70+ countries agree on energy cooperation and investments

On May 20 and 21, 2015, energy ministers and other high level officials from 75 countries including US, China and Japan, have gathered in The Hague, The Netherlands, where they adopted the International Energy Charter: a political declaration on international energy cooperation.

The International Energy Charter is a modernized, global, version of the existing European Energy Charter. The new Energy Charter is no longer linked geographically to Europe, where the original Energy Charter was conceived in 1991  to boost post-Cold War East-West energy cooperation.

According to Henk Kamp, Dutch Minister of Economic Affairs (EZ) and conference host, the agreements signed during this week’s event in the Hague, should lead to better investment opportunities and security for businesses investing in energy sector, which in turn would lead to an increased energy security worldwide.

According to a statement issued by the Dutch government, countries that subscribe to the charter are more attractive for companies to do business with. Signing the charter is a first step for countries wishing to join the Energy Charter Treaty. By signing the legally binding treaty, investments made by companies in that country enjoy legal protection, reducing the risks for the companies concerned.

Kamp revealed that several countries present at the International Energy Charter Conference have, apart from adopting the International Energy Charter, also formally announced that they are ready to sign the Energy Charter Treaty. Among these are Marocco and Jordan. The Treaty offers investment protection, freedom of energy transit, stimulation of trade in energy and energy related goods, and furthermore, a dispute settlement mechanism.

48 trillion U.S. dollars

The International Energy Agency, in its 2014 World Energy Outlook said that the world needs $48 trillion in investment to meet its energy needs to 2035.

Referring to that Outlook, Kamp offers the beneficial role of the Energy Charter to meeting those goals, both investment and energy demand-wise.

He said: “Of course, governments cannot fund all of this – a total of 48 trillion US dollars. The private sector is playing a growing role in energy exploration, generation and transport. So a large share of this investment has to come from companies and financial institutions. Our aim is to promote investor confidence in order to encourage energy and infrastructure development.”

“We need to guarantee a healthy investment climate by upholding principles like legal certainty, a level playing field and a free market. By signing the Energy Charter Treaty governments equip themselves to create the enabling conditions for private sector investment in energy. Not only in fossil fuels, but also in green energy and energy networks. This will help the economy grow and meet society’s need for energy security.”

Expanding the Treaty’s scope

When asked what countries are on the Energy Charter Secretariat’s wish list for acceding to the legally binding Treaty, Urban Rusnak, Secretary General, said:

“We are working with many countries in Africa, Asia and Latin-America. But it would be premature to comment on or name any specific country that is close to signing the Treaty. Some are here [in The Hague] and the feeling of ownership is very important. They have to understand the benefits of what it means to have a stable and predictable investment framework.”

Millions without electricity

The central theme of the conference around the official signing ceremony was ‘Investing in Energy’.

Maria van der Hoeven, Executive Director of the International Energy Agency took the opportunity to highlight the fact that millions of people are today without access to electricity.

Providing an example, Hoeven said that more than 620 million people in sub-Saharan Africa – around two-thirds of the total population – live without electricity.

Van der Hoeven said that the key obstacle to overcoming that challenge, is to generate sufficient investment, adding that this is where the Energy Charter might help.

“…the Treaty can help to mitigate some of key political and regulatory uncertainties.”

She said: “If the Energy Charter aspires to expand its membership to parts of Africa and Asia, there is a potential role to be played in creating a more attractive environment for investment. This is because when we look at access-related investment, and also more broadly at the needs to the power sector as a whole, private investors – including foreign investors – are often deterred by a range of political and regulatory risks.”

“This is where the Energy Charter can theoretically play a role. In providing a level of protection to foreign investors, the Treaty can help to mitigate some of key political and regulatory uncertainties. When a country chooses to work with the ECT, it sends a signal about its level of commitment to an open and predictable investment climate.”

Government – Industry meeting

Also, as part of the conference, a group of some 60 industry representatives including IOCs such as Shell, Total, BP but also NOCs such as Socar, Petrobras, OEM’s such as Siemens and companies active in renewables such as DONG joined the government delegations for a an afternoon conference programme on investment promotion and energy innovation.