International Energy Charter Sign of Transformation of the Energy Charter Process, Says Rusnák

Natural Gas Europe had the pleasure to speak with Urban Rusnák, Secretary General of the Energy Charter Secretariat. In this article, first of a two-article interview, we spoke about the importance of the organisation. "Given all the changes occurred since 1994, it is obvious that the organisation had to react. The International Energy Charter, which was signed and adopted in The Hague last May, is an element of this reaction to the transformation of the Energy Charter process" he explained in Brussels. According to him, countries have to work hard to enter into the organisation. "The obligations are heavy, but of course there are also benefits. The benefits will emerge clear in the medium to long-term, but the obligations arise immediately after signing" he said, adding that it takes between four to seven years, from the signing of the Energy Charter to the adoption of the Energy Charter Treaty with the related final ratification. 

The Energy Charter Treaty was originally aimed at integrating the energy sectors of the Soviet Union and Eastern Europe into the broader European and world markets. Given the current geopolitical developments, the treaty is assuming new duties and is expanding beyond its original purposes. In a sense it is changing nature. What are the next steps? What are the next elements we have to take into consideration?

I would disagree on the fact that the Treaty is changing nature. The Treaty, as signed in 1994, does not change. We are not discussing to change it in the foreseeable future. But of course the context is different. Given all the changes occurred since 1994, it is obvious that the organisation had to react. The International Energy Charter, which was signed and adopted in The Hague last May, is an element of this reaction to the transformation of the Energy Charter process. I do agree, and this is in our DNA, that the original idea was to provide, in geopolitical terms, a common platform to promote European values in the Northern Euro-Asian region, in particular the former Soviet Union and Eastern Europe. On the other hand, the Energy Charter Treaty also had a very important practical significance. Beyond this geopolitical dimension, there is also a practical element: how to promote and protect investments, how to deal with transit issues, how to deal with the environmental impact and energy efficiency, etcetera etcetera. In this sense, it always had this dual nature. I think that even in the changing geopolitical landscape, this practical nature is here, the values are here, and widely used, especially in the Western side of the Energy Charter constituency, in the area between Russia and Western Europe. The Energy Charter Treaty is an instrument addressing some of the important issues that are relevant now for other countries beyond this original context. That’s the reason why the International Energy Charter is appealing to countries beyond the Euro-Asian region. So, to cut it short. What are the countries’ needs? They need foreign investors in the energy sector. There is not enough energy aid assistance to finance huge developments needs related to energy. Countries have different policy choices. They could opt for the Energy Charter Treaty, they could opt for other instruments, but the most important element here is to provide the guarantees to secure investments in the energy sector, how to insulate them from the risk stemming from governments’changes, how to decrease the regulatory risk, how to decrease the political risk, given the fact that energy investments are very capital intensive. Investments have to last for decades, and normally governments don’t last that long. So this is the reason why the Energy Charter Treaty is appealing beyond its original area. In this context, the International Energy Charter does not mean that the Energy Charter Treaty is changing. It is an additional political declaration, non-legally binding, that coexists with the Energy Charter Treaty as an entry point, a first step for countries  to enter the Energy Charter process. They can become observers, and they can then upgrade their relation with the Energy Charter. They can become full members, which means acceding to the Energy Charter Treaty. 

That would mean that the countries would switch from a non-binding treaty to a binding one, correct?

Sure. We really much believe that this decision has to be taken by the government, which has to be aware of all the consequences, aware of what the Energy Charter Treaty means to them, because it is not a risk-free exercise. Of course, only the countries that have certain institutional structures, administrative capacities, general frameworks of predictability of law and enforcement instruments are mature enough to sign to the Energy Charter Treaty. The obligations are heavy, but of course there are also benefits. The benefits will emerge clear in the medium to long-term, but the obligations arise immediately after signing. 

Before, speaking about the origins of the Energy Charter Treaty, you mentioned the European values. In the last 20 years, also the economic landscape changed, and I am referring to the rise of China, and the increase in ties between China and Russia as well. This is important in the energy sector too, as emerged clear in the last months. Does that mean that the appeal of Energy Charter Treaty could diminish, or do you think those are two different aspects -an increase in bilateral trade can go hand in hand with a growing need for multilateral coordination?

I think the second is the right answer. The multilateral framework is important for bilateral relations. One does not negate the other. Those are complementary issues. I referred to the European values, to the market approach, to the competitiveness of companies on the markets, to non-discrimination. So those are values that are important, and which economies like China share very much. So here we see that they are not in contrast with the Energy Charter Treaty. We can say that those are universal values. I don’t believe there is any internal conflict. Of course, each and every country should choose its bilateral trade partners, based on political and mutually-beneficial relations. It is a very complex issue. But what we want to provide is a common level playing field. So, if we agree on the common principles, on the common rules of the game, we can build up - if you wish - a deep and comprehensive energy cooperation, as we have in the European Union; a looser cooperation. It depends on the context, but it is fundamental to have a common level playing field, which offers predictability, accountability, and protection of investments. It is a tool for energy disputes that necessarily arise. 

So, you are basically dismissing all the claims of the detractors of your organisation - the ones saying that we should take a second thought on how the Western values are getting imposed. You are saying that this is simply a platform, which was originally related to values, but this aspect is fading away. 

