International Energy Investment Law:

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International Energy Investment Law
International Energy
Investment Law
The Pursuit of Stability
Second Edition

PETER D CAMERON

1
 3
Great Clarendon Street, Oxford, OX2 6DP,
United Kingdom
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and education by publishing worldwide. Oxford is a registered trade mark of
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First Edition published in 2010
Second Edition published in 2021
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above should be sent to the Rights Department, Oxford University Press, at the
address above
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and you must impose this same condition on any acquirer
Public sector information reproduced under Open Government Licence v3.0
(http://​www.nationalarchives.gov.uk/​doc/​open-​government-​licence/​open-​government-​licence.htm)
Published in the United States of America by Oxford University Press
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Printed and bound in the UK by
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for information only. Oxford disclaims any responsibility for the materials
contained in any third party website referenced in this work.
 For my father, Stewart Cameron (1924–​2021):

The most reliable friend, the fiercest supporter and the wisest counsellor. With love, forever.
 Foreword

Disputes in the energy sector have contributed significantly to shape the current status of
international investment law. They represent just under half of the cases commenced at
ICSID, whether based on consent in international investment treaties, contracts, or for-
eign investment laws. Indeed, by June 30, 2021, 25% of ICSID cases had emanated from the
oil, gas, and mining sectors, and another 13% came from electric power and other energy
sources. To similar effect, 142 arbitrations to date have been based on the investment protec-
tions in the Energy Charter Treaty.
The fact that disputes involving the energy sector have often resorted to international invest-
ment arbitration is perhaps not surprising when one considers their profile. Most of these
cases involve complex commercial relationships between investors and governments; are ex-
pected to last for years, if not decades; require significant financial resources to build and
operate; rely on advanced technological know-how; and usually require the development of
a substantial fixed infrastructure in the host State.
While some of these cases have interpreted industry-specific provisions in energy contracts
such as stabilization clauses, many have been based on the obligations found in investment
treaties. In particular, such investment treaty cases have considered allegations of breach of
fair and equitable treatment, failure to meet legitimate expectations, direct and indirect ex-
propriation, discrimination on the basis of nationality, and umbrella clauses.
The number of investment cases arising from the energy sector also represents something
very aptly highlighted in the title of this text and this revised second edition: the pursuit of
stability. Governments and investors recognize that it is vital to create a stable business envir-
onment in the energy sector, and that investment in this sector may be foregone, postponed,
or cancelled if the business and regulatory environment in a jurisdiction is unpredictable.
The availability of peaceful and effective dispute settlement through arbitration serves a vital
role in creating and maintaining stable investment climates. As the drafters of the ICSID
Convention noted in 1966, the availability of dispute settlement between States and foreign
investors “can be a major step toward promoting an atmosphere of mutual confidence and
thus stimulating a larger flow of private international capital into those countries which wish
to attract it.”
The stability of investment climates will be even more important in the coming years as gov-
ernments grapple with unprecedented public policy challenges. These include ensuring ac-
cess to modern and affordable energy, tackling the impacts of climate change, and quickening
the transition to clean energy. Government regulation and private sector investment will be
required to meet green investment needs in the energy sector. When these come into con-
flict, an effective and transparent rules-based dispute resolution mechanism is of paramount
importance.
Against this backdrop, International Energy Investment Law: the Pursuit of Stability pro-
vides a thorough account of the increasingly complex regimes that govern international
viii Foreword

investment in the energy sector. It also offers an in-depth analysis of how these laws and
regulations have been tested in investment arbitration. In doing so, it provides an invaluable
roadmap for policymakers, counsel, and arbitrators as they navigate the field of international
investment law and dispute settlement in this critically important sector.
Meg Kinnear
ICSID Secretary-General,
Washington DC
August 2021
 Acknowledgements

