Cooperation the way to achieve energy security

Date: 05/09/02

By Ria Kemper

FOLLOWING the end of the Cold War,

EU governments recognised that a strategic opportunity had arisen to overcome the previous economic divisions in Europe. Nowhere were the prospects for mutually beneficial integration more clear than in the energy sector.

The EU is increasingly looking to secure long-term oil and gas import routes from Russia and the former USSR states, which themselves require enormous investment in order to realise their potential as producers.

Based on this commonality of interests, the EU put forward in 1991 the initiative to establish a multilateral organisation devoted to energy cooperation between governments across Eurasia.

The work of this body, the Energy Charter, is based on a common commitment of its members to market-oriented behaviour and non-discrimination towards foreign investors - a commitment that is enshrined in the organisation's legal foundation, the 1994 Energy Charter Treaty (ECT).

The ECT's primary aim is to provide investors in the energy sectors of countries in transition with a legal 'safety net' of guarantees against discrimination (e.g. on currency restrictions, expropriation, etc.).

By signing up to such obligations under international law, former eastern bloc states help provide foreign companies with the legal certainty they require in order to invest. This helps reduce perceived risk levels and promote inward investment flows for energy producer states - a win-win situation.

Since the treaty was signed, the Energy Charter's work has focused on ensuring that its signatories, particularly transition economies, comply with their obligations relating to its four main areas of coverage (investment issues, trade, transit and energy efficiency). A key element of this process relates to the ECT's rules on the protection of energy-sector investments.

The charter undertakes a regular cycle of country reviews of the investment climate in the states of eastern Europe and the Commonwealth of Independent States, measuring progress in developing national legislation on investment protection in line with obligations under the ECT.

Recent reviews have focused on Kazakhstan, Ukraine, Croatia and Albania. In each case, recommendations to the government concerned regarding improvements to the country's investment climate are discussed and endorsed by the charter's full membership. These reviews play an important role in addressing policy advice to transition economies on issues of energy market restructuring (such as energy price reform, privatisations and de-monopolisation).

The charter also monitors compliance with the treaty's provisions on energy transit, under which states are obliged to facilitate the movement of energy materials from third countries passing through their territory - an issue of particular importance for those producer-states that have no direct access to world markets.

But the charter's focus is not limited to the protection of supply-side energy investments and transit issues. A growing emphasis is being placed on the organisation's work on energy efficiency. Reducing energy consumption is a priority for governments worldwide, as part of the global effort to promote sustainable development.

And there is still much to be done in this area in Europe, notably in central and eastern Europe, whose energy intensity remains around three times higher than in OECD member states.

Unlike the UN's Kyoto Protocol, the Energy Charter does not establish quantitative targets for reducing emissions. Nor does it provide financial support for energy efficiency projects. Rather, its role is to offer a policy forum where governments from East and West can share experience and advice on best practices: for example, on strategies for incorporating the 'polluter pays' principle in domestic energy policies, and on energy taxation, pricing policy and environmentally related subsidies.

Again, under the charter's umbrella, the instrument of in-depth reviews of countries' national energy efficiency programmes is used to develop recommendations, prepared by international teams of experts, regarding improvements to national energy efficiency strategies.

Romania, Bulgaria and Hungary are three recent examples of accession states that have undergone this process and benefited from the input to their policy approaches.

In short, the Energy Charter illustrates how multilateral organisations can assist the transition process in eastern Europe not only through financial support, but also by providing policy advice. The charter's work, though it may not grab many headlines, is nonetheless an important component in the efforts of governments to ensure energy security throughout the wider Europe.

• Dr Ria Kemper is secretary-general of the Brussels-based Energy Charter secretariat.

Following the end of the Cold War, EU governments recognised that a strategic opportunity had arisen to overcome the previous economic divisions in Europe. Nowhere were the prospects for mutually beneficial integration more clear than in the energy sector. Article is part of a European Voice survey on energy.