Published on 20 November 2023 in Client Alerts

UK denies Russian investors advantages under Part III of the Energy Charter Treaty

Background

In September 2023, the United Kingdom (“UK”) decided to deny advantages of Part III of the Energy Charter Treaty (“ECT”) to Russian entities.  This includes entities who do not have substantial business activities in the country and are included in the UK Sanctions list.

The UK Department of Business & Trade, on 29 September 2023, issued a communication to ECT’s Secretary General, conveying its decision to exercise its right under Article 17 of the ECT.  This provision allows ECT Contracting States to deny advantages to businesses owned by foreign nationals, which do not have substantial activities in the area of the contracting party where it is organised, owned by a national of a state that does not maintain a diplomatic relationship with the denying state or where the denying state adopts or maintains measures against the third state/state of the national.

The UK’s decision forms part of a growing number of measures against Russian entities, as adopted by Germany and Ukraine’s decision to deny Part III advantages to Russian investors.  Meanwhile, a bill has also been tabled in the UK Parliament for the country’s withdrawal from the ECT.

What are ECT Part III advantages?

Part III is that section of the ECT that accords substantive protection to investors, such as the fair and equitable treatment standard, constant protection and security and compensation for expropriation.  Various statistics report that disputes under the ECT potentially signify the largest number of international investment disputes amongst multilateral treaties with investment protections.  ECT’s Secretariat reports that a significant majority of these cases are brought under the substantive protections accorded under Part III.

The implications of the UK’s decision

Russia has signed but not ratified the ECT.  However, the UK has acknowledged that Russian entities could “in some cases claim coverage under the Treaty and benefit from its investment protection provisions.”