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Problems of international legal regulation in the energy sector (using a hydrocarbon complex as an example)

Lisitsyn-Svetlanov Andrey Gennadyevich, Director of Federal State Budgetary Institution of Science ‘The Institute of State and Law of the Russian Academy of Sciences’, Academician of the Russian Academy of Sciences, Doctor of Legal Sciences, Professor

In this article the author considers issues of energy legislation development using a hydrocarbon complex as an example, studies problems of international legal regulation in the energy sector, draws conclusions on further improvement of national legislation, on development of legal regulation in the energy sector at the international level.

The legal regulation in the energy sector, which formation started in the early 1990s, does not substantially meet today’s challenges and requires fundamental changes in approaches to its further development. One major inconsistency is the lack of proper interaction between national and international legal regulation.

The first steps associated with establishment of this branch of regulation were fairly understandable, because the energy resource is Russia’s objective wealth, which remains in demand both in Russia and abroad regardless of ages, social or scientific and technical revolutions.

The proper regulation started with adoption of the subsoil law in 1992. The most consistent legislative development was made in the gas industry. Regulation in gas export is extremely conspicuous. Since 1994 Russia saw the operation of a number of presidential decrees and federal laws on regulation of export, and since July 18, 2006 — special Federal Law No. 117-ФЗ “On Gas Export”[1]. Such approach completely lies within the logic of regulation of complex relations that are developing in the energy sector.

Objectively speaking, the world consists of countries that produce energy resources, their consumers, and a special category — major energy producers and consumers. The latter category is not only special as such, but highly differentiated within itself. Russia’s specific features are extremely evident in hydrocarbon energy.

Today hydrocarbons form the energy basis of the leading economies. Alternative spheres (for example, nuclear power) can exist and develop only in hi-tech states (with Russia being the founder of their club). However, for a number of modern drivers of the world’s economy this sphere is ‘a risk zone’, and development of ‘green technologies’ is money- and time-consuming in terms of development, introduction and overcoming of competition with producers and consumers of conventional energy resources.

The legal regulation system in the energy sector is built not only on the basis of the given classification of energy consumers / producers. As a regulator of basic relations it inevitably carries higher political and legal loads. Therefore any thoughts of purely commercial approaches or measures taken by governments both in the sphere of law-making proposals and law enforcement are rather political plays than an objective desire to imagine the energy sector as ‘a dove of peace sitting only on the private law branch’.

Energy sufficiency and energy security are the pillars of any state’s national security. And the greater role the state plays in international relations, the more prominent this role is. Thus, the law-based policy energy is of key importance for Russia.

Implementation of law-based policies in the rules of law presupposes proper regulation at both national and international levels. The scope of regulation covers private-law and public-law relations both arising in Russia and having transboundary nature.

As may be seen from the analysis of this regulation complex, there are considerable gaps and inconsistency in interaction of international legal and national regulation, and disregard of the world’s market structure developed over the past two decades.

As for domestic legislation, it is fragmented and has no proper base law. However, taking into account geographical, resource, political and historical factors the value of energy legislation for Russia can be compared to the Basic Law, similarly to the Civil Code, which was described this way in the 1990s.

Energy legislation is a complicated legal complex covering relations in exploration and extraction of energy resources, production, processing, supply, storage and transportation of various energies, designing and construction of energy facilities, export and import of energy resources and ensuring energy security[2]. Thus, taking into account the entire range of relations that require coordinated regulation, the need for adoption of the base law that could be a good starting point for development and codification of the energy law becomes clear. In view of the role of natural resources in livelihood of Russia as a state, the current subsoil law does not play this role despite all attempts to modify it within twenty years. Historically, in pre-revolutionary Russia this role belonged to the Russian Empire’s Mountain Charter, which contained about 1,500 paragraphs. Over the past hundred years neither Russia nor foreign countries could produce anything better[3]. To ensure successful development of domestic legislation, it is necessary to meet a paramount challenge being as follows.

