Authors : Robert Wheal, Elizabeth Oger-Gross
Affiliated organization : African Law Business
Type of publication : Article
Date of publication : June 2019
West Africa has long suffered from very large energy deficits in supply and distribution. Unreliable and expensive power supplies have been significant obstacles to commerce and industry in the region, hence also to economic growth generally. The Economic Community of West African States (ECOWAS) Energy Protocol, inspired by the provisions of the widely known Energy Charter Treaty (ECT), offers potentially valuable and often overlooked protection to encourage investors in this sector. It forms part of a suite of measures in the region intended to attract investments into the power sector, alongside the ECOWAS Centre for Renewable Energy and Energy Efficiency which seeks to encourage investment in more sustainable energy infrastructure.
According to information provided by ECOWAS, 13 out of 15 member states have now ratified the energy protocol (Côte d’Ivoire and Sierra Leone have yet to ratify it) meaning the energy protocol has now entered into force. Thus, investors from contracting parties to the energy protocol are able to invoke the investment protections in relation to their investments in other contracting parties.
What is an investment?
Under the energy protocol, ‘Investment’ is broadly defined to include “every kind of asset, owned and controlled directly or indirectly by an investor”. It covers, amongst other things, tangible and intangible property, a company or business enterprise, shares, stock, or other business participation, claims to money and performance as well as any right by virtue of any licences and permits granted pursuant to law to undertake any economic activity in the energy sector.
Who is an investor?
An investor is defined as a natural person having the citizenship or nationality of, or who resides or establishes an office in the area of, a contracting party or a company or other organisation organised, or registered, in accordance with the law applicable in that contracting party. In addition, under Article 17, each contracting party reserves the right to deny the investment protections of the energy protocol to a legal entity “if citizens or nationals of a third state own or control such entity and if that entity has no substantial business activities in the area of the contracting party in which it is organized”.
Although the Energy Protocol has not yet served as a basis for an international arbitration claim, Contracting Parties to the Energy Protocol should be aware of the international obligations they have entered into under it and of their potential international liability should these obligations be violated
Investors are entitled to fair and equitable treatment
Each contracting party undertakes to accord at all times fair and equitable treatment to investments made by investors. While there is no universally accepted definition of what is ‘fair and equitable’, investment treaty tribunals have typically condemned measures that frustrate an investor’s legitimate expectations (e.g. decisions that violate guarantees provided to investors to induce their investment, such as in privatisations) or measures that are arbitrary, lacking in due process, or taken in bad faith.
Investors are protected from illegal expropriation
Article 13 prohibits nationalisation and expropriation, except where justified by the public interest, not discriminatory, carried out under due process, and are accompanied by compensation.
The broad wording does not restrict investors’ claims to direct takings of their investment by the state. Investors may also claim for indirect expropriation (i.e. which does not affect the legal title of the owner), such as the revocation of a permit resulting in the total loss of value of the investment, or creeping expropriation (i.e. through a series of measures), for example, a series of adverse regulatory decisions to end or reduce subsidies to operators, which amount to a loss of the investments and bankruptcy.
The energy protocol provides for essentially the same multi-tiered dispute resolution mechanism as the ECT. Article 26 provides that disputes between a contracting party and an investor relating to an investment of the latter should be settled amicably. If settlement is not possible within three months, the investor can submit the dispute for resolution through the courts, administrative tribunals, or arbitration at the International Centre for Settlement of Investment Disputes (ICSID), under UNCITRAL rules, the Arbitration Institute of the Stockholm Chamber of Commerce or at the Common Court of Justice and Arbitration (CCJA) in the Organisation pour l’harmonisation en Afrique du droit des affaires (OHADA) region.
Where there is no prior agreement on a dispute settlement procedure, arbitration before an international arbitral tribunal should be an investor’s preferred choice of forum to prosecute claims against States for breaches of the Energy Protocol. The Energy Protocol provides an important new avenue for redress for investors in the energy sector in West Africa and it is worth noting that there have been no fewer than 114 investor-State arbitrations registered under the ECT.
Although the Energy Protocol has not yet served as a basis for an international arbitration claim, Contracting Parties to the Energy Protocol should be aware of the international obligations they have entered into under it and of their potential international liability should these obligations be violated. Similarly, investors in the energy sector should keep this potential avenue for redress in mind when planning investment as well as during the life of their investment. Should their investment be adversely impacted by State measures taken in violation of the Energy Protocol, investors may be able to claim damages for the loss they have incurred as a result.
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