................................................................... 54
2. Types of obligations .................................................................................................................................................... 54
3. Information to be assessed....................................................................................................................................... 57
4. Negotiation goals .......................................................................................................................................................... 59
5. Model clause options................................................................................................................................................... 60
LIABILITY ............................................................................................................................................................................................................ 66
1. Overview ......................................................................................................................................................................... 66
I. Schemes for allocating risk .......................................................................................................................................................66
1. Terminology ................................................................................................................................................................... 66
2. Purpose and objective ................................................................................................................................................. 67
3. Information to be assessed ........................................................................................................................................ 67
4. Inputs of additional specialists ................................................................................................................................. 67
5. Negotiation goals .......................................................................................................................................................... 67
6. Interaction with other relevant provisions ........................................................................................................... 68
II. Liability clauses..............................................................................................................................................................................68
1. Terminology ................................................................................................................................................................... 68
2. Purpose and objective ................................................................................................................................................. 68
3. Information to be assessed ........................................................................................................................................ 69
4. Inputs of additional specialists ................................................................................................................................. 69
5. Interaction with other relevant provisions ........................................................................................................... 69
III. Definition of “Loss and Damage”.........................................................................................................................................69
1. Terminology ................................................................................................................................................................... 69
2. Purpose and objective ................................................................................................................................................. 70
3. Information to be assessed ........................................................................................................................................ 70
4. Model clause options................................................................................................................................................... 70
IV. Definition of “Fair Market Value” as the Measure of Compensation for Expropriation ...........................71
1. Terminology ................................................................................................................................................................... 71
2. Purpose and objective ................................................................................................................................................. 71
3. Information to be assessed ........................................................................................................................................ 72
4. Model clause options................................................................................................................................................... 72
V. Definition of “Costs” or Equivalent Provisions for Compensation for Change of Law ..............................73
1. Terminology ................................................................................................................................................................... 73
2. Purpose and objective ................................................................................................................................................. 73
3. Information to be assessed ........................................................................................................................................ 74
VI. Insurance...........................................................................................................................................................................................75
1. Terminology ................................................................................................................................................................... 75
2. Purpose and objective ................................................................................................................................................. 75
3. Information to be assessed ........................................................................................................................................ 75
FINANCIAL ARRANGEMENTS ............................................................................................................................................................... 76
I. Financing Clauses.........................................................................................................................................................................76
1. Overview ......................................................................................................................................................................... 76
2. Types of financing clauses ......................................................................................................................................... 76
3. Information to be assessed ........................................................................................................................................ 76
4. Model clause options................................................................................................................................................... 77
II. Foreign Currency...........................................................................................................................................................................77
1. Overview ......................................................................................................................................................................... 77
2. Information to be assessed ........................................................................................................................................ 78
3. Model clause options................................................................................................................................................... 78
III. Taxation .............................................................................................................................................................................................80
1. Overview ......................................................................................................................................................................... 80
2. Types of taxation clauses ........................................................................................................................................... 80
3. Purpose and objective ................................................................................................................................................. 80
4. Negotiation goals .......................................................................................................................................................... 80
5. Information to be assessed ........................................................................................................................................ 81
6. Inputs of additional specialists ................................................................................................................................. 81
7. Current trends, strange practices and relevant arbitration decisions ............................................................ 81
8. Interaction with other relevant provisions ........................................................................................................... 82
9. Model clause options................................................................................................................................................... 82
DISPUTE RESOLUTION .............................................................................................................................................................................. 83
I. Good Offices ....................................................................................................................................................................................83
II. Structured Negotiation ...............................................................................................................................................................83
1. Form of the negotiation provision.......................................................................................................................... 83
2. Purpose and objective ................................................................................................................................................. 83
3. Negotiation goals .......................................................................................................................................................... 83
4. Information to be assessed ........................................................................................................................................ 84
5. Model clause option..................................................................................................................................................... 84
III. Dispute Review Board ................................................................................................................................................................84
IV. Mediation ..........................................................................................................................................................................................85
1. Overview ......................................................................................................................................................................... 85
2. Purpose and objective ................................................................................................................................................. 85
3. Information to be assessed ........................................................................................................................................ 85
4. Model clause options................................................................................................................................................... 86
V. Expert Determination .................................................................................................................................................................87
1. Overview ......................................................................................................................................................................... 87
2. Information to be assessed ........................................................................................................................................ 87
3. Model clause options................................................................................................................................................... 89
VI. Domestic Courts, Administrative Tribunals or Arbitral Tribunals........................................................................91
1. Overview ......................................................................................................................................................................... 91
2. Purpose and objective ................................................................................................................................................. 91
3. Model clause options................................................................................................................................................... 91
VII. International Arbitration ............................................................................................................................................................92
1. Information to be assessed ........................................................................................................................................ 92
2. Current trends................................................................................................................................................................ 93
3. Interaction with other provisions ............................................................................................................................ 95
4. Model clause options................................................................................................................................................... 95
PREFACE

Dear reader,

We all realize that energy contracts are negotiated with a view to allocate benefits and responsibilities for
years to come. Negotiating such complex and lengthy contracts is a challenge under any circumstances.
This exercise would normally encompass contributions from and assessments of multiple people and
would factor-in multiple aspects such as financial modelling, taxes, environmental considerations and
social impacts. However, governments often face challenges associated with a lack of expertise, imbalance
of financial resources, time pressure and other factors, not necessarily always within their control. Thus, it
is important to support governments to acquire expertise in contract negotiations for complex and long-
term projects. A well negotiated contract, with the full understanding of the government of all the
potential policy options involved, reduces potential conflicts and facilitates its correct implementation for
the benefit of both the parties, the country and the foreign investor.

Therefore, this Handbook makes an attempt to offer guidance to governments on possible drafting and
negotiation approaches that can be considered on a voluntary basis when preparing for entering into
complex negotiations in the energy sector. The Handbook is divided into several chapters, most
frequently encountered or otherwise dealt with in complex agreements in the energy sector. Presentation
of the chapters and their contents serves the idea of reproducing relationship emerging between parties to
a hypothetical agreement, which would be attained by means of further analysis such as information to be
assessed, negotiation goals, current trends, main policy options to adapt, and the like, depending on the
nature of a chapter discussed and breadth thereof.

Energy projects differ in scope, have unique technical facets, and are subject to numerous legal
requirements, including those arising from international law and relevant supra-national and national legal
systems. Whilst the utmost has been done to develop generic guidance which meets these multiple
requirements, legislative frameworks are inevitably complex and varied and it is recommended that
specialized advice be obtained in this regard in relation to any specific project.

The Handbook is a result of the vast experience of the Energy Charter Secretariat blended with a valuable
support of the Legal Advisory Task Force (LATF), which currently consists of over eighty senior legal
experts from leading energy companies, academic institutions and international law firms. The Energy
Charter Secretariat is open to and grateful for any suggestions and opinions that may come forth in the
process of going through the Handbook, and it will continue working on further refining and broadening
thereof. I hope it will be a valuable tool for government officials empowering them in their negotiations
of complex investment agreements in the energy sector.

Dr. Urban Rusnák
Secretary General
Energy Charter Secretariat

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