Russian Electricity and Energy Investment Law [1 ed.] 9789004203280, 9789004203273

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Russian Electricity and Energy Investment Law

Law in Eastern Europe A series published in cooperation with Leiden University and the Universities of Tartu and Graz

General Editor William B. Simons

VOLUME 65

The titles published in this series are listed at brill.com/laee

Russian Electricity and Energy Investment Law By

Anatole Boute

LEIDEN | BOSTON

Library of Congress Cataloging-in-Publication Data Boute, Anatole, author.  Russian electricity and energy investment law / by Anatole Boute.   pages cm. — (Law in Eastern Europe ; volume 65)  Includes bibliographical references and index.  ISBN 978-90-04-20327-3 (hardback : alk. paper) — ISBN 978-90-04-20328-0 (e-book) 1. Electric utilities—Law and legislation—Russia (Federation) 2. Investments—Law and legislation— Russia (Federation) 3. Investments, Foreign—Russia (Federation) I. Title.  KLB3432.B68 2015  343.4709’29—dc23

2015023030

This publication has been typeset in the multilingual ‘Brill’ typeface. With over 5,100 characters covering Latin, ipa, Greek, and Cyrillic, this typeface is especially suitable for use in the humanities. For more information, please see www.brill.com/brill-typeface. issn 0075-823X isbn 978-90-04-20327-3 (hardback) isbn 978-90-04-20328-0 (e-book) Copyright 2015 by Koninklijke Brill nv, Leiden, The Netherlands. Koninklijke Brill NV incorporates the imprints Brill, Brill Hes & De Graaf, Brill Nijhoff, Brill Rodopi and Hotei Publishing. All rights reserved. No part of this publication may be reproduced, translated, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior written permission from the publisher. Authorization to photocopy items for internal or personal use is granted by Koninklijke Brill nv provided that the appropriate fees are paid directly to The Copyright Clearance Center, 222 Rosewood Drive, Suite 910, Danvers, ma 01923, usa. Fees are subject to change. This book is printed on acid-free paper.

In memoriam Любовь Михайловна Карамышева

∵

Contents Acknowledgments xi List of Tables xii List of Figures xiii List of Maps xiv List of Cases xv List of Legislation xxx Abbreviations xli About the Author xliv Introduction 1 1 The Modernization Challenge 22 1 Physical State and Structure of the Russian Electricity Sector 26 2 Prospects for Development of the Electricity Sector until 2020 and 2030 45 3 Conclusions 71 2 The Russian Electricity Market Reforms 74 1 The Soviet Organization of the Electricity Sector (1918–1991) 78 2 The Post-Soviet Transition (1992–2001): First Steps toward Reform 81 3 The 2003–2011 Privatization and Liberalization Reform 90 4 Conclusions 111 3 The Regulatory Authorities 113 1 The Theory of Regulatory Independence and Credible Commitment 119 2 Constitutional Division of Powers for Electricity Regulation in Russia 123 3 The Government of the Russian Federation 129 4 Ministry of Energy 133 5 The Regulator of the Wholesale Market: The Market Council 137 6 The Federal Anti-Monopoly Service 149 7 The Federal Service for Tariffs 154 8 Regional Tariff Authorities 158 9 Municipal Authorities 161 10 The Normative Nature of Regulatory Decisions 163 11 Conclusions 165

viii

contents

4 Principles of Russian Electricity Law 169 1 Freedom of Interaction among Market Parties 173 2 Free-Market Price Formation 176 3 The Affordability of Electricity Supply 184 4 The Economically Well-Founded Nature of Prices 188 5 The Balance of the Economic Interests of Suppliers and Consumers 192 6 Phasing Out Cross-Subsidies 194 7 The Stability of Investment Conditions 201 8 Non-Discrimination 208 9 Unbundling 216 10 Transparency 223 11 Conclusions 224 5 The Wholesale Electricity and Capacity Market 227 1 Impact of Public Interference with Prices on Electricity Investments: The Theory 229 2 The Structure of the Russian Wholesale Market 237 3 The Transition and Model Wholesale Markets 237 4 The Electricity and Capacity “Commodities” 240 5 Wholesale Market and Nodal Zones 246 6 Wholesale Market Participants 252 7 Price Formation Mechanisms in the Wholesale Electricity Market 273 8 The Capacity Market 293 9 The Risk of Political Interference with Free-Market Prices 314 10 Interference with Prices and the Principles of Russian Electricity Law 342 11 Conclusions 355 6 The Retail Markets 363 1 Retail Market Participants 366 2 Free-Market Price Formation in Retail Markets 379 3 Regulated Tariffs for Domestic Consumers 384 4 The Contractual Architecture Governing the Retail Markets 390 5 Metering 395 6 Non-Price Zones, Isolated Regions and Remote Areas 398 7 Conclusions 408

contents

ix

7

The Electricity Network Infrastructure 411 1 The Federal Grid Company (Transmission) 415 2 The Territorial Network Companies (Distribution) 418 3 Access to the Network 423 4 Connection to the Network 427 5 Connection and Access to Private Network Infrastructure 433 6 Compensation for Network Losses 436 7 Transmission and Distribution Tariffs 440 8 Connection Tariffs 447 9 Conclusions 448

8

Combined Heat and Power and District Heating 451 1 Heat Tariff Regulation in Russia 455 2 Regulating Combined Heat and Power: The Challenge of Cost Allocation 472 3 Toward a New Heat Regime: The 2015–2020 Reform of the Russian Heat Market 482 4 Conclusions 486

9

Renewable-Energy Law 490 1 Instability of Support Schemes and Investments in Renewable Energy Sources 494 2 The Legislative Process 498 3 Main Concepts of Russian Renewable-Energy Regulation 503 4 The Retail Renewable-Energy Tariff Scheme 515 5 The Wholesale Capacity-Based Support Scheme 520 6 Joint EU-Russian Renewable-Energy Projects 528 7 Conclusions 535

10

Guarantees of Protection under Russian Investment Law 540 1 Sources of Russian Investment Law 545 2 Jurisdictional and Procedural Aspects of Dispute Resolution 550 3 Substantive Protection 553 4 Conclusions 562

11

International Investment Law 564 1 Sources of International Investment Law 571 2 Access to Arbitration on the Basis of the Russian BITs 576

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contents

3 Access to Arbitration on the Basis of the ECT 589 4 Preliminary Conclusions on Access to International Arbitration 594 5 Expropriation 596 6 National Treatment Standard 613 7 Fair and Equitable Treatment 624 8 Umbrella Clauses 646 9 Force Majeure and the State of Necessity 652 10 Conclusions 658 12

Regulatory Convergence 662 1 The Concept of Regulatory Convergence and Its Meaning within the EU-Russian Energy Relationship 665 2 The Impossibility of Regulatory Convergence? 673 3 Conclusions 690

13

General Conclusions 692 Bibliography 707 Index 755

Acknowledgments This book is the result of a long journey that started in 2005 at the Institute for Energy and Environmental Law of the University of Leuven, where I was introduced to the field of comparative energy and environmental law by Professors Kurt Deketelaere and Geert van Calster. I am grateful to Professor van Calster for guiding me in the early stages of the development of my PhD research project on the reform of the Russian electricity market. The completion of this research project at the University of Groningen in 2010 would not have been possible without the unconditional support, guidance and trust of Professor Martha Roggenkamp—the supervisor of my dissertation—and of Professor Laurence Gormley—Head of the European Law Department. I also had the great chance and honor to benefit from the comments of the esteemed members of my reading committee composed of Professors Nigel Bankes, Mark Entin and Kaj Hobér. My research in Russia benefited from the support of The Netherlands Institute in Saint Petersburg. I am particularly grateful to Mila Chevalier—Director of the Institute—for her invaluable help in facilitating my research trips in Russia. Liuba Karamysheva was also an indispensable pillar on which I could rely during my stays in Russia. She was my Russian teacher and became my Russian mother. Work on this manuscript continued after I moved to the University of Aberdeen early 2011. I am grateful to Professor John Paterson and Greg Gordon—the director and co-director of the Aberdeen Center for Energy Law—and to Sarah Duncan—Head of Administration—for their unconditional support in this process. Early 2011 also marked the beginning of my involvement with the International Finance Corporation (IFC) Russia Renewable Energy Program. This book benefits from the practical experience that I accumulated as legal advisor of the Program. I am grateful to the team and in particular to Patrick Willems—Program Manager—and Alexei Zhikharev—Head of Public and Investors’ Relations—for their critical comments on my work. I am also deeply indebted to Professor William Simons— Editor of this Series—for thoroughly reviewing the manuscript and to two anonymous reviewers for most useful comments on earlier versions of this book. Professor Simons’ dedication to academic excellence and unique efforts in furthering the field of East European and Russian law brought this book to a much higher level of scholarship. Moreover, I am grateful to Daria Shapovalova, Neal Tosh, Anna Harrisevans, and Curtis Budden for copy-editing the text and to the universities of Aberdeen, Tartu and Graz for financing this editorial work. This book covers developments up to 1 August 2014. As will be indicated in the references in this book, certain sections draw on material previously published by the author.

List of Tables 1 2 3

Electricity prices for household consumers in Russia in 2010 in comparison to Eurostat data 388 Access to arbitration: Recapitulation 596 Recapitulation: The modernization of the Russian electricity sector: regulatory risks and investment protection 700

List of Figures 1 2 3 4 5 6 7 8 9 10

Electricity consumption in Russia for the period 1990–2011 (in GWh/year) 38 Fuel mix of the Russian electricity sector 39 Age distribution of power plants in Russia (with OECD comparison) 41 Fuel mix of the Europe-Ural zone 65 Fuel mix of the Siberia zone 65 The corporate structure of the electricity sector during the post-Soviet transition period 84 The new corporate structure of the electricity sector 107 Wholesale market participants 271 The organization of the day-ahead market 279 2013 Proposal of the Federal Anti-Monopoly Service on the “economically well-founded nature” of price bids 324

List of Maps 1 2

Electricity Systems within the Russian Federation 30 The European-Ural and Siberian price zones, non-price zones and isolated energy systems 248

List of Cases

Constitutional Court of the Russian Federation (KS RF)

Postanovlenie KS RF (10 September 1993) No.15-P, Vestnik KS RF (1994) No.4–5 Postanovlenie KS RF (18 July 2003) No.14-P, SZRF (2003) No.30 item 3102 Opredelenie KS RF (8 July 2004) No.255-О Postanovlenie KS RF (16 July 2004) No.14-P, SZRF (2004) No.30 item 3214 Postanovlenie KS RF (31 May 2005) No.6-P, SZRF (2005) No.23 item 2311 Opredelenie KS RF (2 November 2005) No.60-G05-9 Opredelenie KS RF (8 February 2007) No.288-О-P Opredelenie KS RF (8 February 2007) No.291-О-P Postanovlenie KS RF (20 March 2011) No.2-P, SZRF (2011) No.15 item 2190 Postanovlenie KS RF (29 March 2011) No.2-P, SZRF (2011) No.15 item 2190 Opredelenie KS RF (5 July 2011) No.924-O-O Postanovlenie KS RF (27 March 2012) No.8-P, SZRF (2012) No.15 item 1810 Opredelenie KS RF (4 October 2012) No.1813-O Postanovlenie KS RF (16 October 2012) No.22-P, SZRF (2012) No.44 item 6071

Supreme Court of the Russian Federation (VS RF)

Opredelenie VS RF (28 October 2003) No.59-G03-7 Opredelenie VS RF (2 November 2005) No.60-G05-9 Opredelenie VS RF (18 October 2006) No.58-G06-37 Opredelenie VS RF (20 June 2007) No.74-G07-10 Postanovlenie Plenuma VS RF (29 November 2007) No.48, Biulleten’ Verkhovnogo Suda RF (January 2008) No.1 Reshenie VS RF (24 July 2008) No.GKPI08-1221 Reshenie VS RF (26 August 2008) No.GKPI08-1528 Opredelenie VS RF (23 November 2011) No.56-G11-23 Opredelenie VS RF (22 February 2012) No.73-G12-1 Opredelenie VS RF (12 September 2012) No.56-APG12-12 Opredelenie VS RF (19 March 2013) No.APL13-82, Biulleten’ Verkhovnogo Suda RF (November 2013) No.11

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list of cases

Arbitrazh Courts of the Russian Federation

VAS—Vysshii Arbitrazhnyi Sud (Supreme Arbitrazh Court) FAS—Federal’nyi Arbitrazhnyi Sud (Federal Arbitrazh Court) Postanovlenie FAS Moskovskogo Okruga (5 October 2001) No.KА-А40/5556-01 Postanovlenie FAS Vostochno-Sibirskogo Okruga (26 October 2004) No.А332805/04-S1-F02–4367/04-S2 Postanovlenie FAS Severo-Zapadnogo Okruga (8 December 2004) No.F048761/2004(6922-А75-17) Postanovlenie FAS Volgo-Viatskogo Okruga (19 January 2005) No.А17151А/5-2004 Postanovlenie FAS Severo-Zapadnogo Okruga (15 April 2005) No.А422198/03-22 Postanovlenie FAS Moskovskogo Okruga (2 March 2006, 22 February 2006) No.KG-А40/698-06-P, in case No.А40-53839/05-8-388 Postanovlenie FAS Moskovskogo Okruga (4 July 2006) No.KG-A40/3291-06, in case No.A40-13605/05-52-86 Postanovlenie FAS Severo-Zapadnogo Okruga (28 February 2007) in case No.А56-50165/2005 Postanovlenie FAS Severo-Zapadnogo Okruga (28 February 2007) in case No.А56-14289/2006 Postanovlenie FAS Severo-Zapadnogo Okruga (9 January 2008) in case No.А13-3113/2007 Opredelenie VAS RF (5 August 2008) No.VAS7208/13, in case No.A41-19774/2012 Postanovlenie FAS Volgo-Viatskogo Okruga (29 October 2008) in case No.А28-3924/2008-117/12 Postanovlenie Prezidiuma VAS RF (13 November 2008) No.2215/08, in case No.А56-34170/2006; A34-930/2007 Vestnik VAS RF (2009) No.2 Opredelenie VAS RF (17 November 2008) No.14294/08, in case No.А59861/07-С15 Opredelenie VAS RF (4 December 2008) No.15109/08, in case No.А57-6503/07 Postanovlenie Prezidiuma VAS RF (17 March 2009) No.5642/08, in case No.А13-3113/2007 Reshenie VAS RF (19 May 2009) No.VAS-1654/09 Postanovlenie Prezidiuma VAS RF (9 June 2009) No.525/09, in case No.А31333/2008-8, Vestnik VAS RF (2009) No.9 Postanovlenie FAS Moskovskogo Okruga (13 July 2009) No.KG-A40/5235-09, in case No.A40-73356/08-137-717 Opredelenie VAS RF (15 July 2009) No.VAS-8115/09, in case No.А81-2326/2008

list of cases

xvii

Postanovlenie FAS Moskovskogo Okruga (28 July 2009) No.KА-А40/6217-09-P, in case No.А40-18558/08-121-206 Postanovlenie FAS Moskovskogo Okruga (20 August 2009) No.KА-А40/790809, in case No.А40-83001/08-146-647 Postanovlenie Semnadtsatogo Arbitrazhnogo Apelliatsionnogo Suda (24 August 2009) No.17АP-6786/2009-GK, in case No.А60-3077/2009 Postanovlenie FAS Povolzhskogo Okruga (25 August 2009) No.A65-4280/2009 Postanovlenie Prezidiuma VAS RF (8 September 2009) No.6057/09, in case No.А49-3724/2008-120а/21-АK, Vestnik VAS RF (2010) No.1 Postanovlenie FAS Severo-Kavkazskogo Okruga (21 September 2009) in case No.А61-46/2009 Postanovlenie FAS Severno-Zapadnogo Okruga (21 September 2009) in case No.А44-749/2009 Postanovlenie FAS Ural’skogo Okruga (20 October 2009) No.F09-8105/09-С5, in case No.А60-3077/2009-С2 Postanovlenie FAS Moskovskogo Okruga (26 October 2009) No.KG-А40/1079209, in case No.А40-73355/08-100-606 Opredelenie VAS RF (30 October 2009) No.VAS-13671/09, in case No.A7628314/2008-18-112/225 Postanovlenie FAS Severo-Zapadnogo Okruga (12 November 2009) in case No.А13-2272/2009 Postanovlenie Prezidiuma VAS RF (1 December 2009) No.1773/09, in case No.А40-33944/08-21-413, Vestnik VAS RF (2010) No.3 Postanovlenie FAS Zapadno-Sibirskogo Okruga (28 December 2009) in case No.A75-1597/2009 Opredelenie VAS RF (18 February 2010) No.VAS-469/10, in case No.A4068947/08-7-628 Opredelenie VAS RF (27 February 2010) No.VAS-623/09, in case No.A26998/2007 Postanovlenie FAS Zapadno-Sibirskogo Okruga (5 March 2010) in case No.А4612399/2009 Postanovlenie FAS Volgo-Viatskogo Okruga (19 April 2010) in case No.А176312/2009 Postanovlenie FAS Moskovskogo Okruga (31 May 2010) No.KG-A40/4392-10, in case No.A40-64236/09-139-365 Postanovlenie Prezidiuma VAS RF (15 July 2010) No.2380/10, in case No.А474153/2008-9032/2008, Vestnik VAS RF (2010) No.10 Reshenie Arbitrazhnogo Suda Vologodskoi Oblasti (28 September 2010) in case No.А13-3079/2009

xviii

list of cases

Postanovlenie Deviatogo Arbitrazhnogo Apelliatsionnogo Suda (29 September 2010) No.09AP-21383/2010-AK, in case No.A40-22723/10-154-83 Postanovlenie FAS Zapadno-Sibirskogo Okruga (24 November 2010) in case No.А46-5259/2010 Postanovlenie FAS Severno-Zapadnogo Okruga (1 December 2010) in case No.А13-11988/2009 Postanovlenie Prezidiuma VAS RF (18 January 2011) No.11009/10, Vestnik VAS RF (2011) No.4 Postanovlenie FAS Moskovskogo Okruga (9 February 2011) No.KG-A40/1788710, in case No.A40-150711/09-132-970 Opredelenie VAS RF (28 February 2011) No.VAS-1266/11, in case No. A45-2966/2009 Postanovlenie FAS Povolzhskogo Okruga (10 March 2011) in case No. А55-10759/2010 Opredelenie VAS RF (10 March 2011) No.VAS-2107/11, in case No.A17-1625/2010 Postanovlenie FAS Moskovskogo Okruga (11 March 2011) No.KA-А40/526-11-1, 2 as confirmed by Opredelenie VAS RF (26 May 2011) No.VAS-6060/11 Postanovlenie FAS Moskovskogo Okruga (15 April 2011) No.F05-2861/10, in case No.A40-44669/2009 Postanovlenie FAS Ural’skogo Okruga (4 May 2011) No.F09-2020/11-С1, in case No.А76-21010/2010 Postanovlenie Odinnadtsatogo Arbitrazhnogo Apelliatsionnogo Suda (19 May 2011) No.А65-28176/2010 Postanovlenie FAS Zapadno-Sibirskogo Okruga (31 May 2011) in case No.А0316565/2010 Opredelenie VAS RF (7 June 2011) No.VAS-6499/11, in case No.A40150711/09-132-970 Postanovlenie FAS Severo-Zapadnogo Okruga (21 June 2011) in case No.А13223/2010 Postanovlenie FAS Povolzhskogo Okruga (28 June 2011) in case No.А5518956/2010 Reshenie Arbitrazhnogo Suda Vologodskoi Oblasti (12 July 2011) No.А131398/2011 Postanovlenie FAS Moskovskogo Okruga (20 July 2011) No.KG-A40/5895-11, in case No.A40-107292/10-49-947 Postanovlenie FAS Povolzhskogo Okruga (26 July 2011) in case No.А558504/2010 Postanovlenie Piatnadtsatogo Arbitrazhnogo Apelliatsionnogo Suda (22 August 2011) No.15AP-9095/2011, in case No.A53-1446/2011 Postanovlenie FAS Severo-Kavkazskogo Okruga (26 September 2011) No.F085405/11

list of cases

xix

Postanovlenie FAS Povolzhskogo Okruga (11 October 2011) No.F06-8306/11 Opredelenie VAS RF (20 October 2011) No.VAS-10484/11, in case No.А7621010/2010-4-589 Postanovlenie FAS Severo-Zapadnogo Okruga (31 October 2011) in case No.А131398/2011 Postanovlenie FAS Severo-Zapadnogo Okruga (1 November 2011) in case No.А0514393/2010 Opredelenie VAS RF (9 November 2011) No.VAS-13285/11, in case No.A40107292/10-49-947 Postanovlenie FAS Povolzhskogo Okruga (15 November 2011) in case No.А5527625/2010 Postanovlenie Pervogo Arbitrazhnogo Apelliatsionnogo Suda (18 November 2011) in case No.A43-30030/2010, confirmed by Postanovlenie FAS VolgoViatskogo Okruga (9 February 2012) Postanovlenie FAS Vostochno-Sibirskogo Okruga (25 September 2013) in case A19-4764/10 Postanovlenie Deviatogo Arbitrazhnogo Apelliatsionnogo Suda (29 November 2011) No.09AP-28304/2011-GK, in case No.A40-75444/11-84-428 FAS Povolzhskogo Okruga (29 November 2011) in case No.A12-1247/2011 Opredelenie VAS RF (30 November 2011) No.8433/11, in case No.А09-3584/2010 Postanovlenie FAS Zapadno-Sibirskogo Okruga (9 December 2011) in case No.А45-2180/2011 Reshenie VAS RF (28 December 2011) “O chastichnom udovletvorenii z­ aiavleniia o priznanii nedeistvuiushchim abzatsa 3 punkta 62 Pravil optovogo rynka elektricheskoi energii i moshchnosti, utverzhdennykh Postanovleniem Pravitel’stva RF ot 27.12.2010 No.1172” No.VAS-7986/11 Opredelenie VAS RF (29 December 2011) No.VAS-16386/11, in case No.A0314186/2010 Opredelenie VAS RF (29 December 2011) No.VAS-16765/11, in case No.A0315238/2010 Postanovlenie FAS Zapadno-Sibirskogo Okruga (12 January 2012) in case No.А45-2171/2011 Postanovlenie FAS Zapadno-Sibirskogo Okruga (20 January 2012) in case No.А45-2344/2011 Postanovlenie FAS Zapadno-Sibirskogo Okruga (26 January 2012) in case No.А45-2353/2011 Postanovlenie FAS Severo-Kavkazskogo Okruga (31 January 2012) No.F088699/11, in case No.A32-33900/2010 Postanovlenie FAS Moskovskogo Okruga (7 February 2012) in case No.A4012/11-146-118, confirmed by Opredelenie VAS RF (13 May 2013) No.VAS7069/12