A number of people were kind enough to read chapters or sections and provide comments on
them. Many of them were past or present colleagues from the Centre for Energy, Petroleum
and Mineral Law and Policy at the University of Dundee: Daniel Behn, Stephen Dow, Abba
Kolo, Rafael Macatangay, Xiaoyi Mu, and Ugur Ozgur. For the new Chapter on damages
and enforcement, I am grateful to Ryan Bausch and Ugur Ozgur for their assistance. My
PhD students, Rahmi Kopar and Ozge Varis, now graduated, were good sparring partners
on a number of issues addressed in this book. I am also grateful for the insights provided
by Robert Armour, John Bowman, Graham Coop, Paul Griffin, David Humphreys, Honore
Le Leuch, Peter Leon, Mark Kantor, Antonio Parra, Laurence Shore, Elisabeth Sullivan, and
Peter Styles.
I have always believed that synergies between the academic world and legal practice can
generate fresh insights into familiar problems. Happily, I am not alone in that view. At the
Institute for Energy Law in Houston, Texas, David Winn has organized a succession of an-
nual events on International Energy Arbitration which CEPMLP has co-​sponsored and
which have been an excellent means of bringing together some of the best legal minds en-
gaged in this field. Participation in these events was helpful in the work for this edition, not
least through my interviews with professionals and in-​house counsel. Similarly, I bene-
fited from participating in several arbitration events organization by the Association of
International Petroleum Negotiators, the International Bar Association, and the Global
Arbitration Review.
While writing this book, I benefited from a professional link with the Scottish Arbitration
Centre through the International Centre for Energy Arbitration, which I established with
Brandon Malone and Andrew Mackenzie. I am grateful for their many invitations to SAC
seminars and workshops and the support of its President, Sir David Edward. The events were
both educational and congenial.
In my activities as expert witness and more recently as arbitrator, I have benefited from the
many professional relationships I have had with lawyers and associates in international law
firms, in-​house counsel, and barristers. These have greatly enriched my understanding of the
practicalities in this field in ways I could never have grasped from a purely academic envir-
onment. I am sure that they will see evidence of this in chapters of this book, particularly in
the case studies.
Indirectly, my students at CEPMLP have been a great influence, and particularly the many
students from Africa that I have had the privilege of teaching and supervising. Their enthu-
siasm for the study of energy, investment, and arbitration, made this Scotsman determined
to include a case study on Africa that might—​just possibly—​meet their expectations.
Of course, I am grateful to the assistance and continued support from the various editorial
staff at Oxford University Press, most recently Brianne Bellio and Fay Gibbons.
None of the above bears any responsibility for errors or shortcomings in the text.
 Contents—​Summary

Table of Cases  xxiii

Table of National Legislation  xli
Tables of Treaties and Other International Instruments  li
Abbreviations  lix
Glossary  lxv
Introduction to the Second Edition  lxvii

PA RT I

1. Energy Investment Law  3

2. States, Investors, and Energy Agreements  25
3. Stability Based on Contract  92
4. The Classic Tests of Contract-​Based Stability  141
5. Stability Based on Treaty  182

PA RT I I

6. Meeting Challenges to Investment Stability—​Across the Energy Spectrum  247

7. Latin America: Treaty and Contract Stability in the Face of Policy
Realignment and Crisis  310
8. Russia, Ukraine, and Central Asia: Treaty and Contract Stability in the
Post-​Soviet Space  400
9. Africa: Treaty and Contract Stability  462

PA RT I I I

10. The Limits to Investment Stability: Environmental and Human

Rights Issues  555
11. Damages and Enforcement of Awards  611
12. Guarantees for Long-​Term Energy Investments: Expectations and Realities  670

Appendices  695
Select Bibliography  729
Index  755
 Contents—​Detailed

Table of Cases  xxiii

Table of National Legislation  xli
Tables of Treaties and Other International Instruments  il
Abbreviations  lix
Glossary  lxv
Introduction to the Second Edition  lxvii

PA RT I

1. Energy Investment Law 

A. Energy Investment Law  1.01
(1) Energy investments  1.04
(a) International  1.05
(b) Scale  1.07
(c) Long-​term  1.10
(d) The State  1.11
(e) Price volatility  1.12
(f) Complexity  1.15
(2) Context-​based features  1.16
(a) Transformation  1.16
(b) The legacy factor  1.20
(3) Frameworks as a legal response  1.23
(4) The offer of stability  1.32
B. Overview of the Book  1.42
(1) Aims  1.42
(2) Approach  1.45
(3) Scope  1.49
(4) Structure  1.55
2. States, Investors, and Energy Agreements 
A. Introduction  2.01
B. The Foundations of Partnership  2.05
(1) Host states  2.05
(2) Energy investors  2.21
(a) A typology  2.24
(b) The investor: common issues  2.37
(c) The ECT approach  2.45
(3) The investment  2.47
(a) The ECT approach  2.48
(b) NAFTA  2.56
(c) ICSID  2.60
C. Governance  2.65
(1) Energy contracts  2.67
xiv CONTENTS—DETAILED