Russia is fairly the only country with the widest range of natural resources in the amounts that can meet not only national needs, but also a significant portion of the world’s needs, including the need for energy resources. This factor fairly limits the possibilities of developing Russian energy legislation in the context of general development trends of other countries’ national legislation. However, this factor of legislation development should be combined with the fact that Russian energy system’s inherent feature is its focus on export that generates problems of international transportation of energy carriers by pipeline transport and energy security of both foreign states and Russia. Moreover, today’s development of the Arctic Region depends on the linkage of approved programs with the Arctic’s international legal regime, which was being formed over long decades.

It is important to note that the focus on export of Russia’s oil and gas complex will continue in the future. The solution for contradictions between national and international problems can be found in international legal regulation. Hence, in today’s world Russian national energy legislation with all its fairly unique features is unable to develop out of the international legal context.

The history of international energy conflicts has a vivid example of their legal solution — establishment of the Organization of Petroleum Exporting Countries (OPEC) in 1960[4]. For the past fifty years or more this organization made a long way of development and solution of various tasks. However, in view of certain fragmentation in matters within its competence and taking into account specific features of formation of its member-states, OPEC cannot serve as a basis for universal regulation in the energy sector.

How does Russia nowadays fit in solving problems of international legal energy regulation? At present, international legal regulation translates for Russia into operation of a number of bilateral treaties on protection and promotion of investments, bilateral double tax treaties and some special treaties. However, in practice there is an objective need to have an international legal document that ensures a universal balance of interests. The current Energy Charter was developed by the consuming states and in consumers’ interests. This circumstance explains the fact that the countries currently representing major energy markets as both energy producers and consumers did not become a party to it.

Russia was indeed right to refuse to ratify the Charter, which it carelessly signed in the 1990s. Later Russia made a number of statements expressing its unwillingness to ratify the Charter. But this position was not duly heard outside the country.

To confirm the validity of the political step taken by Russia, it should be noted that its legal support lacked efficiency, which is proven by the Yukos case result in the Hague Arbitration Court in terms of the court’s recognition of its competence in the brought action. However, refusal to ratify the document that is valid for the states, which are not leaders in the energy market as both producers and consumers, shall not deny Russia the chance to initiate development of a universal international legal document, to which other key states that did not sign the current Charter can become a party. These are the USA, China, India, and in Europe — Norway.

It should be noted that such initiative aimed at the states that did not sing the current Charter as well as at the European Union and OPEC countries would not only be an important step in forming proper legal framework for Russia, but also a demonstration of its political weight on the world stage.



[1] For more details, see: Schwarzkopf, E. Legal Aspects of Russian Gas Export. Moscow, 2013. The Institute of State and Law of the Russian Academy of Sciences. pp. 84-91 (in Russian).

[2] For more details, see: Romanova V. V. Energy Law. General Principles. Textbook. Moscow, Yurist, 2013, pp. 8-15 (in Russian); Romanova V. V. Energy Legislation: Specific Features and Development Trends // Yuridichesky Mir, 2013, No. 3, pp. 44-46 (in Russian).

[3] For more details, see: Lisitsyn-Svetlanov A.G. Energy Law: Tasks of Further Development of the Industry // Proc. Int. Conf. “Legal Regulation in Power Industry and Heat Supply”. Moscow, Yurist, 2013, pp. 10-15 (in Russian).

[4] In 1960 the USSR did not participate in OPEC for political and economic reasons. But within the new context it became an OPEC observer in 1998.

Bibliography:

  1. Lisitsyn-Svetlanov A.G. Energy Law: Tasks of Further Development of the Industry / A.G. Lisitsyn-Svetlanov // Proc. Int. Conf. “Legal Regulation in Power Industry and Heat Supply”. Мoscow, 2013. Yurist. pp. 10-15 (in Russian).
  2. Romanova V.V. Energy Law. General Part. Textbook / V.V. Romanova. Moscow, Yurist, 2013, pp. 8-15 (in Russian).
  3. Romanova V.V. Energy Legislation: Specific Features and Development Trends / V.V. Romanova // Yuridichesky Mir. 2013. № 3. pp. 44-46.
  4. Schwarzkopf E. Legal Aspects of Russian Gas Export / E. Schwarzkopf. Moscow, 2013. The Institute of State and Law of the Russian Academy of Sciences, pp. 84-91 (in Russian).