xx

list of cases

Postanovlenie FAS Dal’nevostochnogo Okruga (13 February 2012) No.F037027/2011, in case No.А04-1054/2011 Postanovlenie FAS Moskovskogo Okruga (21 February 2012) in case No.А4041140/11-45-366, confirmed by Opredelenie VAS RF (29 June 2012) No. VAS-7510/12 Opredelenie VAS RF (22 February 2012) No.VAS-678/12, in case No.А1115543/2009 Postanovlenie Prezidiuma VAS RF (28 February 2012) No.8433/11, in case No.А09-3584/2010, Vestnik VAS RF (2012) No.6 Postanovlenie Prezidiuma VAS RF (28 February 2012) No.14489/11, in case No.А26-5295/2010, Vestnik VAS RF (2012) No.6 Postanovlenie Prezidiuma VAS RF (6 March 2012) No.14340/11, in case No.А215799/2010, Vestnik VAS RF (2012) No.6 Opredelenie VAS RF (14 March 2012) No.VAS-2200/12, in case No.А13-1398/2011 Postanovlenie FAS Ural’skogo Okruga (15 March 2012) No.F09-1088/12 Postanovlenie Deviatogo Arbitrazhnogo Apelliatsionnogo Suda (19 March 2012) No.09AP-4648/2012-GK, in case No.A40-41138/11-87-291 Postanovlenie Prezidiuma VAS RF (27 March 2012) No.13881/11, in case No.A-19966/2011, Vestnik VAS RF (2012) No.7 Postanovlenie FAS Moskovskogo Okruga (5 April 2012) in case No.A4094908/11-60-603 Postanovlenie Prezidiuma VAS RF (5 April 2012) No.15417/11, in case No.А797518/2010, Vestnik VAS RF (2012) No.7 Postanovlenie FAS Vostochno-Sibirskogo Okruga (12 April 2012) in case No.А10-3356/2011 Postanovlenie Prezidiuma VAS RF (17 April 2012) No.15894/11, in case No.А45240/2011, Vestnik VAS RF (2012) No.8 Postanovlenie FAS Severo-Kavkazskogo Okruga (17 April 2012) in case No. А15-555/2010 Postanovlenie Prezidiuma VAS RF (17 April 2012) No.15894/11, in case No.А45240/2011, Vestnik VAS RF (2012) No.8 Postanovlenie FAS Moskovskogo Okruga (18 April 2012) in case No.A4025146/10-158-218 Postanovlenie Dvenadtsatogo Arbitrazhnogo Apelliatsionnogo Suda (28 April 2012) in case No.А06-8823/2011 Postanovlenie FAS Moskovskogo Okruga (3 May 2012) in case No.A4074925/10-125-426 Postanovlenie FAS Dal’nevostochnogo Okruga (4 May 2012) No.F03-1477/2012, in case No.A37-2102/2011 Opredelenie VAS RF (10 May 2012) No.VAS-5126/12

list of cases

xxi

Reshenie Arbitrazhnogo Suda Zabaikal’skogo Kraia (25 May 2012) in case No.А78-9027/2011 Opredelenie VAS RF (25 May 2012) No.VAS-2324/12, in case No.А19-23771/10-54 Postanovlenie FAS Ural’skogo Okruga (29 May 2012) No.F09-3093/12, in case No.A60-23129/2011 Postanovlenie Prezidiuma VAS RF (7 June 2012) No.1009/11, in case No.А13223/2010, Vestnik VAS RF (2012) No.10 Postanovlenie FAS Severno-Zapadnogo Okruga (14 June 2012) in case No.А137406/2011 Postanovlenie FAS Tsentral’nogo Okruga (15 June 2012) in case No.A083221/2011 Postanovlenie FAS Tsentral’nogo Okruga (21 June 2012) in case No.A364779/2011 Reshenie VAS RF (28 June 2012) No.VAS-4355/12 Opredelenie VAS RF (29 June 2012) No.VAS-7510/12, in case No.А4041140/11-45-366 Postanovlenie Prezidiuma VAS RF (17 July 2012) No.2504/12, in case No.А811951/2011, Vestnik VAS RF (2012) No.11 Postanovlenie FAS Moskovskogo Okruga (18 July 2012) No.F05-6795/2012, in case No.А40-41138/11-87-291 Opredelenie VAS RF (20 July 2012) No.VAS-8671/12 Reshenie Arbitrazhnogo Suda goroda Moskvy (23 July 2012) in case No.А4094908/11 60-603 Postanovlenie Prezidiuma VAS RF (24 July 2012) No.3993/12, in case No.А4117924/11, Vestnik VAS RF (2012) No.12 Postanovlenie FAS Moskovskogo Okruga (2 August 2012) No.09AP1308/20122-GK, in case No.A40-62655/11-134-144 Opredelenie VAS RF (21 August 2012) No.VAS-10404/12, in case No.A364779/2011 Postanovlenie FAS Povolzhskogo Okruga (12 September 2012) No.A5522125/2011 Opredelenie VAS RF (13 September 2013) No.VAS-14550/12, in case No.A4041138/11-87-291 Opredelenie VAS RF (1 October 2012) No.VAS-5626/12 Opredelenie VAS RF (8 October 2012) No.VAS-12365/12, in case No.А793901/2011 Postanovlenie Deviatogo Arbitrazhnogo Apelliatsionnogo Suda (16 October 2012) No.09AP-27779/2012-GK, in case No.A40-94908/11-60-603 Postanovlenie Prezidiuma VAS RF (18 October 2012) No.8331/12, in case No.А518759/2011, Vestnik VAS RF (2013) No.2

xxii

list of cases

Opredelenie VAS RF (26 October 2012) No.VAS-13310/12, in case No.A554292/2012 Opredelenie VAS RF (26 October 2012) No.VAS-13306/12, in case No.A5528352/2011 Postanovlenie Prezidiuma VAS RF (30 October 2012) No.8714/12, in case No.А581592/2011, Vestnik VAS RF (2013) No.2 Postanovlenie Vos’mogo Arbitrazhnogo Apelliatsionnogo Suda (8 November 2012) in case No.А70-4131/2012 Postanovlenie Prezidiuma VAS RF (20 November 2012) No.2513/12, in case No.А50-5359/2011, Vestnik VAS RF (2013) No.5 Postanovlenie Prezidiuma VAS RF (11 December 2012) No.6332/12, in case No.А46-7025/2011, Vestnik VAS RF (2013) No.5 Postanovlenie Prezidiuma VAS RF (11 December 2012) No.3660/12, in case No.А40-144041/10-147-957, Vestnik VAS RF (2013) No.5 Postanovlenie FAS Vostochno-Sibirskogo Okruga (11 December 2012) in case No.A19-7783/11 Postanovlenie FAS Povolzhskogo Okruga (11 December 2012) in case No.А5511844/2011 Opredelenie VAS RF (17 December 2012) No.VAS-16037/12, in case No.А5712101/2011 Postanovlenie FAS Vostochno-Sibirskogo Okruga (20 December 2012) in case No.А74-1500/2012 Postanovlenie FAS Moskovskogo Okruga (24 December 2012) in case No.А4094908/11-60-603 Postanovlenie FAS Volgo-Viatskogo Okruga (26 December 2012) in case No.A17-3453/2011 Opredelenie VAS RF “Ob Otkaze v Peredache Dela v Prezidium Vysshego Arbitrazhnogo Suda RF” (28 December 2012 ) No.VAS-17302/12 Postanovlenie FAS Moskovskogo Okruga (11 January 2013) in case No.А40124624/11-161-689, confirmed by Opredelenie VAS RF (8 May 2013) No.VAS2222/13 Postanovlenie FAS Vostochno-Sibirskogo Okruga (16 January 2013) in case No.А78-9027/2011, confirmed by Opredelenie VAS RF (11 March 2013) No.VAS-1903/13, in case No.А78-9027/2011 Postanovlenie FAS Volgo-Viatskogo Okruga (22 January 2013) in case No.А7914119/2011 Postanovlenie FAS Tsentral’nogo Okruga (24 January 2013) in case No.А362301/2012, confirmed by Opredelenie VAS RF (13 June 2013) No.VAS-6917/13 Reshenie VAS RF (28 January 2013) No.VAS-15709/12 Postanovlenie Prezidiuma VAS RF (29 January 2013) No.11037/12, in case No.А06-8823/2011, Vestnik VAS RF (2013) No.4

list of cases

xxiii

Postanovlenie FAS Vostochno-Sibirskogo Okruga (29 January 2013) in case No.А78-3370/2009, confirmed by Opredelenie VAS RF (17 April 2013) No.VAS-4215/13, in case No.А78-3370/2009 Postanovlenie FAS Volgo-Viatskogo Okruga (4 February 2013) in case No.А8217654/2011 Opredelenie VAS RF (25 February 2013) No.VAS-1293/13, in case No.А057584/2012 Opredelenie VAS RF (1 March 2013) No.VAS-1553/13, in case No.А19-20394/2011 Opredelenie VAS RF (5 March 2013) No.VAS-17673/12, in case No.А55-4214/2012 Postanovlenie FAS Vostochno-Sibirskogo Okruga (7 March 2013) in case No.A10-696/2012 Opredelenie VAS RF (11 March 2013) No.VAS-2059/13, in case No.А74-541/2012 Opredelenie VAS RF (11 March 2013) No.VAS-1903/13, in case No.А78-9027/2011 Postanovlenie FAS Moskovskogo Okruga (12 March 2013) in case No.A4080086/12-85-157 Opredelenie VAS RF (25 March 2013) No.VAS-2706/13, in case No.A4523989/2011 Postanovlenie FAS Moskovskogo Okruga (1 April 2013) in case No.A4077809/12-100-594 Postanovlenie Vosemnadtsatogo Arbitrazhnogo Apelliatsionnogo Suda (1 April 2013) No.18AP-2027/2013, in case No.A07-11258/2012 Postanovlenie Prezidiuma VAS RF (16 April 2013) No.12848/12, in case No.А4092104/11-72-587, Vestnik VAS RF (2013) No.8 Postanovlenie FAS Povolzhskogo Okruga (25 April 2013) in case No.А5717641/2012 Postanovlenie FAS Vostochno-Sibirskogo Okruga (6 May 2013) in case No.А1920007/2012 Opredelenie VAS RF (8 May 2013) No.VAS-2110/13 Postanovlenie FAS Severo-Kavkazskogo Okruga (4 June 2013) in case No.А635548/2012 Opredelenie VAS RF (17 June 2013) No.VAS-5683/13 Reshenie VAS RF (28 June 2013) No.VAS-2243/12 Opredelenie VAS RF (16 July 2013) No.VAS-5401/13, in case No.A65-15964/2012 Opredelenie VAS RF (13 May 2013) No.VAS-5659/13, in case No.А74-1514/2012 Opredelenie VAS RF (24 May 2013) No.VAS-5892/13, in case No.А13-12823/2011 Postanovlenie FAS Tsentral’nogo Okruga (11 July 2013) in case No.А643565/2012 Opredelenie VAS RF (12 July 2013) No.VAS-8589/13, in case No.А27-2424/2012 Postanovlenie Sed’mogo Arbitrazhnogo Apelliatsionnogo Suda (2 August 2013) No.A27-21473/2012

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list of cases

Postanovlenie FAS Moskovskogo Okruga (6 August 2013) in case No.A40144425/12-120-1445 Postanovlenie FAS Vostochno-Sibirskogo Okruga (15 August 2013) in case No.А78-904/2013 Postanovlenie FAS Severo-Zapadnogo Okruga (20 August 2013) in case No.А052755/2013 Opredelenie VAS RF (23 August 2013) No.VAS-11349/13 Opredelenie VAS RF (26 August 2013) No.VAS-6256/13, in case No.А734977/2012 Postanovlenie FAS Volgo-Viatskogo Okruga (9 September 2013) in case No.А392590/2012 Opredelenie VAS RF (13 September 2013) No.VAS-14550/12 Opredelenie VAS RF (13 September 2013) No.VAS-12038/13, in case No.А4068988/2011-144-591 Opredelenie VAS RF (30 September 2013) No.VAS-10439/13, in case No.А4146741/11 Postanovlenie FAS Dal’nevostochnogo Okruga (4 October 2013) No.F034266/2013, in case No.А73-13225/2012 Postanovlenie FAS Dal’nevostochnogo Okruga (7 October 2013) No.F034356/2013, in case No.А51-10965/2013 Postanovlenie FAS Vostochno-Sibirskogo Okruga (15 November 2013) in case No.А74-68/2013 Postanovlenie Prezidiuma VAS RF (12 November) No.VAS-6256/13, in case No.А73-4977/2012, Vestnik VAS RF (2014) No.4 Reshenie Arbitrazhnogo Suda goroda Moskvy (29 November 2013) in case No.A40-138424/2013 Postanovlenie Vos’mogo Arbitrazhnogo Appelliatsionnogo Suda (6 December 2013) in case No.А46-5378/2013, confirmed by Postanovlenie FAS ZapadnoSibirskogo Okruga (4 April 2014) in case No.А46-5378/2013 Postanovlenie FAS Moskovskogo Okruga (11 December 2013) in case No. A40-149576/12-40-1401 Postanovlenie FAS Severo-Zapadnogo Okruga (28 January 2014) No.A1316545/2011 Postanovlenie Tret’ego Arbitrazhnogo Apelliatsionnogo Suda (14 February 2014) in case No.А74-4027/2013 Opredelenie VAS RF (12 March 2014) No.VAS-2346/14, in case No.А3320405/2012 Postanovlenie Deviatogo Arbitrazhnogo Apelliatsionnogo Suda (25 March 2014) No.09АP-7436/2014-GK, in case No.А40-129163/2013

list of cases



xxv

EU Court of Justice

Case 6/64 Costa v. ENEL (15 July 1964), ECR (1964), 1141 Case 169/80 Administration des douanes v. Société anonyme Gondrand Frères and Société anonyme Garancini (Gondrand Frères) (9 July 1981), ECR (1981) Cases C-92/87 and C-93/87 Commission v. France and United Kingdom (22 February 1989), ECR (1989), 405 Case C-393/92 Almelo and Others v. Energiebedrijf IJsselmij (27 April 1994), ECR (1994), 1–1477 Case C-143/93 Gebroeders van Es Douane Agenten (13 February 1996), ECR (1996), I-431 Case 98/78 A. Racke v. Hauptzollamt Mainz (16 June 1998), ECR (1979), 69 Case C-379/98 PreussenElektra AG v. Schhleswag AG (13 March 2001), ECR (2001), I-02099 Case C-17/03 Vereniging voor Energie, Milieu en Water and Others v. Directeur van de Dienst uitvoering en toezicht energie (7 June 2005) ECR (2005), I-4983 Case C-439/06, Citiworks AG v. Flughafen Leipzig/Halle GmbH, Bundesnetza­ gentur (22 May 2008), ECR (2008), I-03913 Case C-347/06, ASM Brescia SpA v. Comune di Rodengo Saiano (17 July 2008) ECR (2008), I-5641 Case C-201/08 Plantanol GmbH and Co. KG v. Hauptzollamt Darmstadt (10 September 2009), ECR (2009), I-08343 Case C-265/08 Federutility and others v. Autorità per l’energia elettrica e il gas (20 April 2010), ECR (2010), I-03377 Case C-242/10 Enel Produzione SpA v. Autorità per l’energia elettrica e il gas (21 December 2011), ECR (2011)

International Investment Arbitration

International Center for the Settlement of Investment Disputes (ICSID) ICSID Case ARB/97/4 Ceskoslovenska Obchodni Banka, a.s. v. The Slovak Republic (Decision on Objections to Jurisdiction of 24 May 1999) ICSID Case ARB/96/1 Compañía del Desarrollo de Santa Elena, SA v. Republic of Costa Rica (Award of 17 February 2000) ICSID Case ARB(AF)/97/1 Metalclad Corporation v. United Mexican States (Award of 30 August 2000) ICSID Case ARB/99/2 Alex Genin, Eastern Credit Limited, Inc. and A.S. Baltoil v. Estonia (Award of 25 June 2001)

xxvi

list of cases

ICSID Case ARB/00/4 Salini Costruttori S.p.A and Italstrade S.p.A v. Kingdom of Morocco (Decision on Jurisdiction of 23 July 2001) ICSID Case ARB/00/2 Mihaly International Corp v. Republic of Sri Lanka (Award of 15 March 2002) ICSID Case ARB/99/6 Middle East Cement Shipping and Handling Co. S.A. v. Arab Republic of Egypt (Award of 12 April 2002) ICSID Case ARB/97/3 Compañiá de Aguas del Aconquija S.A. and Vivendi Universal v. Argentine Republic (Decision on Annulment of 3 July 2002) ICSID Case ARB(AF)/99/2 Mondev International Ltd v. United States of America (Award of 11 October 2002) ICSID Case ARB(AF)/99/1 Feldman v. Mexico (Award on Merits of 16 December 2002) ICSID Case ARB(AF)/00/2 Técnicas Medioambientales Tecmed S.A. v. Mexico (Award of 29 May 2003) ICSID Case ARB/01/13 SGS Société Générale de Surveillance S.A. v. Pakistan (Decision on Jurisdiction of 6 August 2003) ICSID Case ARB/01/3, Enron Corporation Ponderosa Assets, L.P. v. Argentina (Decision on Jurisdiction of 14 January 2004) ICSID Case ARB/02/6 SGS Société Générale de Surveillance S.A. v. Republic of the Philippines (Decision on Jurisdiction of 29 January 2004) ICSID Case ARB(AF)/00/3 Waste Management v. Mexico (Award of 30 April 2004) ICSID Case ARB/01/7MTD Equity Sdn. Bhd and MTD Chile S.A. v. Republic of Chile (Award of 25 May 2004) ICSID Case ARB/03/11 Joy Mining Machinery Limited v. The Arab Republic of Egypt (Award on Jurisdiction of 6 August 2004) ICSID Case ARB/03/24 Plama Consortium Limited v. Republic of Bulgaria (Decision on Jurisdiction of 8 February 2005) ICSID Case ARB/03/3 Impregilo S.p.A v. Pakistan (Decision of Jurisdiction of 22 April 2005) ICSID Case ARB/01/8 CMS Gas Transmission Company v. The Argentine Republic (Award of 12 May 2005) ICSID Case ARB/01/11 Noble Ventures, Inc. v. Romania (Award of 12 October 2005) ICSID Case ARB/03/29 Bayindir Insaat Turizm Ticaret Ve Sanayi A.Ş. v. Islamic Republic of Pakistan (Decision on Jurisdiction 14 November 2005) ICSID Case ARB/01/12 Azurix Corp. v. Republic of Argentina (Award of 14 July 2006) ICSID Case ARB/04/8 BP America Production Co. and Others v. Argentine Republic (Decision on Preliminary Objections of 27 July 2006)

list of cases

xxvii

ICSID Case ARB/03/13 Pan American Energy LLC and BP Argentina Exploration Company v. Argentine Republic (Decision on Preliminary Objections of 27 July 2006) ICSID ARB/04/15 Telenor Mobile Communications A.S. v. Hungary (Award of 13 September 2006) ICSID Case ARB/03/16 ADC Affiliate Ltd and ADC & ADMC Management Ltd v. Hungary (Award of 2 October 2006) ICSID Case ARB/02/1 LG&E Energy Corp., LG&E Capital Corp., LG&E Interna­ tional Inc. v. The Argentine Republic (Decision on Liability of 3 October 2006) ICSID Case ARB/02/5 PSEG Global, Inc., The North American Coal Corporation, and Konya Ingin Electrik Uretim ve Ticaret Limited Sirketi v. Turkey (Award of 19 January 2007) ICSID ARB/02/8 Siemens A.G. v. The Argentine Republic (Award of 6 February 2007) ICSID Case ARB/01/3 Enron Corporation Ponderosa Assets L.P. v. The Argentine Republic (Award of 22 May 2007) (partly annulled by ICSID Case ARB/01/3, Annulment Proceeding, Enron Creditors Recovery Corp. and Ponderosa Assets, L.P. v. The Argentine Republic (30 July 2010) ICSID Case ARB/03/6 M.C.I. Power Group L.C. and New Turbine, Inc. v. Ecuador (Award of 31 July 2007) ICSID Case ARB/97/3 Compañiá de Aguas del Aconquija S.A. and Vivendi Universal v. Argentine Republic (Award of 20 August 2007) ICSID Case ARB/05/8 Parkerings-Compagniet AS v. Republic of Lithuania (Award of 11 September 2007) ICSID Case ARB/01/8 CMS Gas Transmission Co. v. Argentina (Decision of the Ad hoc Committee on the Application for Annulment of Argentina of 25 September 2007) ICSID Case ARB/02/16 Sempra Energy International v. The Argentine Republic (Award of 28 September 2007) ICSID Case ARB/04/19 Duke Energy Electroquil Partners & Electroquil S.A. v. Republic of Ecuador (Award of 18 August 2008) ICSID Case ARB/03/9 Continental Casualty Company v. Argentine Republic (Award of 5 September 2008) ICSID Vase ARB/07/6 Tza Yap Shum v. Peru (Decision on Jurisdiction and Competence of 19 June 2009) ICSID Case ARB/03/29 Bayindir Insaat Turizm Ticaret Ve Sanayi A.S. v. Islamic Republic of Pakistan (Award of 27 August 2009) ICSID Case ARB/03/19 Suez, Sociedad General de Aguas de Barcelona S.A., and Vivendi Universal S.A. v. The Argentine Republic (Award of 30 July 2010)

