Interview by Cédric Reichel to Brenda Akankunda, Program Officer, Investment for sustainable development for SEATINI Uganda-
|The Energy Charter Treaty (ECT) is an international agreement from the mid-1990s which offers protection to foreign investors in energy and promotes the progressive liberalisation of international trade in energy. Investor rights apply to 53 countries stretching from Western Europe through Central Asia to Japan, plus the EU and the European Atomic Energy Community. The provisions of the ECT offer significant protections for investors in the energy sector and the power to sue states at international investment tribunals for billions of dollars, for example, if a government decides to stop new oil or gas pipelines or to phase out coal.
The ECT is currently considered one of the key defences for the fossil fuel industry worldwide, according to experts, who believe that the reform proposed by the modernisation commission will keep protecting the exploitation of such materials. The ECT is increasingly controversial –particularly due to its potential to obstruct the transition from climate-wrecking fossil fuels towards renewable energy, but also because of the Brussels-based Secretariats continuous effort into expanding the geographical reach of the agreement to countries in Africa and the Middle East, Asia, and Latin America – thus becoming a kind of World Trade Organization (WTO) of energy.
Who is Seatini Uganda and why are you participating in the #NoECT campaign?
Southern and Eastern Africa Trade Information and Negotiations Institute (SEATINI) Uganda is a Non-Governmental Organization that works to promote pro-development trade, fiscal and related policies for sustained equitable development and improved livelihoods in Uganda and the East African Community (EAC) region. Through raising awareness, public interest litigation, building stakeholders’ capacity, and joint advocacy, we stimulate dialogue between stakeholders and government and promote indigenous alternatives for improved livelihoods and sustainable development. Seatini Uganda is working for more than 20 years now on trade-related policies like tax and investment issues at a regional, national and global level. Part of the work that we do is related to the energy sector and at the moment we are working under the campaign of #NoECT to ensure that the ECT is not expanded to the global south.
Could you give us a summary of the Ugandan Electricity Sector and its biggest challenges?
Our access to electricity rate is at only 16%. This is mostly hydroelectric power. But what is evident is that especially at the sub-national level, most people that have little access to electricity use renewable energy like solar power. So that is basically what most Ugandans rely on. But there’s still a gap that needs to be addressed when it comes to access to electricity within Uganda. Uganda produces a lot of electricity that we cannot even costume. Yet it is still being paid for. It just needs transformation because the electricity is there but making it accessible to the entire population within the country is the main challenge that we have right now. So it is an area that would be, if well exploited, beneficial and sustainable.
Currently one of the challenges that we have is that of access to energy, especially electricity. This means that the country will do whatever it takes to ensure that it increases investments within the energy sector.
Uganda is currently waiting for the invitation to accede to the Energy Charter Treaty. What is your position on this?
As mentioned before attracting Financial Direct Investments (FDIs) especially in the energy sector is someting Uganda is looking for and that is also needed. But why would Uganda even be interested in joining the ECT? First of all, the ECT secretariat has come up with a lot of promises, for example, that by acceding to it, it’s going to help attract foreign investment, especially within the energy sector. A country like Uganda, whose access rates to electricity are still so low, would die for such an opportunity.
But according to the research that has been done, for instance, in the UNCTAD report[i] that was only recently published for 2020, it was noted that that year most of the Investor-state dispute settlement (ISDS) arising out of international investment agreements are a result of the ECT and this poses the question of what African countries risk upon joining this Treaty. Especially regarding the issue of losing these ISDSs and having to compensate the other investors. The legal costs of these proceedings can also weigh heavily on public budgets. They average $4.9 million for sued states but can also be much higher.
I think it’s especially important to understand that so far no African country is member of the ECT, but negotiation talks are going on already for many years and some countries are very close to joining. Could you give us more details on this expansion process to African countries?
First of all, and when you look at the spirit, in which the energy charter treaty was created, especially the European countries that are forefronting this treaty want to protect their investors as one of the major clauses within the act is prioritizing the rights of the investors.
Probably these countries do not want investors from their states coming into countries in Africa like Uganda, which by the way is one of the riches when coming to energy resources, without having a law in place that can assure them of that particular investment protection. This ideally should not be a bad idea, idea, but when you look at that act, as compared to the other investment agreements, you realize that it poses a lot of threats to member states and is, therefore, currently considered as the most dangerous international investment agreement.
So that is why we are saying right now that this treaty is not good for African countries because when you look at our level of development you realize that most of them are still considered low developing countries. So being part of that treaty would be a great risk, but that is not the only challenge.
