News in Brief

Canada receives investor complaints over provincial energy and environment policies

In recent months the government of Canada has received two complaints related to energy and environmental policies adopted by its provinces. Both investors have served Ottawa with notices of intent to submit a claim to arbitration under NAFTA’s investment chapter.

A Delaware-based energy firm is challenging the Canadian province of Quebec’s restrictions on developing shale gas resources. Lone Pine Resources Inc. seeks more than C$250 in compensation.

Lone Pine complains of legislation passed in June 2012 that revoked oil and gas exploration permits in areas below the St. Lawrence River; that legislation came on the heels of a partial moratorium on hydraulic fracturing in Quebec.

The Quebec government is concerned about environmental damage from hydraulic fracturing, or “fracking”—a technique that injects water and chemicals at high pressure to fracture shale rock and extract oil and gas from below the ground’s surface. The provincial government has ordered an environmental study on fracking, to be completed in 2014.

A second notice of intent was filed by a US wind power company, Windstream Energy LLC. The firm’s complaint centers of the Province of Ontario’s moratorium on off-shore wind farms. The firm says it seeks C$475 million in compensation.

Windstream’s Canadian arm entered into a feed-in-tariff (FIT) contract with the Province on Ontario in 2009 for an off-shore wind project. The company alleges that Ontario committed to streamline the approval process for projects that had obtained FIT contracts.

However, the project has been put on hold following a moratorium on further off-shore wind developments in early 2011. The Province said it needed more scientific research on the impacts of off-shore projects—however, Windstream alleges that public opposition to wind projects, and concerns over cost, are the key factors behind the moratorium.

Windstream asserts breaches of NAFTA’s provisions on expropriation and fair and equitable treatment. The company also charges that by treating other investors more favourably—it argues, for example, that it is the only company with an FIT contract that has been subject to a moratorium—Canada has breached its commitments related to non-discrimination.

Windstream’s October 17, 2012, notice of intent is available here: http://www.international.gc.ca/trade-agreements-accords-commerciaux/assets/pdfs/windstream-1.pdf

Lone Pine’s November 8^th, 2012, notice of intent is available here: http://www.international.gc.ca/trade-agreements-accords-commerciaux/assets/pdfs/lone-1.pdf

EU agrees on legislation dealing with member state investment treaties  

The three European institutions responsible for law-making—the European Commission, the European Council of Ministers and the European Parliament—agreed on new legislation governing bilateral investment treaties in December.

In the wake of the EU’s Lisbon Treaty, the EU has been considering how to treat the 1,200 investment treaties that exist between EU member states and non-European countries. The Lisbon Treaty, which entered into force on December 1^st, 2009, granted the EU exclusive competence over foreign direct investment, in effect shifting the power to negotiate investment treaties with non-EU states from the EU member states to the Union.

The European Commission first proposed the draft legislation in 2010; after some modification, it has become the basis for the legislation agreed in December.

According to a statement by the European Commission on December 12^th, 2012, the new legislation will ensure a smooth transition towards the new EU investment policy by: a) providing legal certainty for European and foreign investors that benefit from existing treaties; b) empowering EU member states to, “under certain conditions,” negotiate new BITs.

The Commission stresses that “the 1200 plus Bilateral Investment Treaties concluded by Member States remain valid under international law.”

In terms of new treaties, the legislation allows member states to negotiate treaties with non-European countries if those countries are not targeted for EU-wide agreements. The Commission notes that the negotiations “will be conditional and the process closely monitored by the Commission, with a view to ensuring the overall compatibility with the EU common investment policy.”

In the longer run, however, the Commission wants EU-wide agreements to replace the current network of bilateral deals negotiated by member states.

Meanwhile, work continues on forging a new EU-wide legal framework and positions for the negotiation of investment treaties. In May 2012, for example, the Commission issued a draft text on investor-state dispute settlement in EU investment treaties.[1]

The EU is currently negotiating investment agreements with Singapore, Canada and India, as part of broader free trade agreements. The EU is also preparing to negotiate with Morocco, Tunisia, Jordan, Egypt and Japan, and is exploring the possibility of an agreement with China.

Spain faces another potential claim over cuts to renewable energy subsidies

Spain may face claims under the Energy Charter Treaty over an energy bill described as “fiscal measures for sustainable energy.”

An infrastructure asset manager for Deutsche Bank, Rreef Infrastructure, opposes a plan for new tax measures contained in the bill, which was approved by the Spanish Cabinet in September.

Under the plan, which must be approved by parliament, a new 6% tax will be levied on the profits earned by all power generating facilities. The plan also includes cuts in subsidies for renewable energy facilities that also make use of fossil fuels.

The proposed tax hikes have faced strong resistance from renewable energy producers. The Spanish Wind Energy Association, for example, claims that the 6% tax on electricity generation cost wind producers €241 million in 2013.

According to Spanish press reports, Rreef’s director, Bernardo Sottomayor, said the tax measures violated Spain’s commitments under the ECT, but without detailing the specific breaches. He indicated that other investors may also be interested in joining a claim if the energy bill is passed by parliament.

The bill is an effort to stem Spain’s high tariff deficit, which reached €24 billion 2011. Spain’s Minister for Industry, Energy and Tourism, José Manuel Soria, said the new tax measures would bring the tariff deficit down to zero by 2013.

If Rreef pursues a claim, it would be the third against Spain under the ECT. In November 2011, a group of 14 foreign investors served Spain with a notice of arbitration over cuts in solar tariffs.  According to the Global Arbitration Review, Dutch and Luxembourg investors Charanne and Construction are also pursuing a claim against Spain under the ECT in reaction to the changes in feed-in-tariffs introduced in 2010.