xxviii

list of cases

ICSID Case ARB/07/22 AES Summit Generation Limited and AES-Tisza Erömü Kft. v. Republic of Hungary (Award of 23 September 2010) ICSID Case ARB/04/1 Total S.A. v. The Argentine Republic (Decision on Liability of 27 December 2010) ICSID Case ARB/03/15 El Paso Energy International Company v. The Argentine Republic (Award of 31 October 2011) ICSID Case ARB/07/19 Electrabel S.A. v. Hungary (Award of 30 November 2012) ICSID Case ARB/10/17TECO Guatemala Holdings LLC v. The Republic of Guatemala (Award of 19 December 2013) Stockholm Chamber of Commerce (SCC) SCC Franz Sedelmayer v. The Russian Federation (Award of 7 July 1998) SCC Case 49/2002 William Nagel v. Czech Republic (Award of 9 September 2003) SCC Nykomb Synergetics Technology Holding AB v. the Republic of Latvia (Award of 16 December 2003) SCC Case 126/2003 Petrobart Limited v. The Kyrgyz Republic (Award of 29 March 2005) SCC Case 080/2004 Vladimir Berschader and Moïse Berschader v. The Russian Federation (Award of 21 April 2006) SCC Case V079/2005 RosInvest UK Ltd. v. Russia (Award on Jurisdiction of 1 October 2007) SCC Case 080/2005 Limited Liability Company Amto v. Ukraine (Final Award of 26 March 2008) SCC Case 24/2007 Renta 4 S.V.S.A and Others v. Russia (Award on Preliminary Objections of 20 March 2009) UNCITRAL UNCITRAL Pope & Talbot Inc. v. Canada (Interim Award of 26 June 2000) UNCITRAL Pope & Talbot v. Canada (Award on the Merits of Phase of 10 April 2001) UNCITRAL CME Czech Republic B.V. v. The Czech Republic (Partial Award of 13 September 2001) UNCITRAL GAMI Investment Inc. v. Mexico (Award of 15 November 2004) UNCITRAL Methanex Corp. v. United States (Award of 7 August 2005) UNCITRAL International Thunderbird Gaming Corporation v. Mexico (Award of 26 January 2006) UNCITRAL Saluka Investments B.V. v. The Czech Republic (Partial Award of 17 March 2006) UNCITRAL BG Group Plc v. Argentina (Award of 24 December 2007)

list of cases

xxix

UNCITRAL National Grid P.L.C. v. Argentine Republic (Award of 3 November 2008) UNCITRAL Glamis Gold, Ltd. v. The United States of America (Award of 8 June 2009) UNCITRAL PCA Case AA227 Yukos Universal Limited v. The Russian Federation (Interim Award on Jurisdiction and Admissibility of 30 November 2009) UNCITRAL PCA Case AA226, Hulley Enterprises Limited (Cyprus) v. The Russian Federation (Interim Award on Jurisdiction and Admissibility of 30 November 2009) UNCITRAL PCA No.2011–17 Guaracachi America, Inc. and Rurelec Plc v. The Plurinational State of Bolivia (Award of 31 January 2014)

List of Legislation

International Treaties

European Convention for the Protection of Human Rights and Fundamental Freedoms (signature 4 November 1950, entry into force 3 September 1953) Convention Establishing the Multilateral Investment Guarantee Agency (MIGA) (signature 11 October 1985, entry into force 12 April 1998) Energy Charter Treaty and its Protocol on Energy Efficiency and Related Environmental Aspects (signature December 1994, entry into force in April 1998) Partnership and Cooperation Agreement between the European Union and Russian Federation (signature 24 June 1994, entry into force on 1 December 1997) Finland-Soviet BIT (signature 8 February 1989, entry into force 15 August 1991, modified 4 May 1996) Belgium and Luxembourg-Soviet BIT (signature 9 February 1989, entry into force 13 October 1991) United Kingdom-Soviet BIT (signature 6 April 1989, entry into force 3 July 1991) Germany-Soviet BIT (signature 13 June 1989, entry into force 5 August 1991) France-Soviet BIT (signature 4 July 1989, entry into force 18 July 1991) The Netherlands-Soviet BIT (signature 5 October 1989, entry into force 20 July 1991) Canada-Soviet BIT (signature 20 November 1989, entry into force 27 June 1991) Spain-Soviet BIT (signature 26 October 1990, entry into force 28 November 1991) Austria-Soviet BIT (signature 8 February 1990, entry into force 1 September 1991) Denmark-Russia BIT (signature 4 November 1993, entry into force 26 August 1996) Slovakia-Russia BIT (signature 30 November 1993, entry into force 2 August 1996) Czech Republic-Russia BIT (signature 5 April 1994, entry into force 6 June 1996) Hungary-Russia BIT (signature 6 March 1995, entry into force 29 May 1996) Sweden-Russia BIT (signature 19 April 1995, entry into force 7 June 1996) Norway-Russia BIT (signature 4 October 1995, entry into force 21 May 1998) Italy-Russia (signed 9 April 1996, ratified 17 December 1996) Cyprus-Russia BIT (signature 11 April 1997, not in force) Japan-Russia BIT (signature 13 November 1998, entry into force 27 May 2000)

list of legislation



xxxi

Russian Legislation

Konstitutsiia Rossiiskoi Federatsii, with subsequent amendments, adopted by a referendum (12 December 1993), Rossiiskaia Gazeta (25 December 1993) (1993 Russian Constitution) Grazhdanskii kodeks (chast’ pervaia) with subsequent amendments (30 November 1994) No.51-FZ, SZRF (1994) No.32 item 3301 (1994 Russian Civil Code) Kodeks RF ob administrativnykh pravonarusheniiakh with subsequent amendments (30 December 2001) No.195-FZ, SZRF (2002) No.1 (part 1) item 1 (2001 Administrative Code of the RF) Arbitrazhnyi protsessua’nyi Kodeks RF with subsequent amendments (24 July 2002) No.95-FZ, SZRF (2002) No.30 item 3012 (2002 Russian Code of Arbitrazh Procedure)

Federal Laws of the Russian Federation

Zakon RSFSR “Ob investitsionnoi deiatel’nosti v RSFSR” with subsequent amendments (26 June 1991) No.1488–1, Vedomosti SND i VS RSFSR (1991) No.29 item 1005 (1991 Law of the Russian Soviet Federative Socialist Republic on Investment Activities in the RSFSR) Federal’nyi Zakon “O mezhdunarodnykh dogovorakh Rossiiskoi Federatsii” with subsequent amendments (15 July 1995) No.101-FZ, SZRF (1995) No.29 item 2757 (1995 Federal Law on the International Treaties of the Russian Federation) Federal’nyi Zakon “Ob investitsionnoi deiatel’nosti v Rossiiskoi Federatsii, osushchestvliaemoi v forme kapital’nykh vlozhenii” with subsequent amendments (25 February 1999) No.39-FZ, SZRF (1999) No.9 item 1096 (1999 Federal Law on Capital Investments) Federal’nyi Zakon “Ob inostrannykh investitsiiakh v Rossiiskoi Federatsii” with subsequent amendments (9 June 1999) No.160-FZ, SZRF (1999) No.28 item 3493 (1999 Federal Law on Foreign Investments) Federal’nyi Zakon “Ob obshchikh printsipakh organizatsii zakonodatel’nykh (predstavitel’nykh) i ispolnitel’nykh organov gosudarstvennoi vlasti sub”ektov Rossiiskoi Federatsii” with subsequent amendments (6 October 1999) No.184-FZ, SZRF (1999) No.42 item 5005 (1999 Federal Law on the Regional Administration) Federal’nyi Zakon “Ob eletkroenergetike” with subsequent amendments (26 March 2003) No.35-FZ, SZRF (2003) No.13 item 1177 (2003 Federal Electricity Law)

xxxii

list of legislation

Federal’nyi Zakon “Ob osobennostiakh funktsionirovaniia elektroenergetiki v perekhodnyi period i o vnesenii izmenenii v nekotorye zakonodatel’nye akty Rossiiskoi Federatsii i priznanii utrativshimi silu nekotorykh zakonodatel’nykh aktov Rossiiskoi Federatsii v sviazi s priniatiem Federal’nogo zakona ‘Ob elektroenergetike’ ” with subsequent amendments (26 March 2003) No.36-FZ, SZRF (2003) No.13 item 1178 (2003 Federal Law on the Transition Period) Federal’nyi Zakon “Ob osnovakh regulirovaniia tarifov organizatsii kommunal’nogo kompleksa” with subsequent amendments (30 December 2004) No.210-FZ, SZRF (2005) No.1 (part 1) item 36 (2004 Federal Law No.210 on the Principles for Regulation of Tariffs for Communal Organizations) Federal’nyi Zakon “O kontsessionnykh soglasheniiakh” with subsequent amendments (21 July 2005) No.115, SZRF (2005),) No.301 (part 1) item 3126 (2005 Federal Law No.210 on Concession Agreements) Federal’nyi Zakon “Ob energosberezhenii i o povyshenii energeticheskoi effektivnosti” with subsequent amendments (23 November 2009) No.261-FZ, SZRF (2009) No.48 item 5711 (2009 Federal Energy Efficiency Law) Federal’nyi Zakon “O vnesenii izmenenii v stat’iu 32 Federal’nogo zakona ob elektroenergetike” with subsequent amendments (9 March 2010) No.26-FZ, SZRF (2010) No.11 item 1175 (2010 Federal Law Amending Article 32 of the Federal Electricity Law) Federal’nyi Zakon “O Teplosnabzhenii” with subsequent amendments (27 July 2010) No.190-FZ, SZRF (2010) No.31 item 4159 (2010 Federal Heat Law) Normative Acts of the Government, Ministries and Agencies of the Russian Federation Postanovlenie Pravitel’stva RF “O zakliuchenii soglashenii mezhdu Pravitel’stvom Rossiiskoi Federatsii i pravitel’stvami inostrannykh gosudarstv o pooshchrenii i vzaimnoi zashchite kapitalovlozhenii” with subsequent amendments (11 June 1992) No.395, Delovoi mir (1992) No.118 item (1992 Decree No.395 on the Conclusion of Agreements on the Promotion and Reciprocal Protection of Investments) Postanovlenie Pravitel’stva RF “O zakliuchenii soglashenii mezhdu Pravitel’stvom Rossiiskoi Federatsii i pravitel’stvami inostrannykh gosudarstv o pooshchrenii i vzaimnoi zashchite kapitalovlozhenii” with subsequent amendments (9 June 2001) No.456, SZRF (2001) No.25 item 2578 (2001 Decree No.456 on the Promotion and Reciprocal Protection of Investments)

list of legislation

xxxiii

Postanovlenie Pravitel’stva RF “O reformirovanii elektroenergetiki Rossiiskoi Federatsii” with subsequent amendments (11 July 2001) No.526, SZRF (2001) No.29 item 3032 (2001 Decree on the Electricity Market Reform) Rasporiazhenie Pravitel’stva RF “O formirovanii generiruiushchikh kompanii optovogo rynka elektroenergii” with subsequent amendments (1 September 2003) No.1254-r, SZRF (2003) No.36 item 3548 (2003 Resolution on the Formation of Generation Companies of the Wholesale Market) Postanovlenie Pravitel’stva RF “O tsenoobrazovanii v otnoshenii elektricheskoi i teplovoi energii v Rossiiskoi Federatsii” with subsequent amendments (26 February 2004) No.109, SZRF (2004) No.9 item 791 (2004 Decree on the Regulation of Electricity and Heat Prices) Rasporiazhenie Pravitel’stva RF “Ob utverzhdenii polozheniia o Federal’noi Sluzhbe po Tarifam” with subsequent amendments (30 June 2004) No.332, SZRF (2004) No.29 item 3049 (2004 Decree on the Federal Service for Tariffs) Rasporiazhenie Pravitel’stva RF “Ob utverzhdenii polozheniia o Federal’noi Antimonopol’noi Sluzhbe” with subsequent amendments (30 June 2004) No.331, SZRF (2004) No.31 item 3259 (2004 Decree on the Federal AntiMonopoly Service) Prikaz FST RF “Ob utverzhdenii metodicheskikh ukazanii po raschetu reguliru­ emykh tarifov i tsen na elektricheskuiu (teplovuiu energiu na roznichnom (potrebitel’skom) rynke” with subsequent amendments (signed 6 August 2004) No.20-e/2, Rossiiskaia Gazeta (2004) No.242 item 31 (2004 Order of the FST 20-e/2 on Tariff Methodologies in the Electricity Retail Market) Postanovlenie Pravitel’stva RF “Ob utverzhdenii Pravil operativno-­ dispetcherskogo upravleniia v elektroenergetike” with subsequent amendments (27 December 2004) No.854, SZRF (2004) No.52 (part 2) item 5518 (2004 Rules for the Operational-dispatching Administration of the Electricity Sector) Postanovlenie Pravitel’stva RF “Ob utverzhdenii Pravil nediskriminatsionnogo dostupa k uslugam po peredache elektricheskoi energii i okazaniia etikh uslug” with subsequent amendments (27 December 2004) No.861, SZRF (2004) No.52 (part 2) item 5525 (2004 Rules on Non-Discriminatory Access to the Network) Postanovlenie Pravitel’stva RF “O poriadke formirovaniia istochnika sredstv na oplatu uslug po formirovaniiu tekhnologicheskogo rezerva moshchnostei po proizvodstvu elektricheskoi energii i finansirovaniia ob”ektov po ­proizvodstvu elektricheskoi energii v tseliakh predotvrashcheniia vozniknoveniia defitsita elektricheskoi moshchnosti” with subsequent amendments (7 December 2005) No.738, SZRF (2005) No.51 item 5526 ( 2005 Decree on the Formation of a Technical Capacity Reserve)

xxxiv

list of legislation

Rasporiazhenie Pravitel’stva RF “O kriteriiakh otneseniia ob”ektov elektrosetevogo khoziaistva k edinoi natsional’noi (obshcherossiiskoi) elektricheskoi seti” with subsequent amendments (26 January 2006) No.41, SZRF (2006) No.5 item 556 (2006 Decree on the Criteria for the Allocation of Electricity Installations to the Federal Grid) Prikaz Ministerstva Energetiki RF “Ob utverzhdenii pravil opredeleniia velichi­ ny neobkhodimoi ustanovlennoi generiruiushchei moshchnosti generiruiushchikh ob”ektov, vvodimykh v ekspluatatsiiu po rezul’tatam konkursa investitsionnykh proektov na formirovanie perspektivnogo tekhnologicheskogo rezerva moshchnostei, a takzhe territorial’nogo raspolozheniia ukazannykh generiruiushchikh ob”ektov, srokov ikh sozdaniia i vvoda v ekspluatatsiiu” with subsequent amendment (28 June 2006) No.136, Biulleten’ Normativnykh Aktov Federal’nykh Organov Ispolnitel’noi Vlasti (2006) No.31 (2006 Order on the Determination of the Required Reserve Production Capacity) Postanovlenie Pravitel’stva RF “O vnesenii izmenenii v nekotorye akty Pravitel’stva Rossiiskoi Federatsii po voprosu opredeleniia ob”emov prodazhi elektricheskoi energii po svobodnym (nereguliruemym) tsenam” with subsequent amendments (7 April 2007) No.205, SZRF (2007) No.16 item 1909 (2007 Decree on the Determination of the Amount of Electricity Sold at Free Market Prices) Rasporiazhenie Pravitel’stva RF “General’naia skhema razmeshcheniia ob”ektov elektroenergetiki do 2020 goda” with subsequent amendments (22 February 2008) No.215-r, SZRF (2008) No.11 item 1038 (2008 General Scheme for the Location of Electricity Installations) Rasporiazhenie Pravitel’stva RF “O Ministerstve energetiki RF” with subsequent amendments (28 May 2008) No.400, SZRF (2008) No.22 item 2577 (2008 Resolution on the Ministry of Energy) Postanovlenie Pravitel’stva RF “O kvalifikatsii generiruiushchego ob”ekta, funktsioniruiushchego na osnove ispol’zovaniia vozobnovliaemykh istochnikov energii” with subsequent amendments (3 June 2008) No.426, SZRF (2008) No.23 item 2716 (2008 Decree on the Qualification of Renewable Energy Facilities) Prikaz Ministerstva Energetiki RF “O Poriadke vedeniia reestra vydachi i pogasheniia sertifikatov, podtverzhdaiushchikh ob”em proizvodstva elektricheskoi energii na kvalifitsirovannykh generiruiushchikh ob”ektakh, funktsioniruiushchikh na osnove ispol’zovaniia vozobnovliaemykh istochnikov energii” with subsequent amendments (17 November 2008) No.187, Biulleten’ Normativnykh Aktov Federal’nykh Organov Ispolnitel’noi Vlasti (2009) No.13 (2008 Order on the Administration of the Register of Certificates)

list of legislation

xxxv

Rasporiazhenie Pravitel’stva RF “O kontseptsii dolgosrochnogo sotsial’noekonomicheskogo razvitiia Rossiiskoi Federatsii na period do 2020 goda” with subsequent amendments (17 November 2008) No.1662-r, SZRF (2008) No.47 item 5489 (2008 Conception for the Long-term Social and Economic Development of the Russian Federation until 2020) Rasporiazhenie Pravitel’stva RF “Osnovnye napravleniia gosudarstvennoi politiki v sfere povysheniia energeticheskoi effektivnosti elektroenergetiki na osnove ispol’zovaniia vozobnovliaemykh istochnikov energii na period do 2020 goda” with subsequent amendments (8 January 2009) No.1-r, SZRF (2009) No.4 item 515 (2009 Renewable Energy Strategy for the Period up to 2020) Prikaz Ministerstva Energetiki RF “Ob utverzhdenii poriadka opredeleniia zon svobodnogo peretoka elektricheskoi energii (moshchnosti)” with subsequent amendments (6 April 2009) No.99, Biulleten’ Normativnykh Aktov Federal’nykh Organov Ispolnitel’noi Vlasti (2009) No.28 (2009 Order on the Approval of the Procedure for the Determination of Free Electricity (Capacity) Flow Zones) Postanovlenie Pravitel’stva RF “O namerenii Rossiiskoi Federatsii ne stanovit’sia uchastnikom Dogovora k Energeticheskoi Khartii, a takzhe Protokola k Energeticheskoi Khartii po voprosam energeticheskoi effektivnosti i sootvet­ stvuiushchim ekologicheskim aspektam” with subsequent amendments (30 July 2009) No.1055-r, SZRF (2009) No.32 item 4053 (2009 Decree on the Intention of the Russian Federation Not to Become a Participant in the Energy Charter Treaty) Rasporiazhenie Pravitel’stva RF “Ob Energeticheskoi strategii Rossii na period do 2030 goda” with subsequent amendments (13 November 2009) No.1715-r, SZRF (2009) No.48 item 5836 (2009 Russian Energy Strategy for the Period up to 2030) Postanovlenie Pravitel’stva RF “O poriadke osushchestvleniia gosudarstvennogo regulirovaniia v elektroenergetike, usloviiakh ego vvedeniia i prekrashcheniia i o vnesenii izmenenii v pravila optovogo rynka elektricheskoi energii (moshchnosti) perekhodnogo period” with subsequent amendments (14 November 2009) No.929, SZRF (2009) No.47 item 5667 (2009 Decree on Electricity Price Caps) Postanovlenie Pravitel’stva RF “O poriadke otbora sub”ektov elektroenergetiki i potrebitelei elektricheskoi energii, okazyvaiushchikh uslugi po obespeche­ niiu sistemnoi nadezhnosti, i okazaniia takikh uslug, a takzhe ob ­utverzhdenii izmenenii, kotorye vnosiatsia v akty Pravitel’stva Rossiiskoi Federatsii po voprosam okazaniia uslug po obespecheniiu sistemnoi nadezhnosti” with subsequent amendments (3 March 2010) No.117, SZRF

