Pakistan has been looking to become a full member of Energy Charter Treaty (ECT) since 2006. The country thinks that the full membership with ECT will bring in more funding and investment in the energy sector.
However, international research groups think that this development could subject Pakistan to serious arbitration threats in case it signs an international ECT agreement.
The study was conducted by Corporate Europe Observatory (CEO) and the Transnational Institute (TNI) – two European non-profit advocacy and research groups – who studied the impact of signing the treaty.
The Study and the Results
Pakistan has restricted the rights of investors through a new Bilateral Investment Treaty. At the same time, the country is looking to sign an ECT agreement which could undermine the Bilateral Investment agreement.
International oil and energy giants are using this treaty to sue governments for huge sums of cash. Any country that is looking towards a transition to clean energy but is a signatory to an ECT agreement becomes vulnerable to multiple billion-dollar lawsuits.
The report says:
[The ECT has become] a powerful tool in the hands of big oil, gas, and coal companies enabling them to discourage governments from transitioning to clean energy.
The report adds that the companies under the agreement have already sued several countries for as much as $35 billion. The money used in the arbitration and settlement cases is normally paid through the taxpayers’ money.
The study also shed some light on a coal mining project between Pakistan and China. Chinese investors along with locals are digging dirty lignite coal on Thar desert to fuel power plants.
Hypothetically speaking, in case Pakistan halts that operation considering its environmental impact, and if Pakistan and China both become ECT members, then China can sue Pakistan on solid legal grounds, claiming billions for stopping the mining in the process.
There have been a lot of states there were sued by several oil companies under the ECT agreement. We take a look at some of them.
- Vattenfall – an oil giant – sued Germany for around $5.1 billion when the country phased out nuclear power and put restrictions on coal-fired power plants.
- Rockhopper, another oil company, is suing Italy for banning offshore oil drilling.
- Russia was ordered to pay a staggering $5o billion in an investor-state dispute settlement in the Yukos case.
The ECT investors have so far filed 114 corporate claims against states since ECT’s inception in 1998. The average legal cost of these cases is $11 million as around 16 claims were for more than $1 billion.
So far, the governments have been ordered to pay $51.2 billion in damages to these companies. This is the same amount that is enough to provide energy to everyone who lacks it for the whole year.
The report further adds that the government officials signing these agreements don’t know the first thing about investor-state lawsuits and complexity of them.