Interview: Howard Chase, industry representative with the Energy Charter

November 22, 2012 | 00:00

Interview: Howard Chase, industry representative with the Energy Charter

"This is not the time to lose the Energy Charter"

Representatives from governments around the world will be meeting in Warsaw on 26 and 27 November to discuss the future of the Energy Charter. There is broad awareness that the Charter needs to be "modernised" to retain its relevance, but it is unclear how far governments are willing to go to support this modernisation process. Howard Chase, Chairman of the Charter's Industry Advisory Panel, which represents some 40 companies and business associations, appeals to policymakers to give the Charter their support. Chase, a long-time government affairs specialist for BP and Dow Chemical, notes that in an ever-more volatile world, the Energy Charter is an "eminently sensible way" to support a stable international investment climate in the energy sector: "This is not the time to lose the Energy Charter."

Howard Chase

A small victory for the Energy Charter: in September, Morocco became the 60th country to sign the Charter – and the first African nation to do so. For the Secretary-General of the Energy Charter Secretariat, Urban Rusnák, Morocco's decision is very significant. It shows, he says, that there is interest from new countries, outside the Charter's traditional predominantly European and Central Asian base, in joining "the family".

Geographical expansion, Rusnák knows, is crucial if the Energy Charter and the Energy Charter Treaty are to maintain their relevance in the world of today. "In finding new partners, we have deliberately targeted North Africa and the Middle East", says Rusnák. "We are very gratified that this has now resulted in the first African country signing up. The MENA region is extremely important for the global energy market."

Incidentally, signing up to the Energy Charter is not the same as signing the Energy Charter Treaty. The former is a political declaration, the latter is a legally binding agreement developed on the basis of the political document. But before a country can join the Treaty, it has to sign the Charter, says Rusnák. He hopes Morocco – and other countries – will take that next step in future.

Weak state

"Enlarging the constituency" is probably the most important task that Rusnák, who started on his job at the beginning of 2012, has set himself. The Charter, signed in 1991 in The Hague, and the Treaty, signed in 1994 in Lisbon, have their roots in the post-Cold War sphere of European relations with Russia and the new countries of the Former Soviet Union. Their main objective was to promote "mutually beneficial cooperation" in the energy sector between the former enemies by providing a solid legal framework for international investment in the production, trade and transit of energy. 

But the post-Cold War roots of the Charter have today become obsolete. Russia is not the "weak state" that it was immediately after the collapse of the Soviet Union. And other actors have entered the scene. Rusnák is aware that the Charter and Treaty are in a difficult phase. The Charter has to undergo a process which the Energy Charter Secretariat sums up as "modernisation", which essentially means the geographical expansion of their constituency and the updating of its statutes to modern conditions. 

This "modernisation process" will be the major topic at the 23rd Meeting of the Energy Charter Conference and the accompanying Ministerial Conference which are to be held in Warsaw on 26 and 27 November. Rusnák hopes to get countries aligned on this process, which may then perhaps be formalised next year. This would give the Energy Charter the new start it is looking for. 

Practical input

Still, one may wonder, how relevant are the Charter and Treaty in today's much-changed world? Do investors really need them? Aren't there other, better alternatives? As it is, the Charter and Treaty have only limited application. Major energy producers like the US and Canada signed the Charter, but not the Treaty. Others, like Norway and Russia, signed the Treaty, but never ratified it. And important countries like China, Qatar and Saudi Arabia are merely observers: they have not even signed the Charter, although China is considering doing so.

But according to Howard Chase, Chairman of the Industry Advisory Panel, which was set up in 2004 to give the Energy Charter Secretariat "practical" input from business, these bald facts belie a more complex reality. Chase - who has over 20 years of experience in international energy politics as

"The mere fact that the Treaty is there, has an effect"
Government Affairs specialist for BP and Dow, and has closely followed the development of the Treaty since its inception - notes that Russia, Norway and the US were all closely involved in the establishment of the Treaty and are still highly interested participants in the entire process. "We touch base with the US and Norwegian governments to this day", says Chase. As to Russia, Chase notes that this country "went most of the way" in adopting the Treaty. He points out that when then-president Medvedev called for the establishment of a new framework for energy governance in Russia in 2009, "much of what he said was very recognisable as coming from the Energy Charter Treaty".

The point is, says Chase, that "the mere fact that the Treaty is there, has an effect." There are times, he adds, "when actors will be interested in the legal provisions and dispute-resolution mechanisms of the Treaty. It's a significant legal instrument. But what's even more important is that the Treaty is there. It exists, it is multilateral, it covers an important geographical space. And it advances certain principles, particularly the notion of the rule of law in the international energy sector. It provides a frame of reference. This is valuable even when you are in private negotiations that do not directly refer to the Treaty."