xxxvi

list of legislation

(2010) No.12 item1333 (2010 Rules for the Selection of Providers of Ancillary Services) Postanovlenie Pravitel’stva RF “Ob opredelenii tsenovykh parametrov torgovli moshchnost’iu na optovom rynke elektricheskoi energii (moshchnosti) perekhodnogo perioda” with subsequent amendments (13 April 2010) No.238, SZRF (2010) No.16 item 1922 (2010 Decree on Capacity Price Formation) Postanovlenie Pravitel’stva RF “O predostavlenii kommunal’nykh uslug sob­ stvennikam i pol’zovateliam pomeshchenii v mnogokvartirnykh domakh i zhilykh domov” with subsequent amendments (6 May 2011) No.354, SZRF (2011) No.22 item 3168 (2011 Rules on the Provision of Communal Services) Postanovlenie Pravitel’stva RF “O tsenoobrazovanii v oblasti reguliruemykh tsen (tarifov) v elektroenergetike” with subsequent amendments (29 December 2011) No.1178, SZRF (2012) No.4 item 504 (2011 Principles for Price Regulation in the Electricity Sector) Postanovlenie Pravitel’stva RF “O funktsionirovanii roznichnykh rynkov elektroenergeticheskoi energii” with subsequent amendments (4 May 2012) No.442, SZRF (2012) No.23 item 3008 (2012 Retail Market Rules) Rasporiazhenie Pravitel’stva RF “Ob utverzhdenii plana meropriiatii (‘dorozhnoi karty’) ‘Povyshenie dostupnosti energeticheskoi infrastruktury’ ” (30 June 2012) No.1144-r, SZRF (2012) No.28 item 3940 (2012 Order on the Roadmap on Improved Access to Energy Infrastructure) Postanovlenie Pravitel’stva RF “O tsenoobrazovanii v sfere teplosnabzheniia” with subsequent amendments (22 October 2012) No.1075, SZRF (2012) No.44 item 6022 (2012 Principles for Price Regulation in the Heating Sector) Rasporiazhenie Pravitel’stva RF “Ob utverzhdenii gosudarstvennoi programmy ‘Energoeffektivnost’ i razvitie energetiki” with subsequent amendments (3 April 2013) No.512-r, SZRF (2013) No.14 item 1739 (2013 Federal Energy Efficiency Strategy) Prikaz FST RF “Ob utverzhdenii Metodicheskikh ukazanii po raschetu reguliruemykh tsen (tarifov) v sfere teplosnabzheniia” with subsequent amendments (13 June 2013) No.760-e, Biulleten’ Normativnykh Aktov Federal’nykh Organov Ispolnitel’noi Vlasti (2013) No.33 (2013 Heat Tariff Methodologies) Postanovlenie Pravitel’stva RF “O mekhanizme stimulirovaniia ispol’zovaniia vozobnovliaemykh istochnikov energii na optovom rynke elektricheskoi energii i moshchnosti” (28 May 2013) No.449, SZRF (2013) No.23 item 2909 (2013 Renewable Energy Capacity Decree) Postanovlenie Pravitelstva RF “Ob utverzhdenii gosudarstvennoi programmy ‘Energoeffektivnost’ i razvitie energetiki” with subsequent amendments (15 April 2014) No.321, SZRF (2014) No.18 item 2167 (2014 Federal Energy Efficiency Strategy)

list of legislation



xxxvii

Edicts of the President of the Russian Federation

Ukaz Prezidenta RF “Ob organizatsionnykh merakh po preobrazovaniiu gosudarstvennykh predpriiatii, dobrovol’nykh ob”edinenii gosudarstvennykh predpriiatii v aktsionernye obshchestva” (1 July 1992) No.721, Sobranie Aktov Prezidenta i Pravitel’stva RF (1992) No.1 item 3 (1992 Edict on the Restructuring of State Enterprises) (no longer in force) Ukaz Prezidenta RF “Ob organizatsii upravleniia elektroenergeticheskim kompleksom Rossiiskoi Federatsii v usloviiakh privatizatsii” with subsequent amendments (15 August 1992) No.923, Sobranie Aktov Prezidenta i Pravitel’stva Rossiiskoi Federatsii (1992) No.9 item 592 (1992 Edict on the Management of the Electricity Sector in the Context of Privatization) Ukaz Prezidenta RF “O sovershenstvovanii raboty s inostrannymi investitsiiami” with subsequent amendments (27 September 1993) No.1466, Sobranie Aktov Prezidenta i Pravitel’stva RF (1993) No.40 item 3740 (1993 Edict of the President of the Russian Federation on the Improvement of the Work with Foreign Investments) Ukaz Prezidenta RF “Ob osnovnykh polozheniiakh strukturnoi reformy v sfe­ rakh estestvennykh monopolii” with subsequent amendments (28 April 1997) No.426, SZRF (1997) No.18 item 2132 (1997 Edict on the Reform of Natural Monopolies) Ukaz Prezidenta RF “Voprosy sistemy i struktury federal’nykh organov ispolnitel’noi vlasti” with subsequent amendments (12 May 2008) No.724, SZRF (2008) No.20 item 2290 (2008 Edict on the Federal Organs of the Executive Power)

EU Directives and Regulations

Directive 2001/77/EC (27 September 2001) on the Promotion of Electricity Produced from Renewable Energy Sources in the Internal Electricity Market, OJ (2001), L283/33, repealed by Directive 2009/28/EC (23 April 2009) on the Promotion of the Use of Energy from Renewable Sources and Amending and Subsequently Repealing Directives 2001/77/EC and 2003/30/EC, OJ (2009), L140/16 Directive 2003/54/EC (26 June 2003) Concerning Common Rules for the Internal Market in Electricity and Repealing Directive 96/92/EC, OJ (2003), L176/37, repealed by Directive 2009/72/EC Directive 2003/87/EC (13 October 2003) Establishing a Scheme for Greenhouse Gas Emission Allowance Trading within the Community and Amending

xxxviii

list of legislation

Council Directive 96/61/EC, OJ (2003), L275/32, as amended by Directive 2009/29/EC (3 April 2009), OJ (2009), L140/63 Directive 2004/8/EC (11 February 2004) on the Promotion of Cogeneration Based on a Useful Heat Demand in the Internal Energy Market and Amending Directive 92/42/EEC, OJ (2004), L52/50, repealed by Directive 2012/27/EU (25 October 2012) on Energy Efficiency, OJ (2012), L315 Directive 2005/89/EC (18 January 2006) Concerning Measures to Safeguard Security of Electricity Supply and Infrastructure Investment, OJ (2006), L33/22 Directive 2006/32/EC (5 April 2006) on Energy End-Use Efficiency and Energy Services, OJ (2006), L114/64, repealed by Directive 2012/27/EU (25 October 2012) on Energy Efficiency, OJ (2012), L315 Directive 96/92/EC (19 December 1996) Concerning Common Rules for the Internal Market in Electricity, OJ (1997), L27/20 Directive 2009/28/EC (23 April 2009) on the Promotion of the Use of Energy from Renewable Sources and Amending and Subsequently Repealing Directives, 2001/77/EC and 2003/30/EC, OJ (2009), L140/16 Directive 2009/73/EC (3 July 2009) Concerning Common Rules for the Internal Market in Natural Gas and Repealing Directive 2003/55/EC, OJ (2009), L211 Regulation 714/2009 (13 July 2009) on Conditions for Access to the Network for Cross-Border Exchanges in Electricity and Repealing Regulation No.1228/2003, OJ (2009), L211/15 Regulation 1227/2011(25 October 2011) on Wholesale Energy Market Integrity and Transparency, OJ (2011), L326/1 Directive 2012/27/EU (25 October 2012) on Energy Efficiency, Amending Directives 2009/125/EC and 2010/30/EU and Repealing Directives 2004/8/EC and 2006/32/EC, OJ (2012), L315

EU Commission

EU Commission, Communication, “Completing the Internal Energy Market”, COM (2001) 125 final EU Commission, Proposal for a Directive amending Directives 96/92/EC and 98/30/EC Concerning Common Rules for the Internal Market in Electricity and Natural Gas, COM (2001) 125 final, OJ (2001), C240/60 EU Commission, Communication, Operating Framework for the European Regulatory Agencies, COM (2002) 718 final EU Commission, Communication, “The Development of Energy Policy for the Enlarged European Union, its Neighbours and Partner Countries”, COM (2003) 262 final

list of legislation

xxxix

EU Commission, Proposal for a Directive Concerning Measures to Safeguard Security of Electricity Supply and Infrastructure Investment, COM (2003) 740 final EU Commission, Communication, “The Energy Dialogue between the European Union and the Russian Federation between 2000 and 2004”, COM (2004) 777 final EU Commission, Communication, “The Support of Electricity from Renewable Energy Sources”, COM (2005) 627 final EU Commission, Green Paper, “European Strategy for Sustainable, Competitive and Secure Energy”, COM (2006) 105 EU Commission, Communication, “External Energy Relations: From Principles to Action”, COM (2006) 590 final EU Commission, Communication, “The Renewable Energy Road Map”, COM (2006), 848 final EU Commission, Communication, “Inquiry pursuant to Art. 17 of Regulation (EC) No.1/2003 into the EU gas and electricity sectors (Final Report)”, COM (2006), 851 final EU Commission, “Proposal for a Directive Amending Directive 2003/54/EC Concerning Common Rules for the Internal Market in Electricity”, COM (2007) 528 final EU Commission, Communication, “Second Strategic Energy Review”, COM (2008) 781 final EU Commission, Commission Staff Working Document Accompanying the Communication of the European Commission, “The Renewable Energy Progress Report: Commission Report in Accordance with Article 3 of Directive 2001/77/EC, Article 4(2) of Directive 2003/30/EC and on the Implementation of the EU Biomass Action Plan”, COM (2009) 192 EU Commission, Report, “Progress in Creating the Internal Gas and Electricity Market”, COM (2010) 84 final EU Commission, Communication, “Energy 2020: A Strategy for Competitive, Sustainable and Secure Energy”, COM (2010) 639 final EU Commission, Communication, “Energy Infrastructure Priorities for 2020 and Beyond: A Blueprint for an Integrated European Energy Network”, COM (2010) 677 final EU Commission, “Commission Staff Working Document Accompanying the Communication on Energy 2020”, SEC (2010) 1346 final, 8 EU Commission, Commission Staff Working Paper, “Energy Policy for Consumers”, SEC (2010) 1407 final EU Commission Communication, “Renewable Energy: Progressing Towards the 2020 Target”, COM (2011) 31 final

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list of legislation

EU Commission, Proposal for a Directive on Energy Efficiency and Repealing Directives 2004/8/EC and 2006/32/EC, COM (2011) 370 final EU Commission, Communication, “Security of Energy Supply and International Cooperation: The EU Energy Policy: Engaging with Partners beyond Our Borders”, COM (2011) 539 final EU Commission, Communication, “Energy Roadmap 2050”, COM (2011) 885 EU Commission, Communication, “Renewable Energy: A Major Player in the European Energy Market”, COM (2012) 271 final EU Commission, Communication, “Making the Internal Energy Market Work”, COM (2012) 663 final EU Commission, Commission Staff Working Document, “Ownership Unbundling: the Commission’s Practice in Assessing the Presence of a Conflict of Interest Including in Case of Financial Investors”, SWD (2013) 177 final EU Commission, Commission Staff Working Paper accompanying the Communication from the Commission, “Delivering the Internal Electricity Market and Making the Most of Public Intervention, “Generation Adequacy in the Internal Electricity Market—Guidance on Public Interventions”, SWD (2013) 438 final, 16 EU Commission, Commission Staff Working Paper, “Guidance for the Design of Renewables Support Schemes”, SWD (2013) 439 final EU Commission, Commission Staff Working Document, “Guidance on the Use of Renewable Energy Cooperation Mechanism”, SWD (2013) 440 final EU Commission, Communication, “Delivering the Internal Electricity Market and Making the Most of Public Intervention”, C (2013) 7243 final

Abbreviations ATS

Administrator of the Trading System or organization of the commercial infrastructure of the wholesale market BIT Bilateral investment treaty CCGT Combined-cycle gas turbines CCS Carbon capture and storage CFS Center for Financial Settlement CHP Combined heat and power or cogeneration of heat and electricity ECHR European Convention for the Protection of Human Rights and Fundamental Freedoms ECtHR European Court of Human Rights ECT Energy Charter Treaty Energo Regional energy system EU European Union Eurelectric Association for the electricity industry in Europe FAS Federal’naia antimonopol’naia sulzhba (Federal Anti-­ Monopoly Service) FDI Foreign direct investment FEC Federal Energy Commission FET Fair and equitable treatment FGC Federal Grid Company FOREM Federal Wholesale Electricity Market during the post-Soviet transition period FST Federal Service for Tariffs GC Generation company GHG Greenhouse gas emission GOELRO plan Plan of the State Commission for the Electrification of Russia (1920) GW Gigawatt GWh Gigawatt hour ICSID International Centre for Settlement of Investment Disputes IDGC Interregional Distribution Grid Company IEA International Energy Agency IFC International Finance Corporation IIA International investment agreement

xlii

abbreviations

INTER RAO UES State-controlled importer/exporter of electricity and domestic producer JI Joint Implementation project in accordance with Article 6 of the Kyoto Protocol KS Konstitutsionnyi Sud (Constitutional Court) kV Kilovolt kW Kilowatt Market Council Regulator of the wholesale market MFN Most favored nation MRSK Interregional Distribution Grid Company (Russian abbreviation) MW Megawatt MWh Megawatt hour NOREM New Wholesale Electricity and Capacity Market OAO Open joint-stock company OECD Organisation for Economic Cooperation and Development OGK Wholesale Generation Company (Russian abbreviation) OJ Official Journal of the European Union PCA Partnership and Cooperation Agreement PDD Project Design Document RAB Regulatory Asset Base RAO FGC Federal Grid Company of the Unified Energy System RAO SO—CDA System Operator—Central Dispatching Administration of the Unified Energy System RAO UES Russia Unified Energy System of Russia holding REC Regional Energy Commission RES Renewable energy source RF Russian Federation Rosenergoatom State-controlled nuclear operator Rushydro State-controlled operator of hydropower production capacity SCC Stockholm Chamber of Commerce SO (or SO—CDA) System Operator (System Operator—Central Dispatching Authority) SU Sobranie Uzakonenii Rossiiskoi Sovetskoi Federativnoi Sotsialisticheskoi Respubliki (Collection of Acts of the Russian Soviet Federative Socialist Republic) SZRF Sobranie Zakonodatel’stva Rossiiskoi Federatsii (Collection of Legislation of the Russian Federation) TGC Territorial generation company

abbreviations

TGK The 5+5 Strategy

xliii

Territorial generation company (Russian abbreviation) Plan of corporate restructuring of the Russian electricity sector TW Terrawatt TWh Terrawatt hour UES Unified Electricity (or Energy) System UNCITRAL United Nations Commission on International Trade Law UNCTAD United Nations Conference on Trade and Development UNFCCC United Nations Framework Convention on Climate Change VAS Vysshii Arbitrazhnyi Sud (Supreme Arbitrazh Court) Vedomosti VS SSSR Vedomosti Verkhovnogo Soveta Soiuza Sovetskikh Sotsialisticheskikh Respublik (Gazette of the Supreme Soviet of the USSR) VS Verkhovnyi Sud (Supreme Court) WGC Wholesale generation company

About the Author Anatole Boute is an Associate Professor at the Chinese University of Hong Kong and Legal Advisor to the Russia Renewable Energy Program of the International Finance Corporation (The World Bank Group). He graduated in Political Sciences (2003) and Law (2004) from the University of Leuven and holds an advanced master (LLM) in Energy and Environmental Law (2005) from the same university. In 2005, he was called to the Brussels bar. Dr. Boute has advised on and been involved in litigation concerning the promotion of renewable energy sources, energy efficiency, greenhouse gas emissions trading, the liberalization of energy markets and nuclear energy. In January 2011, he defended his Ph.D on the modernization of the Russian electricity production sector at the University of Groningen. Based on the results of this research, he advised the United Nations Conference on Trade and Development, the International Finance Corporation, the International Energy Agency and the Energy Charter Secretariat. Dr. Boute’s articles have appeared in several internationally peer reviewed journals including the ICSID Review—Foreign Investment Law Journal, Fordham International Law Journal, Common Market Law Review, Journal of Environmental Law, European Law Review, Europe-Asia Studies, Energy Policy and Energy Law Journal. In 2009, he received the Willoughby Prize for his articles published in 2008 in the Journal of Energy & Natural Resources Law. Dr. Boute’s email address is

Introduction Russia’s electricity system is the fourth largest in the world behind China, the United States and Japan.1 Following the motto that “communism is equal to the Soviet power plus the electrification of the whole country”,2 electricity played a key role for the Soviet project. During the Soviet era, extensive investments were made in the creation of an electricity infrastructure extending from Russia’s borders with the European Union (EU) to China—the Unified Energy System of Russia (edinaia energeticheskaia sistema Rossii). The Soviet investment policy was focused on the addition of large-scale and ambitious ­projects—not on the modernization of the existing installations.3 From the 1980s, investment activity in the Russian electricity sector slowed down considerably, thereby accelerating the aging process of the system.4 Although improvements have been made in recent years, today, electricity supply in Russia is characterized by considerable inefficiency.5 The infrastructure is in an obsolete state. Inefficient energy production, transportation and consumption, together with the risk of interruption of supply, represent an important economic, social and environmental cost for Russia. To ensure the affordability of electricity supply and guarantee the secure and reliable functioning of the system—an essential prerequisite of Russia’s economic development—investments are needed in the modernization of the Russian power sector. Given increasing pressure on the Russian budget—due to falling oil prices, in connection with Russia’s commitment to major infrastructure investments and social expenditures—the modernization of the electricity supply in Russia, to an important extent, depends on 1  The World Bank, “2011 Data on Electric Power Consumption” (2013), available at . 2  Vladimir Lenin, “Doklad VIII S’ezda Sovetov Gosudarstvennoi Komissii po elektrifikatsii Rossii” (Moscow, 1920), quoted in Vladimir Bushuev (ed.), Energetika Rossii 1920–2020. Tom 1 Plan GOELRO (Energiia, Moscow, 2006), 5. 3  Nicolas Spulber, Russia’s Economic Transitions: From Late Tsarism to the New Millennium (Cambridge University Press, Cambridge, 2003), 201. 4  See, e.g., Evgenii Kudriashov, Administrativno-pravovoe regulirovanie v sfere elektroenergetiki Rossiiskoi Federatsii (Dis. kand. iurid. Nauk, Moscow, 2005), 25. 5  Postanovlenie Pravitelstva RF “Ob utverzhdenii gosudarstvennoi programmy ‘Energoeffektivnost’ i razvitie energetiki” with subsequent amendments (15 April 2014) No.321, Sobranie Zakonodatel’stva Rossiiskoi Federatsii (SZRF ) (2014) No.18 item 2167. See, also, The World Bank and the Center for Energy Efficiency, Energy Efficiency in Russia: Untapped Reserves (The World Bank, Washington, DC, 2008), 52–53.

© koninklijke brill nv, leiden, ���5 | doi ��.��63/9789004203280_002

2

Introduction

the participation of private investors, including foreign capital and technology. However, investment conditions in Russia are challenging, particularly for electricity projects which are characterized by their capital-intensity and long-term nature, and which are exposed to the political sensitivity of energy pricing. In addition, in the context of the 2014 Ukrainian crisis, the EU and US sanctions imposed in reaction to “Russia’s actions destabilizing the situation in Ukraine” negatively affected the business climate in Russia,6 including in the electricity sector.7 At the time of writing (August 2014), electricity was not included in the list of sanctions against Russia. Nevertheless, the restrictions applicable to the financing of Russian banks, together with the devaluation of the ruble, limited the access of Russian private investors to finance and, thus, undermined the implementation of private investments in the electricity sector. Given the extensive size of the Russian electricity system and its dependence on fossil fuels (natural gas and coal), the inefficiency of electricity supply in Russia has international consequences, particularly for the EU.8 The EU has a strategic interest in the modernization of the Russian electricity infrastructure. Indeed, the greenhouse gas emissions associated with inefficient energy supply in Russia undermine the EU climate change mitigation efforts. Improving Russia’s energy efficiency would avoid the defeat of the EU’s domestic greenhouse gas reduction efforts by the increase of energy consumption in Russia.9 Moreover, the inefficiency of the Russian electricity system affects 6  Council Regulation (EU) No. 833/2014 of 31 July 2014 Concerning Restrictive Measures in view of Russia’s Actions Destabilising the Situation in Ukraine, OJ (2014), L229/1. On the impact of sanctions on the Russian economy, see, e.g., Halia Pavliva and Olga Tanas, “Sberbank CEO Says Russia’s Economy Stagnating on Ukraine”, Bloomberg (23 May 2014), available at . 7  See, e.g., Gazprom’s efforts to “cut dependence of its generating units on foreign suppliers of gas turbine equipment”. Russian Power, “Gazprom Unit Intensifies Work to Substitute Gas Turbine Imports”, Prime Business News Agency (1 August 2014). 8  Rasporiazhenie Pravitel’stva RF “Ob utverzhdenii gosudarstvennoi programmy ‘Energo­ effektivnost’ i razvitie energetiki’ ” with subsequent amendments (3 April 2013) No.512-r, SZRF (2013) No.14 item 1739, at 58 and 78. See, also, International Energy Agency (IEA), World Energy Outlook 2010 (IEA, Paris, 2010), 274. 9  According to EU Commission, Communication, “The Development of Energy Policy for the Enlarged European Union, Its Neighbours and Partner Countries”, COM (2003), 262 final, 5–6, “[o]ur common commitment to combating climate change [. . .] also leads us to attaching a high priority to the modernisation of the energy systems in our neighbouring countries.” On the EU as “international leader” in the field of climate change, see Rüdiger Wurzel and James Connelly, “Introduction: European Union Political Leadership in International