(2) Sovereignty over energy  2.71

(3) Arbitration  2.84
D. Energy Investment Agreements  2.94
(1) Hydrocarbons  2.101
(a) The PSC  2.102
(b) The licence or tax-​royalty approach  2.111
(c) The risk service agreement  2.118
(d) Stability and petroleum agreements  2.120
(e) The Joint Operating Agreement  2.122
(2) Natural gas  2.125
(a) Contract adjustment  2.126
(b) Pricing and price review 2.128
(c) Disputes over gas supplies  2.134
(d) LNG contract variations  2.138
(e) The state role and public service  2.139
(3) Electricity and renewable energy  2.140
(a) Conventional electricity  2.141
(b) Renewable energy  2.147
(4) Coal and energy-​related mining  2.151
(a) Extraction  2.152
(b) Sale and trade  2.155
(c) Uranium mining  2.157
(d) Seabed mining  2.158
(5) Unconventional energy  2.159
(6) Nuclear energy  2.164
E. Conclusions  2.169
3. Stability Based on Contract 
A. Introduction  3.01
B. Contract, Legislation, and Treaty  3.06
(1) Legislative support for contract stability  3.07
(a) Nigeria  3.10
(b) Israel  3.12
(c) Legislature–​executive interaction  3.14
(2) Interplay with international law  3.15
(3) Choice of law  3.20
C. Stabilization Clauses  3.22
(1) Freezing  3.26
(2) Prohibition on unilateral changes  3.36
(3) Rebalancing of benefits  3.40
(4) Allocation of burden  3.52
(5) The four methods  3.56
(6) Asymmetry  3.58
D. Renegotiation: The Rules of Engagement  3.69
(1) Clarity about aims  3.70
(2) Triggering event  3.74
(3) Precise obligations of the parties  3.76
(4) Coercion  3.80
(5) Contrasts with hardship  3.82
 CONTENTS—DETAILED xv

E. Enforcement  3.84
(1) Can a state bind itself by an investment contract?  3.85
(2) Arbitration: the powers of the tribunal  3.89
(3) Remedies  3.93
F. International Pipeline Projects  3.96
(1) The West African Gas Pipeline project  3.103
(2) The BTC pipeline project  3.110
G. Conclusions  3.118
4. The Classic Tests of Contract-​Based Stability 
A. Introduction  4.01
B. The Key Role of Arbitration  4.06
C. Lena Goldfields  4.11
D. Aramco  4.16
E. Sapphire  4.19
F. The Libyan Cases  4.25
(1) The concession terms  4.27
(2) Unilateral actions  4.32
(3) Procedure  4.33
(4) Internationalization  4.36
(5) States can bind themselves by contract  4.41
(6) Compensation  4.45
(7) Assessment  4.48
G. Aminoil  4.51
(1) The concession terms  4.54
(2) The arguments  4.59
(3) Renegotiations: content and conduct  4.61
(4) The award  4.65
(5) Compensation  4.74
H. The Iran–​US Claims Tribunal Cases  4.78
(1) Amoco International Finance  4.82
(2) The Consortium Cases  4.87
(3) Phillips Petroleum  4.90
(4) Compensation  4.94
I. AGIP v Congo  4.99
J. Conclusions  4.106
5. Stability Based on Treaty 
A. Introduction: Expansion of Guarantees to Investors  5.01
(1) The IIA framework  5.04
(2) Scope of treaty-​making and use  5.07
B. BITs and the Energy Sector  5.10
(1) BITs  5.11
(2) Practicalities  5.13
C. Stability and Treaty-​based Standards  5.14
(1) Fair and equitable treatment  5.15
(2) Legitimate expectations  5.19
(3) Full protection and security  5.23
(4) The umbrella clause  5.26
xvi CONTENTS—DETAILED

