The Energy Charter Treaty (ECT) creates a legal framework for energy trade, transit and investment among member states. The ECT, a multilateral investment treaty, aims to unite its signatories behind the common goals of setting up open energy markets, securing and diversifying energy supply and stimulating cross-border investment and trade in the energy sector.

The ECT has 52 signatories, 47 of which have ratified it. While a multilateral treaty with binding force, the ECT is limited in scope to the energy sector. It includes provisions on:

  • Investment protection.
  • Trade.
  • Transit.
  • Energy efficiency and environmental protection.
  • Dispute resolution.

The most commonly chosen forum for investor-state disputes arising under the ECT is international arbitration. At the time of writing, 62 arbitration claims were known to have been brought under the ECT, of which eight were settled, 29 are still pending and 25 resulted in final awards. A list of known ECT cases is available on the ECT website.

This Note explains:

  • The definitions that determine which investors and investments enjoy the protection of the ECT.
  • The provisions relating to investment protection.
  • The dispute resolution provisions, focusing on the arbitration option.

Where possible, these are discussed by reference to awards in cases brought under the ECT.


The investment protection provisions of the ECT are contained in Part III of that treaty. To invoke those protections, a claimant must demonstrate that it has made an investment in an ECT contracting state and that it qualifies as an investor from another contracting state. Both "investment" and "investor" are defined in the ECT.


Article 1(6) of the ECT defines investment as all types of assets directly or indirectly controlled or owned by an investor. These assets include:

  • Tangible and intangible, and movable and immovable property.
  • Any property rights, such as leases, mortgages, liens, and pledges.
  • A company or business enterprise, or shares, stock or other forms of equity participation in a company or business enterprise, and bonds and other debt of a company or business enterprise.
  • Claims to money and to performance under a contract that has an economic value and is associated with an investment.
  • Intellectual property.
  • Returns.
  • Any right conferred by law or contract or by virtue of any licences and permits granted by law to undertake energy sector economic activity.

In addition, any change in the form of the assets invested does not affect their character as investments.

An investment

"includes all investments, whether existing at or made after the later of the date of entry into force of this Treaty for the Contracting Party of the Investor making the investment and that for the Contracting Party in the Area of which the investment is made (hereinafter referred to as the 'Effective Date') provided that the Treaty shall only apply to matters affecting such investments after the Effective Date."

(Article 1(6), ECT.)

Issues commonly arise in relation to the ownership or control of shares in this context. Claimants have often invoked the ownership or control of shares in companies as sufficient to qualify as an investment. States have objected to the jurisdiction of arbitral tribunals on the basis that the claimant investors did not, in fact, own or control the shares invoked as their qualifying investments, asserting that the investors were not the true or beneficial owners of the shares.

For example, in Veteran Petroleum Limited (Cyprus) v Russian Federation, PCA Case No. 228 (2009) , the tribunal found that it had jurisdiction and dismissed the respondent's objections that the claimant was not the ultimate or beneficial owner or controller of the shares in the Russian company that it had invoked as its qualifying investment. The tribunal noted that there was no indication that the drafters of Article 1(6)(b) of the ECT (which contained "the widest possible definition of an interest in a company") intended to limit the meaning of ownership of shares to the beneficial ownership of shares (paragraph 477) .

In Ammar Al-Bahloul v Republic of Tajikistan (SCC Arb. No. V064 (2008)) , the situation was the reverse. The claimant was the beneficial, but not the nominal, owner of the shares in the local joint venture company. Those shares were held by a company registered in the Bahamas (a non-signatory to the ECT), which was in turn entirely owned by the claimant.

The tribunal noted that the ECT's definition includes investments "owned or controlled directly or indirectly," which would include assets held through an intermediary company in a non-ECT state. Consequently, the shares held in the local company by the Bahamian company qualified as an investment under the ECT for jurisdictional purposes (paragraph 142).

Tribunals hearing claims brought under the ECT often consider other categories of investments under Articles 1(6)(c) and 1(6)(f), both of which claimants often invoke regarding the same investment due to the overlap between performance claims and all rights conferred under the contract. In Petrobart v Kyrgyz Republic (SCC Arb. No. 126 (2003)) , the claimant sought arbitration of a claim for unpaid invoices under a contract with a state-owned company, reduced to a judgment in the local civil court, for the supply of gas condensate. The Kyrgyz government objected to the jurisdiction of the tribunal on the basis that no investment had been made.

The tribunal stated that the contract and the judgment were not, in themselves, assets or investments under Article 1(6), but legal documents or instruments bearing legal rights. These legal rights, depending on their character, may or may not be considered as assets or investments for the purposes of Article 1(6). After confirming that gas condensate, sold under the relevant contract, was an energy material or product (and that the claimant's investment was therefore one associated with an economic activity in the energy sector, as required under Article 1(6)), the tribunal found that a right conferred by contract to undertake an economic activity concerning the sale of gas condensate is an investment according to the ECT and that this also included the right to be paid for this type of sale (page 72).

In Electrabel SA v Republic of Hungary (ICSID Case No. ARB/07/19 (2012)), the claimant sought damages for alleged termination and breach of a power purchase agreement (PPA). There was no dispute that the claimant's shareholding in the company that was a party to the PPA qualified as an investment under Article 1(6). However, the parties disagreed whether the rights under the PPA constituted separate investments under Articles 1(6)(c) and (f). Hungary argued that the claimant was seeking to subdivide its overall investment into a series of stand-alone investments to be able to claim that it was substantially deprived of an investment, and that therefore an expropriation had taken place.