I would like to draw the state of play, especially for countries within the EAC. There are of course certain steps for one to take until to finally ratify the ECT within the country. The first one being signing the International Energy Charter political declaration[ii] which has been done by all East African countries. Now, after that, the next step is to write to the secretariat expressing interest in joining. And this is what Uganda has done in December 2019. But we understand that the process has been put to a halt. So that is why Uganda has not formally received back an acceptance letter, unlike other EAC partner states like Burundi. Burundi had reached the final step, which is the national ratification, which would be very dangerous because of some of the clauses. If a state like Burundi decides to ratify, it means that it is locked in it for 20 years, so that even if it decided to get out of the treaty, it would still be bound by it for the next 20 years, which poses a very big threat. And I’ll actually give you an example: in July this year, the Burundian government suspended all its mining contracts. Had the ECT already been in place by then, the Burundian government would run the risk of being sued by these investors under that ECT, especially by the mining companies that are active in the energy sector.
How does a government can transition away from extracting fossil fuels on its terms, being a sovereign state? Because once a state signs the act, it is under an obligation to comply with the investors’ interests. So the state would not have that liberty anymore to put in place policies in the public interest. So these are some of the challenges.
Now I have to ask you of course what other options are available for countries like Uganda to pursue developing their energy sector other than acceding the ECT, what are the alternatives?
What are the alternatives other than acceding to the ECT? First of all the ECT is an international investment agreement and it’s not like a standalone. There are over a thousand International Investment Agreements according to UNCTAD.
The example of Pakistan, which is waiting to accede to the ECT since 2006, shows that Foreign direct investment (FDI) can still come in, even without the ECT. So it ideally means that the act is not the insurance, that the moment you have it in place, then it means that you will have the foreign investments coming in. So the whole point is that we can still have FDIs, but not necessarily relying on the ECT.
We have looked at the possibility of exploring other investment agreements, like the bilateral investment treaties (BITs). We also have multilateral investment agreements, for instance, at a regional level. right now we have just put in place the African Continental Free Trade Area (AfCFTA) and that is one of the areas that open up the trade and the market for any investors to come in. So we think that we can rely on them other than hoping that the ECT is going to be the main source of FDIs, which is eventually not true.
We think that it is better to put in place better investment policy reforms other than acceding to the ECT. By that, we mean looking at the investment policies that we have or putting in place mechanisms that will attract investors other than them having to come directly because of the ECT. For instance, in Uganda, we usually have tax waivers for foreign investors that come.
The ECT is not any kind of insurance, but in the opposite that, the ECT is actually a threat. So that is something that we should not be aiming at.
And lastly the issue of the ISDSs. We understand that generally, ISDSs have become a very big challenge in all of these trade agreements. However, the most recent report that was published in August by UNCTAD shows that most of the ISDS from 2020 is a result of the ECT.
So that already puts in place the question of looking at how many countries are actually part of the ECT and what is the threat if even more countries would join. This will probably lead to even more ISDS claims and they might directly affect the country’s economy and development. So with all that put together, we think that this is not a treaty our country should accede to.
Since last year a modernisation group is working on a reform of the treaty. Until that process is finished, the expansion process is offically being put on hold.[iii] What is you opinion on this?
We recently wrote a report together with CEO (Coprporate Europe Observatory) and Tni (The Transnational Institute) called »The silent expansion of the ECT«.[iv] When you look at what is on paper, it reflects that the ECT is being modernized and thus countries are currently not acceding to it. But the truth is that the ECT secretariat is using this opportunity to support these countries’ accessions (Burundi, Eswatini, and Mauritania are in the ratification stage, Uganda is waiting for the formal invitation to accede to the ECT, Niger, Chad, Gambia, Nigeria, and Senegal are amongst the countries preparing accession reports) plus additional outreach activities towards countries in West Africa and East Asia. They even have a yearly budget for that.[v] So you would ask yourself the question: If the process is definitely to a halt, then why are we seeing this going on? So it’s not true that the expansion process has been put to a halt. It is still ongoing, that is why we still need to raise our voices and form a bigger coalition to stand against the ECT because it is a very big threat to our countries.[vi]
Notes and references:
[v] For details on the budget see here: https://www.energycharter.org/fileadmin/DocumentsMedia/CCDECS/2020/CCDEC202015.pdf
[vi] For further information on the policy brief on the ECT from Seatini Uganda: https://seatiniuganda.org/download/the-energy-charter-treaty-ect-is-a-decoy-east-african-community-eac-countries-should-desist-from-acceding-to-it/
* Regarding the Energy Charter Treaty: https://euobserver.com/energy/145839, https://energy-charter-dirty-secrets.org