D. The Energy Charter Treaty  5.31

(1) Why an energy treaty?  5.31
(2) Investment: definitions  5.43
(3) Denial of benefits  5.47
(4) Substantive protections  5.52
(5) Transit  5.69
(6) Dispute settlement  5.76
(7) The tax carve-​out  5.85
(8) Fork in the road  5.92
(9) Provisional application  5.98
(10) The ECT in practice  5.102
E. USMCA & NAFTA Chapter 11  5.110
(1) The USMCA  5.111
(2) The legacy of NAFTA  5.115
F. Treaties with Investment Provisions  5.128
(1) ASEAN Investment Agreement  5.129
(2) The Comprehensive Progress Trans-​Pacific Partnership (CPTPP)  5.131
(3) DR-​CAFTA  5.134
G. The Paramount Role of ICSID  5.136
(1) The grand bargain  5.141
(2) Arbitration procedures  5.143
(3) The additional facility  5.153
(4) Outcomes  5.155
H. Conclusions  5.162

PA RT I I

6. Meeting Challenges to Investment Stability—​Across the Energy Spectrum 

A. Introduction: Rethinking Stability  6.01
B. Five Challenges  6.09
(1) Regulatory acts  6.10
(2) Taxation measures  6.19
(a) Retroactivity: Cairn Energy v India  6.23
(b) Exclusion from treaty scope  6.28
(3) States of necessity  6.32
(4) Procedural complexity  6.45
(5) The energy transition  6.53
(a) Renewable energy promotion  6.56
(b) Mandatory closures and phase-​outs  6.62
(c) New energies and treaty disputes  6.67
C. Expropriation, Direct and Indirect  6.70
(1) The tests  6.76
(a) The sole effect test  6.77
(b) Effects on the investor: legitimate expectations  6.86
(c) The purpose test  6.89
(d) The proportionality test  6.92
(2) Restrictive interpretations  6.95
(3) Expropriation of contractual rights  6.99
D. Stability and Legitimate Expectations  6.100
(1) The broad scope of FET  6.102
 CONTENTS—DETAILED xvii

(2) What is a stable and predictable framework?  6.108

(3) The main questions  6.122
(a) Are the investor’s expectations of stability based on contractual
commitments?  6.123
(b) Are the investor’s expectations based on the host state’s legal order?  6.126
(c) Are the investor’s expectations based on representations?  6.130
(d) Are the investor’s expectations based on circumstances or context?  6.131
(e) If the ECT is applicable, what expectations about stability
are legitimate?  6.134
E. Making Claims: Treaty versus Contract  6.137
F. Investor Responsibilities  6.144
G. System Reform and Energy Investment  6.158
H. Conclusions  6.167
7. Latin America: Treaty and Contract Stability in the Face of Policy
Realignment and Crisis 
A. Introduction  7.01
B. The Pendulum Swings  7.11
(1) Venezuela  7.14
(2) Bolivia  7.20
(3) Ecuador  7.24
(4) Argentina  7.27
C. The Legal Stability Agreement  7.31
(1) Peru7.33
(2) Venezuela7.40
(3) Colombia7.45
D. Testing LSAs: Peru and Ecuador  7.47
Duke Energy v Peru 
(1)  7.48
Aguaytia v Peru 
(2)  7.70
Noble Energy and Machalapower v Ecuador 
(3)  7.76
E. Treaty v Contract: Forced Renegotiations & Outcomes (Venezuela)  7.83
(1) Recourse to international arbitration  7.95
(2) The use of worldwide freezing orders  7.100
(3) Further nationalization  7.106
(4) Arbitration and remedies  7.108
(a) ConocoPhillips 7.110
(b) ExxonMobil 7.117
(5) Assessment  7.119
F. Testing the International Investment Regime: Rejectionism (Bolivia)  7.122
G. Treaty-​based Protection: Ecuador  7.130
(1) The VAT cases  7.131
(a) Occidental 7.134
(b) EnCana 7.140
(2) The Law 42 cases  7.148
(a) Common features of the Arbitrations 7.151
(b) Use of provisional measures 7.154
(c) Occidental II 7.167
(d) Burlington 7.176
(e) Murphy 7.185
(f) Perenco 7.189
(g) Assessment 7.196
xviii CONTENTS—DETAILED

