Disputed energy pact recruits developing countries

Uganda is first in line among a dozen states waiting to join the ECT

Yemen made it just before the decision was taken to put the treaty’s expansion on hold. The divided, war-torn and impoverished country thus entered into the Energy Charter Treaty in January 2019 as new plans to revive its battered oil and gas sector were being made.

In Africa, where close to 600 million people lack access to electricity, Uganda is first in line among a dozen states that are considering joining the Energy Charter Treaty (ECT). The ECT secretariat’s pitch focusses on prospects for much-needed foreign energy investments. “How can we reassure foreign private capital that investing in Africa is worth the hassle? Perhaps the key to unlocking Africa’s investment potential in order to guarantee universal access to energy and to overcome energy poverty is the Energy Charter Treaty,” a 2015 ECT presentation said.

The risk is not equally emphasised: the treaty gives investors the right to sue states if they feel unfairly treated. It is a one-way street; states may only defend themselves.  Investors don’t have to take the case to the national court system, but can go straight to an international tribunal that is not accountable to anyone else. Such shadow courts may order states to pay compensation — not only for actual losses, but for estimated future losses. The demands for compensation often contain many zeroes. When a tribunal has made a decision, there is usually no instance of appeal.

South Africa dismissed the representatives of the ECT when they approached the government in Pretoria, Mustaqeem de Gama tells Investigate Europe. He specialises in international arbitration at South Africa’s Representation to the World Trade Organization in Geneva, and is the former head of the Directorate of Trade and Investment in his home country.

“During my time in the directorate, we were very clear we would not consider joining the ECT nor the ICSID convention,” he shares. “We would legislate for these on a national level. The Treaty does not recognise particular exceptions based on the level of development. It is a really bad idea for any African country to consider signing up to this particular treaty”, de Gama believes.

Weapon against green transformation

Several European governments have, in recent years, been sued under the ECT for billions of euros, due to environmental and climate policy decisions that have affected foreign investment in nuclear power, coal power and oil.

Nervousness has spread. The European Commission is now working to change the treaty in a so-called modernisation process, with withdrawal as a stated alternative if this does not succeed. The Commission is under pressure from many quarters. France demands “thorough reform in order not to hinder the ecological transition of the EU”. The Spanish government sees withdrawal as the only solution unless the ECT is changed in line with the Paris Agreement and preserves “our ability to develop public policy measures consistent with our commitment to become the first world’s first climate-neutral continent by 2050”. This is stated in two letters to the Commission obtained by Investigate Europe.

Shrinking political freedom

This issue also applies in Africa, as Mustaqeem de Gama points out. “The treaty goes way beyond energy such as oil. We are also producers of other input to critical fusion processes, such as uranium and palladium, as well as many metals required in the high-tech industries. This imposes further restrictions and obligations on countries that may close off policy space available to them,” he says.

African states risk becoming hostages to investors, claim the Transnational Institute and the Corporate Europe Observatory (CEO). They call the treaty “the powerful secret weapon of the fossil fuel industry to keep cooking the planet”. 

Yemen joined the ECT just before expansion was put on hold

“There is really no evidence of systematic maltreatment of foreign investors around the world. It is not true that there is no protection of investors if you cancel all investment treaties,” says CEO researcher Pia Eberhardt. And if there is a problem with access to justice in national court systems, this must be fixed for everyone, especially for poor people and victims of human rights abuses, says Eberhardt. 

The ECT does not specifically protect fossil investments, insists Urban Rusnák, secretary-general of the Secretariat that oversees the treaty. He believes that the agreement can be reconciled with the Paris goals. Rusnák’s vision is to make a modernised ECT a “global golden standard” and an “indispensable tool for securing private investment necessary for a successful global low carbon transition”.

Uganda might join next

Uganda is one potential member of the Energy Charter Treaty. The authorities there have made solid laws and regulations and have a high level of competence today, according to the Norwegian Petroleum Directorate’s Gunnar V. Søiland. He has lived in Kampala for two years, and today, coordinates the international team at the NPD. 

 “The oil companies complain in the media that Ugandan authorities are dragging their feet. But from our point of view, the authorities are doing the only thing right: they do not sign anything until they think it is right,” says Søiland.