Introduction

3

international energy security and, in particular, the availability of Russian natural gas on the EU energy market. The increased geopolitical tensions between the EU and Russia in the context of the 2014 Ukrainian crisis has led to calls to strengthen the “further diversification of energy supply and supply routes” to the EU.10 Nevertheless, even in the most optimistic diversification scenarios, the EU will remain dependent on energy supply from Russia and, thus, vulnerable to the possible insufficiency of Russian energy. By stabilizing Russia’s domestic energy consumption and, thus, safeguarding the amount of natural gas it exports, investment in improving Russia’s energy efficiency is likely to contribute to more secure EU energy markets.11 Given the obsolete condition of Russia’s electricity infrastructure, there is considerable potential for primary energy savings—and, thus, greenhouse gas emission reductions—in the Russian electricity sector. Achieving these energy savings requires large-scale investments. The Russian electricity market is considered “one of the world’s largest and fastest growing”12 and, thus, Climate Change Politics”, in Rüdiger Wurzel and James Connelly (eds.), The European Union as a Leader in International Climate Change Politics (Routledge, Abingdon, UK, 2011), 3–20. 10  Transport, Telecommunications and Energy Council Meeting, Council Conclusions on “Energy Prices and Costs, Protection of Vulnerable Consumers and Competitiveness”, Council Meeting of 13 June 2014, available at . On the implications of the Ukrainian crisis for EU-Russian energy relations, see Simon Pirani, James Henderson, Anouk Honoré, Howard Rogers and Katja Yafimava, What the Ukraine Crisis Means for Gas Markets (Oxford Institute for Energy Studies, Oxford, 2014), available at . 11  Cooperation in the field of energy efficiency between Russia and the EU would “increase the security of [the EU’s] energy supply because [. . .] energy savings in Russia would contribute to the availability of a higher level of Russian energy supply for export to the EU”. See Annex 2, Thematic Group on Energy Efficiency of the EU-Russian Energy Dialogue, “Terms of Reference” (27 September 2007), available at . See, also, Gérard César et al., Russie: Puissance ou interdépendence énergétique? (Sénat Français, Paris, 2009), available at . On the economic benefit that energy-efficiency measures (including renewable energy) represent for Russia in terms of increased export potential of fossil fuels, see Rasporiazhenie Pravitel’stva RF “Ob utverzhdenii gosudar­ stvennoi programmy ‘Energosberezhenie i povyshenie energeticheskoi effektivnosti na period do 2020 goda’ ” (27 December 2010) No.2446-r, SZRF (2011) No.4 item 622. 12  Wulf Bernotat, “Transcript of the Telephone Conference on the Acquisition of Shares in OGK-4 by EON” (17 September 2007), available at , 2–3. According to Bernotat, at that time Chief Executive

4

Introduction

r­epresents a huge business opportunity for international investors. Taking these environmental, energy security and economic benefits into account, it can be concluded that the improved energy efficiency of Russia’s electricity infrastructure represents one of the “mutual long-term benefits”13 that characterize the EU-Russian energy relationship, independent of the current tensions that affect EU-Russian cooperation. In this context, this book examines the legal and regulatory framework14 that Russia has created in order to attract investment in the modernization of electricity and heat supply. The book adopts an investor’s perspective and focuses on the “rules of the game” influencing the financial viability of investments in energy efficiency improvements in Russia’s electricity infrastructure. To enable the private financing of this modernization process, in 2003, Russia embarked on ambitious privatization and liberalization reform of its electricity sector. Based on the Anglo-Saxon liberalization “textbook”,15 the 2003 Federal Electricity Law16 introduced competition and free-market pricing in order to increase the investment attractiveness of this industry and to encourage market players to improve energy efficiency. Following the electricity market reform, in 2010, Russia adopted a new legal architecture governing the heating sector—the 2010 Federal Heat Law17—with the objective of modernizing the heating supply infrastructure. Moreover, in line with the worldwide development of clean energy technologies, in 2013, Russia created a regulatory basis to support investments in electricity production from renewable energy sources.18 Officer of the German energy concern EON, the Russian market is characterized by an “almost unrivalled appetite for electricity”. See, also, Guy Dinmore and Catherine Belton, “Italy’s Power Force Sees New Frontier in Russian Market”, The Financial Times (29 October 2007), 2. 13  EU Commission, Communication, “External Energy Relations: From Principles to Action”, COM (2006), 590 final. 14  This legal research is mainly based on documents officially published in the Collection of Laws of the Russian Federation (Sobranie Zakonodatel’stva Rossiiskoi Federatsii, SZRF). The online legal database Konsul’tantPlius () has been used to access official Russian documents that have not (yet) been officially published. 15  Paul Joskow, “Lessons Learned From Electricity Market Liberalization”, 29(2) The Energy Journal (2008), 9–42. 16  Federal’nyi Zakon “Ob eletkroenergetike” with subsequent amendments (26 March 2003) No.35-FZ, SZRF (2003) No.13 item 1177 (hereinafter the “2003 Federal Electricity Law”). 17  Federal’nyi Zakon “O teplosnabzhenii” with subsequent amendments (27 July 2010) No.190-FZ, SZRF (2010) No.31 item 4159 (hereinafter the “2010 Federal Heat Law”). 18  Postanovlenie Pravitel’stva RF “O mekhanizme stimulirovaniia ispol’zovaniia vozobno­ vliaemykh istochnikov energii na optovom rynke elektricheskoi energii i moshchnosti” (28 May 2013) No.449, SZRF (2013) No.23 item 2909.

Introduction

5

Despite the challenging conditions characterizing the Russian investment climate, foreign companies and, especially, EU investors are playing—and are expected to continue to play—an important role in the modernization of the Russian electricity sector by contributing capital and energy-efficient technologies.19 In this respect, one of the main goals of the reform of the Russian electricity sector is “to attract massive foreign investment in the ageing and obsolete electricity industry in order to modernize it and to ensure its efficient operation”.20 The Russian President, Vladimir Putin, stated in 2007 that Russia expected “foreign investors to take part in a large-scale modernization program for the Russian power industry. Generating capacity is to be increased here by more than fifty percent within ten years”.21 On this basis, the EU energy companies EON (Germany), Enel (Italy), and Fortum (Finland) purchased electricity assets in Russia and invested in the refurbishment of power plants.22 These EU investments in the modernization of the Russian electricity infrastructure demonstrate that the Russian electricity market reform has had some success in stimulating the transfer of foreign capital and technology to Russia. However, this existing EU investment activity in Russia only represents a small proportion of the extensive investment requirements characterizing the pressing refurbishment of the sector. Moreover, as will be examined in this book,23 foreign investors have criticized repeated regulatory changes and government interference with the financial basis of their investment, in particular the introduction of price limits and the freezing of tariffs below the cost of production. This experience, together with the deteriorating relations between 19  See, most recently, “France’s EdF Buying into Quadra May Raise Operating Efficiency”, Prime Business News Agency (11 July 2014), 1–2. See, also, “President and CEO Tapio Kuula’s Speech at Fortum Corporation’s Annual General Meeting” (25 March 2010), available at , considering that “[w]e continuously invest in reducing emissions in Russia. [. . .] Our goal is to improve energy efficiency in Russia significantly”. On the contribution of foreign investments to the transfer of capital and technology to the modernization of the Russian economy in general, see Evgenii Popov, Mezhdunarodno-pravovye aspekty zashchity investitsii i razreshenie investitsionnykh sporov (Iurist, Moscow, 2011), 2. 20  Alda Engoian, “Industrial and Institutional Restructuring of the Russian Electricity Sector: Status and Issues”, 34(7) Energy Policy (2006), 3233–3244, at 3236. 21  “Foreign Investors Could Take Part in Large-scale Modernization of Russian Power Industry, says Putin”, Interfax press release (13 June 2007), available at . 22  See the analysis in Chapter 2, Section 3.3, “The Corporate Restructuring: Privatization or Re-Consolidation of State Ownership?” 23  See, e.g., Chapter 5, Section 9.1, “Interference with Electricity Prices”; Chapter 6, Section 3, “Regulated Tariffs for Domestic Consumers”; and Chapter 7, Section 7, “Transmission and Distribution Tariffs”.

6

Introduction

the EU and Russia in the context of the Ukrainian crisis, generates fundamental questions concerning the ability of Russia to continue to attract the needed investments in the modernization of electricity supply. Taking into account the benefits for the EU of energy efficiency in Russia and the strategic role that EU investors have in the Russian electricity sector, this book examines Russian electricity law from the point of view of EU investors. In the context of the increasingly challenging conditions for foreign investments in Russia, this study focuses on the protection of EU investments in Russia—in particular, the protection against illegitimate government interference with the regulatory and financial basis of power plants. Adopting a comparative law approach, it analyzes the Russian electricity market architecture by reference to the legal principles governing the EU internal electricity market. Apart from its interest for EU-Russian energy relations, this analytical perspective allows us to conduct a detailed assessment of the regulatory structure governing electricity supply in Russia. Indeed, the EU opened its electricity market to competition following the adoption of the first electricity market directive in 1996 and has thus accumulated considerable experience in the liberalization of electricity markets. Moreover, the EU—as a leader on climate change issues in the international community24—has adopted a strong regulatory basis for the “de-carbonization” of electricity supply and, in particular, the promotion of renewable energy sources25 and the promotion of high-efficiency combined heat and power.26 The EU’s internal energy market, thus, provides important lessons which may be of relevance for the completion of the regulatory architecture governing the Russian electricity market.27 However, in order to avoid the trap of an unsuccessful “legal transplant”,28 the analysis in this book is anchored in 24  Wurzel and Connelly, op. cit. note 9, 3. 25  The first Renewable Energy Directive was adopted in 2001. See Directive 2001/77/EC (27 September 2001) on the Promotion of Electricity Produced from Renewable Energy Sources in the Internal Electricity Market, OJ (2001), L283/33, repealed by Directive 2009/28/EC (23 April 2009) on the Promotion of the Use of Energy from Renewable Sources and Amending and Subsequently Repealing Directives 2001/77/EC and 2003/30/ EC, OJ (2009), L140/16. 26  The first Combined Heat and Power Directive was adopted in 2004. See Directive 2004/8/ EC (11 February 2004) on the Promotion of Cogeneration Based on a Useful Heat Demand in the Internal Energy Market and Amending Directive 92/42/EEC, OJ (2004), L52/50, repealed by Directive 2012/27/EU (25 October 2012) on Energy Efficiency, OJ (2012), L315. 27  See Sergei Svirkov, “Obshchie printsipy organizatsii energorynka v Evrosoiuze i v Rossii”, Predprinimatel’skoe Pravo (2013) No.2, 45–52. 28  See David Nelken, “The Meaning of Success in Transnational Legal Transfers”, 19 Windsor Yearbook of Access to Justice (2001), 349–366.

Introduction

7

the very specific regulatory regime governing the Russian energy sector. Moreover, to avoid the risk of promoting EU norms as “the single cosmopolitan standard, to the exclusion of all other norms”,29 this work focuses on the “negative” rather than “positive lessons”30 that can be drawn from the EU model. Based on more than a decade of experience with energy, renewable-energy and carbon markets, investors in the EU regularly point out the following main obstacles to their contribution to the modernization of the EU energy infrastructure: regulatory instability and unpredictability.31 Acknowledging this important investor concern, this book examines legal ways to promote energy efficiency through stabilizing the investment climate for EU companies in Russia. The analysis builds upon the idea that the extent to which EU private investors will be prepared to participate in the long-term modernization of the Russian electricity infrastructure will depend on Russia’s ability to guarantee a predictable and credible (stable) investment climate.32 The book, thus, focuses on the “credibility” or “stability” of the regulatory framework concerning the modernization of the Russian electricity sector. How can EU investors be protected against changes to the “rules of the game” that form the basis of their investments in the improved energy efficiency of the Russian electricity infrastructure? Indeed, given the high capital intensity and long payback time of generation capacity investments, investors make their decisions in liberalized markets on the basis of long-term predictions of price developments and 29  Julie Mertus and Elizabeth Breier-Sharlow, “Power, Legal Transplants and Harmonisation”, 81(4) University of Detroit Mercy Law Review (2004), 477–488, at 479. 30  See Richard Rose, “What is Lesson-Drawing?”, 11(1) Journal of Public Policy (1991), 3–30, at 4. 31  Institutional Investor Group on Climate Change (IIGCC), “Shifting Private Capital to Low Carbon Investment: An IIGCC Position Paper on EU Climate and Energy Policy”, 6–11, available at ; and High Level Group on Competitiveness, Energy and the Environment, “First Report on Competitiveness, Energy and the Environment”, 3, available at . 32  See Anatole Boute, “Improving the Climate for European Investments in the Russian Electricity Production Sector: (I) The Role of Investment Protection Law”, 26(2) Journal of Energy and Natural Resources Law (2008), 267–302. On the importance of minimizing political risks and creating a stable and predictable regulatory environment to stimulate investments, see Anna Belitskaia, “Pravovye sredstva sozdaniia blagopriiatnogo investi­ tsionnogo klimata”, Iurist (2013) No.20, 1–6, at 1; A.G. Bogatyrev, “Problema sootnosheniia istochnikov v sovremennom mezhdunarodnom investitsionnom prave”, Sovremennyi Iurist (2012) No.1, 1–7, at 3–4; and E.A. Kuz’micheva, “Puti sozdaniia blagopriiatnogo klimata dlia privlecheniia inostrannykh investitsii v Rossiiskuiu ekonomiku”, Bezopasnost’ Biznesa (2006) No.4, at 1.

8

Introduction

costs.33 Uncertainty about regulatory developments affecting the electricity market makes it difficult to calculate the profitability of electricity projects and, consequently, may delay their realization.34 Moreover, the risk of government interference in the functioning of the market and of sudden regulatory changes (“regulatory risks”) can deter market players from making sufficient ­investments.35 According to the institutional economic literature, “[i]­nstitutional environments that fail to provide credible commitments against arbitrary changes in the rules of the game, including expropriation,

33  Eurelectric, Ensuring Investments in a Liberalized Electricity Sector (Eurelectric, Brussels, 2004), 53; and IEA, Power Generation Investment in Electricity Markets (IEA, Paris, 2003), 12. On the difficulty of attracting investments in the electricity sector because of the capital-intensive and long-term nature of this sector, see Natal’ia Tokareva and Larisa Kalinina, “Problemy gosudarstvennogo regulirovaniia elektroenergeticheskoi otrasli”, Pravo i Ekonomika (2012) No.10, 4–8, at 6–7. 34  See William Blyth, Incentives, Risk and Decision-Making in Mitigating Climate Change (Chatham House, London, 2007), 4. See, also, Dennis Anderson, “Electricity Generation Costs and Investment Decisions: A Review”, Working Paper (UK Energy Research Center, 2007), 19; and Gert Brunekreeft and Tanga McDaniel, “Policy Uncertainty and Supply Adequacy in Electricity Power Markets”, 21(1) Oxford Review of Economic Policy (2005), 111–127, at 113. 35  The notion of “regulatory risks” is part of the broader notion of “political risks”. See The World Bank Group-Multilateral Investment Guarantee Agency, “World Investment and Political Risk” (The World Bank, Washington, DC, 2009), 28. See, also, Mihir Desai, “Capital Structure with Risky Foreign Investment”, 88(3) Journal of Financial Economics (2008), 534–553, at 536. Regulatory risks refer to the probability that the rules existing at the moment of investment and on which basis investors have taken their investment decisions will change. Public authorities may be tempted to change the regulatory framework that they have created to attract investment once these investments have been made and costs are “sunk”. The impact of such risks is perceived to be particularly acute for long-term and capital-intensive projects, such as investments in electricity production. Moreover, due to the social and political sensitivity of such investments, they are frequently subject to public intervention. See UNCTAD, World Investment Report 2008: Transnational Corporations and the Infrastructure Challenge (United Nations Publications, Geneva, 2008), 85 and 162; and Brian Levy and Pablo Spiller, “A Framework for Resolving the regulatory Problem”, in Brian Levy and Pablo Spiller (eds.), Regulations, Institutions and Commitment: Comparative Studies of Telecommunications (Cambridge University Press, Cambridge, 1996), 1–35, at 3. For an overview and discussion of risks related to electricity-production activities, see Rory Sullivan and William Blyth, Climate Change Policy Uncertainty and the Electricity Industry: Implications and Unintended Consequences (Chatham House, London, 2006), 3.

Introduction

9

raise ­transaction costs throughout the economy”.36 Indeed, investors generally internalize their perceptions of regulatory risks or illegitimate state interference by adding a risk premium.37 This increases the required return on ­investment38 and reduces the flow of investments.39 Regulatory risk, thus, delays the modernization of the electricity infrastructure and increases the cost of electricity supply to end-consumers—negatively impacting on social protection and the general energy efficiency of the sector. In accordance with Eurelectric, the organization representing the interests of the EU electricity industry, “[t]he aspect of regulatory certainty cannot be overstated. Governments must ensure a stable, reliable and long-term framework for investments—not a situation in which the parameters of the economic environment are changed every couple of years”.40 To ensure the long-term affordability of energy supply, energy efficiency and security of supply, credibility and predictability of the regulatory framework governing electricity investments are necessary.41 “Credibility” (“stability”) refers to the “belief that the policy will endure, and be enforced”.42 Regulatory changes have to be avoided as much as possible.43 Investors must be confident that once irreversible investments are made, the government will not

36  Mario Bergara, Witold Henisz and Pablo Spiller, “Political Institutions and Electric Utility Investment: A Cross-Nation Analysis”, POWER (1997), 1–27, at 1. 37  See Steven Stoft, Power System Economics: Designing Markets for Electricity (IEEE Press/ Wiley-Interscience Press, Piscataway, New Jersey, 2002), 161, considering that “risk is a cost”. 38  Or by further discounting the value of future returns. See Sudeshna Ghosh Banerjee, Jennifer Oetzel and Rupa Ranganathan, “Private Provision of Infrastructure in Emerging Markets: Do Institutions Matter?”, 24(2) Developments Policy Review (2006), 175–202, at 175; and J. Luis Guasch and Pablo Spiller, Managing the Regulatory Process: Design, Concepts, Issues, and the Latin American and Caribbean Story (World Bank Publications, Washington, DC, 1999). 39  See Karsten Neuhoff and Laurens De Vries, “Insufficient Incentives for Investment in Electricity Generations”, 12(4) Utilities Policy (2004), 253–267, at 264. 40  Eurelectric, op. cit. note 33, 55. 41  See Levy and Spiller, op. cit. note 35; and Nicholas Stern, The Economics of Climate Change: The Stern Review (Cambridge University Press, Cambridge, 2006), 325. See, also, Eckhard Janeba, “Attracting FDI in a Politically Risky World”, 43(4) International Economic Review (2002), 1127–1155, at 1151. 42  Stern, ibid. 43  According to Eurelectric, “[t]he key to a sustainable, reliable electricity system functioning on market rules is a stable regulatory framework”. See Eurelectric, op. cit. note 33, 7.

10

Introduction

act opportunistically by adapting the rules or reneging on commitments.44 “Predictability” refers to the ability of decision-makers to indicate the “overall direction of policy”.45 Legal uncertainty must be kept to a minimum.46 Investors need the evolution of the policy and regulatory framework within which they do business to be transparent. In Russia, a tradition of government interference with prices and regulatory changes,47 together with the perceived deficiencies of the investment climate,48 highlights the exposure of foreign investors in Russia to the risk of ex post public interference with the financial basis of their investments.49 Paradoxically, government interference with investments is aimed at keeping prices low to protect consumers’ short-term interests, despite the fact that, 44  Cameron Hepburn, “Regulation by Prices, Quantities, or Both: A Review of Instrument Choice”, 22(2) Oxford Review of Economic Policy (2006), 226–247, at 233–234. See, also, Colin Kirkpatrick, David Parker and Yin-Fang Zhang, “Foreign Direct Investment in Infrastructure in Developing Countries: Does Regulation Make a Difference?”, 15(1) Transnational Corporations (2006), 143–171, at 153; and Dieter Helm, Cameron Hepburn and Richard Mash, “Credible Carbon Policy”, 19(3) Oxford Review of Economic Policy (2003) 438–450, at 440. 45  Stern, op. cit. note 41, 326. 46  According to Gray and Jarosz, “[i]nterviews with multinational firms consistently indicate that legal uncertainty is a deterrent to investment in the [Central and Eastern Europe] region. [. . .] [A] challenge for CEE governments is to quickly provide a predictable legal framework for foreign investors”. Cheryl Gray and William Jarosz, “Law and the Regulation of Foreign Direct Investment: The Experience from Central and Eastern Countries”, 33(1) Columbia Journal of Transnational Law (1995), 1–40, at 19. 47  On the impact of regulatory risk on investments in the Russian electricity sector, see Azamat Zhane, “Zakonodatel’stvo ob energosnabzhenii: pravovoi aspekt nesovershenstva, puti resheniia problemy”, Energetika i Pravo (2012) No.1, 15–20, at 16, highlighting the “chaotic change of regulations” affecting the Russian electricity market. 48  Russia’s institutions are, for instance, poorly ranked (133 out of 148) in the World Economic Forum, “Global Competitiveness Report 2013–2014” (2013), 327, available at . Russia is ranked in 133rd place for respect of property rights, 119th place for the independence of its judiciary, 111th place for favoritism in decisions of government officials and 118th place for the efficiency of its legal framework in settling disputes. On political risks in Russia, particularly as regard regulatory changes to the “rules of the game”, the unpredictability of the regulatory environment, government interference with investments and the lack of independence of the judiciary, see, also, Ivan Danilin, Il’ia Dzhus and Eduard Solov’ev, Politicheskie riski inostrannykh investitsii v RF (IMEMO Russian Academy of Sciences, Moscow, 2010), 59–68; and Popov, op. cit. note 19, 8. 49  EU-Russian Energy Dialogue Thematic Group on Investments, “Joint Report” (October 2006), 8, available at .

