Mid-Sized Energy Firms to Suffer Following Italy's Decision to Leave Energy Charter Treaty, Says Rusnák

Natural Gas Europe had the pleasure to speak with Urban Rusnák, Secretary General of the Energy Charter Secretariat. In this article, second of a two-article interview, we mainly spoke about the position of Italy, and Russia in the Energy Charter Treaty. "I think the withdrawal will create even more unclarity when it comes down to the legal protection of Italian investments abroad and foreign investments in Italy. I think it will hurt most the medium-size Italian energy companies" Rusnák said during the interview in Brussels. Unlike Italy, Russia never became a full member of the Treaty, but Moscow's ties with the Energy Charter remain complicated. "The (Yukos) case has such an influence on Russian decision makers that they are probably factoring the case in to understand how to better deal with the Energy Charter process" Secretary General of the Energy Charter Secretariat explained. 

Speaking about the Mediterranean, Italy decided to withdraw from the Energy Charter Treaty, correct? Does the fact that the European Union will remain a signatory of the Energy Charter Treaty have repercussions on Italy? In other words, does the Italian argument that “Italy's withdrawal will have a limited impact because Italy is part of the European Union” make any sense? Do you agree with this statement?

I cannot agree with this statement. But let’s take a step back. Italy has the full right to decide whether to be part of the Energy Charter Treaty or not. So this is a decision that we have to respect. The decision will come into force at the end of this year. They have already paid the contribution for this year. So this year, Italy is a full member. It has till the end of this year to change its mind. However, it already signed the International Energy Charter in The Hague in May. So it remains part of the family. The official reason of their withdrawal is that they want to save some money, and cut down contributions. But the contributions are really limited. We are a very small organisation as you might witness. Another point. The presumption that the EU, and Italy’s membership in the EU, will automatically cover the whole spectrum of the Energy Charter Treaty in Italian affairs is wrong, because the European Union does not have the needed competences in all the areas that are covered by the Energy Charter Treaty. The Treaty has a mixed nature. Some of the competences covered by the Energy Charter Treaty remain members’competences, some competences had been delegated to the European Commission - trade for example. This is not the case for investments. Therefore, we don’t believe that the fact that Italy is part of the European Union covers the whole spectrum of the Energy Charter Treaty. On the other hand, I think the withdrawal will create even more unclarity when it comes down to the legal protection of Italian investments abroad and foreign investments in Italy. I think it will hurt most the medium-size Italian energy companies, because the big companies are always able to manage complexities, the terms of the investments, which sometimes are even more favourable than the ones in the Energy Charter Treaty. The small and medium-size enterprises are lacking this political ability, this leverage. Therefore, they are the main beneficiaries of the Energy Charter Treaty. 

Remaining in the Mediterranean Sea, I read that you are looking for a Fellow focused on Cyprus. Does that mean that, from your perspective, the East Med could play a bigger role in the coming future? Do you think that its natural resources and its geopolitics will be even more relevant?

We are working with contracting parties and other players. We are providing them services. The Republic of Cyprus has agreed to have a review of the domestic investment climate, and market structure. The Energy Charter Secretariat is working on the report. The call for the Fellowship is related to this project, and we are looking for a professional who will help us analyse the investment situation, market structure in the Republic of Cyprus. Regarding the East Med, we really much believe that the region has a great potential to be a source of energy in the broader Mediterranean area, including Europe, and the role of the Energy Charter Treaty here would be to facilitate the relation among countries. This is not a silver bullet. The Energy Charter Treaty will not solve all relations, and of course there is no room for it to solve any of the territorial or political disputes. However, from a practical perspective, as a level playing field for any pipeline or other project, I think that the Energy Charter Treaty makes a lot of sense for investments in the Mid and Upstream segments. 

In conclusion, at a recent conference, you spoke about Russia, saying that talks between the Energy Charter and Russia are going on. But what are the ties between the Energy Charter and Russia? In 2009, Russia stopped the provisional application of the Energy Charter, but never withdrew from the Treaty. What does that mean?

What does that mean? Unlike Italy, which notified its intention to withdraw from the Treaty, Russia never became a full member of the Treaty. They have never withdrawn from the Treaty, they withdrew from the provisional application of the Treaty. They did not withdraw the signature. If they decide, they could ratify the Treaty tomorrow. They would immediately become a member of the Energy Charter Treaty. For Russia, the process was completed, but it has never been a full member. On the other hand, Italy has six months before its notification of withdrawal takes effect - if it does not change its mind and it will still think that this is the right decision. If Italians left, they would not just need to ratify the Treaty again. They would be in a situation, (which is even more peculiar than Russia’s relation to the Energy Charter), in which they would need to reapply and accede to the Treaty. 

Going back to Russia, what are the topics currently under discussion? How does the Yukos case fit in this picture?

We don’t have any discussion on the Yukos case, as it is dealt through legal proceedings in the Netherlands right now. There is a legal case, a dispute. We are not involved in this by any means. Russia does not discuss with us the Yukos case. But the case has such an influence on Russian decision makers that they are probably factoring the case in to understand how to better deal with the Energy Charter process. We are speaking about the biggest ever recorded award with 50 billion dollars - it is really big money. One should not be surprised if Russia is cautious about its relation with the Energy Charter Treaty, because first, they have to sort out their issues with Yukos. We cannot do anything, but of course, until they will not sort out this issue, it will be very difficult for them to return to the Energy Charter process. 

So you are basically saying that the Energy Charter Treaty would not be appealing to Russia, as long as they don’t find a solution to this case, and the appeal of the Treaty would be higher right after such a solution. Right?

I would not speculate about the Russian Federation in this way. I think that the Energy Charter Treaty is a balanced instrument, so you are getting the benefits, but you also take some risks. Each and every country is making its own risk-benefits analysis. It seems, for the time being, that the Russian leadership considers that the costs outweigh the benefits. Maybe it will change, I don’t know, but I would not speculate on countries’decisions. We just have to look at the reality - if the Russian Federation will come to the conclusion that the overall benefits related to the Energy Charter Treaty prevail over the costs, then they might change their mind.

Sergio Matalucci is an Associate Partner at Natural Gas Europe. He holds a BSc and MSc in Economics and Econometrics from Bocconi University, and a MA in Journalism from Aarhus University and City University London. He worked as a journalist in Italy, Denmark, the United Kingdom, and Belgium. Follow him on Twitter: @SergioMatalucci