UK: Energy Cooperation in the Asia Region

Last Updated: 19 October 2005
Article by Mark Raymont

The Asia Pacific region’s major energy-importing economies – Japan, China and the Republic of Korea – share a common interest in reducing their present reliance on energy imports from the Middle East, through diversifying the range of energy resources they consume and by encouraging inward investment to finance the infrastructure projects that will be required to achieve such diversification. The most obvious way to achieve such diversity is to develop closer links with the energy producing states of Russia which have the potential to become major suppliers of energy to consumer markets in the Asia Region. Russia, for its part, is actively looking to expand its energy export potential in Asia, given the relative proximity of its major oil and gas reserves in East Siberia and Sakhalin. There has been some recognition of the importance of energy cooperation in the Asian region. However, very little real progress appears to have been made. By contrast, in other parts of the world, such as in Europe, Southeast Asia, South America, North America, and Africa, power sector cooperation has provided many benefits.

Political and Economic Consensus

To develop a suitable environment both for inward investment and facilitating the creation of a platform for cross-border energy flows the states of North-East Asia need to generate a consensus on three key issues: the desirability of inter-government cooperation in the energy sector; a commitment to the development of regional energy markets with transparent

regulatory regimes and ready commercial access to international financial markets; and a recognition of the criticality of fostering stable market conditions to encourage the flows of international investment capital necessary for substantial production and infrastructure projects.

Non-commercial and political risks play a significant role in investment decisions, and in acting together in relation to these key issues, governments of the region can play a major part in reducing such risks thereby fostering confidence that can support major investment decisions

by private industry and the financial community. The more that these mechanisms for risk reduction are legally binding – and reinforced by access to international arbitration in case of disputes – the greater the impact on investor confidence.


In Europe the need for regional co-operation in the energy sector to encourage energy diversity and security was well recognised and positive steps were taken following the end of the cold war to promote more transparent and competitive energy markets, in particular relating to the reliability of cross-border flows between producer countries and consumer countries. The Energy sector in North-East Asia, whilst not identical, is in a remarkably similar position to the Europe of the late 1980's and early 1990's both in terms of the need to encourage diversity and foster energy security whilst finding sufficient funding to finance the necessary infrastructure development. It is also looking in the same direction to resolve some of these problems - towards the states of the former Soviet Union.

The Energy Charter Treaty ("ECT") was one of the solutions adopted by Europe to serve its energy needs and has been signed by 51 countries (although some have only ratified in part) including producer, transit and consumer states across Europe and Asia. It has since grown to encompass parts of Asia and is perhaps the best available model for a multilateral

legal framework in Asia for the protection of investments and the encouragement of development in the energy sector. A further benefit is that its provisions are supported by access to binding international arbitration.

The policy and effect of the ECT is clearly set out in Article 2 of the treaty. Its aim is to establish a legal framework to promote long term co-operation in the energy field and to ensure an open and non-discriminatory energy market between the contracting parties. The 51 states (and the EU) who have signed or acceded to the ECT are also members of the Energy Charter Conference, the independent inter-governmental organization that serves as the ECT’s governing body. Among them are: Australia, Japan, Mongolia, the states of Central Asia (Kazakhstan etc) and Russia. By subscribing to the ECT, these governments have conveyed a positive economic and commercial message to potential investors, underlining their commitment to observe the principles of openness, transparency and non-discrimination in energy markets. This message alone can foster significant foreign investment interest in a state’s energy sector.

The ECT focuses on five key areas :

(i) Protection of Foreign Energy Investments

The ECT provides multilateral investment protection agreements in the energy sector and is based on the fundamental anti-discriminatory principle of extending national treatment, or most-favoured nation treatment, whichever is more favourable, to energy sector investors from other signatory states. Important provisions include protection in cases of expropriation, preservation of contracts with governments and the free transfer of funds relating to investments.