Introduction

11

in the medium and long term, these price risks increase the cost of capital, delay efficiency improvements and, thus, negatively affect the affordability of energy supply. In its 2005—but still highly relevant—study of Russian electricity reform, the International Energy Agency considered that “[t]he potential for regulatory uncertainty or risk is high”.50 Moreover, in its 2008 Investment Policy Review of the Russian Federation, the Organisation for Economic Co-operation and Development stated that “[t]he analysis of Russia’s energy investment p ­ olicy [. . .] has confirmed the vital importance of legal predictability and transparency especially in the context of long-term energy projects”.51 By the same token, in its 2030 Energy Strategy, the Russian Government itself explicitly recognized the necessity of improving the stability and predictability of investment conditions to attract private investors in the Russian energy sector.52 This book aims to highlight the risks of change or interference by public authorities in the regulatory basis of investments in the modernization of electricity supply in Russia. It aims to demonstrate how the risk of such interventions may affect efforts to improve energy efficiency in the Russian electricity sector. To identify these risks, this book mainly looks at the experience and lessons which can be taken from the implementation of electricity regulations within the EU and, to a lesser extent, in developing countries and economies in transition. It, therefore, examines the legal and economic literature that has been developed in this field. Moreover, this analysis is based on a careful study of the applicable Russian regulatory framework, covering the Soviet Union to the contemporary structure resulting from the i­mplementation of

50  IEA, Russian Electricity Reform: Emerging Challenges and Opportunities (IEA, Paris, 2005), 19. Similarly, the credit ratings agency Standard and Poor’s highlights the risk that any rule governing the electricity sector may, at any time, undergo a substantial change. See Standard and Poor’s, “Russian Electricity Reform: Generating Energy and Risk”, in Standard and Poor’s, S&P’s Special Reports: Russian Power Sector Reform (Standard and Poor’s, New York, NY, 2007). See, also, Moody’s Investors Service, Moody’s Changes Outlook on Enel OGK-5’s Ba3 Rating to Positive (Moody’s, April 2013), available at , highlighting that “Enel OGK-5’s rating remains constrained by (1) the evolving regulatory environment of the electric utility sector in Russia”. 51  OECD Investment Policy Review of the Russian Federation: Russia’s Energy Investment Policy (OECD, Paris, 2008), 23, available at . 52  See Chapter V, paras.1–2, and Annex 5, para.23, Rasporiazhenie Pravitel’stva RF “Ob Energeticheskoi strategii Rossii na period do 2030 goda” (13 November 2009) No.1715-r, SZRF (2009) No.48 item 5836.

12

Introduction

Russia’s electricity market reform.53 This book scrutinizes the relevant federal laws, decrees and regulations, together with Russian scholarly writings in this field, in order to identify a legal basis for possible government interference with electricity investments. The analysis focuses on the legal—rather than financial—aspects of electricity investments in Russia. It adopts a mainly qualitative and conceptual perspective by looking at the interaction of energy law and investment law, in relation to the specific case of Russia’s electricity modernization program.54 The analysis is not limited to a critical assessment of the “law in books”. By looking at judicial practice in the electricity sector, it also covers “law in action”.55 53  Quotes of Russian legal texts in this book are based on translations by the author of the present work. 54  Financial data (e.g., payback period, return on investment and discount rates of electricity projects) and quantitative information relating to the application of Russian electricity law (e.g., the number of agreements concluded between private investors and the Russian state, the level of penalties paid by investors failing to meet their investment commitments, the number of anti-monopoly cases in the electricity sector and the sanctions imposed by the anti-monopoly authorities) are largely excluded from the scope of this analysis. 55  Most cases discussed in the present study have been identified and accessed through the online legal database Konsul’tantPlius at . For all articles (provisions) of laws and regulations, Konsul’tantPlius provides an overview of relevant judicial decisions that are based on—i.e., interpret and apply—the provisions concerned. The present study focuses on the judicial decisions of the higher judicial authorities in Russia (mainly the Supreme Arbitrazh Court, given the commercial nature of electricity cases, but also the Constitutional Court and the Supreme Court) and the application of these judicial decisions by the arbitrazh courts at the regional (district) level. This book covers judicial practice starting from the adoption of the Federal Electricity Law on 26 March 2003 until the end of August 2014. Using the reference system of Konsul’tantPlius (i.e., the links to judicial decisions that Konsul’tantPlius offers for all articles (provisions) of the laws and regulations that are published in this legal database), together with references to judicial decisions in the Russian legal literature, 109 decisions of the higher courts have been selected—and are discussed in the analysis—out of 1,250 decisions issued on the basis of the Federal Electricity Law during the period covered. Moreover, the study discusses 83 decisions out of the 5,900 decisions made by the district arbitrazh courts. These numbers indicate the large volume of judicial practice developed following the adoption of the 2003 Federal Electricity Law. The focus in this book is on judicial practice that deals with the regulation of electricity pricing and investment-making in the electricity sector. Given the focus of this book on energy pricing and the regulation of electricity investments, key search terms used to narrow down the research included the “economically well founded nature of prices” (ekonomicheskaia obosnovannost’ tsen/

Introduction

13

Given the economic nature of disputes in the electricity sector, ­Russia’s commercial courts—the arbitrazh courts—have jurisdiction in electricity-related cases. When necessary, reference is made to judgments of the Russian Constitutional Court on the constitutionality of regulatory acts affecting the functioning of the electricity market. Strictly speaking, there is no doctrine of precedent in Russia.56 Lower courts are not bound by decisions of superior courts in similar cases. However, the Supreme Arbitrazh Court (Vysshii Arbitrazhnyi Sud )—already “merged” with Russia’s Supreme Court (Verkhovnyi Sud )57—has responsibility for ensuring the uniform application of Russian law to commercial disputes.58 Decisions by Russia’s Supreme ­Arbitrazh Court, thus, are at the center of this analysis. Given the regulatory risks that can affect the financial viability of electricity investments in Russia, and taking into account limited investor protection against the occurrence of these risks under Russian electricity law, this study analyzes alternative mechanisms available to provide investors with protection. Investment law (in particular, international investment protection law) is proposed as a mechanism available to stabilize the investment climate for foreign (EU) companies that participate in the modernization of the Russian electricity sector. Russia has adopted national legislation that provides guarantees to foreign investors.59 Moreover, it has concluded investment treaties that tarifov), “free electricity market prices” (svobodnye tseny na elektricheskuiu energiiu), the “affordability of electricity supply for consumers” (dostupnost’ elektricheskoi energii dlia potrebitelei), and “non-discriminatory access to the network” (nediskriminatsionnyi dostup k setiam). More research is needed to analyze judicial practice concerning the non-price-related aspects of Russian electricity regulation. 56  See Kirill Koroteev, “Are Russian Courts Capable of Creating Precedents? Overcoming Inconsistency in Case Law”, 38(3–4) Review of Central and East European Law (2013), 341– 362; and Will Pomeranz and Max Gutbrod, “The Push for Precedent in Russia’s Judicial System”, 37(1) Review of Central and East European Law (2012), 1–30. 57  Federal’nyi Konstitutsionnyi Zakon “O vnesenii izmenenii v Federal’nyi konstitutsionnyi zakon ‘O sudebnoi sisteme Rossiiskoi Federatsii’ ” (5 February 2014) No.4-FKZ, SZRF (2014) No.6 item 551. 58  See Arts.19 and 24, Federal’nyi Konstitutsionnyi Zakon “O sudebnoi sisteme Rossiiskoi Federatsii” with subsequent amendments (31 December 1996) No.1-FKZ, SZRF (1997) No.1 item 1; and Art.304, “Arbitrazhnyi protsessual’nyi kodeks Rossiiskoi Federatsii” with subsequent amendments (24 July 2002) No.95-FZ, SZRF (2002) No.30 item 3012. 59  See, e.g., Federal’nyi Zakon “Ob inostrannykh investitsiiakh v Rossiiskoi Federatsii” with subsequent amendments (9 June 1999) No.160-FZ, SZRF (1999) No.28 item 3493. See, also, Nataliia Doronina, “Investitsionnoe zakonodatel’stvo i modernizatsiia ekonomiki”, Zhurnal Rossiiskogo Prava (2011) No.1, 1–6, at 1.

14

Introduction

contain investment protection standards that foreign investors may invoke before independent tribunals.60 This book examines the extent to which the guarantees provided by these legislative instruments—taken together—might contribute to improving the investment climate for energy-efficiency investments. The analysis focuses—from an institutional and legal perspective— on common solutions for achieving mutual benefits for both EU and Russian partners. The 1994 Energy Charter Treaty (ECT)61 constitutes one of the most ­important initiatives, launched at an international level, to stabilize the investment climate in the energy sector of the former Soviet Union with a specific focus on Russia.62 Russia signed the ECT in 1994, along with the 1994 ECT Protocol on Energy Efficiency and Related Environmental Aspects. The ECT contains important investment protection guarantees that complement the investment disciplines already provided in the Bilateral Investment Treaties of the Contracting Parties. The 1994 Protocol on Energy Efficiency refers to policies and programs aimed at improving energy efficiency. While Russia has signed these instruments, it has refused to ratify them. Following its criticism of the Energy Charter process,63 Russia in 2009 officially announced 60  See, e.g., Tilman Dralle, “A Glance into the Future: The Prospective Investment Law Regime between the European Union and the Russian Federation”, Dresden Research Papers on International Economic Law (2013), available at ; Nataliia Doronina and Natal’ia Semiliutina, Mezhdunarodnoe chastnoe pravo i investitsii (Institut zakonodatel’stva i sravnitel’nogo pravovedeniia pri Pravitel’stve RF, Moscow, 2012); Dmitrii Labin, Mezhdunarodnoe pravo po zashchite i pooshchreniiu inostrannykh investitsii (Wolters Kluwer, Moscow, 2008); and Noah Rubins and Azizjon Nazarov, “Investment Treaties and the Russian Federation: Baiting the Bear?”, 9(2) Business Law International (2008), 100–113, at 102–103. 61  The Energy Charter Treaty (Annex 1 to the Final Act of the European Energy Charter Conference) (1995) 34 ILM 373 (signed December 1994, entered into force April 1998), available at . On the participation of European institutions, see ECSC, Euratom, Council and Commission Decision 98/181/EC, “On the Conclusion, by the European Communities, of the Energy Charter Treaty and the Energy Charter Protocol on Energy Efficiency And Related Environmental Aspects”, OJ (1998), L69/1. 62  See Energy Charter Secretariat, “An Introduction to the Energy Charter Treaty”, in Energy Charter Secretariat, The Energy Charter Treaty and Related Documents: A Legal Framework for International Energy Cooperation (2004) No.14, available at . 63  For an analysis of the Russian position on the ECT and reasons underlying Russia’s decision not to ratify the Treaty, see, e.g., Andrei Belyi, “Russia’s Position on the Energy

Introduction

15

its intention not to become a Contracting Party to the ECT64 and proposed an alternative approach to the regulation of international energy security.65 The ECT is now undergoing a process of “modernization” aimed, among other things, at reacting to Russia’s criticism of the Treaty.66 Charter”, Meeting Summary: Russia and Eurasia Programme (27 April 2012), available at ; Sergei Seliverstov, “Proekt Konventsii po obespecheniiu mezhdunarodnoi energeticheskoi bezopasnosti—novyi energeticheskii miroporiadok?”, Iurist (2011) No.11, 31–38; Andrei Belyi, “A Russian Perspective on the Energy Charter Treaty”, Real Instituto Elcano (2009), available at ; Susann Handke and Jacques de Jong, Energy as a Bond: Relations with Russia in the European and Dutch Context (Clingendael International Energy Program, The Hague, 2007), 51–60; Ivan Gudkov, “Rossiiskii kontseptual’nyi podkhod i Dogovor k Energeticheskoi Khartii”, Neft’, Gaz i Pravo (2007) No.1, 17–30; and Doran Doe, Sophie Nappert and Alexander Popov, “Rossiia i Dogovor k Energeticheskoi Khartii: obshchie interesy ili neprimirimye protivorechiia?” Neft’, Gaz i Pravo (2006) No.5, 9–12. See, also, Speech of State Duma Delegate V. Yazeyev on the Occasion of the Anniversary Session of the Energy Charter Conference (Brussels, 17 December 2001). 64  Rasporiazhenie Pravitel’stva RF “O namerenii Rossiiskoi Federatsii ne stanovit’sia uchastnikom Dogovora k Energeticheskoi khartii, a takzhe Protokola k Energeticheskoi khartii po voprosam energeticheskoi effektivnosti i sootvetstvuiushchim ekologicheskim aspektam” (30 July 2009) No.1055-r, SZRF (2009) No.32 item 4053 (hereinafter the “2009 Government Resolution on Russia’s Intention Not to Become a Party to the Energy Charter Treaty”). Having signed the Treaty, Russia is bound by the provisional-application regime of the ECT for investments made on its territory prior to October 2009. See UNCITRAL PCA Case AA227 Yukos Universal Limited v. The Russian Federation (Interim Award on Jurisdiction and Admissibility of 30 November 2009). See, also, Andrei Konoplianik, “Vykhod Rossii iz vremennogo primeneniia DEKh i ‘delo Iukosa’: kommentarii po itogam protsedurnogo resheniia arbitrazhnogo suda v Gaage”, Neft’, Gaz i Pravo (2010) No.8, 42; and Kaj Hobér, “Russian Energy Policy and Dispute Settlement”, in Martha Roggenkamp and Ulf Hammer (eds.), European Energy Law Report VII (Intersentia, Mortsel, Belgium, 2010), 235–266, at 250–251. 65  See Draft Convention on Ensuring International Energy Security, presented by Theodore Shtilkind at the 21st Annual Session of the UNECE Working Party on Gas (18–19 January 2011), available at ; Prezident RF, “Opublikovan Kontseptual’nyi podkhod k novoi pravovoi baze mezhdunarodnogo sotrudnichestva v sfere energetiki” (21 April 2009), available at . See, also, Seliverstov, op. cit. note 63, 33; and Gudkov, op. cit. note 63, 54. 66  On the modernization of the Energy Charter process, i.e., the process aimed at adapting the Energy Charter to the new reality of energy markets in order to make them more attractive to major energy actors, see Roadmap for the Modernisation of the Energy

16

Introduction

Before the 2014 Ukrainian crisis, EU efforts to stimulate energy and energyefficient investments in Russia also have been conducted on a bilateral basis in the context of the 1994 Partnership and Cooperation Agreement between the EU and Russia.67 The EU-Russian Energy Dialogue initiated in 2000, and in particular the Thematic Group on Energy Efficiency, aimed to propose political and legal instruments to tackle investment hurdles in the energy and energy-efficiency sectors.68 Based on the recognition of long-term energy

Charter Process (24 November 2010), available at . See, also, Urban Rusnak, “Modernisation of the Energy Charter” (27 December 2013), Russia in Global Affairs, available at ; and Andrei Belyi, Sophie Nappert and Vitalyi Pogoretskyy, “Modernising the Energy Charter Process? The Energy Charter Conference Road Map and the Russian Draft Convention on Energy Security”, 29(3) Journal of Energy and Natural Resources Law (2011), 383–399. 67  Signed 24 June 1994, entered into force 1 December 1997. See Council and Commission Decision, “On the Conclusion of a Partnership and Cooperation Agreement between the EC and their Member States, of the one part, and the Russian Federation, of the other part”, OJ (1997), L327/1. The 1994 EU-Russian Partnership and Cooperation Agreement (PCA) is the legal foundation governing the bilateral relationship between the EU and Russia. The PCA came into force on 1 December 1997 for an initial duration of 10 years. However, Art.106 PCA provides that it shall be automatically renewed from year to year, provided that neither Party gives written notice of its end at least six months before it expires. In 2005, the EU and Russia started negotiations on the conclusion of a new agreement to replace the existing 1994 PCA. See Permanent Mission of the Russian Federation to the EU, “Brainstorming on Russia-EU New Basic Agreement” (1 June 2012), available at . 68  The EU-Russia Energy Dialogue, established at the sixth EU-Russian Summit in Paris (October 2000) is a formal and permanent structure to discuss energy issues. Three Thematic Groups have been created to discuss, respectively, “energy scenarios”, “energy efficiency” and “market developments”. The EU-Russian Energy Dialogue is not formally part of the Partnership and Cooperation Agreement between the European Union and Russian. See . On recent developments within the EU-Russian Energy Dialogue, see Gunther Öttinger and Aleksander Novak, “EU-Russia Energy Cooperation Until 2050” (March 2013), available at . For an analysis of the role of the EU-Russia Energy Dialogue, see Pami Aalto (ed.), The EU-Russian Energy Dialogue: Europe’s Future Energy Security? (Ashgate, Aldershot, UK, 2007). See, also, Kaj Hobér, “The Role of the Energy Charter Treaty in the Context of the European Union and Russia”, in Graham Coop and Clarisse Ribeiro (eds.), Investment Protection and the Energy Charter Treaty (JurisNet, New York, NY, 2008), 235–305, at 252–258.

Introduction

17

interdependence,69 the creation of a regulatory system to stimulate the modernization of the Russian energy infrastructure more recently has been recognized within the 2010 EU-Russia Partnership for Modernization.70 In the context of the current challenges facing the institutionalization of the EU-Russian relationship in the field of energy, the present study focuses on energy efficiency as a cooperative tool between the EU and Russian partners.71 Taking into account the general EU-Russian energy interdependence,72 this book analyzes how stabilizing the regulatory framework governing the modernization of the Russian electricity sector could contribute to tackling the common EU-Russian challenges of energy security and sustainable energy development. This analysis proceeds as follows. Chapter 1 describes the state of the Russian electricity sector at the time of writing (August 2014). It provides an overview of the investments required to modernize the Russian electricity sector, to improve its energy efficiency and to guarantee a secure and reliable electricity supply. Identifying these investment requirements is essential to understanding the scale of Russia’s modernization program and the need for private (foreign) capital and technology. This analysis is also important to grasp the central command-and-control (i.e., government-driven) approach that continues to characterize investment-making in the Russian electricity sector even after Russia opened the sector to competition. The electricity consumption and production forecasts by the Russian Government are overly optimistic—­creating a risk for private investors that build their business case on these expectations of growth. Surplus of capacity increases the cost of the system and, thus, negatively affects the affordability of energy supply for end-consumers. Chapter 2 introduces the 2003–2011 electricity market reform that Russia implemented in order to attract investment in the modernization of the power

69  Press Release RAPID, “The EU-Russia Energy PPC Underlines Mutual Interdependence in EU-Russia Energy Relations” (30 April 2009) (IP/09/688). 70  See the “Partnership for Modernization” agreed at the European Union-Russia Summit (31 May–1 June 2010) in Rostov-on-Don. EU Council, Joint Statement on the Partnership for Modernization EU-Russia Summit 31 May–1 June 2010 (10546/10 PRESSE 154). 71  On the mutual EU-Russian benefits presented by cooperation in the field of energy efficiency, see Anatole Boute, “Energy Efficiency as a New Paradigm of the European External Energy Policy: The Case of the EU-Russian Energy Dialogue”, 65(6) Europe-Asia Studies (2013), 1021–1154. 72  I.e., EU dependence on Russia as its main energy supplier and Russian dependence on the EU as its main energy off-taker.