Chase observes that the existence of the Treaty played a valuable role in securing investments in the oil and gas sector in the newly independent countries in the Caucasus region and Central Asia. "A number of major pipeline projects have referenced the ECT, including the Baku-Ceyhan oil pipeline and the South Caucasus gas pipeline." He adds: "I would go even further, because you can't make investments in upstream production if you are not confident you can bring the product to market. So upstream investments too, for example in Azerbaijan and Kazakhstan, are indirectly beneficiaries of the Treaty."

Test of time

This does not mean that the Energy Charter Treaty is the only possible foundation upon which to build energy investments. Chase is not someone to make dramatic statements in this respect. "The Treaty is a means, not an end. Energy investment would of course take place if there was no Treaty." Industry backs the Treaty, he says, simply because "what is in there is sensible and useful. If it was not there, you would need to find alternative ways to accomplish the same goal: to offer legal and political security for investment. But the standard of protection offered would have to be at least as good as what is in the Treaty. Otherwise you would have lost something."

Chase notes that, as everyone knows, energy companies are exposed to significant political, commercial and technical risks in the international arena. "The risk of expropriation, transit risks, financial risks, and so on. These are what the Treaty deals with. It represents a pragmatic and productive way to conduct international energy business." This, he adds, "is why industry stays in steady support of the Treaty, why it has stood the test of time and why energy customers, as well as producers, will ultimately all benefit from the Charter and its modernisation."

Indeed, according to Chase - who ran BP's government affairs office in Moscow in the 1990s, when John Browne was CEO of the British oil company, and who then, after stints in Washington and

"Even very senior policymakers  sometimes do not sufificently appreciate how important energy and hydrocarbons are to our way of life"
Brussels, switched to Dow Chemical to develop that company's government affairs capability in Europe, Russia and Central Asia - political risk has in some ways increased rather than decreased in recent years, for various reasons. Geopolitically, the world has become "more fragmented". With the emergence of powerful state-owned energy companies, such as Petrobras, Pertamina, CNPC and Socar, the "diversity of actors" has grown. Price volatility has increased. And energy "increasingly has to be moved around on a global scale to get to the consumer". All of this has led to enhanced risk for companies in the energy sector.

"Political risk may be different now than in the Cold War period, but it has not gone away", says Chase. "On the whole one can argue it has increased and that is not likely to change over the next decade." But this implies that, as Chase puts it, "the value of collaboration has also increased." Hence, he concludes that "now is the wrong moment to lose the Energy Charter Treaty. Now is the right time to think about how to change and adjust the Treaty."

Way of life

The Industry Advisory Panel, says Chase, supports the "geographical extension" of the Energy Charter Treaty, "not least through the wider Mediterranean area and in growing cooperation with corporate actors from the Middle East and North Africa region". It also supports a "reset" of the important Transit Protocol, on which negotiations stalled in recent years. But the Panel stops short of giving specific recommendations. "That is up to the governments involved."

Chase does point out that sometimes "even very senior policymakers" do not sufficiently appreciate how important energy and hydrocarbons are to "our way of life". "This is not optional. It is fundamental to the way our economies and societies operate."

What is also "unique about the energy sector" is the "sheer scale of the capital investment involved and the risk at stake, as witnessed in the Macondo disaster in the Gulf of Mexico." But the energy sector is crucial not only for investors, but also for consumers and governments. "Energy is a huge provider of financial resources. Governments get by far the largest share of this, not least through upstream and downstream taxation. So they have a huge direct interest in energy supply and use."

All the more reason, says Chase, for governments to "take stock of the Energy Charter Treaty" and to ensure that it remains relevant and applicable. "What the Industry Advisory Panel would like to say to governments is that this – the Energy Charter Treaty – supports energy investment. It is a shared interest. It may not be shocking or ground-breaking, but that's why it's so valuable. It makes sense."

The Industry Advisory Panel of the Energy Charter Treaty was set up in 1994 and involves some 40 companies and associations, including Socar (Azerbaijan), Eon, Edison, Enel, Eni, Mitsubishi, KazMunayGaz (Kazakhstan), StatoilHydro, Gazprom, Lukoil, Dow, Shell, Eurelectric and Eurogas.

Its Chairman, Howard Chase, is currently Director of Government Affairs of Dow Europe. Before that he worked for BP for 35 years, originally as an engineer, later as government affairs advisor in Russia and many other countries.
 

 

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