Regarding the PPA termination claim, the tribunal rejected Hungary's jurisdiction objection, taking the view that the right to undertake electricity sales and distribution under the PPA pursuant to Hungarian law constituted an investment. However, the tribunal then found that the claimant had failed to meet the test for indirect expropriation under international law. To have met that test, the claimant would have needed to establish "the substantial, radical, severe, devastating or fundamental deprivation of its rights or the virtual annihilation, effective neutralisation or factual destruction of its investment, value or enjoyment" (paragraph 6.62) . See also Legal Update, ICSID tribunal further clarifies hierarchy between EU law and ECT in investor-state energy disputes ( 523-2546).

For detailed discussion on what constitutes an investment, see Practice note, Definition of investment in international investment law (


An investor under the ECT is either:

  • A natural person having the citizenship or nationality of, or who is permanently residing in, a nation that is a member of the ECT.
  • An entity organised according to the law applicable to a nation that is a member of the ECT.

(Article 1(7), ECT.)

The tribunal in Veteran Petroleum, interpreting the definition of investor under the ECT, gave a wide interpretation to that term, just as it had with the definition of investment (see also Saluka Investments BV (The Netherlands) v The Czech Republic, PCA (2006)). The tribunal declined Russia's invitation to pierce the corporate veil and find that the investor was actually Russian rather than a resident of another contracting party. This decision is consistent with those of other investment treaty tribunals that have declined to look beyond the place of incorporation of the investor company in determining nationality.

For a detailed analysis of who is an investor under treaties, see Practice note, What is an investor for the purposes of investment treaty arbitration? (


The investment promotion and protection provisions of the ECT, found in Part III, contain the obligations that states assume under the ECT towards foreign investors. In bringing a claim before an arbitral tribunal, investors must demonstrate a breach of these obligations to be entitled to an award of damages.


Article 10 obliges states to provide effective means to investors under domestic law to enforce their rights, stating:

"Each Contracting Party shall, in accordance with the provisions of this Treaty, encourage and create stable, equitable, favourable and transparent conditions for Investors of other Contracting Parties to make Investments in its Area. Such conditions shall include a commitment to accord at all times to Investments of Investors of other Contracting Parties fair and equitable treatment. Such Investments shall also enjoy the most constant protection and security and no Contracting Party shall in any way impair by unreasonable or discriminatory measures their management, maintenance, use, enjoyment or disposal. In no case shall such Investments be accorded treatment less favourable than that required by international law, including treaty obligations. Each Contracting Party shall observe any obligations it has entered into with an Investor or an Investment of an Investor of any other Contracting Party."

Fair and equitable treatment

Many arbitral tribunals hearing claims brought under the ECT and other investment treaties interpret and apply the fair and equitable treatment standard under international law. This has created a considerable body of case law that has added specified meaning and content to the standard.

The fair and equitable treatment standard must be considered against all of the factual circumstances of the particular case in which it is applied. The standard includes:

  • The obligation to treat investors and their investments in a transparent manner (see Micula v Romania ICSID Case No. ARB/05/20 (2013)).
  • The obligation to act in good faith towards investors and their investments (see Oostergetel v Slovak Republic UNCITRAL, Final Award (2010)).
  • The obligation to refrain from taking arbitrary or discriminatory measures (see Electrabel).
  • The obligation to afford due process to investors and their investments (see AES Summit Generation Ltd v Republic of Hungary, ICSID Case No. ARB/07/22 (2010)).

For a detailed explanation of the fair and equitable treatment standard in investment arbitration, see Practice notes, Investment treaty arbitration: legal issues: What obligations are placed on the host nation? ( and Fair and equitable treatment in international investment law (http://

An issue that remains unsettled is the role of an investor's expectations in deciding fair and equitable treatment claims. In the ECT context, according to the tribunal in Electrabel, the protection of the investor's reasonable and legitimate expectations is the most important element of the fair and equitable treatment standard. However, the tribunal acknowledged that fair and equitable treatment is not a guarantee against all regulatory change. The tribunal found no breach of the fair and equitable treatment standard due to changes in electricity prices by regulatory practices or by operation of law. The tribunal found that Hungarian government had not acted unreasonably, irrationally or in bad faith in changing its pricing mechanism. The tribunal added that the claimant could not have had a legitimate expectation that the claimant would have been able to charge prices for electricity under the power purchase agreement free from regulatory changes.

In another ECT case (Plama Consortium Ltd v Republic of Bulgaria (ICSID Case No. ARB/03/24) (2008), at paragraph 175), the claimant argued breach of the fair and equitable treatment standard due to, among other things, what it claimed were sudden and unfair amendments to Bulgaria's environmental laws. The tribunal held that the fair and equitable treatment standard includes only "to a certain extent" the protection of legitimate expectations, that is only investment-backed expectations based on conditions specifically offered by the state when the investor makes the investment. The tribunal ruled that the amendment to Bulgaria's environmental legislation was not a breach of the fair and equitable treatment standard because the environmental legislation in place at the time of the claimant's investment did not in fact give any assurances that the claimant would be exempt from liability for past environmental damage.

The argument in Al-Bahloul, that the claimant was denied fair and equitable treatment based on frustration of legitimate expectations also failed. The tribunal found that, although the claimant may have had legitimate expectations that exploration licences to conduct oil and gas activities in certain areas would be issued, based on representations by local authorities, it could not demonstrate that its investments were made in reliance on its expectation of the issuance of the licences (paragraph 210, Al-Bahloul).

For more information on the fair and equitable treatment standard, see Practice note, Fair and equitable treatment in international investment law (

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Originally published by: Thomson Reuters

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