18

Introduction

system. The focus is on the transition from a state-owned, monopolistic and centrally controlled system to liberalization and privatization of the sector, following the Anglo-Saxon “textbook”. Russian and foreign (particularly EU) investors have committed capital and technology on the basis of Russia’s promise of liberalization and privatization. However, significant risks characterize the Russian approach to electricity market reform and corporate restructuring. Liberalization and privatization à la russe in practice require that investors adapt their strategy to a high share of state ownership in the sector and the central role of the Russian Government regarding investment decisions. Chapter 3 examines the regulatory authorities that are involved in the organ­ization of the electricity market. It looks at the political independence and autonomy of regulatory authorities—an important condition to improve the credibility of regulation in the sector and shield investors from short-term interference by the Government. The chapter argues that, despite the initial plans for their political independence, all regulatory authorities in the Russian electricity sector remain under the strong control of the executive. The lack of independence of the regulatory authorities exposes investors to short-term political (and even populist) pressure, e.g., in the form of sudden changes to tariff promises or the introduction of price caps which inhibit investors from recovering their capital and operating costs. This regulatory and political risk seriously affects the attractiveness of the investment climate for electricity projects in Russia. It is argued that, to improve investment conditions in the electricity sector, Russia should adopt—and reinforce—the EU regulatory independence criteria that guarantee institutional distance from short-term political pressure. Chapter 4 analyzes the main principles that govern the functioning of the electricity market. Following the investor’s perspective, which is woven through this book, the analysis centers on the legal concepts influencing the business case of power plants, including free-market pricing, stability of investment conditions and non-discriminatory access to the network. The analysis of the “law in action” demonstrates that the Russian Government does not hesitate to apply concepts of Russian law in a way that undermines the basic elements of general electricity-market liberalization and privatization. The contradictory application of the fundamental principles of Russian electricity law represents an important risk for investors and undermines the credibility of the regulatory framework that Russia has created to attract foreign investors to the modernization of the sector. Chapters 5 and 6 examine the wholesale and retail markets—i.e., the marketplaces for electricity exchanges between major (wholesale) and smaller

Introduction

19

(retail) producing and consuming installations. Following an overview of the technical functioning of these marketplaces, these chapters identify the specific risks of public interference with price formation. The formation of wholesale and retail electricity prices determines the revenues generated by power plants and, thus, their financial viability. Interference with price formation is therefore a pivotal concern affecting electricity investments. Although Russia has, on paper, created a liberalized market with “deregulated” prices, in reality, the Government continues to closely regulate and interfere with prices. Price caps and the re-regulation of prices can prevent investors from recovering their investment and operating costs. Interestingly, governments in the EU also find it difficult to resist the temptation of interfering with electricity prices, despite the opening of the market to competition. Electricity investors in both Russia and the EU are thus confronted with the risk of government intervention with the financial basis of their investments. In Russia, this risk is more acute given the more pronounced political sensitivity of electricity prices. To ensure the participation of private capital and technology in the modernization of the electricity production infrastructure, the principles of electricity market regulation need to be reinforced. Adequate protection is needed to shield the regulatory and financial foundation of power plants against illegitimate government interference with prices. Chapter 7 analyzes the regulation of the network industry in Russia. Russia has created a regulatory framework to reduce electricity losses in the network infrastructure and, thus, generate energy savings. Tariff commitments are a key component of this energy-efficiency improvement policy. However, given the short-term impact of network tariffs on end-consumers, the Russian Government has implemented a policy of “freezing” the revenues of network companies. The resulting financial risk for investors increases the risk premium of investments in this sector and, thus, paradoxically, affects the longterm affordability of energy supply. Chapters 8 and 9 look at the specific case of investments in renewable energy and district heating—two central decarbonization technologies. To stimulate investment in this field, the Government has developed a specific support scheme and provided tariff guarantees to investors. However, the proper functioning of this scheme is affected by regulatory barriers and, in particular, protectionist local-content policies aimed at establishing a national renewable-energy manufacturing industry in Russia. More importantly, investors face the risk of ex post regulatory changes to the amount and duration of support initially promised. The instability and unpredictability of the Government’s policy is illustrated by the 2013 plans to fundamentally amend

20

Introduction

the regulatory architecture governing the heating market—less than four years after the adoption of the 2010 Federal Heat Law. In the EU also, the effectiveness of decarbonization policies has been affected by regulatory changes to the “rules of the game” governing renewable-energy and heating support schemes. Chapters 10 and 11 analyze what legal protection is available for foreign (particularly EU) investors in Russia against the potential occurrence of the identified regulatory risks. Chapter 10 examines the stability and protection offered under Russian investment law. Chapter 11 looks at international investment law. Investment law provides minimum guarantees of protection to foreign investors against government interference with prices that prevent them from recovering their costs. However, the contribution that investment law can make in stabilizing the regulatory framework in the electricity sector is affected by the unpredictability of the investment arbitration process itself. More importantly, access to international arbitration by foreign investors in Russia is affected by narrow dispute resolution clauses in Russia’s Bilateral Investment Treaties. Finally, Chapter 12 considers the mechanism of regulatory convergence. Regulatory convergence has been advocated within the EU-Russian Energy Dialogue as a way to improve the investment climate for EU investors in Russia and for Russian investors in EU energy markets. On the basis of the comparative EU-Russia analysis in the book, this chapter argues that the common regulatory risks which characterize electricity investments in the EU and Russia provide an optimal starting point for developing new standards of protection for investors in both the EU and Russia. In conclusion, this book argues that Russian and EU electricity law share common conceptual premises that stem from the adoption of the liberalization “textbook” in both systems. At the same time, the implementation of electricity market reforms in Russia and the EU have exposed private investors to comparable regulatory risks, although these risks are more pronounced in Russia. Due to the higher political sensitivity of energy pricing, the ideological importance of electricity supply, a tradition of state interference with the market and the relative instability of the business climate—instability that is now exacerbated in the context of the Ukrainian crisis—Russian electricity law requires external stabilization tools to improve investment activity in the sector. Investment protection law can offer the stability needed to stimulate the transfer of private capital and technology to the modernization of Russian electricity supply, provided the interpretation of investment standards is clarified under international law. The EU—having a strategic interest in the modernization of the Russian energy sector—must actively engage in the process

Introduction

21

of determining common EU-Russian energy investment disciplines and market regulation concepts. Elaborating new standards of protection based on common investors’ concerns in Russia and the EU will contribute to boosting cross-border investment and improving mutual trust—a much-needed evolution in the current context of increasing political tensions between the two partners.

Chapter 1

The Modernization Challenge The forecasted investment requirements in the Russian electricity infrastructure are huge: the Russian Government estimated in 2009 that between 572 and 888 billion USD must be invested by 2030 in order to ensure the security and reliability of electricity supply.1 Russia has thus adopted an ambitious investment program for the development of its electricity sector. However, in continuation of the Soviet paradigm, the focus remains on the addition of capacity, rather than on the large-scale refurbishment of existing installations. This generates risks of overcapacity and inefficiency—increasing the cost of electricity supply for the end-consumers, and the possibility of ex post revisions of price commitments made by the state to attract private investment in the implementation of Russia’s overly optimistic electricity development program. From a climate change mitigation perspective, Russia’s 2020 objective to increase the share of coal, to free natural gas for export, highlights the threat that electricity policy choices represent for the environmental integrity of Russia’s energy strategy. The EU—as the main importer of Russian natural gas—has a moral responsibility to address this development by participating in improving Russia’s electricity efficiency. Deteriorating relations between the EU and Russia in the context of the 2014 Ukrainian crisis are having a negative impact on the climate for cooperation and partnerships in the energy sector. Nevertheless, the mutual benefits that energy-efficiency improvements in Russia represent for both partners, coupled with EU’s moral responsibility to reduce the carbon footprint of its external energy security, provide a strong basis to restore trust between the EU and Russia.

…

The aim of this chapter is to describe the major investments which are needed to improve energy efficiency in the Russian electricity sector and to meet future energy demand. The focus is on Russia’s priorities regarding the development of its electricity infrastructure, taking into account the impact of electricity 1  Value in 2007. Annex 4, Rasporiazhenie Pravitel’stva RF “Ob Energeticheskoi strategii Rossii na period do 2030 goda” with subsequent amendments (13 November 2009) No.1715-r, Sobranie Zakonodatel’stva Rossiiskoi Federatsii (SZRF) (2009) No.48 item 5836 (hereinafter the “2009 Russian Energy Strategy for the Period up to 2030”), 11. See, also, International Energy Agency (IEA), World Energy Outlook 2010 (IEA, Paris, 2010), 236. © koninklijke brill nv, leiden, ���5 | doi ��.��63/9789004203280_003

The Modernization Challenge

23

sector modernization on Russia’s contribution to international—in particular EU—energy security and climate change mitigation efforts. Russia is not the only country to face the challenge of attracting a substantial amount of capital into the modernization and development of its electricity infrastructure. In the EU, for instance, the EU Commission estimated in 2010 that, over the next ten years, investment of 1 trillion euros would be needed to replace obsolete equipment, develop network capacity and invest in alternative modes of energy production.2 However, the case of Russia is particularly relevant because of the considerable potential (“low-hanging fruit”) for energy savings and greenhouse gas emission reductions due to the obsolete state of the Russian electricity infrastructure.3 The Russian electricity sector is the main consumer of natural gas in Russia.4 By the same token, Russia’s heating sector consumes around one-third of Russia’s primary energy.5 Electricity and heat production and transportation are responsible for contributing significantly to energy wastage due to the use of outdated equipment.6 In accordance with the International Energy Agency, it is thus “a critical sector from an energy saving and environmental 2  Importantly, this covers both the electricity and natural-gas sectors in the EU’s 27 member states and includes a much more ambitious renewable-energy policy objective than Russia. EU Commission, Communication, “Energy 2020: A Strategy for Competitive, Sustainable and Secure Energy”, COM (2010), 639 final, 10. 3  See IEA, World Energy Outlook 2011 (IEA, Paris, 2011), 246, highlighting the contribution that energy-efficiency improvements in Russia—as a major energy producer and consumer, as well as a major greenhouse gas emitter—can make to address the global challenges of energy security and climate change. 4  According to Simon Pirani, “Sources of Demand in the Russian Domestic Gas Market”, in James Henderson and Simon Pirani (eds.), The Russian Gas Matrix: How Markets Are Driving Change (Oxford University Press, Oxford, 2014), 155–180, at 155, “more than half of the gas consumed in Russia (in 2011, 54 per cent, or 257 Bcm of 473 Bcm2) goes into the power and district heating sectors”. See, also, Boris Vainzikher (ed.), Elektroenergetika Rossii 2030: Tselevoe videnoe (Alpina Business Books, Moscow, 2008), 19; and Vladimir Chemodanov et al., “Perspektivy razvitiia Edinoi Energeticheskoi Sistemy Rossii: istoriia, sovremennoe polozhenie, perspektivy”, in Igor’ Iakimets (ed.), Energoset’proekt: 40 let ESP 1962–2002 (Energoatomizdat, Moscow, 2002), at 51. 5  IEA, op. cit. note 3, 274. 6   See Rasporiazhenie Pravitel’stva RF “Ob utverzhdenii gosudarstvennoi programmy ‘Energoeffektivnost’ i razvitie energetiki” with subsequent amendments (3 April 2013) No.512-r, SZRF (2013) No.14 item 1739 (hereinafter the “2013 Federal Energy Efficiency Strategy”), 58 and 78. See, also, Postanovlenie Pravitel’stva RF “Ob utverzhdenii gosudar­ stvennoi programmy ‘Energoeffektivnost’ i razvitie energetiki” with subsequent amendments (15 April 2014) No.321, SZRF (2014) No.18 item 2167 (hereinafter the “2014 Federal Energy Efficiency Strategy”).

24

Chapter 1

perspective”.7 Given the considerable amount of primary energy fuels used for electricity and heat supply in Russia, the modernization of this sector is essential for Russia’s economic development8 and for the accessibility of Russian gas in the EU. Electricity modernization is closely related to the transition of the Russian economy toward more sustainable and innovative patterns, and to Russia’s role as a reliable energy supplier in the future. To understand the investment challenges that the Russian electricity system faces today, it is necessary to examine the Russian Government’s vision for the future of this industry. Although the electricity market has gradually been liberalized and privatized since 2003, the Government continues to closely regulate investment activities in this sector, including investments in electricityproduction capacity.9 Public monitoring and control of electricity investments is not unique to Russia. However, the Russian electricity sector stands out due to the extent of the Government’s involvement in the planning and implementation of investments: Government forecasts and investment plans play a particularly important role in the functioning of the Russian electricity market, including the competitive segment of the market.10 In this context, it is crucial to understand how the Russian Government intends to guarantee the domestic security of electricity supply and how it envisages the role of the electricity sector in the social and economic development of the country and in the decarbonization of the economy. How much additional capacity should be built to meet long-term electricity demand? What amount of existing capacity should be modernized? What type of equipment should be used? In the long term, what should be the fuel mix of the Russian electricity sector? How should the specific characteristics of the regions of the Russian Federation be reflected in the development of the production capacity? To answer these questions and evaluate the amount and types of investments needed to modernize electricity supply in Russia, it is necessary to 7  IEA, op. cit. note 3, 274. On the importance of energy efficiency for Russia’s position in international energy markets, see, also, 2013 Federal Energy Efficiency Strategy, 20, where it is suggested that a more rational use of energy resources in Russia is necessary to maintain Russia’s position as an energy superpower. 8  See the 2013 Federal Energy Efficiency Strategy, 58–59; and Aleksander Novak, “Doklad o sostoianii i perspektivakh razvitiia elektroenergetiki v RF na Pravitel’stvennom chase s SF” (27 November 2013), available at . 9  Novak, ibid., 3. 10  See below, Chapter 5, Section 8.3, “The Regulated Market: Agreements for the Delivery of Capacity”.

The Modernization Challenge

25

understand Russia’s security of supply and climate change mitigation policy. Security of supply and climate change policies can be symbiotic.11 This is, in principle, the case with energy efficiency:12 energy savings reduce the need for additional production capacity and, at the same time, reduce the greenhouse gas emissions associated with energy use. However, security of supply and climate change policies could also conflict with each other. This is, for instance, the case with coal: the increased use of coal can have a positive effect on energy security because it diversifies the fuel mix away from natural gas, but coal—as one of the most carbon-intensive fuels—has an important climate change cost. Taking into account the delicate interaction between security of supply and climate change, this chapter describes the policy and vision of the Russian Government in relation to the future structure and state of the electricity sector in the XXI century. Based on an analysis of strategic policy and legal documents published since the adoption of the Federal Electricity Law in 2003, this chapter also identifies the fundamental principles and political priorities which underpin the long-term development of the Russian electricity sector. Before examining Russia’s modernization policy, the current state and physical structure of the electricity sector must be introduced. Indeed, investment requirements and potential energy savings can only be identified in relation to existing conditions. Moreover, a description of the physical structure of the electricity sector is important to understanding the regulation of this sector. Based on a historical approach, this chapter starts by describing the creation of the Russian electricity sector before presenting its current state. This approach enables us to understand the fundamental principles underlying the physical and technical development of electricity supply in Russia. Moreover, it allows us to gain an insight into the history of central planning, which should provide a better understanding of its use today.

11  William Blyth and Kirsty Hamilton, “Aligning Climate and Energy Policy: Creating Incentives to Invest in Low Carbon Technologies in the Context of Linked Markets for Fossil Fuel, Electricity and Carbon” (Chatham House, London, 2006); Dieter Helm, “Climate Change and Energy Policy”, in Dieter Helm (ed.), Climate Change Policy (Oxford University Press, Oxford, 2005), 323; and William Blyth and Nicolas Lefevre, “Energy Security and Climate Change Policy Interactions: An Assessment Framework” (IEA Information Paper, Paris, 2004). 12  See Inna Ignat’eva, “Budet li effektivnym zakonodatel’stvo ob energoeffektivnosti?”, Energetika i Pravo (2012) No.2, 15–22.

26 1

Chapter 1

Physical State and Structure of the Russian Electricity Sector

The electrification of Russia began in the mid-XIX century with the construction of telegraphic lines by the German company Siemens.13 These activities expanded into the construction of the first electricity generators and lines and were to an important extent financed and managed by foreign (e.g., German and Belgian) companies.14 Foreign capital and foreign technology were thus at the basis of the early development of the Russian electricity system and “modernization” of the tsarist economy.15 This historical note is interesting in the context of the 2003–2011 electricity reform: the initial objective of the reform was to modernize the electricity sector on the basis of private capital and energy-efficient technologies, including foreign capital and technology. As will be seen below,16 foreign (mainly EU) companies invested in the modernization of the Russian electricity sector in the context of the 2003–2011 reform process. However, on the basis of the current version of the Federal Electricity Law, the Government now is prioritizing the use of domestic equipment (illustrated, for instance, by the mandatory local-content requirements in the Russian renewable energy support scheme).17 When the October Revolution broke out in 1917, the Russian electricity sector was only at the very beginning of its development. Although installed electricity production capacity had grown rapidly from 1905, electricity supply in Russia before the revolution (16 kW per person) remained much less advanced than in Germany (320 kW) or in the United States (500 kW).18 Most of the country remained without electricity.19 The expansion of the Russian electricity system to become one of the largest in the world took place during the Soviet period. The choices made during Soviet era, therefore, determined the current structure of this sector. In the following section, I will start by presenting these choices before describing the impact of the collapse of the Soviet Union on the electricity sector and examining its current state. 13  Evgenii Kudriashov, Administrativno-Pravovoe Regulirovanie v Sfere Elektroenergetiki Rossiiskoi Federatsii (Dissertation Fund of the Russian State Library, Moscow, 2005), 14. 14  Nicolas Spulber, Russia’s Economic Transitions: From Late Tsarism to the New Millennium (Cambridge University Press, Cambridge, 2003), 120, 125 and 142. 15  Reliance on foreign capital and technology was a characteristic of the industrial development of tsarist Russia. See Spulber, ibid., 143. 16  See below, Chapter 2, Section 3.3, “The Corporate Restructuring (Privatization) of Electricity Production and Supply Assets”. 17  See below, Section 2.6 of this Chapter, “Development of the Domestic Manufacturing Industry”. 18  Spulber, op. cit. note 14, 143. 19  Ibid.

The Modernization Challenge

27

1.1 The Soviet Period The electrification of Russia20 was of fundamental importance for the creation of a communist society.21 Electrification—as part of the more general development of heavy industry22—was viewed as a key instrument in the expansion of the domestic economy and socialist reconstruction.23 In February 1920, Lenin decided to create an economic plan for Russia based on the development of its electricity system. The plan for the electrification of Russia was developed by the State Commission for the Electrification of Russia (GOELRO) and adopted during the VIII All-Russian Congress of Soviets of December 1920.24 The GOELRO planned the development of the electricity sector for the ensuing ten to fifteen years. The plan consisted of two main parts. The first was directed at the reconstruction of the electricity infrastructure destroyed during the First World War and the Civil War. The second outlined the construction of new production and network capacity. It aimed to quadruple the energy capacity of the country by the end of the targeted period. The 1920 GOELRO plan illustrated the importance of central planning of the electricity system—and more generally of the economy—during the Soviet era. Centrally taken decisions on the location, size and type of power plants and network infrastructure shaped the development of the Russian system, with very little flexibility allowed in the implementation of these central decisions. Given the rigidity of this system, deviations from the central plan were not tolerated, even in case of miscalculations, which inevitably led to inefficiencies in the functioning of the system.25 Importantly, the rigid central planning approach to the organization of the electricity system continues, to an important extent, to characterize the Russian electricity sector today, even after the implementation of the liberalization reform. In what appears to be a 20  See the legendary quote of Lenin: “Communism is equal to the Soviet power plus the electrification of the whole country”. Vladimir Lenin, “Doklad VIII S’ezda Sovetov Gosudarstvennoi Komissii po elektrifikatsii Rossii” (Moscow, 1920), quoted in Vladimir Bushuev (ed.), Energetika Rossii 1920–2020. Tom 1 Plan GOELRO (Energiia, Moscow, 2006), 5. 21  It should be noted that the central role of electrification within communist ideology had already been highlighted by Marx and Engels in their works. They argued that with largescale electrification, production forces would increase to such an extent that their control by the bourgeoisie would be more and more difficult. Karl Marks and Fridrikh Engel’s [Friedrich Engels], “Sochineniia, tom XXVII”, in Bushuev, ibid., 14. 22  Including iron and steel, machinery, chemicals and armaments, in addition to electricity. Spulber, op. cit. note 20, 210 and 225. 23  Bushuev, op. cit. note 20, 15. 24  Ibid., 20. 25  On the impact of miscalculations, see Spulber, op. cit. note 14, 187.

28

Chapter 1

legacy of the Soviet approach, errors in forecasts—in connection with the rigid implementation of investment programs—are still affecting the functioning of the system in the XXI century.26 One of the core ideas of the 1920 GOELRO plan was to create the Unified (Centralized) Electricity System. According to this concept, the main industrial regions were to be supplied with electricity produced in major power plants, built where the operating conditions (e.g., the availability of natural resources) were optimal. This electricity would then be transported through high-voltage transmission grids connected to the unified system. In line with the general benefits usually associated with the supply of electricity in integrated electricity networks, the underlying reasoning was that such a centralized system would guarantee a reliable and stable electricity supply to the regions.27 It would decrease the reserve capacity required and economize the consumption of primary energy fuels by optimizing the operation of power plants.28 Indeed, a centralized system for Russian territory would permit the combination of the maximum day and seasonal loads of regions located in different time zones29 and increase power plants’ yearly hours of utilization.30 As a result, however, certain regions, characterized by less optimal production conditions, were highly dependent on other regions to cover their deficit in production ­capacity.31 The connection between surplus and deficit regions was, thus, a fundamental characteristic of the Unified Energy System.32 The unified (centralization) approach to the organization of electricity supply still is central to the regulation of the electricity system in Russia. According to Articles 5 and 6 of the 2003 Federal Electricity Law, the unity of the e­ lectricity system and its centralized development on the basis of the Unified Energy System underlie the technical functioning of the Russian electricity sector.33 26   Institut Problem Estestvennykh Monopolii (IPEM), Analiticheskii doklad: “Analiz rezul’tatov reformy elektroenergetiki i predlozhenii po rostu ee effektivnosti” (IPEM, Moscow, 2013), 30–31, available at . 27  Bushuev, op. cit. note 20, 35. See, also, Anatolii Kuzovkin, Reformirovanie elektroenergetiki i energeticheskaia bezopasnost’ (Institut Mikroekonomiki, Moscow, 2006), 83 and 116. 28  Kuzovkin, ibid., 83. 29  Sergei Rokotian, “Osnovnye Problemy Sozdaniia Elektricheskikh Setei 500 kV V SSSR”, in Iakimtets, op. cit. note 4, 7. 30  Bushuev, op. cit. note 20, 35. 31  Kuzovkin, op. cit. note 27, 84. 32  See Svetlana Matiiashchuk, Osobennosti pravovogo regulirovaniia otnoshenii, sviazannykh s funktsionirovaniem optovogo rynka elektricheskoi energii (Moshchnosti) (Izdatel’stvo Irkutskogo gosudarstvennogo tekhnicheskogo universiteta, Irkutsk, 2005), 7–8. 33  See Section 2.5 of this Chapter, “The Network”.

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The 1920 GOELRO plan analyzed in detail the specific characteristics of each region34 and outlined the development of their electricity infrastructure on the basis of the optimal use of their natural resources.35 Hydropower production capacity was to be developed in the Ural and Eastern regions. Moreover, the plan promoted the use of low-quality types of primary energy fuels (such as peat, coal of the lowest quality and waste). Interestingly—particularly in the light of the current political sensitivity of renewable energy under the Putin administration36—Lenin even referred to the possible use of wind energy.37 The implementation of the 1920 GOELRO plan, considered as one of the first priorities of the Communist Party and the Soviet Government, was achieved after eleven years.38 Interestingly, foreign technologies continued to play a role in the development of the Soviet electricity system,39 following the involvement of foreign companies during the early electrification stages in tsarist Russia. Following the implementation of the GOELRO plan, the electricity sector was developed on the basis of the Five-Year Plans that governed the development of the Soviet economy in general.40 Just after the Second World War, the 1946–1950 Five-Year Plan was aimed at restoring the electricity system to pre-war levels. Between 1951 and 1975, the plans sought to intensify the electrification—and more generally the industrialization—process on the basis

34  The GOELRO plan identified eight economic regions: North, Central Industrial, South, before the Volga, Ural, Eastern Siberian, Caucasian and Turkestan. 35  Bushuev, op. cit. note 20, 26. 36  See Chapter 9, “Russian Renewable Energy Law”, which highlights the slow development of Russia’s renewable-energy policy and the resistance of the federal authorities to the implementation of a functioning support mechanism. 37  See Vladimir Lenin, Polnoe sobranie sochinenii, Tom 27, 288–289, quoted in Bushuev, op. cit. note 20, 16. On the use of renewable energy sources between 1920 and 1930 in Russia, see Gérard César et al., Russie: Puissance ou interdépendence énergétique? (Sénat Français, Paris, 2009). 38  The installed capacity at that time amounted to 2.6 GW. This exceeded the objectives of the plan by 46 percent. See Vainzikher, op. cit. note 4, 89. 39  See Antony Sutton, Western Technologies and Soviet Economic Development 1917–1930 (Hoover Institute Publications, Stanford, CA, 1968), 185–207, available at . 40  It is important to note that a large number of prison laborers were forced to participate in the development of the electricity system during Soviet times. See Anatolii Chubais (ed.), Zakliuchennye na stroikakh kommunizma: GULag i ob”ekty energetiki SSSR (Rossiiskaia Politicheskaia Entsiklopediia, Moscow, 2008). The author is grateful to Simon Pirani for drawing his attention to this publication.