(ii) Free Trade In Energy Materials, Energy Products and Energy-Related Equipment

The ECT applies World Trade Organisation (WTO) rules to energy trade among the Treaty’s signatories, even if they are not members of WTO. The issues which have come up concern mainly restrictions of electricity imports from countries which are members of the ECT, but not of the WTO as yet (for example, Russia, Ukraine). Such import restrictions have to be compatible

with GATT rules which in the main prohibit import restrictions based on production processes (for example, nuclear power or power produced under sub-standard environmental rules) but not on intrinsic qualities of the product.

(iii) Cross-Border Energy Transit and the ECT Transit Protocol

These provisions encourage the facilitation of energy transit by States through pipelines and grids and provide safeguards against restrictions on new transit capacity. There is also a "conciliation" procedure to help facilitate the interim settlement of transit disputes (preventing the disruption of transit).

(iv) Dispute Resolution

The ECT provides for binding international arbitration in the case of disputes between governments, or between an investor and a host government. Where the ECT has been ratified by a member country, case law has shown that the arbitration provisions can provide an effective remedy for private investors in dispute with host states.

(v) The ECT Protocol on Energy Efficiency and the Environment

In addition to the ECT’s provisions on mitigation of the environmental impact of the energy cycle, a separate legal instrument has been adopted, called the Energy Charter Protocol on Energy Efficiency and Related Environmental Aspects, which requires participating states to formulate and implement clear strategies and programmes for improving energy efficiency.

The Protocol is largely a manifesto rather than a set of legally binding and enforceable obligations; it encompasses good environmental practices tempered by considerations of commercial feasibility.

Extension of ECT to Asia

In the Asian region, Australia, Japan and Russia, as well as Mongolia and the states of Central Asia, are ECT signatories and are active participants in the work of the Energy Charter Conference. Efforts are continuing to strengthen the "Asian dimension" of the Charter process.

In December 2001, the Energy Charter Conference officially granted observer status to the People’s Republic of China. The Energy Charter process may hold special potential for China, which stands to play an increasingly important role in international energy cooperation in Eurasia over the coming decades, not only as a market for energy exports but also as an investor in energy projects, in particular in neighbouring states.

The countries of Asia Pacific region might instead prefer to see the development of an equivalent or similar treaty applying to the energy sector of a particular region. However, the ECT has the practical advantage of being able to provide a ready-made package. Some steps have been taken to develop a similar multilateral model in Northeast Asia, but at present China has not apparently demonstrated great enthusiasm.

Although the ECT is an excellent platform from which to build closer energy cooperation in Asia, there are potentially some drawbacks. The more such countries eventually accede, the more the balance between importing and exporting countries would have to shift away from the original energy-import and EU-energy security focus. Nevertheless, the countries of North- East Asia including China will undoubtedly benefit from a system that encourages discussion between consumers and other producers; fosters a co-operative approach to resolving energy transit issues and promotes the resolution of trade and investment disputes through internationally recognised procedural and legal mechanisms. Similar considerations apply to other Asian countries. They would all benefit from an institutionalised system for investment, trade and transit promotion. They have so far been unable, in the APEC or ASEAN context, to create anything comparable to the ECT.

A potential stumbling block to further Asian involvement (but also the ECT's greatest strength) is the accountability of members for investment disputes resulting from Article 26 investor-state arbitrations. After a slow start, Article 26 investment arbitration appears to now be more widely accepted (and pursued). The first case - Nykomb v Latvia – dealt with a situation that will be familiar to private energy investors - the problems faced by a small (in this case Swedish) company in protecting its capital investment when in dispute with a large (Latvian) state concern. This case (and others) provide a good example of the dispute resolution potential inherent in the ECT. However, investor protection is only one of a number of positive benefits that the ECT could bring to the Asia energy market. The potential environmental benefits of China's membership of the ECT could be significant bearing in mind the huge demands its economic growth is placing on the world's natural resources. The real challenge for Asian governments is to recognise the potential advantages to the energy sector that the ECT or a similar Asian model would provide in resolving the region's pressing energy problems .

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.