Norway is active in Uganda through its “Oil for Development program” that aims to counteract the so-called “oil curse”, which, globally, is far more common than the blessing that oil and gas have been for the Norwegian economy and prosperity.  Countries with oil have, for example, twice as high a risk of experiencing civil war as countries without.

Uganda found oil near Lake Albert, by the border with DRC Congo, 15 years ago, but it is still in the ground. The country lacks the infrastructure to extract, refine and transport it. French Total and Chinese China National Offshore Oil Corporation (CNOOC) want to build a 1,445-kilometer pipeline from Uganda to the coast of Tanzania so that the oil can be extracted and refined elsewhere. Ugandan authorities would rather have that process happen within their country, but President Yoweri Museveni has decided to go ahead with the pipeline plans.

But this pipeline, which will cross earthquake-prone and other vulnerable natural areas, will prevent Uganda from reaching its target of reducing greenhouse gas emissions by 22 per cent by 2030, according to the organisation Inclusive Development International. It is unclear whether Total will eventually expose itself so much in a vulnerable country, says Gunnar V. Søiland, adding that “Uganda is being beaten by the green transformation.”

Queue to join the ECT

For several years, however, Uganda — along with “Oil for development” participants Benin, Kenya, Mozambique, South Sudan and Tanzania — has also been courted by the ECT. It takes an average of at least seven years to join the treaty, according to the Secretary General’s annual report for 2018, which describes the process as “lengthy, rigorous and politically challenging”. 

But in 2019, according to the ECT, the Ugandan government requested ratification, which is the final step from the waiting room to binding membership. Investigate Europe has asked Ugandan petroleum authorities to explain what they want to achieve through membership of the ECT. In a short email referring questions to the Ministry of Energy and mineral development, the Petroleum Authority said: “We are informed that Uganda has not undertaken any formal process to accede to this charter”. Investigate Europe has asked the Ministry to provide more details, and is awaiting a response.

Budget support passive but vital

When asked by IE, the EU Commission distanced itself from the expansion efforts. “The EU focusses its efforts on Treaty modernisation. Adding new members to the unreformed Treaty at this stage is not a priority,” the  Commission wrote in an email.

Between 2014 and 2018, however, the EU supported secondment to the ECT secretariat in Brussels for energy officials from six African states with €115,000 under the Technical Assistance Facility for sustainable energy, according to the Commission. The officials came from Mauritania, Mozambique, Nigeria, Tanzania, Swaziland and Chad.

And through their annual membership fees, Norway and all EU member states — minus Italy — contribute to financing the ECT’s campaign for countries in the global South, which has been running since 2012.

The Commission tells Investigate Europe that it “does not provide regular budgetary contributions to the core budget of the Energy Charter from the EU budget”. But an ECT report shows that the EU Commission provided “voluntary contributions” to the core budget of €200,000 per year in 2015, 2016 and 2017. The lower 2019 contribution of €150,000 signalled a shift in sentiment.

An ECT official’s letter to the Commission in the summer of 2019 expressed gratitude for the allocations up to that point and asked for continued contributions in 2020, but that request seems to have been declined. In December 2019, the ECT Member Conference decided to have a “temporary break in the issuance of invitations to join ECT”, as it awaited the modernisation.

The contributions from the individual EEA countries are nevertheless vital for the ECT. The 2021 core budget, consisting of grants from member countries, sets aside €445,500 — 11.4 per cent — for “consolidation, expansion and outreach policy”.  That is about the same as in 2020 and significantly more than in 2019.

“I think it is quite a lot for a process that has been put on hold,” says Pia Eberhardt of Corporate Europe Observatory.

Expectations of future investments loom over dinners and workshops in Brussels and capitals in Africa. But it has not been proven that investment agreements are what is needed. Some studies show that they attract some investors, other studies find no effect. South Africa has terminated all its trade agreements with such investment protection. “It has not affected our ability to find investors,” says Mustaqeem de Gama.

See the full interview with Mustaqeem de Gama, counsellor at South Africa’s permanent mission to the World Trade Organization, here and read more about our investigation on the Energy Charter Treaty.