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Map 1

Chapter 1

Electricity Systems within the Russian Federation Source: RAO UES Russia41

of ambitious power plant and network development projects.42 The development of the electricity sector during the Soviet period—and, to an important extent, even after the collapse of the Soviet Union—was largely based on the principles outlined in the 1920 GOELRO plan. First, local grids were further consolidated at the regional level into Unified (edinye) Electricity Systems. These systems were connected to each other to form the Unified Energy System of the Soviet Union (Edinaia Energeticheskaia Sistema). As illustrated by Map 1, at the end of the 1970s, six United Electricity Systems (Center, Ural, Volga, Northwest, South and Siberian) were interconnected through high- and ultra-high-voltage grids. These zonal systems functioned in parallel within the Unified Energy System.43 The seventh regional system (Far East) was and remains unconnected to the Unified Energy System.

41  “Restructuring of RAO ‘UES of Russia’ in 2007”, Information Bulletin (n.d.), available at . 42  See Spulber, op. cit. note 14, 199–200. 43  Chemodanov et al., op. cit. note 4, 39.

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Within this integrated system, local electricity supply and distribution were guaranteed by regional energy systems (the so-called Energos).44 Given the fact that the majority of these regional systems had a deficit of production capacity, important exchanges of electricity took place between the regions. A Unified (central) Dispatching Administration System managed these interregional electricity flows and ensured the parallel functioning of all United (zonal) Electricity Systems. This central dispatcher directed the functioning of power plants and, thus, played an important role in the guarantee of reliable electricity supply within the Unified Energy System.45 In addition, United (zonal) Dispatching Units operated in all the United (zonal) Electricity Systems, while Operating Dispatching Services operated at the local level to keep the networks in balance and monitor the quality of the electricity supplied. Second, in line with the ideas of the 1920 GOELRO plan, during the Soviet period the regional electricity systems were developed so as to guarantee the full exploitation of their respective potential and specific natural resources. Given Siberia’s huge coal and hydro resource base, the Siberian electricity system was developed on the basis of massive coal and hydropower plants.46 Hydropower was also developed in the Volga region. Gas power plants were

44  There are in total 74 Energos. Seven Energos operate outside of the Unified Energy System. 45  In an electricity system, the supply and consumption of electricity must be in balance at all times. This means that the amount of electricity (active power) injected into the network by production installations must continuously be equal to the amount of electricity consumed by the loads plus the losses of electricity during transport and distribution. It is still not possible, using existing technologies, to store electricity in large quantities. Therefore, to keep the system in balance, organizations must control the amount of electricity injected into the network and the amount of electricity consumed. These organizations are usually called Dispatching or System Operators. They dispatch the operation (generation pattern) of power plants (i.e., they issue instructions to the operators of production installations regarding the amount of electricity that these installations must inject into the network). Moreover, they issue instructions to major consumers that can control their electricity consumption (consumers with an interruptible load or “load controls”). The balance of electricity (active power) supply and demand is measured and expressed by the “frequency” of the electricity system. The function of maintaining the system in balance is called “frequency control”. See Hamilcar Knops, A Functional Legal Design for Reliable Electricity Supply: How Technology Affects Law (Intersentia, Oxford/ Antwerp, 2008), 213–218. 46  Eighty percent of Russia’s known coal reserves are located in Siberia. See IEA, Russian Electricity Reform: Emerging Challenges and Opportunities (IEA, Paris, 2005), 138.

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constructed in the Central energy system.47 Nuclear power was developed in the Central and Northwest energy systems. Third, combined heat and power generation (CHP) was extensively developed to ensure the centralized supply of heat and electricity to the major cities and industrial centers.48 District heating—i.e., centralized heat production and distribution through heat networks, in contrast to heating with decentralized (individual) boilers—was a unique characteristic of the Soviet organization of the economy. The heat network was designed to supply heat to residential, commercial and industrial consumers. The heat supplied to buildings was used for hot water and space heating. In addition, industry used steam for production purposes. Centralized heat supply in Russia consisted of CHP plants, thermal electricity production plants with heat as a byproduct49 and large boilers that supply heat to the local network (i.e., heat supply pipes).50 As a legacy of the Soviet system, the major share of CHP and district heating in Russia remains specific to the Russian energy system of the XXI century. Given the close link between heat and electricity production, the importance of CHP in the Russian electricity sector continues, as will be seen below,51 to strongly influence the functioning of the electricity market. Fourth, during the Soviet era, the development of the electricity system—and of the economy in general—was primarily based on the concentration of investments in construction and, in particular, the expansion of production and network capacity. Few resources were dedicated to the refurbishment of existing installations, leading to the prolonged lifetime of obsolete ­infrastructure. This investment policy can be seen as the root to the e­ xisting energy inefficiency that affects the Russian electricity sector. According to Spulber: 47  According to Pirani, op. cit. note 4, 158, “historically, gas was much cheaper than coal in European Russia and the Urals [. . .] and dominates thermal generation there”. 48  Combined heat and power occupied a leading place in the domestic economic structure of the Soviet Union. See Iurii Zeigarnik, “Some Problems with the Development of Combined Generation of Electricity and Heat in Russia”, 31(13) Energy (2006), 2387–2394. See, also, Svetlana Matiiashchuk, Rynok teplovoi energii: voprosy teorii i praktiki (INFRA-M, Moscow, 2009), 5–15. 49  On the difficulty of delimiting the notions of thermal power plants and CHP installations and the confusion created by different approaches in official statistics, see Simon Pirani, Elusive Potential: Natural Gas Consumption in the CIS and the Quest for Efficiency (Oxford Institute for Energy Studies, Oxford, 2011), 33 and 42, available at . 50  Energy Committee of the State Duma, Explanatory Note to the Draft Federal Law on Heat Supply, No.177427–5 (23 March 2009). 51  See below, Chapter 8, Section 2, “Regulating Combined Heat and Power: The Challenge of Cost Allocation”.

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From the beginning of the central planning era, the Soviet system aimed first to allocate the largest share of investments to new construction projects while relying in the already available industries on keeping their increasing obsolete equipment in production. [. . .] The reliance on obsolete equipment in many industries along with the continuous emphasis on new construction was a characteristic of Soviet development until the 1980s.52 With the 1976–1980 and the 1980–1985 Five-Year Plans, the focus started, at least in theory, to shift toward the modernization and re-equipment of the existing installations,53 but with limited practical impact on the improved energy efficiency of the electricity sector. During that period, investment in the Russian electricity sector decreased substantially. The commissioning of new capacity slowed considerably.54 At the same time, investments in the modernization of existing capacity remained limited. This started the ageing process and increased energy inefficiency in the Russian electricity production and transmission sector. In 1983, the Communist Party adopted a program designed to develop the electricity sector until the year 2000, called the “GOELRO of Our Times”. This electricity strategy aimed to improve the energy efficiency of the electricity sector and to change the structure of the fuel mix by increasing the share of nuclear energy and replacing coal with natural gas.55 This modernization approach was in line with the criticism expressed in 1985 by Gorbachev—then General Secretary of the Communist Party—on “the policy of i­ncessantly emphasizing the building of new productive assets”.56 Gorbachev instead advocated the importance of renovating existing facilities and highlighted

52  Spulber, op. cit. note 14, 200. 53  Ibid., 200. 54  Elena Telegina, Bezopasnost’ Rossii: pravovye, sotsial’no, ekonomicheskie i nauchno tekhnicheskie aspekty. Energeticheskaia bezopasnost’. Problemy funktsionirovaniia i razvitiia elektroenergetiki (MGF Znanie, Moscow, 2001), 76. See, also, Irina Mozhina and Nikolai Kozhemiako, Formirovanie strategii energosberezheniia na predpriiatiiakh elektroenergeti­ cheskoi otrasli promyshlennosti (Srednerusskii universitet, Moscow, 2005), 5; and Kevin McCann, “Soviet Energy: Crisis or Collapse?”, 19(4) Energy Policy (1991), 364–373, at 365. 55  Kudriashov, op. cit. note 13, 24; and Viacheslav Kulagin, “Energy Efficiency and Development of Renewables: Russia’s Approach”, Russian Analytical Digest (2008) No.46, 2–9, at 5. See, also, Vainzikher, op. cit. note 4, 210–23. On the notion of “gas pause”, see Andrei Konoplyanik, “Russia–EU Summit: WTO, the Energy Charter Treaty and the Issue of Energy Transit”, International Energy Law and Taxation Review (2005) No.2, 30–35, at 31. 56  Spulber, op. cit. note 14, 201.

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the need for conservation.57 However, in contrast to the 1920 GOELRO plan, the implementation of the “GOELRO of Our Times” was not successful due to e­ conomic and financial pressure toward the end of the Soviet regime. The impact of this initiative on the modernization of the electricity sector thus remained limited. Although the modernization objectives set in the 1983 “GOELRO of Our Times” were not successfully achieved, important developments for the fuel mix of the Russian electricity sector took place during the 1980s. In particular, the share of gas increased considerably (from 23.6 percent to 54.2 percent), and the share of coal decreased with the use of gas-fired power plants.58 The combustion of gas instead of coal has positive environmental consequences given the lower carbon intensity of gas in comparison to coal. However, the larger share of gas represents a challenge from an external and internal energy security point of view. As will be seen below, the objective of Russia’s 2020 Energy Strategy is to reverse this trend in order to free gas for export. 1.2 The Post-Soviet Period In 1990, the total installed generation capacity of the Russian electricity sector equaled 213.3 GW, including 43.4 GW of hydropower, 20.2 GW of nuclear and 149.7 GW of thermal (gas and coal) capacity.59 According to statistics of The World Bank, electricity consumption amounted to 989.5 TW hours.60 This ranked the Russian electricity system as the second largest in the world ­following the US.61 The fact that Russia’s electricity system was in second place 57  Ibid. 58  Alexander Vasin, “The Russian Electricity Market: Variants of Development”, in Michael Alexeev and Shlomo Weber (eds.), The Oxford Handbook of the Russian Economy (Oxford University Press, Oxford, 2013), 383–403, at 385; and Kulagin, op. cit. note 55, 5. See, also, Konoplyanik, op. cit. note 55, 31. 59  Chemodanov et al., op. cit. note 4, 43. 60  See The World Bank, “1990 Data on Electric Power Consumption” (2013), available at . It should be noted that consumption by the industry amounted to 500 TW hours. The major share of large highvoltage industrial consumers is a characteristic of the Russian electricity sector. On the “industrial nature” of electricity consumption in Russia, see the 2013 Federal Energy Efficiency Strategy, 9. See, also, Franz Hubert, “Reform of Russian Power Industry: Which Lessons from Abroad?”, Humboldt University Berlin Discussion Paper (2002) No.3, available at . 61  Electricity consumption in the US amounted to 2,923.9 TW hours in 1990. Electricity consumed in China and Japan amounted to 579.7 TW hours and 801.2 TW hours, respectively. The World Bank, ibid.

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in terms of world electricity consumption in 1990 illustrates the massive investments in production capacity made during the Soviet era. It also highlights the high electricity intensity of the Soviet economy. Following the collapse of the Soviet Union, Russia’s Gross Domestic Product dropped by approximately 40 percent between 1991 and 1998.62 The fall in industrial output generated a decrease in electricity consumption of about 25 percent to 715.9 TW hours in 1998.63 Russia’s position in terms of world electricity consumption dropped to the fourth place, after the US, China and Japan. As a consequence of this dramatic reduction in electricity demand, a considerable margin of reserve capacity (i.e., unused capacity) appeared in the Unified Energy System of Russia.64 Thanks to this reserve capacity margin, the system was able to operate under relatively safe conditions, even in the absence of investments in the modernization and development of infrastructure. The significant economic decline between 1990 and 1998 had an impact on the total emissions of greenhouse gases within the Russian electricity sector: greenhouse gas emissions decreased almost in parallel with the reduction of electricity consumption and production.65 However, the period following the collapse of the Soviet Union was also characterized by a drastically lower pace in the dismantling of obsolete equipment. The commissioning of

62  For a critical analysis suggesting that Russia’s economic performance between 1991 and 1998 was actually far better than indicated by official (Goskomstat) statistics, see Andrei Shleifer and Daniel Treisman, “A Normal Country: Russia After Communism”, 19(1) Journal of Economic Perspectives (2005), 151–174, at 154–155. 63  See Rasporiazhenie Pravitel’stva RF “General’naia skhema razmeshcheniia ob”ektov elek­ troenergetiki do 2020 goda”, with subsequent amendment (22 February 2008,) No.215-r, SZRF (2008) No.11 item 1038 (hereinafter the “2008 General Scheme for the Location of Electricity Installations”). Interestingly, Shleifer and Treisman, ibid., 155, partly support their conclusion that the 1991–1998 economic decline was less severe than the statistics indicated by referring to the fact that “since under market conditions firms are likely to use electricity more rationally, even the observed decline in electricity consumption may overstate the output drop”. 64  Telegina, op. cit. note 54, 78. After the collapse of the Soviet regime, some regions of the Russian Federation were connected to the Unified Energy System through the electricity systems of other independent countries. The North Caucasian electricity system, for instance, was connected to the Center through Ukraine. Moreover, the Kaliningrad and Pskov regions were connected to the Northwest system through the Baltic states. See Kuzovkin, op. cit. note 27, 82. 65  UNFCCC, “Report of the Individual Review of the Annual Submission of the Russian Federation Submitted in 2009” (FCCC/ARR/2009/RUS), 28 January 2010, 13; and id., “Report of the Centralized In-Depth Review of the Fourth National Communication of the Russian Federation” (FCCC/IDR.4/RUS), 31 August 2009, 4.

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new plants and the replacement of capacity66 was lower than the increase in ­depreciation of existing equipment. Due to the prolonged lifetime of existing obsolete equipment, the energy inefficiency of the sector increased, generating a relative growth in greenhouse gas emissions per MWh of electricity produced (in contrast to the reduction of the absolute levels of greenhouse gas emissions in the electricity sector due to lower consumption and production levels). The energy intensity per unit of production (i.e., the amount of fuel needed to produce 1 MWh of electricity) increased by 20.7 percent between 1991 and 1998.67 1.3 The Current State In 1998, the decreasing trend in electricity consumption was reversed, as illustrated hereunder in Figure 1. The Russian economy grew at 7 percent a year during the period between 1999 and 2007.68 Accordingly, in 2008, total domestic electricity consumption had increased to 913.5 TW hours, or less than 10 percent lower than the maximum attained in the year 1990.69 Given structural changes in Russia’s economy,70 the growth in electricity consumption did not take place uniformly in all sectors of the Russian e­ conomy.71 Moreover, following the diverging economic development of Russia’s regions, 66  In this period of economic downturn, the yearly commissioning of new capacity amounted to 1.5 GW as compared to 6.4 GW between 1981 and 1985, and 4.5 GW between 1986 and 1990. Between 1986 and 1990, an amount of 22.7 GW of new capacity was commissioned. Between 1991 and 1995, only 9 GW of capacity was commissioned. Institut energetiche­ skoi strategii, Toplivno-energeticheskii kompleks Rossii 2000–2006 gg. (Energiia, Moscow, 2007), 348–349. See, also, Telegina, op. cit., note 54, 78. 67  Energy Charter Protocol on Energy Efficiency and Related Environmental Aspects, “Russian Federation: Regular Review of Energy Efficiency Policies” (The Energy Charter, Brussels, 2007), 5. 68  World Bank Country Office, Economic Management and Policy Unit, “Russian Economic Report No.17” (The World Bank Group, Washington, DC, 2008), 1. In 2007, Russia’s GDP equaled 110 percent of the 1991 level. 69  OAO RAO “EES Rossii”, “Osnovnye polozheniia (Kontseptsiia) tekhnicheskoi politiki v elektroenergetike Rossii na period do 2030 g.” (2008), 8, available at . See, also, 2008 General Scheme for the Location of Electricity Installations, 4. In comparison, electricity consumption in the US—still the largest electricity-consuming nation in 2008—amounted to 4,154.9 TW hours in relation to 2,923.9 TW hours in 1990. Electricity consumption in China grew from 579.5 TW hours in 1990 to 3,255.4 TW hours in 2008, thereby positioning China as second-largest ­electricity-consuming nation. Japan—in third place—grew from 801.2 TW hours in 1990 to 1,031.2 TW hours in 2008. 70  Spulber, op. cit. note 14, 349. 71  See 2008 General Scheme for the Location of Electricity Installations, 5.

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electricity consumption did not increase in the same way all over Russia. Consequently, the central (and particularly the Moscow region), southern and eastern energy systems faced—and continue to face—­difficulties in maintaining a secure and reliable electricity supply, thereby negatively influencing the further economic growth of these regions. The financial and economic crisis of 2008 and 2009 had a severe impact on the Russian economy, with consequences for electricity supply.72 As illustrated in Figure 1, following the decrease in industrial output,73 electricity consumption dropped significantly.74 In 2009, electricity consumption in Russia fell to 870.3 TW hours from 913.5 TW hours (2008).75 With the return of economic growth in 2010–2011, electricity consumption in Russia returned to pre-crisis levels. In 2011 (the last year for which World Bank statistics were available at the moment of writing), electricity consumption in Russia slightly exceeded pre-economic crisis (2008–2009) levels by reaching 913.5 TW hours.76 The present analysis primarily focuses on the period up to the end of 2011, taking into account the absence of (reliable) post-2011 World Bank data at the moment of writing. 72  The World Bank, for instance, halved its forecast for Russian economic growth in 2009 as the global financial crisis pushed down the price of hydrocarbons and companies cut investments. See “World Bank Cuts Russia Growth Forecast in Halve”, The International Herald Tribune (19 November 2008), 14. See, also, “Government Revises ’09 Growth Figures”, The Moscow Times (23 January 2009), available at . 73   Catherine Belton, “Russian Industrial Output Plunges 20%”, The Financial Times (17 February 2009), 4. 74  Sistemnyi operator Edinoi energeticheskoi sistemy, “Potreblenie elektroenergii v Rossii v dekabre 2009 goda na 4,6% prevysilo uroven’ 2008 goda, a v tselom za 2009 god snizilos’ na 4,6%” (12 January 2010), available at . See, also, “Power Consumption Down 9.7%”, The Moscow Times (13 January 2009), available at . 75  This downward consumption trend is not unique to Russia. Throughout the same period (2008–2009), consumption fell from 4,154 TW hours to 3,961.5 TW hours in the United States, from 1,031.2 to 999.8 TW hours in Japan, from 587 to 553 TW hours in Germany, from 492.4 to 474.9 TW hours in France and from 371.8 to 351.4 TW hours in the UK. In contrast, electricity consumption in China continued to grow—from 3,255.4 TW hours in 2008 to 3,504.8 TW hours in 2009. 76  The US (4,127.3 TW hours), Japan (1,003 TW hours), Germany (579.2 TW hours), France (479 TW hours) and the UK (346 TW hours) were also close to reaching pre-crisis levels in 2011. In China—now the largest electricity-consuming nation—4,432 TW hours of electricity was consumed in 2011.

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Figure 1

Chapter 1

Electricity consumption in Russia for the period 1990–2011 (in GWh/Year) Source: The World Bank77

Following the sharp decrease in consumption between 1991 and 1998 and between 2008 and 2010, the Russian electricity system must supply a level of consumption that is close to the high level demanded immediately before the collapse of the Soviet Union. During the periods of economic decline and decrease in electricity demand, the Unified Energy System of Russia functioned with an adequate reserve margin. With the return to pre-crisis consumption levels in 2011, this reserve margin decreased and, accordingly, there was increasing pressure on the supply-demand adequacy of the electricity ­system.78 In some regions, this pressure increased the risks of supply interruptions.79

77  The World Bank, 1990 Data on Electric Power Consumption, available at . Data from the Ministry of Energy differs from The World Bank data. According to the Ministry of Energy (2012), electricity consumption in 2010 and 2011 amounted to 988.96 TWh and 1,000.07 TWh respectively. On statistical difficulties for energy research in Russia and the former Soviet Union, see Pirani, op. cit. note 49, 3. 78   “Predsedatel’ Pravitel’stva Rossiiskoi Federatsii Vladimir V. Putin provel zasedanie Pravitel’stva Rossiiskoi Federatsii” (9 April 2009), available at . 79  2009 Russian Energy Strategy for the Period up to 2030, 59. See, also, McKinsey Global Institute, “Lean Russia: The Productivity of the Electric Power Sector. Sustaining Economic Growth through Improved Productivity”, McKinsey & Company (2009), 11, available at