(3) Electricity reform impacts  7.197

(a) Duke Energy 7.198
(b) MCI Power 7.205
(c) Ulysseas Inc 7.207
(4) Pipelines  7.209
H. FET, Stability, and Legitimate Expectations: Argentina  7.210
(1) CMS  7.214
(2) LG&E Energy  7.215
(3) Enron and National Grid  7.218
(4) Sempra  7.221
(5) Total  7.225
(6) Assessment  7.233
I. Conclusions  7.234
8. Russia, Ukraine, and Central Asia: Treaty and Contract Stability
in the Post-​Soviet Space 
A. Introduction  8.01
B. The Pendulum Swings  8.13
(1) Russia  8.14
(2) Kazakhstan  8.27
(3) Central Asia and the Caspian  8.37
(4) Ukraine  8.40
C. Providing Legal Stability  8.44
(1) The procedural approach  8.49
(2) The multi-​tiered approach  8.54
D. Testing Stability Mechanisms  8.61
(1) Contract renegotiations: Russia  8.62
(a) Sakhalin-I 8.64
(b) Sakhalin-II 8.66
(c) Kharyaga PSA 8.69
(2) Contract renegotiations: Kazakhstan  8.81
(a) Kashagan 8.83
(b) Karachaganak 8.88
E. Stability and Gas Contracting  8.95
(1) Transitioning to a market-​oriented framework  8.96
(2) Transit disputes  8.100
(3) Conflicts resolved  8.107
F. Engaging with the Energy Charter Treaty  8.109
(1) The early awards  8.113
(2) The Yukos cases  8.120
(a) Overview 8.122
(b) Provisional ratification 8.129
(c) Taxation and other issues 8.134
(3) Further use of the ECT  8.136
(a) Kazakhstan 8.139
(b) Ukraine 8.149
G. Stability and Mining in the Region  8.157
H. Conclusions  8.170
9. Africa: Treaty and Contract Stability 
A. Introduction  9.01
 CONTENTS—DETAILED xix

(1) Legal responses  9.10

(2) Africa and BITs: South African ‘Rejectionism’  9.19
(3) Taxation measures  9.27
(a) Arbitrability of taxation measures 9.27
(b) Capital Gains Tax 9.31
B. Energy Investment, Phase 1: Algeria, Egypt, and Nigeria  9.35
(1) Algeria  9.37
(a) Political risk and attraction of capital 9.37
(b) Legal response to risk 9.39
(c) Disputes 9.60
(d) Resolution 9.67
(2) Egypt  9.70
(a) Political risk and attraction of capital 9.70
(b) Legal response to risk 9.72
(c) Disputes 9.77
(d) Resolution 9.97
(3) Nigeria  9.99
(a) Political risk and attraction of capital 9.99
(b) Legal response to risk 9.107
(4) Disputes  9.132
(a) The Abo Arbitration 9.139
(b) The Erha Arbitration 9.142
(c) The Bonga Arbitration 9.148
(d) The Agbami Arbitration 9.152
(e) Resolution 9.166
C. Energy Investment, Phase 2: New Approaches to Stabilization  9.173
(1) Uganda  9.174
(a) Political risk and attraction of capital 9.174
(b) Legal response to risk 9.184
(c) Disputes 9.197
(d) Resolution 9.211
(2) Ghana  9.213
(a) Political risk and attraction of capital 9.213
(b) Legal response to risk 9.215
(c) Disputes 9.223
(d) Resolution 9.228
(3) Tanzania  9.230
(a) Political risk and attraction of capital 9.230
(b) Legal response to risk 9.234
(c) Disputes 9.250
(d) Resolution 9.256
(4) Mozambique  9.258
(a) Political risk and attraction of capital 9.258
(b) Legal response to risk 9.259
(c) Disputes 9.264
(d) Resolution 9.268
D. Other Patterns of Investment Dispute  9.270
E. Conclusions  9.275
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