No, no, not necessarily. Still, if you are looking at the Russian Federation, what does it mean to say that Russia does not share the same values, the same approach to markets? This is not true. Are we questioning that Russia is not interested in investment protection? This is not true. If I refer to values of the Energy Charter, I refer to the European values because they have been discussed in broader Europe. That is why European is probably not the right adjective to use in this context. They have simply been born here in the early 90s, and ever since, they have been commonly accepted and agreed. They are shared by the entire world, by the trade field. If you look at international trade relations, most international contracts refer to Common Law. Does that mean that they promote British values? No, I don’t think so. I think that the way we are constructing the question is not reflecting reality. I don’t believe that any contract that is between two countries is endorsing British values, they are using Common Law simply because it is more practical. Here, speaking about the Energy Charter Treaty, we are referring to European values because it is more practical. It is more competitive and it is coming along with better results than state protectionism. So, in this sense, we are not promoting European values in a social, political, or economic sphere. 

This leads me to the next question. The intention to set aside the east-west perspective and become a more global institution will allow new countries to take a more active role in your organisation. Right? How? How to open the doors to new countries that are not traditionally the focus of your organisation. How can they gain more power, also within your organisation?

It is simple. We open the doors for new countries to learn what it means to sign the International Energy Charter, and then, in due time, when they will be comfortable and mature enough, to accede to the Energy Charter Treaty, and then enter into the legal relation with other contracting parties. It is a very simple, straightforward, way. One of the reasons why we updated the European Energy Charter is that, previously we had suggested to those countries to sign the European Energy Charter, which then appeared to be slightly outdated from a political perspective. It was not a matter of substance, but the political framework changed and so the Charter had to change too. Many countries all around the world had been somehow reluctant to sign this document, which is still very important, but had a strong historic background. It could have not been seen as a 2015 document by important players, including China and other BRIC countries. So, now, it is not anymore about Europe, it is not anymore a Charter for European countries. The International Energy Charter is here to open the door for new players. The Secretariat is here to help those new countries to adopt and learn more about the Energy Charter process. 

Journalists love schedules, dates, timeframes. How long do you think the entire process might take?

Acceding the Energy Charter is a quite time consuming process. If you go back to the origins of the Energy Charter process, you will see that between signing the European Energy Charter (1991), signing the Treaty (1994), and entrance of the Treaty into force (1998), it took 7 years. So, why countries that are now coming from less organised parts of the world - to put it in this way - should be faster? It is a lengthy process, because it brings a lot of responsibilities. The countries which are acceding to the Energy Charter process have to be confident that they are able to live up to the standards of energy investment protection. Otherwise, the costs of acceding the Treaty would overweight the benefits. Risk management is part of the learning process. You have to first learn the instruments, to know how to use them best. Therefore, we are preparing the accession report for those countries that are interested in joining the process so that they are not signing a blank check. We are preparing them, and only if they are feeling confident, they join the Treaty.  So it takes between four to seven years, from the signing of the Energy Charter to the adoption of the Energy Charter Treaty with the related final ratification. 

Your organisation and your Treaty can find many competitors. There might be alternative platforms. Some experts also advocated that the TTIP and more powers to ACER would in a sense compete with your organisation. The first on an Transatlantic level, the second on an European level. 

If you narrow the Energy Charter area to Eastern Europe or to the Transatlantic area, you leave out important regions. What about the original area and Eurasia beyond EU borders? What about the countries in the Americas beyond the US? So the question can be changed into: are there formats that address the same or similar issues? Of course there are at the regional level. At this point, the question is: are any of these formats used universally and accepted as a level playing field? And I think here we don’t have a competitor, because the Energy Charter Treaty is good for European countries, for Morocco, for Mauritania, which are just acceding. It is good for Tajikistan, Mongolia, or Kazakhstan, or Japan. So, do you have any universal instruments in this sector that would be acceptable for everybody? It is true that we are not spread globally yet, but the diversity of our Members shows that there is nothing fundamentally wrong, there is nothing that would prevent a country willing to share these principles from doing so. We have less developed countries like Tajikistan, Kyrgyz Republic. We have the richest countries like Lichtenstein, Luxembourg, or Japan. So wealth is not an issue. It is not about the size of a country either. We have Lichtenstein, we have Kazakhstan or France. We have small and big countries. The important element is that they are ready to share the same values, to stick to the rule of law in energy cooperation. 

So I change slightly my question. There could be platforms - like the one launched by Cañete the other day (the Euro-Mediterranean gas platform) - that could also complement your work. So you are welcoming these developments. Right?

Sure, we see it as a way to work together. These initiatives complement each other. We focus on transit, investment protection, trade, and energy efficiency among other things. The European gas platform is a very practical instrument, but those countries don’t share the same legal framework. 

Pardon my ignorance, but what about the countries that are taking part to the new Euro-Mediterranean gas platform? Are they working with you too?

The ones in the Northern Mediterranean are members of the Energy Charter Treaty. From the south, some countries are observers - Algeria and Tunisia are observers by invitation. Some other countries are acceding to the Treaty – Morocco and Jordan. Some are not involved - Libya. But to go back to your previous question, this platform does not provide any legal instrument. This is not the goal of the platform launched by Commissioner Cañete. The reason behind the new initiative is practical cooperation, but at a certain moment you come to a limit because for example to build a pipeline you need a common framework. Crossing several countries would lead to endless discussions and negotiations.

So you are intrinsically saying that yours is also a way of sharing expertise?

Yes, definitely. We are complementing each other. You need to have a level playing field for practical cooperation. You need to know what the obligations are, what the guarantees will be, what the investors will get if they invest in a project from country A to country B. And this is what the Energy Charter can provide. There are no other organisations that can provide these services.

Sergio Matalucci is an Associate Partner at Natural Gas Europe. He holds a BSc and MSc in Economics and Econometrics from Bocconi University, and a MA in Journalism from Aarhus University and City University London. He worked as a journalist in Italy, Denmark, the United Kingdom, and Belgium. Follow him on Twitter: @SergioMatalucci